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Russia: Gas Exports Likely To Surpass Other Suppliers

Plans to double Russian gas exports to the European Union could produce one of the biggest energy deals of the decade. But the huge increase is also likely to alter the market for Russia's competitors and force change in the countries that provide transit routes.

Boston, 3 October 2000 (RFE/RL) -- A European plan to double gas imports from Russia could affect strategic and economic relations across a wide arc of countries from Asia to Europe to the Middle East.

On Saturday, the Financial Times reported that European Union officials have proposed the huge increase in gas supplies from Russia following talks between President Vladimir Putin and Romano Prodi, the president of the European Commission.

Russia is already a major source of energy for European countries, including Germany, Italy, and France. Russia's Gazprom delivered 125 billion cubic meters of gas to Europe last year. The new plan calls for doubling the volume under a deal that could cover the next 20 years. The agreement would include an exchange of European technology to raise Russia's output of oil and gas, creating a strategic partnership in perhaps one of the biggest trade deals of the past decade.

The economic implications for Russia could be enormous. Gazprom accounted for one-fourth of the world's gas production and 8 percent of Russia's gross national product in 1998, according to the company. The country's monopoly supplier earned an operating profit of $860 million last year. That amount could soar due to higher energy prices and the proposed EU deal. Russia's independent oil companies such as Lukoil are also seeking export opportunities for the gas they produce.

But beyond the economic gains, it is hard not to see connections to two recent political events in the EU gas plan. The first is the weakening of a resolution on Chechnya passed by the Parliamentary Assembly of the Council of Europe last week. While European delegates continued to criticize Moscow's rights violations in Chechnya, they voted to drop recommendations that Russia be expelled from the council. Dmitri Rogozin, head of the Russian delegation, pointed to the prospect that Russia's voting rights in the body, which were suspended in April, will be restored three months from now.

While it seems unlikely that economics played a direct role in the resolution, both the vote and the gas plan have become possible because public outrage over Chechnya has waned. It is hard to imagine that an announcement on doubling business with Russia would have been politically acceptable six months ago, when Moscow's voting rights were revoked.

But there is an even stronger link between the gas deal and Russia's strategies to settle its problems with Ukraine. Moscow has been working from several angles to end its long-standing dependence on Ukrainian pipelines for its gas sales to Western Europe. While it has pressured Kyiv for payment of at least $1.4 billion in debt, Russia has also sought control of Ukraine's transit pipelines to bring an end to gas thefts.

At the same time, Russia has pushed for a new pipeline through Poland to bypass Ukraine. While Poland has resisted in order to protect its Ukrainian neighbors, Russia has raised the prospect of a direct gas link to Germany across the Baltic Sea. Gazprom has also recently held meetings with its biggest energy partners in Germany, France and Italy to discuss the pipeline plans, raising fears in Ukraine that its days of subsidized gas will soon come to an end.

The EU plan to double its Russian imports seems to be a direct result of the Gazprom talks. The discussions between Putin and Prodi are a sign that the issue has advanced to the political and strategic stage. Europe's interest is bound to be felt in Poland, a prospective member of the EU. The effects may include an easing of Poland's resistance to the Russian pipeline plan and profound economic changes for Ukraine, unless it can reduce its reliance on Russian gas.

The EU deal could also prove decisive for the countries of the Caspian region and Central Asia, which hope to reach European gas customers with connections either through Russia or Turkey.

The question is whether Russia will turn to countries like Turkmenistan for gas supplies to help meet the new European demand, or whether it will try to shut Central Asia out of the market entirely. If Moscow monopolizes the gas trade with Europe, Caspian countries like Azerbaijan could be forced to limit their ambitions and export gas only as far as Turkey, while Central Asian nations like Turkmenistan could be driven to export to the east.

If the 20-year deal with the EU does materialize, Gazprom could also find new reasons to help Iran with its project to pipe gas eastward from the Persian Gulf to Pakistan and India, rather than risk eventual competition from Iranian gas in Europe. Iran is expected to begin pumping gas westward into Turkey by next July.

But the far larger plan for Russian gas sales seems likely to surpass those of all other countries that hope to be European suppliers, perhaps making it harder for them to forge new economic ties with the West.