Russia, USA-EU and

Geopolitics of Energy


Francesco Legname
September 2014
1 RUSSIA, USA-EU AND GEOPOLITICS OF ENERGY
Russia, USA-EU & Geopolitics
of Energy

Russias dominant position in the European energy market solidies Moscow as an
integral part of the Wests future, forcing Washington and its allies to engage with
their eastern rival. Moreover, it is this precisely this necessary engagement that
grows Russias inuence both in Europe and around the world inuence which
necessitates the continued Russophobic propaganda in Western media and popular
culture.

Russia holds the worlds largest gas reserves and, even though it is currently the
worlds second gas producer after the United States (which recently outstripped
Russia because of the shale revolution), it still preserves its status as the largest gas
exporter in the world, leaving Qatar and Norway far behind (see Figure 1). This
position will most likely be kept in the future, since Russia produces 10% and

Figure 1. Russian Gas Exports
2 RUSSIA, USA-EU AND GEOPOLITICS OF ENERGY
The Geopolitics of Russian Natural Gas
6
Introduction

Russia is one of the worlds leading producers of primary energy resources,

and is especially
well known for its strong position in the global gas markets. It holds the worlds largest gas
reserves and is currently the worlds second gas producer after the United States, which recently
outstripped Russia because of the shale revolution.

Nevertheless, Russia still preserves its status as the largest gas exporter in the world, leaving
Qatar and Norway far behind (see Figure 1), and most likely will keep this position in the future
(although Australia and the US are expected to become top exporters by the end of this decade).

Figure 1. Main Net Exporters of Gas (Pipeline and LNG) in 2012

Source: BP Statistical Review of World Energy 2013

Russia has a unique transcontinental infrastructure in the heart of Eurasia (150,000 km of trunk
pipelines), which also makes it a backbone of the evolving, huge Eurasian gas market (which
could include Europe, North Africa, the Commonwealth of Independent States (CIS), Caspian

consumes 5% of the planets energy resources, with an output of about 1300
thousand tons of oil equivalent (mtoe) (42% of which is provided by gas), allowing
the country to export 600 mtoe12% of the worlds energy trade (see Figures 2
and 3).

Figure 2. Russian Primary Energy Production

Figure 3. Russian Primary Energy Consumption


3 RUSSIA, USA-EU AND GEOPOLITICS OF ENERGY
The Geopolitics of Russian Natural Gas
8
Russian Energy Policy Background

Russian Primary Energy Balance
Russia is the worlds third-largest producer and consumer of energy after China and the US. It
produces 10% and consumes 5% of the planets energy resources. Russias energy sector, with
its output of about 1300 thousand tons of oil equivalent (mtoe) (42% of which is provided by
gas), allows the country to export 600 mtoe12% of the worlds energy trade. This makes
Russia a global leader in energy exports and, at the same time, one of the largest energy
consumers in the world with a huge domestic market (see Figures 2 and 3, and Table 1).

Figure 2. Russian Primary Energy Production, 20002011

Source: IEA statistics, September 2013

Figure 3. Russian Primary Energy Consumption, 20002011

Source: IEA statistics, September 2013
The Geopolitics of Russian Natural Gas
8
Russian Energy Policy Background

Russian Primary Energy Balance
Russia is the worlds third-largest producer and consumer of energy after China and the US. It
produces 10% and consumes 5% of the planets energy resources. Russias energy sector, with
its output of about 1300 thousand tons of oil equivalent (mtoe) (42% of which is provided by
gas), allows the country to export 600 mtoe12% of the worlds energy trade. This makes
Russia a global leader in energy exports and, at the same time, one of the largest energy
consumers in the world with a huge domestic market (see Figures 2 and 3, and Table 1).

Figure 2. Russian Primary Energy Production, 20002011

Source: IEA statistics, September 2013

Figure 3. Russian Primary Energy Consumption, 20002011

Source: IEA statistics, September 2013
Moreover, with roughly one third of European oil and gas imports, Russia has
secured its current position as the single most signicant provider of oil and gas to
Europe, growing steadily its energy exports since the early years of post-Soviet
period. This has been leading to a mutual dependency between the two countries
since Europe is heavily dependent on Russia to fuel its manufacturing and
consumer base, while Russia relies on oil and gas revenue from Europe to nance
its continued economic development and diversication.

This relationship has ourished over the last decade, despite political resistance
from the United States and many in Europe. The Nord Stream project ts neatly
within Russias strategy to consolidate its position in the EU. In 2005, Gazprom
signed an in-principle agreement to develop the Nord Stream pipeline. The other
signatories were the two German companies Wintershall and EON Ruhrgas, later
joined by the Dutch gas company Gasunie. The development of Russias Nord
Stream pipeline, ofcially inaugurated in 2011, further established Russia as a
principal energy supplier to Northern Europe, particularly the industrial power of
Germany. A twin pipeline, the Nord Stream carries roughly 55 billion cubic meters
of gas per year under the Baltic Sea and into Germany and the rest of Europe (see
Figure 4).

Figure 4. Nord Stream Pipeline
4 RUSSIA, USA-EU AND GEOPOLITICS OF ENERGY

Claims of EU ofcials that Nord Stream will improve EU energy security by
precluding the possibility of interruptions in transit countries miss this point. Nord
Stream would after all not make a difference for the EU in terms of supplier
diversication. A completely different claim was made by the Polish minister of
Foreign Affairs Radek Sikorski in 2009. He argued that the Nord Stream pipeline
deal was comparable to the 1939 Molotov-Ribbentrop Pact. With this agreement,
Germany and Russia intended among other things to create two spheres of
inuence in Central Europe and Eastern Europe.

The Nord Stream, seen by many as a necessary move by Russia to diversify its
energy delivery infrastructure away from total reliance on Ukraine, has increased
Russias leverage when it comes to relations with Europe. Moreover, it establishes a
reliable revenue stream for Moscow, which has, since 2000, vowed to use energy
export revenue to diversify the Russian economy away from a purely petro-
economy.

Russia is currently constructing a complementary pipeline, known as the South
Stream pipeline, which is another result of Russias gas strategy towards the EU. In
2008, Gazprom signed an agreement with Italian energy company ENI for the
development of second new pipeline to EU, coined South Stream. This pipeline
would transport gas from Russia through the seabed of the Black Sea to Bulgaria.
From there, the gas would continue in two directions: to Austria, crossing Serbia
and Hungary, and to Italy, crossing Greece and the seabed of the Adriatic Sea. In
May 2009, Russia signed an agreement to conduct South Stream feasibility studies
with the governments of four involved countries, Italy, Bulgaria, Greece and
Serbia. The pipeline is expected to cost USD 25Bn and to be completed by 2015.
Ofcially scheduled to come online next year, the South Stream will make Russia a
dominant player in terms of exports to the Mediterranean and Central Europe.
The South Stream is expected to carry 63 billion cubic meters of gas per year,
making it one of the largest pipelines in the world in terms of volume (see Figure
5).

5 RUSSIA, USA-EU AND GEOPOLITICS OF ENERGY
Figure 5. South Stream Pipeline
Many analysts claim that South Stream is a deliberate attempt of Russia to prevent
the building of the Nabucco pipeline. This pipeline would run from Turkey across
Bulgaria, Romania and Hungary to Austria (see Figure 6). Its estimated
development costs are less than half of those of the South Stream pipeline and the
planned completion year is 2013.

The Nabucco project is part of EU efforts to nd opportunities to import gas
without Russian interference. However, the long-term prospects of the Nabucco
project, and thus of the EUs ambition to become less dependent on Russia for its
gas imports, were further clouded by Gazproms acquisition in 2008 of a 50%
share in the large gas transmission centre at Baumgarten in Austria. With this
transaction, Gazprom created an inuential position towards the Nabucco pipeline,
as the EU had designated the centre as the nal destination of the Nabucco
pipeline. Ofcials of the Austrian government and the Nabucco project have
recently suggested using the Nabucco pipeline to transport Russian gas as well or to
merge its European (non-Turkish) route with that of the South Stream pipeline .
These suggestions make clear that the initial rationale behind the Nabucco
6 RUSSIA, USA-EU AND GEOPOLITICS OF ENERGY
pipeline, excluding Russia from part of the gas ows to the EU, seems nothing but
a pipe dream.

Figure 6. South Stream and Nabucco Routes
In addition to this, the project has also been troubled by nancial problems, a lack
of consensus among the involved countries and the supply of sufcient gas to
transport through the pipeline. Suggested options to secure gas ows include
connections between pipelines in eastern Turkey and those in either Azerbaijan or
Iraq. While the second option is not possible for the time being due to political
problems in Iraq, the rst one is attractive as Azerbaijan, Kazakhstan,
Turkmenistan and Uzbekistan have earlier expressed interest in delivering gas to
the EU without interference of Russia. But so far, the countries concerned have
however only guaranteed 20% of the required gas ows, making it highly unlikely
that eventually sufcient gas will be available for the Nabucco pipeline. The ability
of Azerbaijan, Kazakhstan, Turkmenistan and Uzbekistan to deliver gas to the EU
through the Nabucco pipeline is compromised by committed gas sales to Russia,
export opportunities to China and strong domestic demand.
Anyway, these two pipelines are not the only critical European energy
infrastructure controlled by Russia. Currently, Russia still provides a great deal of
7 RUSSIA, USA-EU AND GEOPOLITICS OF ENERGY
gas to the continent through its restive partner Ukraine, whose network of pipelines
dates back to the Soviet era. The spider-web of Ukrainian pipelines (which Russia
has sought to acquire to no avail for years), coupled with Russias ownership of the
Belarusian pipeline operator Beltransgaz, means that Moscow has cemented a
dominant position for itself vis--vis the European market over land and under the
sea.

Of course the West, the United States in particular, views this mutually benecial
relationship between the EU and Russia as threatening Washingtons geopolitical
hegemony in Europe. For this reason, a number of steps have been taken by
Western governments and corporations to undercut Russias energy dominance.
Every geopolitical conict between Russia and the West has an energy dimension
to it. The current conict in Ukraine can be understood, at least in part, as a
struggle for control of the critical gas delivery infrastructure.

Over the past decade, Ukrainian pipelines accounted for nearly 80% of all gas
deliveries from Russia to Europe. The Russia-Ukraine gas dispute of 2009 brought
into stark relief just how signicant gas is to the bilateral relations between the two
countries and, perhaps even more signicantly, how critical Ukraine was to Russias
overall export revenue. This conict, and others that preceded it, was one of the
principal motivators for Russias construction of the Nord Stream and South
Stream.

In December 2013, Ukraine's now-deposed, president Viktor Yanukovich
abandoned a trade deal with the European Union in favour of closer ties with
Russia. One of the sweeteners in the $20bn support package that helped persuade
him was a steep discount around 30% on the price that Russia's gas giant,
Gazprom, was then charging Ukraine for the natural gas on which it relies.
The EU partnership agreement that Ukrainian President Yanukovich rejected was
specically designed to be an exclusive deal that would force Ukraine to choose
either to side with Russia or with Europe, forcing the government into an untenable
position. The unfolding crisis in that country is a direct result of such provocative
economic measures.
8 RUSSIA, USA-EU AND GEOPOLITICS OF ENERGY
The war in Syria, and the subsequent diplomatic standoff between Russia and the
West, is also partially the result of energy-related issues. In the apt expression of F.
William Engdahl, Natural gas is the ammable ingredient that is fueling this
insane scramble for energy in the region. A battle is raging over whether pipelines
will go toward Europe from east to west, from Iran and Iraq to the Mediterranean
coast of Syria, or take a more northbound route from Qatar and Saudi Arabia via
Syria and Turkey. Having realized that the stalled Nabucco pipeline, and indeed
the entire Southern Corridor, are backed up only by Azerbaijans reserves and can
never equal Russian supplies to Europe or thwart the construction of the South
Stream, the West is in a hurry to replace them with resources from the Persian
Gulf. Syria ends up being a key link in this chain, and it leans in favor of Iran and
Russia; thus it was decided in the Western capitals that its regime needs to change.
The ght for democracy is a false ag thrown out to cover up totally different
aims.

It is not difcult to realize that the rebellion in Syria began to grow almost at the
same time as the signing of a memorandum in Bushehr on June 25, 2011 regarding
the construction of to the so-called Islamic Pipeline, a new Iran-Iraq-Syria gas
pipeline (see Figure 7). It is to stretch 1500 km from Asaluyeh on the largest gas
eld in the world, North Dome/South Pars (shared between Qatar and Iran) to
Damascus. The length of pipeline on the territory of Iran will be 225 km, in Iraq
500 km, and in Syria 500-700 km. Later it may be extended along the bottom of
the Mediterranean Sea to Greece. The possibility of supplying liqueed gas to
Europe via Syrias Mediterranean ports is also under consideration. Investments in
this project equal 10 billion dollars.

9 RUSSIA, USA-EU AND GEOPOLITICS OF ENERGY
Figure 7. Iran-Iraq-Syria Islamic Pipeline
Naturally, such a development would have been a direct assault on the gas
hegemony of Qatar, and the gulf monarchies more generally.

Seen in this way, the continued nancing and arming by Qatar and Saudi Arabia
of terror groups in Syria represents an attempt by those monarchies to prevent any
infringement upon their European gas revenue. Of course Russia, whose European
market access is secure via the aforementioned Nord Stream and South Stream,
came to the aid of Damascus, its nal remaining ally in the Middle East, in an
attempt to block what can only be seen as an attempt to destroy the nation of Syria
itself.

10 RUSSIA, USA-EU AND GEOPOLITICS OF ENERGY
Other recent developments in the energy sector complicate these issues even
further. The recent discoveries of gas reserves off the Israeli coast in the Eastern
Mediterranean provide further motivation for the US-NATO powers to destabilize
Russian interests and wrest control of key Russian allies away from Moscow.

In early 2012, Noble Energy, the US partner of the major Israeli energy
companies, announced a new nd of 1.2 to 1.3 trillion cubic feet of gas in the
Tamar prospect. Noble is condent that there may be up to a dozen more such gas
discoveries to be made in the Tamar eld. Yet the Tamar and Dalit offshore Israeli
gas elds are just the beginning. Others are showing signs of signicant quantities
of gas, including the Aphrodite 2 eld, 100 miles from Haifa. But the enormous
Leviathan gas eld overshadows them all. Leviathan is estimated to have twice the
amount of gas of Tamar and should come online between 2016 and 2018. But
Leviathan and Tamar also hold out the further tantalizing prospect of signicant
amounts of oil (see Figures 8 and 9). Rumors of a possible Israel-Turkey pipeline
would be understood as yet another attempt at undermining Russian gas
dominance.

Figure 8 and 9. Israeli and Easter Mediterranean Oil & Gas Discoveries

11 RUSSIA, USA-EU AND GEOPOLITICS OF ENERGY

Of course, also the much touted Shale Revolution and hydraulic fracturing
(known as fracking), has led all players in the last few years, including Russia, to
reassess their strategic energy plans and examine all possible options for the near
and medium term future.

Russias rebound from the dark days of the early 1990s has largely taken place on
the back of its energy exports. Its continued economic development, and
consequent political and military development, represents a threat to US-NATO
hegemony in Europe and throughout the world, severely weakening the Wests
strategic position. It is this threat that the Western powers are attempting to meet
with various forms of hard and soft power. The infamous missile shield in
Eastern Europe, the war in Syria, the crisis in Ukraine, and many other issues all
factor in to this greater competition.

12 RUSSIA, USA-EU AND GEOPOLITICS OF ENERGY
Additionally, Western media continues to wage a ceaseless propaganda war to
demonize Russia. Ostensibly, the Russophobic character of these attacks is
shrouded in the rhetoric of human rights and freedom. However, these premises
are mere cover for a well orchestrated attempt to manipulate public opinion to
believe that, like during the Cold War, Russia is the enemy, and US-NATO
represent the forces of good. As usual, the corporate media serves as the dutiful
servant of US-NATO foreign policy.
13 RUSSIA, USA-EU AND GEOPOLITICS OF ENERGY