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Petroleum News: Kremlin controls gas routes to Europe

EXTRACT: At the same time, companies like BP PLC, Royal Dutch Shell PLC, Exxon Mobil Corp. and Total SA are fighting back-tax bills or threatened license annulments — apparently another reflection of the Kremlin’s push to ensure that the state has a major role in all key energy projects.

THE ARTICLE

Vol. 11, No. 49  Week of December 03, 2006

Russia largest natural gas exporter, energy clout generates concern in West; NATO to discuss energy security at Latvian meeting

George Jahn
Associated Press Writer

For the West, the threat from Moscow was supposed to end with the collapse of the Soviet Union 15 years ago. But Russia’s growing energy clout is generating renewed cause for anxiety.

The North Atlantic Treaty Organization, set up in the early days of the Cold War to keep Soviet-led forces in check, has begun speaking out about the potent new energy lever being wielded by the Kremlin in the international struggle for influence.

Noting “added value to NATO discussing energy and security policies,” NATO Secretary-General Jaap de Hoop Scheffer said the week of Nov. 20 that energy security would be high on the agenda at its summit starting Nov. 28 in Riga, Latvia.

The main issue is natural gas. Russia is an oil giant, second only to the Saudis in exports, and Europe depends on it for much of its crude. But oil supplies can be diversified because shipping is easy, while the most efficient way of distributing gas is through pipelines. With Russia the world’s largest gas exporter and Europe’s neighbor, European dependency has grown to the point that the EU now counts on Moscow for nearly half of its gas needs.

Pipeline control growing

And Moscow’s growing control of pipelines that deliver not only gas from Russia but from much of central Asia is stoking Western unease. “With gas, control over pipelines is crucial,” says energy expert Michael Klare. “Once you put oil on a tanker you cannot control it, but gas is different; whoever controls the pipelines controls the flow.”

Like NATO, U.S. officials also are warning of the dangers of allowing Russia a free hand in monopolizing gas shipments. And the European Union is trying — without success so far — to pry open the Russian grasp on gas and gas pipelines supplying EU member countries.

In October, Russian energy giant OAO Gazprom announced it would develop the huge Shtokman gas field without foreign partners, in a fresh setback to western oil companies looking to exploit the nation’s vast hydrocarbon riches.

At the same time, companies like BP PLC, Royal Dutch Shell PLC, Exxon Mobil Corp. and Total SA are fighting back-tax bills or threatened license annulments — apparently another reflection of the Kremlin’s push to ensure that the state has a major role in all key energy projects.

The two sides appeared to come no closer at an EU-Russia summit in Helsinki earlier in November. Speaking to reporters Nov. 24, Russian President Vladimir Putin restated his opposition to giving foreign companies easy access to his country’s energy sources, or breaking up oil and gas state monopolies.

Energy control a weapon

Western concerns reflect a growing understanding that in the 21st century control of energy has become more than ever before a weapon of geopolitical advantage.
Klare, author of “Blood and Oil: The Dangers and Consequences of America’s Growing Petroleum Dependency,” says the world already has entered “a new era, where energy has replaced nuclear weapons as the medium of superpower rivalry.”

“Vladimir Putin believes that,” says Klare. “And he is moving to accumulate as much energy power as he can.”

A study conducted earlier this year for the Swedish Defense Research Agency concludes that Russia uses its growing energy punch to “extend influence, avert geopolitical and macroeconomic threats and to reduce the risk of being blackmailed.”

As in the Cold War, Europe is the most vulnerable. It now imports just over half of its energy needs but will depend on outside suppliers for 90 percent of its oil and 80 percent of its gas within 20 years.

Moscow insists market forces are driving its price policy. But its allies, like Armenia, pay much less than its critics, like Georgia. The Swedish study notes more than 50 cases since 1991 where the Russian “energy lever has been used for putting political or economic pressure on Estonia, Latvia, Lithuania, Ukraine, Belarus, Moldova (and) Georgia.”  Other surveys also draw worrying conclusions.

Russia may be seeking to build gas cartel

A recently leaked confidential study by NATO economic experts warned Russia may be seeking to build a gas cartel including Algeria, Qatar, Libya, the countries of central Asia and perhaps Iran and cautioned that kind of OPEC-like near monopoly would strengthen Moscow’s leverage over Europe.

Washington is also concerned.

U.S. Deputy Assistant Secretary of State Matthew J. Byrza warned earlier in November that a prospective natural gas pipeline under the Baltic Sea could further increase Europe’s energy dependence — drawing an angry retort from Moscow. And U.S. Vice President Dick Cheney accused Russia earlier this year of using its energy resources as “tools of intimidation or blackmail.”

Such comments reflect a recognition of the key role of energy — and frustration on the part of “have-nots” like the United States and most other NATO countries.

“Possessing a rich accumulation of energy is the equivalent of a nuclear arsenal in the 20th Century,” says Klare. “And being a ‘have-not’ creates a strategic vulnerability.”

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