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EU is losing the energy battle with Russia

November 23, 2016 by Cyril Widdershoven 9 Comments

Europe’s grand strategy to become less import dependent on Russian gas, which has been discussed since the 1990s, looks more and more like a failure, as the new Russian Tsar, Vladimir Putin, is consistently wrong-footing the leaders of the EU, writes Cyril Widdershoven.

Russia’s re-emergence as a regional superpower, with growing interests in the Middle East, North Africa and central Asia, is causing shivers in Brussels and parts of Europe. The last few weeks has seen Russia’s European gas supply strategy boosted as Brussels and European leaders buckled in front of Russian pressure.
On October 28, the European Union gave Russia’s gas giant Gazprom the green light to increase its gas supply via the Nord Stream pipeline. Gazprom can now use up to 80% of the Opal pipeline in Germany which takes gas from its Nord Stream Baltic Sea pipeline to end-users in Germany and the Czech Republic. Up to now this was only 50%.
This increases Gazprom’s possibilities to bypass central European countries such as Poland and Ukraine. Brussels’ move is a direct slap in the face for these central European member countries, as they see it as endorsement of Russia’s military actions in Ukraine, Syria and the Baltic region. It means that the new tsar of Muscovy has tightened his hold on European gas supply. In an official reaction Gazprom stated that the new volumes will counter fledgling gas production from the North Sea and Groningen.

After decades of holding the EU membership carrot in front of Turkey, the West’s current approach, based on human rights, democracy and military interests, has forced Turkey to reconsider its place in history

Russia’s state gas exporter, which supplies around a third of the EU’s gas, can now use 30 to 40% of the other half of the 36 bcm pipeline. It has to set aside only 10% (or if there is sufficient demand, up to 20%), i.e. 1.bcm (or up to 3.6 bcm) for third parties. It could even gain access to the entire pipeline if there are no bidders, although it would have to sell the 10% of the half reserved for “third parties” at a price imposed by the regulator.
This decision shows that Brussels has conceded defeat in the continuing geopolitical battle between US and Russia. It demonstrated that Putin is master in the Baltics, Middle East and Turkey.

Energy hub

Putin’s statesmanship is without any doubt way superior to the strategic leadership of the European Union, Germany, the Netherlands or UK. The speed at which Putin has changed the regional geopolitical and military constellation of Europe’s hinterland and soft belly (Mediterranean) is frightening/ It has opened up a totally new situation in which a great many former European/Western allies are changing sides.
After decades of holding the EU membership carrot in front of Turkey, the West’s current approach, based on human rights, democracy and military interests, has forced Turkey to reconsider its place in history. Both Brussels and Nato have failed to understand the full extent of the ongoing political and economic changes in Turkish society. They have tried to push Turkey into complying with Western demands which could not be met.

Syria and Iraq are just proxy wars intended to reshape the Middle East permanently

At the same time, the role of Turkey as a potential energy hub for the European Union was taken for granted. Ankara would be forced to supply crude oil and gas from central Asia, Iran, Iraq or the Levant to Europe, but all on European conditions. The fact that Moscow and Ankara were at loggerheads only increased the pressure that Brussels was applying. No one understood that a new political-military elite was being groomed in the presidential palace in Ankara, based on a neo-realistic strategy, in which Russia and the Middle East would become more important to Turkey than the historical ties to Europe.

New friendship

Russia’s new tsar, Vladimir Putin, was however able to read between the lines. After the sudden removal of possible political-military opposition in Turkey, the path for a new friendship between Putin and Turkish president Tayip Recip Erdogan was clear. Full diplomatic, economic and military cooperation is again on the table. This has become even more necessary as both are looking for a regional power position in the Arab world. Syria and Iraq are just proxy wars intended to reshape the Middle East permanently.
Welcoming Turkey with open arms, Putin is bringing the country into Russia’s camp. Geopolitically it is a no-brainer: Turkey – as Nato’s second-largest military force – is a direct threat to Russian’s expansion in the Levant and Middle East.

Russia’s influence in oil and gas in the Middle East and North Africa has grown exponentially. Gazprom and its cohorts, Rosneft, Lukoil and Novatek, will be able to block or supply most of the new energy sources for Europe in the coming decades

If it chose, Turkey could be the cork that blocks the passage of Russia’s fleet and military to the region. But military considerations are not the only basis for the thaw. Russia has for the last decade tried to use Turkey as an instrument to block Europe’s possible energy independence from Russia. There are various new gas pipelines under consideration that would reduce the EU’s dependence on Russia, such as the Iran-Turkey gas pipeline, Iraq (North Iraq/KRG) to Turkey and the possible Egypt-Israel to Turkey offshore deepwater pipeline options. The position of Turkey is key to making these projects a success.
At the same time, Russia is also waiting for the EU’s green light for Turkish Stream, at least the part that would be built in the EU. The expansion of the gas pipeline to Europe, via Turkey, still depends on Brussels, according to Russia’s minister for foreign affairs Sergei Lavrov. The 31.5 bcm project, for which an intergovernmental agreement between Turkey and Russia was signed October 10, 2016, on the sidelines of the World Energy Congress Forum in Istanbul, plans to supply gas to Europe via Greece.
Half of the gas is meant for Turkish clients, the other half is destined for Europe. The European part is necessary to justify the investment. Both strings are to be ready by the end of 2019, Gazprom CEO Alexei Miller told Putin in a transcript of a dialogue published on the Gazprom website late October, ostensibly to do with Russia’s preparedness for winter.
Turkish Stream, in combination with the planned Nord Stream 2 pipeline, will reduce the role of Ukraine in Russian gas transport to Europe, leaving that country at the mercy of Moscow.

Nightmare

European dreams that Arab or Iranian gas exports will come to Europe may come to naught as a result of the Russian-Turkish friendship. At the same time, Putin’s relationship with Iran, Iraq and Syria, means that the geographic routes for such endeavours will also depend on the Kremlin’s good will.
Putin’s policies, as have been shown the last years, rely on the facts on the ground. Russia’s influence in oil and gas in the Middle East and North Africa has grown exponentially. Gazprom and its cohorts, Rosneft, Lukoil and Novatek, will be able to block or supply most of the new energy sources for Europe in the coming decades.
Some analysts have been optimistic that the huge gas discoveries in Israel and Egypt, perhaps complemented by offshore production in Cyprus and Lebanon, will open up new supplies to Europe. Offshore gas production, pumped into LNG ships offshore or in Cyprus, would be out of reach of the super powers and regional war lords. Putin’s influence in this region was low, and would be constrained by Western interests and power politics.

The prospects for a Turkish energy hub for Europe and the capabilities of European countries to source gas exports from that part of the world look increasingly bleak

However, this situation also looks very different today. European and American interference in the Arab Spring, the removal of Arab leaders (and dictators), has increased anti-Western feelings. Russia’s historical allies, Egypt, Saudi Arabia and even Israel, are looking at Russia as the new power player in the region. Moscow’s eagerness and military capacity to support its allies, and to expand bilateral relations with others, has already resulted in long-term military arrangements.
The setup of a permanent naval base in Syria, military training exercises in Egypt, and growing military technology cooperation with Turkey, Saudi Arabia and others, have all come at the expense of Western influences.
Analysts have linked these Russian initiatives to the ongoing slaughter in Syria and the fight against Islamic State/Daesh in Iraq, Yemen, and Egypt’s Sinai. But in the bigger picture, the growing naval presence of Russia in the eastern Mediterranean is and will be a direct threat to offshore oil and gas operations in the region. With a naval base in Syria and full-scale battle groups in the eastern Mediterranean, Moscow will be able to influence or even stifle the incipient energy co-operation between the littoral states Israel, Egypt, Cyprus and possibly Turkey.
Europe’s options to attract interest in these countries to export their gas volumes to European markets will be reduced as a result of Russia’s policies. The prospects for a Turkish energy hub for Europe and the capabilities of European countries to source gas exports from that part of the world look increasingly bleak.

Editor’s Note
This article was first published in a slightly different version in Natural Gas World Magazine, a new magazine for the international gas sector. It is republished here with permission.
Cyril Widdershoven is a long-time observer of the global energy market. Presently, he is owner of Dutch integrated risk consultancy VEROCY, while holding several advisory positions with international think tanks in the Middle East and the Netherlands, the United Kingdom, and the United States. Dr. Widdershoven earned his post graduate degrees at King’s College, University of London, Department of War Studies, and an MA in Middle East Studies at the University of Nijmegen, Netherlands.