The Iasi-Ungheni pipeline: a means of achieving energy independence from Russia? Moldova's attempts at gas supply diversification. OSW Commentary No. 118, 2013-10-08

Since taking power in 2009, the Alliance for European Integration (AIE) has been trying to end Moldova’s dependence on Russian gas. Currently, natural gas accounts for about 50% of the country’s energy balance (excluding Transnistria), and Gazprom has a monopoly on the supply of gas to the republic. The key element of Chișinău’s diversification project is the construction of the Iasi-Ungheni pipeline, which is designed to link the Moldovan and Romanian gas transmission networks, and consequently make it possible for Moldova to purchase gas from countries other than Russia. Despite significant delays, construction work on the interconnector began in August 2013. The Moldovan government sees ensuring energy independence from Russia as its top priority. The significance and urgency of the project reflect Chișinău’s frustration at Moscow’s continued attempts to use its monopoly of Moldova’s energy sector to exert political pressure on the republic. Nonetheless, despite numerous declarations by Moldovan and Romanian politicians, the Iasi- -Ungheni pipeline will not end Moldova’s dependence on Russian gas before the end of the current decade. This timeframe is unrealistic for two reasons: first, because an additional gas pipeline from Ungheni to Chisinau and a compression station must be constructed, which will take at least five years and will require significant investment; and second, because of the unrelenting opposition to the project coming from Gazprom, which currently controls Moldova’s pipelines and will likely try to torpedo any energy diversification attempts. Independence from Russian gas will only be possible after the the Gazprom-controlled Moldova-GAZ, the operator of the Moldovan transmission network and the country’s importer of natural gas, is divided. The division of the company has in fact been envisaged in the EU’s Third Energy Package, which is meant to be implemented by Moldova in 2020.

On Ukrainian Gas Transit and South Stream. There may be more than meets the eye. CEPS Commentaries, 21 March 2014

The EU relies to a considerable degree on imports to meet its demand for natural gas. Whereas Norwegian export pipelines are directly connected to the EU gas system, a major share of Russian gas flows through the Ukrainian territory before reaching consumers located other consumers located down in the supply chain (e.g. Slovakia, Hungary or Italy). But is the Ukrainian gas transit route still a risk? Will the construction of the South Stream pipeline further reduce the importance of Ukraine as a transit country? Or is there more at stake here than meets the eye?

A feigned liberalisation: Russia is restricting Gazprom's monopoly on exports. OSW Commentary No. 121, 26.11.2013

An act restricting Gazprom’s monopoly in Russian gas exports came into effect on 1 December 2013. Previously Gazprom had had a legal guarantee to its monopoly position. The changes are an effect of consultations between various ministries that had been conducted for many months and were affected by lobbying from Novatek and Rosneft (Gazprom’s competitors on the domestic gas market); they need not, though, be seen as system changes. The ‘liberalisation’ they appear to bring in is feigned. Proof of this are found for example in both the limited material scope of the new law (it concerns only exports of liquefied natural gas, LNG) and the small number of the beneficiaries of the new regulations (the new solutions will be beneficial for Novatek and Rosneft). Contrary to initial announcements, the right to export LNG has not been restricted to South-Eastern Asian markets, which means that Russian liquefied natural gas is also likely to be sold to Europe in the coming years. Although these changes have been motivated above all by the individual interests of Gazprom’s competitors, they are also to a certain extent a response to the processes taking place on regional gas markets. They may, therefore, turn out to be beneficial for the state (increasing Russia’s share on the global LNG market and attracting foreign investors to gas extraction projects being implemented in Russia). The new regulations are probably the first step down the long road to breaking Gazprom’s monopoly in gas exports via the pipeline system.

Security of Russian gas supplies to the EU - the question of infrastrucutral connections. OSW Point of View, February 2005

The energy security of countries importing energy resources depends largely on the shape and quality of operational transport connections. This is particularly important in the case of natural gas supplies. Natural gas is transported mostly by gas pipelines which permanently connect gas producers and consumers. Thus Europe as a consumer is "tied" to certain gas suppliers for anywhere between a dozen and several tens of years. As their own resources are becoming depleted, the EU Member States get increasingly dependent on import of natural gas. The present paper discusses the existing and projected gas transport routes from Russia to the EU. The first part deals with the importance of gas exports to the economy of the Russian Federation, and the second delves into the EU Member States' dependence on gas imports. Then this paper examines the differences in perceiving the energy security issue between the old and the new Member States, those differences stemming from the different degrees of their dependence on Russian supplies. In the third part, two new transport route projects for Russian gas supplies to the EU are compared and it is argued that from the point of view of the Community's interests, the Yamal gas pipeline is a better solution than the North European (Trans-Baltic) gas pipeline.

Nord Stream on the liberalising EU gas market. OSW Point of View, March 2010

Nord Stream increases Gazprom’s flexibility as far its export routes are concerned; it enables them to be changed with regard to the market or political situation. Nevertheless, this expensive pipeline may contribute to a further drop in the price competitiveness of Russian gas. Accordingly, increasing the attractiveness of Russian fuel and ensuring profitable sales is steadily becoming the main challenge for Gazprom in the EU against a backdrop of increasing competitiveness on the market.

The tug of war. Russia's response to changes on the European gas market. OSW Study 50/2014

Russia, being aware of the evolution of the EU gas market and the fluctuations in trends that accompany it, and in an attempt to maintain its position on the European gas market, is sticking to a dichotomous strategy. On the one hand, Moscow has taken an offensive approach: it continues its traditionally critical rhetoric with regard to the legal and institutional changes; by negating the legitimacy of the new rules, it has been making efforts to undermine them by employing legal and political measures; Russia has used such traditional economic means as investments in assets and pushing through the implementation of new gas pipeline construction projects. On the other hand, the evolution of the EU gas market has forced Russia to take steps to adapt to a certain extent: partial changes in the operation of the internal gas sector; promises to further curb Gazprom’s dominant position; the concessions made in trade negotiations with European partners; partial adjustments to the EU’s so called third energy package regulations. Hoping that the unfolding situation on the gas markets will contribute to slowing down the recent liberalisation tendencies in the EU and that EU member states won’t make progress in decreasing their dependence on Russian gas, Moscow is thus preparing itself for the ‘long game’ in gas with its European partners.

The declared end of South Stream and why nobody seems to care. CEPS Commentary, 5 December 2014

More than seven years after the South Stream pipeline project was first announced in June 2007, it finally seems to have been dropped by Russia’s President Vladimir Putin on his visit to Turkey this week. This CEPS Commentary looks at the ostensible reasons for President Putin’s decision as well as on what’s potentially behind them. It concludes that the EU may actually benefit from this decision in being able to secure more gas with less political interference from Russia.

The eastern ‘partnership’ of gas. Gazprom and CNPC strike a deal on gas supplies to China. OSW COMMENTARY No. 139, 2014-06-16

The CEOs of Gazprom and China’s CNPC signed a contract concerning Russian gas supplies to China on 21 May 2014 in Shanghai. The contract had been under negotiation for many years and was signed in the presence of the two countries’ presidents. Under this 30-year deal, ultimately 38 billion m3 of natural gas will be exported annually from eastern Siberian fields (Chayandinskoye and Kovyktinskoye) via the Power of Siberia pipeline planned for construction in 2015–2019. The lengthy negotiation process (initial talks regarding this issue began back in the 1990s), the circumstances surrounding the signing of the contract (it was signed only on the second day of Vladimir Putin’s visit to Shanghai, and the Russian president’s personal engagement in the final phase of the talks turned out to be a key element) and information concerning the provisions of the contract (the clause determining the contract price has not been revealed) all indicate that the terms of the compromise are more favourable for China than for Russia. This contract is at present important to Russia mainly for political reasons (it will use the future diversification of gas export routes as an instrument in negotiations with the EU). However, the impact of this instrument seems to be limited since supplies cannot be redirected from Europe to Asia. It is unclear whether the contract will bring the anticipated long-term economic benefits to Gazprom. The gas price is likely to remain at a level of between US$350 and US$390 per 1000 m3. Given the high costs of gas field operation and production and transport infrastructure development, this may mean that supplies will be carried out at the margin of profitability. The Shanghai contract does not conclude the negotiation process since a legally binding agreement on gas pipeline construction has not been signed and not all of the financial aspects of the project have been agreed upon as yet (such as the issue of possible Chinese prepayments for gas supplies).

At any price: Russia is embarking on the construction of South Stream. OSW Commentary No. 98, 2012-12-07

Gazprom is determined to continue its efforts to build the South Stream gas pipeline regardless of the slump on the European gas market and the fact that there is sufficient capacity already in the existing transport infrastructure. The official inauguration of the maritime section of South Stream was held on 7 December this year, but the construction itself will commence in 2014. The agreements concluded so far, both intergovernmental and between corporations, are necessary for the launch of the construction of the new pipeline, but still do not guarantee that the project will be completed on time. First of all, some legal problems have yet to be resolved, such as the evaluation of the compliance of the planned actions with the ‘third energy package’ or the fact that ecological surveys required under European law need to be carried out. Secondly, given the present situation on the European gas market and medium-term forecasts, the high cost of implementation of this project and the maintenance expenses of existing pipelines – which are not being used to full capacity – the new project seems to be unfeasible. However, Gazprom’s determination in its efforts to build the pipeline proves that Russia is ready to take a high economic risk to maintain its dominant position on the European gas supply market; it will restrict the possibilities of alternative infrastructural projects being implemented (above all, the EU’s Southern Corridor) and use the construction of new pipelines as an instrument of political pressure on the present transit countries (especially Ukraine).