Eastern Europe: Who's Afraid Of Gazprom? Controlling Gas Pipelines

A segment of the Baltic Sea gas pipeline (epa) The Kremlin's monopoly of Russian energy supplies and Russia's domestic distribution networks is once more all but complete but it appears to want more. Russia's recent clash with Ukraine over the price of gas and the subsequent disruption of gas supplies to Europe showed how important control of the pipelines remains. Russian gas monopoly Gazprom makes no secret that it would like to buy the Ukrainian network -- and more besides. Gas pipelines in Belarus and Georgia are also in its sights.

PRAGUE, 12 January 2006 (RFE/RL) -- Amid the confusion of the recent deal struck between Russian and Ukraine over the supply of gas, one thing remains clear: Although, as the world's main producer of gas, Russia wields immense power, it cannot ride roughshod over the wishes of its consumers.

Ukraine forced Russia to compromise with a recent deal between the two countries. And it managed to do so primarily because the pipeline that supplies 90 percent of Russia's gas to Western Europe runs through Ukrainian territory.

Little wonder then that the attempts by Gazprom, the Russian gas giant, to buy Ukraine's gas-transportation network have so far come to nothing.

Even neighboring Belarus, which yearns for a political confederation with Russia, still clings to its pipelines. The state-owned Beltranshaz retains a monopoly over the network, despite the interest of Gazprom.

Selling Off Pipelines

Valerii Gladko, political observer and one-time policy adviser to Ukrainian President Viktor Yushchenko, says it would be a terrible mistake for Ukraine to sell its pipelines to Gazprom for the sake of cheaper Russian gas.

"Selling our pipelines to Russia would mean losing control over all the processes going on in the energy sector over the next few years," Gladko said. "Even if Russia were to buy Ukraine's gas-transportation system, it would not invest any money into it. All the Russians want is to win time to build new pipelines to circumvent Ukraine -- like the northern gas pipeline, which is to be built beneath the Baltic Sea."

Gazprom has attempted to buy into the gas-distribution networks in Hungary and Poland too, but it is the Baltic project, the North European Gas Pipeline (NEGP), which has really attracted international attention.

Due to be constructed by 2010, it will bring Russian gas direct to Germany and cut Ukraine out of the equation. Poland and the Baltic states, who also stand to lose from its construction, have described the NEGP as an energy version of the Nazi-Soviet pact of 1939.

Government Pressure

Gaining control over distribution appears a major objective in the Kremlin -- and it's not just looking westwards. In the south, the Kremlin is putting immense pressure on the Georgian government to cede control over the gas pipelines that ship gas from Russia to Georgia and beyond to Armenia.

In return, Moscow is offering to upgrade the pipelines and reduce the price for gas -- a major consideration in cash-strapped Georgia.

So far, though, the Georgians are not taking the bait.

Economist Gia Khukhashvili shares the view of his Ukrainian counterpart, Viktor Gladko, that there is too much to lose: "The pipeline is an indivisible part of Georgia's future energy security and to give it to someone else would be an obstacle to that security. After the events in Ukraine, many things have become clear to Europe and today we have a chance to link up to the European energy security system."

Georgia's resolve has been strengthened by the United States, which made clear in February 2005 at a time of talks between Gazprom and the Georgian government over the pipeline that it was against any deal.

Washington's concern is not that Moscow will gain further economic leverage over Georgia -- it already has as much as it needs -- so much as the potential damage Russian control of the Georgia-Armenia route might do to its own interests in the area.

The United States has invested large sums in the development of the Shah Deniz gas fields in the Caspian Sea and the construction of a pipeline that will ship the gas out to Europe and the United States itself. It's due for completion in 2007 and will run parallel to the already existing Baku-Tbilisi-Ceyhan oil pipeline.

Washington fears that if Russia gets the Georgia-Armenia network it would be an easy step to link up with Turkey and Iran -- and undermine the economic viability of Shah Deniz. Khukhashvili shares the U.S. concern: "It's a fact that if this pipeline ends up entirely under Russian control it will make it harder to make the economic case for the Shah-Deniz gas pipeline project and, later, the link-up of Central Asia to Shah-Deniz from the Caspian Sea and the development of other projects. This pipeline has the potential to create clear problems for Shah-Deniz, through, for instance, the transportation of gas via Armenia to Iran and also Turkey."

For the meantime, at least, Washington seems likely to get its way -- despite Georgia's ongoing discussions with Gazprom over the possibility of a deal. Last week, Georgian President Mikheil Saakashvili wrote in "The Washington Post" daily that there could be no energy security when an undependable neighbor was willing and able to use its energy resources as a political weapon.

Saakashvili is conscious too of the need not to rile his American supporters. When Georgia and the United States signed a $295 million, five-year aid agreement in September, around $50 million of that was set aside for repairing the gas pipeline. Washington won't want that to fall into the wrong hands.