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RUSSIA: In a New Gas War with Ukraine

Kester Kenn Klomegah

MOSCOW, Mar 5 2009 (IPS) - The Ukraine-Russia gas dispute has boosted plans for construction of the South Stream and North Stream gas pipelines that would eventually divert Russian gas supplies through the Black Sea and the Baltic seabed respectively to European consumers.

But the plans have led to a new spat between Russia and Ukraine.

The new plans would mean that Russia would no longer send its gas supplies through Ukraine, which locked horns with Russia over payment of outstanding gas debts last December. The dispute led to gas supply disruptions to European consumers in the dead of winter.

“Going beyond the controversy, diversification of gas supplies is an important factor in energy security,” Denis Daniilidis, spokesperson for the Moscow office of the European Commission, the executive arm of the EU, told IPS.

On an official visit to Spain early this month, Gazprom CEO Alexey Miller promised development of the Arctic gas field, which has estimated reserves of 3.8 trillion cubic metres. This would supply the North Stream gas pipeline from Russia to Germany, currently being built under the Baltic Sea.

Bulgaria, Hungary, Italy and many other European Union members have also reiterated their interest in construction of the South Stream gas pipeline, intended to send Russian gas to Europe across the Black Sea bed.

The South Stream gas pipeline, linking the Russian Black Sea port Novorossiysk to Bulgaria’s Varna, is due to be commissioned in 2013.

Belarusian Prime Minister Sergey Sidorsky has proposed another pipeline to guarantee stable supply of Russian gas to Europe, and has sought involvement of Poland and Germany in the project. The proposed pipeline would bring gas from the Yamal Peninsula in north-western Siberia.

But some Ukrainian experts are cautioning against such expansion. Volodymyr Vakhitov, Ukrainian expert on energy economics, told IPS that it is necessary to guarantee not just the route but the supplier. Presently, several European countries depend solely on the Russian monopoly Gazprom, and construction of more pipelines from Russia would only reinforce dependency on Russia, he warned.

Besides, the major part of North Stream is designed to be laid almost entirely along the sea bottom that runs through the economic zones of Baltic countries, he said.

“This creates additional tension over national security concerns, land ownership and environmental issues. A purely economic issue here is ownership of the gas and the transmission pipelines. Economic theory usually suggests separating the object of transportation (gas) and the transportation system (pipelines) to avoid vertical integration and monopolisation of the market.”

Valentin Zelenyuk, assistant professor from the Kiev School of Economics, says the North Stream and South Stream projects are not reliable means to diversify gas transit through Ukraine and to ensure constant gas supplies to European consumers.

“With current gas and oil prices, and the expected decrease in gas consumption, these investments might never be recovered. The root cause of the problem is not in the transit but in the monopolistic power of Russia over the gas market in Europe, and the use of this power to reach political goals,” Zelenyuk told IPS.

“What might be much more efficient and effective than the new streams is the creation of a European gas transit consortium consisting of European gas transit companies, and including Naftogaz in Ukraine, and cooperating on mutually transparent conditions. This consortium will help counter-weighting the monopoly power of Gazprom.”

The consortium could be formed along the lines of the projected North Stream and South Stream, he said, with the exception that the majority of the pipelines would belong to parties independent of Gazprom, and with a united policy towards it.

Many European countries have already given their support for the North and South Stream projects as a way of finding a lasting solution to the gas disputes between Russia and Ukraine.

“The emotions of countries around the Russia-Ukraine disputes are very understandable, but maybe they were artificially induced exactly for the EU to support the North Stream and South Stream – so that Russia gets even more power over the European gas market,” Zelenyuk said.

Russian President Dmitry Medvedev strongly challenged the Ukrainians while on a visit to Bulgaria. Russia would go ahead with its major energy projects despite the global financial crisis, he told Bulgarian journalists [last month in the Kremlin]. He said quick action on the projects would guarantee Europe’s energy security, and underscored the need for expanding the network of gas pipelines.

“If we succeed in diversifying gas deliveries, Europe will grow largely independent of the vagaries of some countries’ political regimes. We will, of course, fail to build an ideal model, but we should seek to ensure a reliable international legal control. I believe certain moves have already been made to that end,” Medvedev said.

Medvedev said that as a lawyer “I realise only too well that non-delivery implies responsibility for both the transit and producer countries, or, rather, the relevant companies of these countries.” But in the final account legal responsibility should concentrate on the party that is guilty in practical terms for non-implementation of the contract.

The Russian President said he was not about to offer guarantees that the gas crisis would never repeat itself, since such guarantees should be offered by those who had created the crisis. He said the best guarantee was to implement new gas pipeline projects that would help prevent a repeat of such developments.