Russia and EU head for pipeline battle

Date: 22/06/06

The European Commission is on course for a clash with Moscow after attempting to kick-start a pipeline project to carry gas across the Caspian Sea to Europe.

In an bid to reduce reliance on imports from Russia, the Commission is to fund an investigation into the possibility of piping gas from Kazakhstan, across the Caspian, to Azerbaijan's capital Baku. From there it could be delivered to European markets.

In July Benita Ferrero-Waldner, the external relations commissioner plans to travel to Kazakhstan to discuss the project.

EU officials say the pipeline is necessary to ensure that the Union can meet its energy needs, but they face stiff opposition from Moscow.

The idea is not a new one, but high energy prices and doubts about Russia's reliability as an exporter have given supporters of the project a boost.

Previous attempts to build trans-Caspian pipelines have been plagued by political disagreement and scuppered by Russian opposition.

A 2,000 kilometre-long oil pipeline from Turkmenistan to Turkey which was planned in the early 1990s remains on the drawing board, because of Russian opposition, although on 16 June Kazakhstan signed a US-backed deal with Azerbaijan that seeks to resurrect the project.

Diplomats say that during a recent EU-Russia summit in the Black Sea resort of Sochi, Russian President Vladimir Putin indicated clearly that Russia would also oppose the construction of a new gas pipeline.

In public, too, Russian officials have scoffed at the proposals, claiming they are uneconomic because of the sheer number of countries through which the gas would have to transit before reaching the EU. They have also argued that it would cause severe environmental damage to the Caspian Sea and are calling for all countries in the area to be consulted before any project went ahead. Critics say that this would allow Russia to act as a spoiler. But it would also give Iran a say. The authorities in Tehran too, are unlikely to support such a project while they are seeking investment in their own energy infrastructure from European and Asian markets.

With Russia keen to use its energy resources to further its foreign policy goals, it could be successful in stalling the project, despite the Commission's best efforts.

Previous attempts to transfer Caspian energy to Europe have prompted Russia, in the form of state-owned energy firm Gazprom, to offer to buy gas and oil from Turkmenistan and Kazakhstan coupled with attractive financial incentives.

Russia could well have the clout to bring the project to a standstill.

One EU diplomat remarked that it was often Russian companies which owned or run the energy infrastructure in Central Asia, as well as many other firms, giving Moscow significant leverage over decisions.

Others recall Kazakhstan's bid to buy the Lithuanian Mazeikiai refining facilities was abruptly halted following a meeting between Kazakh President Nursultan Nazarbayev and Putin.

Rumours still circulate that Putin had warned that Russian firms would not be able to ensure a steady supply of oil from the Caspian via Russia to be refined, fatally undermining the bid.

Moscow may also have a trump card in the private sector. Firms involved in any trans-Caspian project are likely to seek assurances from Moscow that their operations in Russia would not be hurt by their involvement.

But according to Shamil Yenikyeff of the Oxford Institute for Energy Studies there are some positive factors for supporters of the project.

Yenikyeff said that Russia's decision in January to double the price of gas supplied to Azerbaijan had renewed Azeri interest in the project.

And Kazakhstan's pledge to boost its gas production from a current 26 billion cubic litres a year to 53bn in 2010 and 84bn by 2020 makes the trans-Caspian project more appealing. China is likely to take up some of that capacity, but Europe remains an attractive market.

Despite the problems, EU diplomats remain convinced that the project must go ahead. "In ten years Russia will not be able to supply energy needs," said one diplomat referring to Russian's creaking energy infrastructure. Officials are adamant that alternative export routes need to be found to ensure the EU has a stable supply of energy, even if it does mean irritating Moscow.

Article reports about plans to construct trans-Caspian pipelines to transport Central Asian gas to Europe. These plans were strongly opposed by Russia which would be effectively bypassed by the planned routes.