EU: energy security is in the pipeline

www.telegraph.co.uk
25 Sep 2009

On an autumn evening in 2002, a group of European executives celebrated a major energy deal by taking in a spot of Verdi at the Vienna State Opera House. At dinner afterwards, the businessmen resolved to christen the gas pipeline they had agreed to build "Nabucco", after the opera they had just seen. Having watched Nabucco save the Jews from imminent execution at the hands of an interloper, the executives – and their EU backers – may have thought the name auspicious.

As arguably the most important energy project undertaken in EU history, the Nabucco pipeline was meant to bestow similar salvation on a continent becoming dangerously dependent on Russian gas. The pipeline would wean the EU off Moscow, which already accounts for a third of its imports, both by creating a major route along which non-Russian gas could flow and, more importantly, breaking Russia's stranglehold over transit from the east.

The Kremlin, unsurprisingly, regards Nabucco as the interloper, seeing it as a threat to an even tighter Russian energy stranglehold over Europe. Russia has not been shy of using its energy might to achieve its political goals. Both Ukraine and Belarus have seen their gas supplies severed as Russia has sought to reassert its influence over what it calls its "near abroad". Some EU members, particularly those who belonged to the Warsaw Pact, fear that over-dependence on Russian energy could mean they, too, fall victim to the Kremlin's whim. For Russia though, Nabucco represents what it most fears: the EU acting in concert to defend its interests.

Some Russian politicians fret that if the EU, with its smattering of ex-Communist states resentful of Russia, does ever speak in unison, the undertone will inevitably be Russophobic. "Russia's attitude to the EU is similar to the feelings of a person whose neighbour is having a wedding," says Sergei Markov, a ruling party legislator with close ties to the Kremlin. "In principle, you are happy about it, but in reality it means having drunk people near your door, loud music till early morning and empty bottles flying through your window." Yet the evidence suggests Russia has little to fear. Playing on the EU's disparate nature, the Kremlin has been able to divide and rule with considerable success.

For much of Verdi's opera, Nabucco is struck by madness, initially believing he is God before losing his senses entirely after being struck by a thunderbolt. Vladimir Putin, the Russian prime minister, has frequently mocked the Nabucco project for suffering similarly grandiose delusions – and not without reason. He has found it relatively easy to woo big energy companies in powerful EU countries with lucrative contracts to the detriment of both Nabucco and collective energy security.

Mr Putin has compounded this by courting powerful European politicians. Gerhard Schroder, the former German chancellor, is now in the pay of Gazprom, Russia's state gas monopoly, while Mr Putin has forged so close a bond with Silvio Berlusconi, Italy's prime minister, that the two men are planning to buy an island together, sources in Moscow claim. As a result, France, Germany and Italy have, to varying degrees, adopted what pundits at EU headquarters in Brussels call a "Russia First" policy. Wary of upsetting the Kremlin on its most sensitive subjects, the three have often distanced themselves from former Soviet states seeking to draw closer to the West.

France and Germany opposed the Nato membership ambitions of Georgia and Ukraine last year, while Angela Merkel, the German chancellor, vetoed a proposal to ease EU visa restrictions on Russia's immediate neighbours. "France, Germany and even Italy have privileged trade relations with Russia, particularly in energy and they don't want to jeopardise that by creating a closer relationship with smaller, poorer states," says George Dura, a researcher at the Brussels-based Centre for European Policy Studies.

The overlap of politics and profit that drives the Russia First policy has cost Nabucco and European energy solidarity dearly. Mr Schroder is now the front man for Gazprom's rival Nord Stream project that will bring gas to Germany, and one day perhaps to Britain, through a pipeline under the Baltic Sea. By skirting Ukraine, through which four-fifths of Russian gas to Europe flows, Nord Stream would enhance the energy security of western Europe. But the proposal leaves eastern EU members even more vulnerable; Russia could cut off their supplies without inconveniencing the EU's real powers. The Poles, whose relations with Russia are especially poor, are particularly bitter. Warsaw has compared Nord Stream to the Molotov-Ribbentrop pact.

Not content with Nord Stream, Russia is also pushing for a direct competitor to Nabucco, which would also run under the Black Sea, called South Stream. Both Gazprom pipelines threaten the viability of Nabucco, which, like its namesake in the opera, has often appeared to drift aimlessly, wounded by a combination of EU infighting, Turkish intransigence and a lack of political will. Nabucco's ills are symptomatic of a dangerous malaise across the EU. Unless richer members can suborn their own national interests to the greater good, the EU as a whole will suffer, observers predict.

"Russia laughs at us because we are divided," Mr Dura says. "Whether on trade, energy or in other areas, we need a united front. You can't, for instance, pretend that Nordstream is just an economic issue that doesn't affect Poland." The lack of a cohesive policy towards Russia is an argument, some say, for the Lisbon treaty which, it is hoped, will create an EU president and foreign minister who could craft a more coherent way of dealing with its nettlesome neighbour to the east.

Russia insists that the EU's fears are overblown, claiming that it can act as a reliable guarantor of Europe's energy security. All the EU has to do, says Mr Markov, the Russian legislator, is to allow Moscow an unchallenged sphere of influence in its near abroad by halting support for US-backed leaders like Mikheil Saakashvili, Georgia's president, and Viktor Yushchenko, his Ukrainian counterpart.

"EU support created the war criminal Saakashvili in Georgia and supported the Orange Revolution that led to an artificial conflict between Ukraine and Russia," Mr Markov said. "These governments are not independent. They are puppets of the United States. "If the European Union will continue its attempts to make Russia-Ukraine relations worse, then of course the EU will have gas problems more and more and more." Yet if the rhetoric from Moscow seems little changed, positive signs are emerging for the EU. Thanks to a mixture of blunders and the effects of the financial crisis, the Kremlin has found that its energy weapon has become blunted. Energy prices are half what they were 12 months ago and projections for the amount of gas Europe will need have fallen sharply.

Moreover, in its attempt to deprive Europe of alternative supplies, Gazprom entered into an exorbitant deal to buy up all of central Asia's spare gas. Struggling to pay its bill, Gazprom was saved by a mysterious explosion in the pipeline from Turkmenistan. Suspecting foul play, the Turkmens are now offering to sell gas to Nabucco. So acute is the crisis, according to Sam Greene, the deputy director of the Moscow Carnegie Corporation Centre, Gazprom may no longer be able to afford two pipelines. "The crisis has changed the profile of Gazprom, which in the past was so rich in cash," he said. "But now with very poor cash flow and mounting debt, it will become an easier partner for Europe."

Brightening the picture further for those hoping to break the bonds with Moscow, the EU was finally spurred into action after Russia's most recent energy spat with Ukraine left millions of consumers without gas for two weeks in January. In June, Germany and the six countries through which the Nabucco pipeline will pass finally gave formal backing to the project. Meanwhile, Nabucco has hired Mr Schroder's former foreign minister Joschka Fischer as a consultant. Construction is due to begin next year, with the first gas expected to flow in 2014. Some observers hope that the finalisation of Nabucco will teach the Russians that aggression is not always the best policy.