Koszalin Institute
of Comparative European Studies (KICES)

ul. Zielona 13/1
75664 Koszalin
 
Poland

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Pipeline politics in Eurasia: conflict and co-operation
Researcher responsible: Dr Andreas Heinrich
Duration: since 2005

Research questions and analytical framework

The global energy resources (oil, gas) are geographically highly concentrated in the so-called strategic ellipse - reaching roughly from Russia over the Caspian region to the Persian Gulf. It contains around 70% of the world’s oil and around 68% of the world’s gas reserves.

In modern, industrial societies, which are mostly net energy importers, energy security has become essential for economic welfare and political stability. Therefore, energy policy, and as a part of it pipeline policy, is strongly linked with security and foreign policy.

The aim of this study is to analyze the potential for conflict and cooperation in Eurasian pipeline politics. The major oil and gas producer in Eurasia is the Russian Federation. While the Russian gas sector is dominated by the gas monopoly Gazprom, the oil sector is much more fragmented after privatization.

The analysis of the potential for conflict and cooperation concentrates on the following case studies: (1) Transneft and the Baltic transit states over the export routes for Russian oil; (2) Gazprom and the transit countries for its gas exports (Belarus, Ukraine and Poland) as well as between Gazprom and the Central Asian gas producers, its competitors; (3) Russia and the Caspian littoral states Kazakhstan and Azerbaijan over the transport of Caspian crude oil to world markets; (4) the competition between the US, the EU and Southeast Asia, especially China and Japan, on the demand side of Russian and Caspian energy exports; and (5) conflicts between suppliers and consumers of energy.

With its focus on pipeline politics, this study’s emphasis is on the interaction between Russian energy policy and foreign policy and the use of energy policy as a means of Russian foreign policy. The intertwining between foreign and energy policy by Russia often leads to conflicts with countries in Eurasia. They have accused Russia of using its energy supplies as a ”weapon” to undermine their independence.

The following research questions should be addressed to all five case studies mentioned above: (1) What kind of behavior patterns and strategies - cooperation, avoidance or conflict - can be distinguished among the actors involved on the country and company level? (2) What are the motives for this behavior? (3) How has an energy policy to be designed to avoid conflicts and to ensure the energy security of the consumer countries? Occurring conflicts will be distinguished - according to their relevance - in conflict episodes, issue conflicts, identity conflicts and subordination conflicts, which is important for the design of a more cooperative energy policy.

Conflict potential

The above mentioned five case studies bear conflict potential which will be briefly described in the following.

Transit countries

In the Soviet era and still during the 1990s, Russian oil exports went through the Baltic ports of Ventspils (Latvia) and Butinge (Lithuania) as well as through the Black Sea ports. When the Baltic states turned towards the West, joining NATO and the EU, Transneft started to look for new export routes avoiding the Baltic ports.

For political reasons the company did not extend the existing infrastructure to and in the Baltic ports. In late 2002, Transneft stopped the supply of crude oil to Ventspils altogether which has been supplied since then only by train. Butinge has so far avoided the fate of Ventspils due to the fact that the Russian oil major Yukos holds a majority stake in the harbor through its shareholding in Mazeikiu Nafta.

Instead, Transneft has concentrated on the development of the Baltic Pipeline System (BPS) which connects the Russian ports Primorsk and Vysotsk on the Gulf of Finland with the oil producing regions in Western Siberia.

Gazprom’s main activities outside Russia include the expansion of export capacities and the struggle for control over transit pipelines in Eastern Europe. Since the early 1990s, the importance of the former Soviet Union (FSU) as an export market for Russian gas has been decreasing due to the widespread use of barter and a serious non-payment crisis in most of the countries. This situation has only slightly improved.

Nevertheless, the Western FSU states - especially Ukraine and Belarus - are important for Gazprom as transit countries to Central and Western Europe, its main markets. Until now, Russian natural gas - for Western Europe as well as for Southeast Europe and Turkey - has been exported mainly via Belarus and Ukraine. After the collapse of the Soviet Union, conditions for the transport of natural gas from Russia to Western Europe changed radically. The newly independent states, Belarus and Ukraine, introduced transit fees which made Russian gas exports more expensive. In addition, the transit countries have often forced Gazprom to accept a compromise on their debts for natural gas deliveries. Ukraine especially has tried to use its near monopoly position (more than 80% of Gazprom’s exports are shipped through Ukraine) on Russian gas transit to Western Europe to offset its weak position as a customer for Russian gas and as a debtor to Gazprom. Due to long-standing quarrels with Ukraine about transit fees and accusations that gas has been siphoned off during transit, Gazprom has developed plans for alternative transit routes to break Ukraine’s transit monopoly and to reduce transit across FSU countries as much as possible.

One of the alternative transit routes is the Yamal-Europe pipeline from Western Siberia, bypassing Ukraine and instead going directly through Belarus and Poland and further on to Germany. However, the construction of such pipelines can at best moderate the problems with Ukraine, because alternative export capacities will not be enough to stop transit through Ukraine altogether and Belarus too is causing similar problems for gas transits. Additionally, Gazprom has been trying for years to swap these countries’ debts for stakes in their gas transit infrastructure. This strategy has been successful only in Moldova and partly in Ukraine. Belarus has ignored all related demands for geopolitical reasons.

Therefore, to side-step the difficult energy relations with Belarus, Gazprom is planning an underwater pipeline from the Russian Vyborg to Germany. The North European Gas Pipeline (NEGP) would avoid any transit country - like the ”Blue Stream” pipeline underneath the Black Sea which connects Russia with Turkey. However, neither will be able to replace the existing pipelines due to their limited capacities.

Weakening the Central Asian and Caspian competitors

Gazprom is trying to weaken the position of Central Asian gas producers, which are attempting to reach the world market. Since all producers in the former Soviet republics of Central Asia need the Russian pipeline system for gas exports beyond the region, Gazprom has so far been successful. But Central Asian producers have been planning alternative export pipelines avoiding Russian territory. Most of these ambitious plans, however, are unlikely to be realized.

In order to solve the transit problem and eliminate Central Asian competitors, Gazprom is aiming to establish a unified energy sector within the FSU. This project is promoted by the Russian government. The main instrument for its realization is the acquisition of controlling stakes in energy companies in the relevant states. Gazprom has succeeded in securing property rights to gas companies and in forcing the establishment of joint ventures.

As of the end of the 1990s, however, Gazprom has to a certain degree become dependent on Central Asian gas producers, because the Russian company has not been able to fulfil all its delivery obligations with domestic production. In the medium term Gazprom also needs Turkmen gas for the ”Blue Stream” pipeline to Turkey.

To bring the oil wealth from the Kazakh Tengiz field to world markets, the Caspian Pipeline Consortium (CPC) was established in 1992 to build a new export pipeline. Originating as a joint venture between the governments of Kazakhstan and Oman, a new agreement in 1996 gave Russia a 24% stake in the pipeline which runs to the Russian Black Sea port Novorossiisk. Via its joint venture LukArco the Russian Lukoil is also participating in the pipeline project.

Caspian oil from Azerbaijan was pumped first via the existing pipeline to Novorossiisk. The main hindrance became the fact that the Russian section of the Baku-Novorossiisk pipeline runs through civil-war-ridden Chechnya. Therefore, and to preserve its independence from the Russian transport monopoly, Azerbaijan decided to simultaneously construct pipelines to the Georgian Black Sea port of Supsa and to the Turkish Mediterranean port of Ceyhan. These two options were heavily opposed by Russia, which did not want to lose control over the transport of Caspian oil, but were supported by Western consumer countries, especially the US.

Competition on the demand side

Energy security and the diversification of energy supply has always been an important political topic for industrialized economies. In the main consumption regions of Europe, Japan and North America a remarkable increase in energy demand is expected. Therefore, and due to the emergence of new and dynamic growing energy consumers in Southeast Asia, primarily India and China, the importance of energy security has increased.

Russia, as a large energy exporter, has taken this into account and has reshuffled its export structure accordingly. According to the Russian Energy Strategy for the period until 2020, Russian oil and gas exports are going to increase. However, Europe’s importance as its traditional destination is declining. Exports to China, Southeast Asia and the US will make up the highest share in Russia’s increased exports of oil as well as natural gas. China, Southeast Asia and the US will be responsible for 58.9% of the increase in Russian oil and 75.9% of the increase in Russian gas exports by 2020.

The increasing competition among consumers raises the question if this can still lead to a common, cooperative policy between the EU and the US on pipeline issues in, for instance, the Caspian region or if their national concepts and strategies of energy security bear the potential for conflict. One conflict occurred, for instance, over the exclusion of Iran as a transit country for possible pipeline routes from the Caspian region to world markets.

Conflicts between suppliers and consumers

While Russian oil and gas exports to the EU are more or less undisputed, the EU has demanded reforms of Russian energy market regulations. The EU wants Russia to open its gas pipeline network to third (and among them foreign) parties, to increase prices for domestic gas consumers (i.e. to reduce indirect subsidies) and to accept the EU anti-trust trading rules, which would allow the re-sale of Russian gas by Russia’s EU customers.

The underlying problem in the EU-Russia energy partnership is quite fundamental. Russia sees the partnership primarily as an instrument to obtain a long-term commitment for energy supplies to the EU and to gain (not least financial) support for the development of export infrastructure. The EU on the other hand has the aim to integrate Russia into the Common European Economic Space, based on common liberal rules for market regulation.

These demands have led to open disagreement, highlighted by the Russian refusal to ratify the European Energy Charter. In the Russian opinion the EU demands deal with internal Russian affairs and seem designed with the primary aim of discriminating against Russian companies participating in the EU energy markets.

Execution

To execute the aim of the study and to analyze the interaction between energy policy and foreign policy and the use of energy policy as a means of foreign policy, a political economy approach has been chosen.

To achieve a satisfactory study design, the state of academic research into the topic will be assessed and case studies of the single pipeline projects will be presented. The period under review covers the years 1991 to 2005. The strategies of the involved actors, cooperation - avoidance - conflict, will be analyzed and categories of conflicts will be developed as well.

In order to assess the relevance of conflicts, Diez et al. (2004) propose a typology of conflicts in foreign relations. They distinguish between conflict episodes, issue conflicts, identity conflicts and subordination conflicts. Conflict episodes are isolated instances of disagreement on a particular issue. Issue conflicts arise when both parties insist on their position on a particular issue and are unwilling to compromise. In identity conflicts a general suspicion about the motives of the other side replaces disagreement on a specific issue. The conflict is widened in its scope and negotiations are hampered by a general feeling of distrust. Subordination conflicts then try to solve the conflict through subordination of the other side. Negotiations are replaced by economic sanctions and/ or military force.

The following working hypotheses will be tested:

(1) ”Path dependencies” and a Soviet legacy seem to indicate that Russia, in its foreign and energy policy towards countries of the FSU, mostly follows the line of domination (conflictive strategy) rather than choosing cooperative strategies.

(2) When these confrontational Russian strategies in the countries of the FSU failed - as, for instance, in the cases of the Ukraine and Poland - and Russian foreign policy goals were not reached, Gazprom thus became engaged in alternative pipeline projects to bypass these countries. Instead of cooperation, a strategy of avoidance has prevailed.

(3) FSU countries are so unreliable (or are perceived to be) for Russian energy policy that a cooperative strategy is only chosen when Western partners are also involved in a pipeline project.

(4) Potential conflicts among consumers and the pursuit of national interests rather than cooperation in energy issues might just enable Russia to stick with its conflictive strategies.

(5) US energy security is served best if US energy policy in Eurasia is coordinated with the EU. Cooperation brings the best results for both consumers - it limits the conflict potential, increases the resources and limits the possibility of Russia blockading exploration and/ or transportation projects.

While the first two working hypotheses are related to the first research question (analyzing the strategies of the involved actors), hypothesis three deals with the motives of the actors (question two) and the last two hypothesis are related to research question three (regarding the design of a future energy policy).

Besides publications of the EU as well as of the involved governments and corporations (company reports, analyses and press releases), sources from different data bases will be used and the academic research on the topic will be scrutinized. For a comparison of the different strategies of the US and the EU, official US sources will be used.

Progress report

The project began in summer 2005. From September 2006 to May 2007, research was conducted at the Woodrow Wilson International Center for Scholars in Washington, DC.

In the first project phase, an analytical framework was be developed and methodological questions were resolved. A first case study on Poland was finished.

In a second project phase, to be conducted at the Institute of Sociology (Slovak Academy of Science) in Bratislava from March to October 2008, several more case studies will be added.

Publications

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