Sunday, July 5, 2009

Russian Natural Gas Python Seeks to Squeeze the Economic Life Out of Europe Gazprom Seeks Global Deals to Build Gas Grid Encircling Europe

By Stephen Bierman



July 3, 2009

OAO Gazprom, the Russian company that ships a quarter of Europe’s gas, is seeking supply deals in the Caspian, Africa and around the world to anchor its lead in areas where European buyers may turn to rival producers.

We would like to make the company global in terms of upstream presence,” Boris Ivanov, head of Gazprom EP International BV, said at the Gas Exporting Countries Forum in Doha, Qatar. “We are trying to position Gazprom in the areas where we think we need to be strategically present, like North Africa, West Africa, Latin America and Asia.”

Gazprom, the world’s largest gas exporter, is facing moves from European Union countries to diversify supplies as nations seek to cut reliance on Russia. By forging partnerships and snapping up production assets in gas-pumping nations, the company can add alternative sources of fuel while stamping out competition for customers in Europe, its biggest export market.

“The criteria are very simple: the availability of hydrocarbon reserves, proximity to the markets where we can bring it and, since our projects are time-consuming and capital- intensive, a friendly relationship with the host governments,” Ivanov said June 30.

Gazprom held talks in Algeria last month on developing the trans-Saharan pipeline from Nigeria, where it has agreed to bid for gas fields through a new joint venture and build a link to the north of the country. In the Caspian region, Gazprom signed a “milestone” deal to buy gas from Azerbaijan, threatening European plans to add the country as a source of supply.

Global Gazprom Grid

“Russia/Gazprom is now involved in all of the major gas- producing countries that can supply Europe,” Chris Weafer, chief strategist at Uralsib, said by e-mail. “In political terms the Iron Curtain is gone. In energy terms, it is being replaced with a Gazprom gas grid that may stretch unbroken from Nigeria via North Africa, the Gulf and Central Asia all the way to the Arctic Circle.”

[See Reticulated Python Fact File, accessible at: "The name "Python" can be traced back to Greek mythology. 'Python' often depicted as a "serpent" was the earth-dragon of Delphi which was consequently slain by Appollo. "Reticulatus" refers to the complex "netlike" geometric patterns that extended dorsally along the snake's body...These snakes are powerful constrictors and possess no venom... "; See also Terry Judd, Aggressive Python Killed by Trooper, Muskegon Chronicle (Aug. 19, 2008) accessible at: ].

Russia, holder of the world’s largest gas reserves and a recent entrant to the market for liquefied natural gas, met fellow members of the Gas Exporting Countries Forum this week in Doha to discuss a joint budget and appoint senior officials. Consuming countries have voiced concern that the forum’s members will club together to decide investment and output, modeling the group on the Organization of Petroleum Exporting Countries.

A “gas OPEC” would be the “final part of that jigsaw,” Weafer said, referring to state-owned Gazprom’s plan to have a role in all the biggest gas-producing nations. Russia has said the aim of the gas exporters group isn’t to fix prices.

Reciprocal Deals

Russia has been able to use access to its own ample hydrocarbon resources as a negotiating tool in talks with governments and energy producers overseas. Deputy Prime Minister Igor Sechin said June 19 that foreign oil producers seeking to operate in Russia should offer Russian companies participation in projects abroad in exchange.

The following week, the government invited Royal Dutch Shell Plc, the European oil producer that operates from Canada to West Africa, to cooperate in developing Gazprom’s Sakhalin-3 and Sakhalin-4 offshore deposits in the Russian Far East.

“Russia is bartering with Shell to get into its existing Nigeria business and ramp up Africa quickly,” Weafer said. “Sakhalin-3 and 4 are signs of goodwill.”

Gazprom is also contending with competition from producers of liquefied natural gas, a business untapped by the Moscow- based company until this year, as a gas surplus in the U.S. forces LNG exporters to seek EU markets for their fuel.

Divert LNG

Trinidad & Tobago has said it reduced its proportion of LNG shipments to the U.S. to 39 percent this year from 69 percent in 2008 as a result of falling prices there. Exports to Europe from the Caribbean nation grew 50 percent in the first quarter from a year earlier, according to International Energy Agency data.

The increase in Europe-bound cargoes followed a payment dispute between Russia and Ukraine in January that cut supplies through that country for two weeks and prompted calls in the EU for swifter diversification of energy routes.

The growth in U.S. gas supply has been led by so-called unconventional resources, fuel that’s difficult and costly to extract. Rising production of gas from shale, for example, has reduced U.S. dependence on LNG imports, leaving Trinidad & Tobago looking for alternative markets, Energy Minister Conrad Enill told reporters at the Gas Exporting Countries Forum.

Qatari Expansion

Qatar, the world’s biggest producer of LNG, is also encroaching on Gazprom’s traditional markets. The Persian Gulf state, poised to more than double LNG output to 77 million tons by 2011, has signed its first accord to ship the fuel to eastern Europe, which depends on Gazprom for most of its gas supply.

Qatar signed a contract this week to send 1 million tons of LNG to Poland, which gets more than two-thirds of its gas from the former Soviet Union. Qatar will deliver the LNG, or gas that’s been cooled to a liquid for shipment by tanker, by 2014.

Gazprom’s Ivanov dismissed suggestions that an increase of suppliers may threaten the company’s position in Europe.

“In terms of the European market, the more real suppliers that are present on the market - not the brokers, not the mediators - companies and countries with equity gas, the more stable the market is,” he said. “LNG, of which Qatar has plenty and is planning to increase production, is an important part of the energy balance in Europe. We don’t think of it as a threat or hostile.”

Gazprom in February entered the increasingly global market for LNG by opening Russia’s first liquefaction plant on Sakhalin Island, in partnership with Shell. Prime Minister Vladimir Putin on June 27 invited The Hague-based Shell to participate in the Sakhalin-3 oil and gas venture and also plans LNG projects in the Arctic Yamal peninsula with the Anglo-Dutch company.

Putin-Obama-Medvedev Menage a Trois

Russia Presents Test for Obama

By Michael A. Fletcher and Philip P. Pan

Washington Post

July 5, 2009

President Obama is scheduled to leave Washington tonight on a week-long trip that will help determine whether his personal popularity and fresh policy approaches can yield concrete results on difficult issues including arms control, missile defense and nuclear nonproliferation.

After seeking support for U.S. policies from allies in Europe and appealing for a new relationship with the Muslim world in Cairo on previous trips, Obama arrives in Moscow tomorrow for his first foray into high-profile, nuts-and-bolts negotiations with the leader of a nation that might be deemed an unfriendly rival.

On Wednesday, Obama will travel to L'Aquila, Italy, where he will meet with leaders of the world's major industrial powers. Climate change and the continued shaky global economy

are expected to dominate the agenda. He is also to meet with Pope Benedict XVI.

On Friday, Obama will go to Ghana, where he is expected to highlight that nation's burgeoning democratic tradition and to deliver a speech on his administration's goals for the developing world.

Shortly after taking office, the Obama administration made clear that it wants to "reset" relations between the United States and Russia, which had deteriorated under President George W. Bush. During Obama's first meeting with Russian President

Dmitry Medvedev, in London in April, the two agreed to a broad statement of cooperation on numerous issues.

Both the White House and the Kremlin hope to build on that with a summit in Moscow, and agreements on subjects including Afghanistan and nuclear proliferation are expected to be unveiled. But fundamental differences remain on key issues that have strained U.S.-Russian relations.

Medvedev wants U.S. pledges to scrap a missile defense system in Eastern Europe and to rule out military alliances with the former Soviet republics of Georgia and Ukraine. Obama wants Russia to back tough sanctions against Iran if diplomatic efforts to curb its nuclear program fail. Neither president has indicated any willingnes

s to yield.

"We're not going to reassure or give or trade anything with the Russians regarding NATO expansion or missile defense," said Michael McFaul, special assistant to the president and senior director for Russian and Eurasian affairs. "We're going to define our national interests, and by that I also mean the interests of our allies in Europe with reference to these two particular questions."

Sergei Prikhodko, Medvedev's c

hief foreign policy adviser, struck a similar tone. "Saying that it will be easy to move forward would mean deluding ourselves," he told reporters. "The domestic agendas of both leaders and their agendas in dealings with allies do not always coincide. Sometimes, they contradict each other directly or indirectly. But the question is . . . whether we want to expand mutual understanding or focus on defending our own positions on sensitive issues."

Obama is scheduled to meet on Tuesday with Prime Minister Vladimir Putin, whom analysts called the preeminent power in Russian politics. Obama told the Associated Press last

week that the former Russian president must move beyond a Cold War approach to relations with the United States.

The willingness of Obama and Medvedev to compromise will be tested when they discuss a treaty to replace the landmark START I nuclear arms control pact, which expires in December.

The United States and Russia control more than 90 percent of the world's nuclear weapons. After three months of talks, negotiators have agreed to modest reductions below the limits of 1,700 to 2,200 warheads established by the 2002 Treaty of Mosc

ow. But they remain deadlocked on how to count and limit the number of "delivery systems," or missiles and heavy bombers, that each nation can keep.

Medvedev publicly declared two weeks ago that no treaty is possible unless "the United States lifts Russia's concerns" about its plans to build a missile defense system in Poland and the Czech Republic.

Obama has not decided what to do about the system, said a senior administration official, speaking on the condition of anonymity because he did not want to discuss internal deliberations publicly.

The United States is reviewing other options for missile defense and has tried unsuccessfully to engage the Kremlin on the issue, he said. "We're serious about cooperation on missile defense with the Russians," he said. "But the sense is the Russians are still nervous and don't trust us."

Russian officials have publicly endorsed the idea of cooperation on missile defense, but have called on Obama to abandon the Polish-Czech plan first and emphasized they want to be included from the ground up, beginning with joint assessment of threats. The two sides have discussed opening a Moscow-based joint data exchange center.

Obama hopes to gain Russian cooperation on other topics, including energy efficiency and climate change. Russia is one of the world's largest energy producers, but it is also a leading emitter of greenhouse gases, behind the United States and China, according to the Center for American Progress.

The summit is expected to produce a deal allowing the United States to ship weapons to Afghanistan through Russia. The two sides may also agree to share intelligence and fight Afghanistan drug trafficking. Officials said the sides are also working to revive a pact on civilian nuclear energy cooperation that the Bush administration suspended after Russia's war last year with Georgia, and to strengthen military ties, also downgraded after the war.

Some business deals, including one involving Boeing, are also expected, analysts said, but they could be overshadowed by disappointment over Putin's decision to withdraw Russia's application for World Trade Organization membership last month.

Obama also is scheduled to deliver a speech in Moscow in which aides say he will try to dispel the feeling in Russia that America's self-interest lies in a weak Russia.

"This is not 1974. This is not just where we go do an arms control agreement with the Soviets, but that we have a multidimensional relationship with the Russian government and with the Russian people," McFaul said.

Russia Reconsiders WTO Accession at National Level; Favors Customs Union Approach Instead

CIS remains key priority of Russia, says Putin

China's People Daily Online


June 29, 2009

Countries of the Commonwealth of Independent States (CIS) are pivotal political and economic priority of Russia, said Russian Prime Minister Vladimir Putin on Sunday.

"Cooperation is profound. We have common transportation and energy networks and speak Russian," Putin was quoted by the Itar-Tass news agency as telling leaders of political groups in Russia's State Duma, the lower house of parliament.

The CIS, an alliance of 11 former Soviet Republics, groups Russia, Belarus, Kazakhstan, Kyrgyzstan, Azerbaijan, Armenia, Moldova, Tajikistan, Uzbekistan, Ukraine and Turkmenistan. Georgia withdrew from the bloc due to the South Ossetia conflict last year.

Putin also said that entering the World Trade Organization (WTO) remains on Russia's agenda, but "the customs union of Belarus and Kazakhstan has come to the forefront."

Russia, Belarus and Kazakhstan agreed on June 9 to start new talks on WTO accession as a single customs union, and thus suspend individual talks.

Russia, which has been seeking WTO membership for more than 15 years, is the largest economy remaining outside the global trade watchdog.

Putin also recalled the recent Yekaterinburg summits of the Shanghai Cooperation Organization (SCO) and BRICs (Brazil, Russia, India and China).

"We will build up cooperation in these formats," he said.


Georgia's parliament formally puts end to CIS membership

Yhiah News Agency

RIA Novosti

June 12, 2009

The parliament of Georgia unanimously passed on Friday decrees on the formal withdrawal of the former Soviet republic from the Commonwealth of Independent States (CIS), RIA Novosti reported.

Georgia notified the CIS executive committee of its desire to quit the Russian-dominated organization on August 18, 2008. The move came after a five-day war with Russia over the Georgian breakaway republic of South Ossetia.

"Georgia has already withdrawn from the organization... Therefore, today we are wrapping up this process by the proper decree formally and legally," parliament Speaker David Bakradze said after the first parliamentary session in two months amid mass opposition protests in Tbilisi.

The CIS currently comprises Russia, Georgia, Belarus, Kazakhstan, Kyrgyzstan, Azerbaijan, Armenia, Moldova, Tajikistan and Uzbekistan. Ukraine is a founding and participating country but technically not a member state. Turkmenistan holds associate status.

Following a CIS foreign ministers` meeting in Kyrgyzstan last October, Russian Foreign Minister Sergei Lavrov said Georgia`s withdrawal would change nothing and Tbilisi`s participation in the post-Soviet alliance had been malign in recent years.


Analysis: Implications of Georgia leaving C.I.S.


United Press International (UPI).com

June 9, 2009

WASHINGTON, June 9 (UPI) -- Georgia hopes to continue its free-trade arrangements with members of the Commonwealth of Independent States after its withdrawal from the organization takes place on Aug. 18. Given the aftereffects of its ill-advised five-day military clash with Russia last August, that may prove to be a forlorn hope, as the confrontation reminded the other Caucasian former Soviet republics of Azerbaijan and Armenia that Moscow is determined to protect what Russian President Dmitry Medvedev has labeled its "privileged interests" in the former Soviet space.

Georgian President Mikheil Saakashvili's determined attempts to bring his country into NATO have increasingly soured relations between Washington, Brussels and Moscow for the last several years, as the Kremlin has repeatedly stated that neither Georgia nor Ukraine should be admitted to the alliance. Heightening Moscow's fears of being outflanked in the Caucasus, from May 21 to June 1 NATO staged its Cooperative Lancer 2009 exercise at Georgia's Vaziani military base, with about 700 soldiers from 13 NATO member nations participating alongside Georgian troops.

The West can hardly feign disinterest, as the crown jewel of Western efforts to bring Caspian oil westwards for export, the $3.6 billion, 1,092-mile, 1 million-barrel-per-day Baku-Tbilisi-Ceyhan pipeline, opened in May 2006, carries Azeri crude from Azerbaijan's Caspian offshore Azeri-Chirag-Guneshli fields to Turkey's deepwater Mediterranean terminus at Ceyhan, crosses 155 miles of Georgian territory and contains two of the line's eight pumping stations.

On June 8 Interfax news agency reported that Georgia's Economic Development Ministry's Department for Foreign Trade Policy head Marina Machavariani told reporters that Georgia hoped that its current free-trade arrangements with C.I.S. member states would remain intact following Georgia's withdrawal from commonwealth. Attempting to soften the prospect of significant damage in its relationships with the C.I.S. after that date, Machavariani observed that there are international regulations allowing use of mechanisms of free movement of goods between Georgia and certain countries, commenting, "To date, Georgia has already signed bilateral free trade agreements with eight C.I.S. countries. With Azerbaijan and Ukraine, which are GUAM (Georgia, Ukraine, Azerbaijan, Moldova) member states, Georgia also has free economic zone agreements." Machavariani concluded by noting that the GUAM nations account for up to 65 percent of all Georgian exports.

What Machavariani's optimism glosses over is that Ukraine has significant issues with Russia that dwarf its commitments to Georgia. Kiev suffered a brief "gas pipeline" war with Moscow in early January, which forced Ukrainian President Viktor Yushchenko's government into a humiliating climb-down on pricing.

Another prickly issue irritating Russian-Ukrainian relations is the status of Sevastopol, the finest natural harbor on the northern shore of the Black Sea and currently jointly shared by both the Ukrainian navy and Russia's Black Sea Fleet. Last but not least, Yushchenko's government is embroiled in a bitter fight for political survival, with some recent political polls giving Yushchenko a dismal 5 percent approval rating. In sum, the above issues hardly incline Ukraine further to antagonize Russia by broadening its contacts with Georgia following its withdrawal from the C.I.S., an organization in which Ukraine remains a member.

Azerbaijan also has less than perfect relations with Tbilisi, despite being conjoined by the BTC oil umbilical cord. The Russian-Georgian military confrontation inflicted significant fiscal "collateral damage" on Azeri oil exports, as all its westward export routes were closed.

On Aug. 5, 2008, two days before the outbreak of hostilities between Georgia and Russia, there was an as yet unexplained explosion on the BTC segment at Yurtbasi village in eastern Turkey. The cause of the explosion remains unclear, although Ankara initially suspected that it might have been a terrorist attack by the Kurdish separatist Partiya Karkeren Kurdistan, or Kurdistan Workers' Party. BTC operator BP declared force majeure, and the pipeline only resumed operations on Aug. 25.

Seeking an alternative route, BP switched to the recently reopened 550-mile, 140,000-bpd Western Route Export Pipeline, better known as the Baku-Supsa line, which opened in 1999 and was running at about 90,000 bpd. Because of the worsening military conflict, on Aug. 12 BP announced that it was suspending shipments through Baku-Supsa, as well as the South Caucasus Pipeline, which transports natural gas from Baku to Turkey via Tbilisi. Completing the lock-in of Azeri oil exports, the fighting caused authorities to suspend seaborne shipments from Georgia's Black Sea ports of Batumi (200,000 bpd) and Poti (100,000 bpd), both supplied by rail. Poti was closed Aug. 8 following reported Russian airstrikes. Adding to the grim picture, authorities also ceased exports from Kulevi, Georgia's third Black Sea oil terminus, which opened in 2007 and is capable of shipping 200,000 bpd.

For Azerbaijan the conflict was an unmitigated financial disaster, as the country's oil sector receipts account for almost half of all government revenues, with oil exports generating around 90 percent of total export revenues. Between the BTC explosion and the military clash, Azerbaijan had been blocked from shipping approximately 17 million barrels of crude, while the U.S. Department of Energy estimated that Azerbaijan's final cost for the lost shipments surpassed $1 billion.

Georgia suffered lost revenue from the confrontation as well: In 2007 BTC fees generated $25.4 million in transit revenues, and before hostilities erupted Saakashvili's government had estimated BTC transit payments for 2008 at about $45 million.

For the remaining members of the C.I.S. then, the choices are stark -- continue relations with Georgia after Aug. 18 as before, thereby tacitly approving Tbilisi's confrontational posture vis-a-vis Moscow and risking Russia's wrath, or pay heed to Medvedev's "privileged interests" in the Caucasus. While little is clear in that part of the world, last year's military clash has given former Soviet states significant food for thought about what happens to former Soviet republics that ignore Moscow's concerns and stray too far westwards. Accordingly, it would seem unlikely that C.I.S. nations are likely to follow Saakashvili's lead or conduct "business as usual," unless Tbilisi somehow repairs its unraveled relationship with the Kremlin first.