Gas is the political and diplomatic tool Russia is currently using to win over large shares of markets in the West but also in the Far East.
Mother Russia’s vast territory boasts immense energy resources, especially gas and oil. In the hands of the Kremlin, these resources represent a powerful geopolitical instrument. Russian energy resources are required to feed the development of European and Asian countries in need of a stable, reliable and, if possible, cheap energy supply.
The pipeline network that distributes Russia’s precious oil and gas also traces a clear map of its geopolitical relations. The main direction is an axis crossing the Russian territories from east to west, transporting natural gas through the North Stream pipeline all the way to the German Greifswald terminal on the Baltic coast, as well as the oil that flows through the Druzhba pipeline (with its multiple branches: Druzhba 1 and 2 in Slovakia and Belorussia) to various countries in Central and northern Europe.
The Russian company Gazprom had been developing plans for the construction of the South Stream gas pipeline for some years, which would connect Russia to Bulgaria. From there, gas would be distributed to the rest of continental Europe. A key objective of the project had been to bypass Ukrainian territory due to the then ongoing Russia-Ukraine gas disputes. The events of 2014, however, changed this calculation. Russia annexed the Crimea. A separatist war began to take place in the Donbas region of Ukraine. After the consequent introduction of international sanctions against Russia, the Kremlin decided to cancel the South Stream project, shifting its attention towards a route through the Black Sea to Turkey and then on towards the Adriatic with the Trans-Adriatic Pipeline (via Greece and Albania to Apulia in Italy) and north to the Balkans and the Underground Gas Storage (UGS) hub in Baumgarten in Austria. Following the souring of relations between Moscow and Ankara when Turkish forces shot down a Russian military aircraft on 2 December 2015, the Turkish Stream project was also immediately shelved. The failure to come up with alternative routes that do not pass through Ukrainian territory has led to the proposal of a Russian- German project to double the throughput of the North Stream gas pipeline. This would be a joint venture including Gazprom (with a 51% stake) and the German energy companies BASF and E.On, as well as the Austrian OMV, Royal Dutch Shell and the French Engie. North Stream 2 (NS2) would enable Russia to meet its target of exporting up to 160 billion cubic metres of natural gas annually between 2016-2018. This underlines the strategic importance of the gas hub in Greifswald from which, thanks to an efficient logistical and commercial system, the liquid natural gas would head to markets in Central and Western Europe through two large pipelines: the NEL (Nordeuropäeische Erdgasleitung) and OPAL (Ostsee-Pipeline- Anbindungsleitung).
In this plan, NS2 would also involve upgrading the north-south axis from the Austrian hub in Baumgarten, which serves the south-east of the Old Continent. Naturally, the NS2 project would create a significant disruption in the geopolitics of Euro-Russian energy relations. It is already being met with bitter resistance from some Eastern European countries, above all Poland and Slovakia, who stand to lose significant revenues from transit rights that they currently collect for transporting gas via the Belarusian gas pipeline Jamal-Europa and the Slovakian pipeline Urengoj-Pomary- Užgorod.
The low cost of extracting hydrocarbons in Russia is the key factor enabling the Kremlin to maintain maximum output at its various production centres (in particular Krasnojarsk, Irkutsk, Jacuzia and Sakhalin). It will also allow Russia to allocate energy resources to China through the development of the Altai gas pipeline project (northsouth) and the Power of Siberia pipeline (east-west). Both projects are aimed at maximizing energy exports towards the Orient, and will take advantage of the long border between Russia and China in the Far East.
In light of the events that began in Maidan Square in Ukraine in 2014 and the nosedive in diplomatic relations with Erdogan’s Turkey in 2015, Russian President Vladimir Putin has been developing a new geopolitical approach to energy provision. He has been establishing a reinforced Russia-Germany axis (to the detriment of the Mediterranean basin and the former Soviet satellite states such as Belarus, Poland, Slovakia and Ukraine), which recognises Europe as a crucial export market for Russia’s huge resources of gas and oil.
The other large market, key to the Kremlin’s strategy of gas pipeline diplomacy, is that of the People’s Republic of China. As part of a move to diversify its markets, Russia signed an important agreement with its Chinese neighbour in 2014 to supply liquefied gas worth hundreds of billions of dollars. The cooperation is part of a strategic partnership that will include the construction and reinforcement of critical infrastructure and the development of long-term relationships, not only of a commercial nature, along with ongoing dialogue and strengthening cooperation.
China stands to benefit from Russian energy, not only to feed its own economic development but also in order to partially replace the use of coal that is suffocating significant areas of the country. Likewise, Russia is assured of a contract to provide huge volumes to a long-term client that is not involved in the international sanctions being levied against the Kremlin. More importantly, such a deal would send a strong signal to the European Union and the United States.
Finally, the future development of Russia’s pipeline network deserves special consideration. The fall in oil prices has made Russian influence doubly onerous. Prices have been oscillating at around 30 to 35 dollars a barrel, and there has been a similar trend in the price of natural gas. And the extraction and production of Russian oil has not been “unbundled” (natural gas has not been separated from the operation of transmission networks). This means that Gazprom is able to take full advantage of its double role as energy producer and energy distributor, but these roles also come with clear challenges both now and in the future. The question remains: how much can Russia’s geopolitical position be effectively reinforced or tempered in the coming years through the use of gas pipelines as a means of exerting diplomatic pressure in light of the long-term handicap on the price of energy resources.
Gas is the political and diplomatic tool Russia is currently using to win over large shares of markets in the West but also in the Far East.
