Russia, Ukraine and natural gas, once more…

Once again Russia and the Ukraine are at it over the issue of the latter’s unpaid gas bills. Out of the 390 cubic metres of Russian natural gas that go through Ukrainian territory each day, 300 are bound to be transited to other European countries. While Gazprom, Russia’s natural gas monopoly, has announced it has limited its deliveries to these 300, final destinations, among them Bulgaria and Romania, have been experiencing a drop in deliveries, something which has raised suspicions that Ukraine is siphoning off gas meant for transit rather than its own consumption. Ukraine on the other hand is claiming this is happening for technical reasons. Since siphoning off is what is generally assumed to have happened the last time we saw a similar row, it is difficult to make this claim and still expect people to believe you. Nervousness is about and the European Union’s Czech presidency has demanded the conflict be resolved quickly so as not to jeopardise deliveries and is also attempting to mediate.

This situation has several interesting features to it. First of all, this is not merely a show-off of Russian power (even though there is an element of it in there); there is no doubt that Ukraine has been receiving subsidised gas all this time and there has for several years been a genuine eagerness on the part of Russia to receive prices closer to the correct market value and this has not only affected Ukraine but also Belarus, which has had a far cosier relationship to its neighbour these past years, to no avail. Secondly, it is likely to have an effect on Ukraine’s relationship to the European Union. If, yet again, Ukraine is indeed siphoning off gas that is meant for EU countries, irritation is likely to rise. It might increase support for the new Russian pipeline running across the Baltic Sea, circumventing the most troublesome transit countries, and thus in the long run make Ukraine less able to rely on the EU to exert pressure on its main energy supplier. Russia could easily live with such an outcome. Ukraine on the other hand might have to enjoy a somewhat colder day after tomorrow. There is after all no coincidence that these conflicts have a tendency to erupt during winter time.

EU, Russia and the Gas

There is intensive debating regarding the European Union’s relationship to Russia within the energy sphere at the moment. It has been specially visible with regards to the North European Gas Pipeline (NEGP) that Gazprom, the Russian state gas monopoly, wants to put on the bottom of the Baltic Sea. In Sweden the discussion has been somewhat heated, because the pipeline would pass within the boundaries of Sweden’s economic zone. Many people obviously do not feel at ease with this, since they fear increased military activity on behalf of Russia in the region. Environmental issues have also been raised, even though this is most likely an attempt to simply hide the fact that what lies behind all of this remains the angst with which these people look at Russia. Putting a pipeline on the bottom of the sea without setting off any disposed of chemical weapons from World War II should not constitute a severe difficulty; after all it is not the first thing put there. Also, an increased military presence in the Baltic Sea might look threatening, but is not the most serious of scenarios in this case.

What should be, and to some extent is, of concern in this matter is the subject of energy security. The question is not whether the European Union will grow dependent on Russian gas. It already is. In 2005 the Russian share of EU gas imports was 50%. (Larsson, Robert. Sweden and the NEGP – A Pilot Study of the North European Gas Pipeline and Sweden’s Dependence on Russian Energy. FOI 2006) That is obviously a dependency too large to be ignored. At the same time, and this too is of vital importance for understanding why there even is an NEGP, the EU share of Russian gas exports amounts to 60% (Larsson, 2006).

The term energy security has a dual meaning in Russia- EU relations. In the EU it refers to the access of a stable flow of energy from a reliable provider. For Russia it means to be able to control its own flow of exports. These interpretations, as we shall see, are highly correlated and at the moment neither is fulfilled to an extent that would satisfy both parties. First of all, Russia prefers to negotiate on a bilateral basis in these questions, i.e. not with the EU as a whole, but with the recipient buyers, e.g. Germany, directly. So far, Germany, which is a huge consumer of Russian gas, has been fine with this. Russian gas exports today go through the Ukraine, Belarus and Poland. Not only are these countries able to charge transfer fees for having the pipelines run through their territories, they also receive their own imports through the same system. When arguments have arisen about the heavily subsidized gas tariffs that CIS countries, such as Ukraine and Belarus, pay for the gas they use themselves, Russia has not long ago on two separate occasions responded by turning off the tap. It is not the same as shutting down Germany, because gas still flows there, but there is a very noticeable effect there as well, as could be witnessed during the Ukraine/Russia gas crisis in 2005/06. When such an important customer like Germany is affected, it serves to tarnish the reputation of Russia as a supplier. Energy security is nowhere.

Therefore, Russia is building the NEGP, thus bypassing the troublesome countries, which, supposedly, will give both Russia and Germany (other countries too would benefit, of course) energy security. At least one would think. However, there are other factors involved that are cause for alarm. Firstly, it is about the old transit countries, since Russia would then be able to put pressure on them without jeopardising the relationship with bigger and more important customers. Also, it could punish these larger countries without having to involve the others should they wish so. Of course Russia claims it would never do the latter and while they do they like to point to the fact that the Soviet Union proved to be a reliable energy supplier for Western Europe throughout the cold war. The situation now is, however, somewhat different for this to have any bearing on what we are discussing here. First of all, energy exports were a vital source of foreign currency, which the Soviet Union was constantly lacking but which Russia could not care less about at the moment. Also, modern Russia has on several occasions proven that, if deemed necessary, it does not hesitate to use the energy weapon against countries that have in some way displeased it.

But would Russia really use these methods against the EU? Probably, if it wanted to. Russia is fairly good at creating wedges and Poland, heavily dependent on Russian gas, has continuously not only resisted Russian pressure but also offered one or two provocations of its own. Now one might comment that still Russia has not punished Poland using the energy weapon (it has, however, used other types of pressure such as import restrictions on Polish goods), which might make it tempting to believe that these dangers are exaggerated. Not necessarily, since Russia might have resisted out of a concern that such actions would hurt what it believes to be more important EU customers. With the NEGP it would not have to worry. The interesting part is how these big clients would react to a Russian threat against Poland (or why not one of the Baltic countries which too have strained relations with Russia) that does not affect them directly. Objecting might cause Russia to turn part of its anger towards these countries as well. That is the problem of being dependent on someone. Energy security for Russia, but not for the EU.

There is absolutely nothing wrong with building the NEGP. The pipeline itself does not constitute a major security issue. The problem lies within the lack of diversification when it comes to securing the energy needs of the EU. More domestic energy production combined with a larger share of energy imports from other countries than Russia could solve this problem. Building the NEGP would also serve the purpose of strengthening the ties between Russia and the EU. As stated earlier, half of EU imports of gas come from Russia, while 60 % of Russian gas exports go to the EU. It is not only Europe that is dependent on Russia. Russia today lacks the infrastructure to let the gas flow in the other direction; China would then be the most likely recipient. But even though Russia has hinted that it might reconsider the EU as its primary export market for gas in the future, it also sees China as its main competitor in many ways. China becoming richer and more powerful might not be stoppable, but it is unlikely that Russia will go out of its way to offer a helping hand in this respect. Russia wants to be an energy supplier to the EU, it just should not be an almighty one that does not need to consider the consequences of how it treats its customers. The European Union could avoid being solely dependent on an energy supplier that on numerous occasion has proven unreliable. That would mean energy security for everyone.