Energy: Europe’s Escape Routes from Moscow

Wary of Moscow’s stranglehold on natural gas supplies, the EU hopes several planned pipelines will provide a way out.

Energy analysts like Fariborz Ghadar, director of the Center for Global Business Studies at Penn State University in the United States, say that by 2030 Europe could need to import as much as 80 percent of its natural gas.
“The reality of the thing is that if you look at where the gas is, the gas is in Russia and it is in Iran. Those are where the largest reserves are. Right now, the Russians basically have a stranglehold on the whole thing,” Ghadar said.

The markets for natural gas and oil work differently. There is a real world market for oil, and traders can buy on the spot market in places like Singapore or Rotterdam without being dependent on one source.

The EU gets most of its oil from Russia as well, but analysts say Russia plays nicer with its oil — largely because of this market fact. Yet the EU is backing several oil pipeline projects that, while still pumping Russian oil, would at least largely circumvent Ukraine and Belarus and translate into more direct routes to southern Europe, which looks poised to become a new energy gateway for the rest of the EU.

In January, Macedonia, Bulgaria, and Albania agreed to build the Albanian Macedonian Bulgarian Oil Corp. (AMBO) pipeline, which will stretch almost 1,000 kilometers across the Balkans, transporting Russian oil from the Black Sea to the Mediterranean.

Next year, ground is expected to break on the Burgas-Alexandroupoli pipeline, a collaboration between Russian and Greek companies. When completed in 2011, it is expected to pump an annual average of 20 million tons of oil from the Bulgarian Black Sea port of Burgas to Greece.

In early April, Croatia, Italy, Romania, Serbia, and Slovenia signed an agreement to build what is being called the Pan European Pipeline, expected to stretch 1,400 kilometers between the Black Sea and the Italian port of Trieste, where some estimated 40 million tons of oil a year should flow into existing pipelines that feed Austria, the Czech Republic, and Germany.

Russia, by and large, is happy with these projects, experts say, since they are simply alternative ways to get Russian oil to European customers.

It is the EU’s strong backing for the Nabucco pipeline that is generating tension with Russia. Nabucco is expected to run 3,300 kilometers between the Caspian Sea and Austria, through Turkey, Bulgaria, Romania, and Hungary. It is being overseen by five energy companies (each from one of the countries along the line), and the proposed 4.6-billion-euro pipeline could pump nearly 30 billion cubic meters of natural gas a year to Europe when it is fully operational, according to reports.

“Of course, the whole purpose of Nabucco is that this would be the one pipeline that comes out of Central Asia that isn’t controlled by Russia,” said Katinka Barysch, an energy expert and head economist at the Center for European Reform in London. “The Russians are very aware that if the Europeans get their act together this would undermine their strong position, so they’re trying to act on it early.”

Business Week