Thursday, 2 July 2009
The Great Game, 2009-Style
Europe needs gas, of which there is no shortage. Although LNG brings welcome diversity, pipeline gas costs less, and Russia has the biggest reserves of the lot. But Russia is a bit strapped right now, as CU pointed out on Monday.
Ordinarily there would be a number of sensible ways around this dilemma: but Russia likes to play silly buggers, they feel it’s worked well for them over the years.
Current attention is on a new supply route for EU countries in the south and east, who need increasing amounts of gas as they decommission really old coal and nuclear power plants. For diversification, the EC’s favoured project is the ‘Nabucco’ pipeline, a rather complex scheme which would bring gas from a catchment area of non-Russian states through to Austria and Italy.
Russia’s game is as follows. They’ve invented ‘South Stream’, a rival project, or more accurately a paper concept, which would fulfil the same purpose but with gas from Russia – and a lot less multi-national complexity. As usual, they spend no money on it, but they’ve leaned on the Italians – always suckers for a ‘special relationship’ with Gazprom - to give this less-than-tangible scheme some cred. It's unlikely both schemes could proceed.
Every time Nabucco takes another step forward, Gazprom announces some new degree of 'commitment' (short of actual cash, you understand) to South Stream, causing potential customers for gas from either system – from any system, really – to feel a bit cautious about committing concretely to purchasing Nabucco gas.
Paralysis is the result. Gazprom believes – with some justification – that this plays straight into their hands, pushing up the eventual price of gas. Hint to Russia: when (many years hence) you have succeeded with the gas price, you’ll find that LNG import terminals cost a lot less, and are built a lot quicker, than pipelines …