Yes, more energy politics! Let's recap. Turkmenbashi died early Thursday, and the possibility of a succession struggle (which as far as we can tell is not occurring) made Europe nervous about its supply of natural gas. Most of this natural gas comes from Turkmenistan through Russia under the control of Gazprom. On the same day Gazprom signed deals with the foreign majors (Shell, Mitsui, and Mitusbishi) in the Sakhalin II oil-gas project to take a 50%+1 majority stake in the project. The project had been under threat of a multi-billion dollar lawsuit relating to environmental damages.
Now the updates. Turkmenistan is stable, although the consensus is that acting President Berdymukhamedov is not a permanent choice. Possibilities include top military and intelligence officials as well as Niyazov's son Murat. The continuing supply of Turkmen gas seems assured. Europeans can breathe a sigh of relief.
Under Turkmenbashi, the country's official foreign policy was neutrality. In terms of energy, this meant waffling back and forth between exports to Russia and support for the EU/US Trans-Caspian pipeline, part of a long string of pipelines which would bring natural gas from the east side of the Caspian Sea into Europe and avoid Russia and Iran. Here is a map, the design of which was outsourced to several resourceful third-graders:
Russia was obviously against this idea, and used the ambiguous legal status of the Caspian Sea (It has yet to be decided which of the five coastal countries controls which area, and that decision will depend in large part on whether the Caspian is classified as a sea or as a lake) to delay its development. While the new emerging order in Turkmenistan has pledged to continue the neutrality of Turkmenbashi, it remains to be seen whether the next regime will find it prudent to ally with Russia in the hopes of gaining a powerful regional friend. Keep your eye on the news wire on this one.
Just minutes after Gazprom signed the agreement to take a majority stake in the Sakhalin II project, Putin announced that the environmental issues which has threatened the project were "as good as solved". There is certainly no doubt now that the threat of a lawsuit was no more than a wedge for Gazprom to force its way into the project. The responses of the foreign majors say as much. A Shell spokesman said that "it is an acceptable outcome ending a period of uncertainty for Sakhalin-II". The Mitsubishi president said that although Russia was still an attractive place to invest, the company faces “difficult and incomprehensible aspects” there. While one might expect a Western company to be confused by heavy government-industry cooperation, the Japanese are used to this kind of activity. The fact they find Russia "difficult and incomprehensible" says a lot, especially considering the Japanese are also not known for making negative opinions like this known to the press. There was also no attempt by Putin to hide how politically motivated the threat of a lawsuit was. The Kremlin is sending the same message it sent with the destruction of Yukos: You're either with us or you're against us. And you don't want to be against us. Funny, those words sound so familiar...
Now we move our attention to the Caucasus region. On Friday Georgia signed an agreement with Gazprom to buy gas at $235 per 1000 cubic meters in 2007. The current price is $110. Russia and Georgia have, to put it mildly, not been getting along recently. On October 2 Georgia detained four Russian soldiers on suspicion of espionage. In response Russia cut postal, rail, and air links with Georgia and deported thousands of ethnic Georgians. Gazprom threatened to cut off gas supplies if Georgia did not agree to a higher price, only $230 at the time. However Georgia had two aces up its sleeve which seemed to prevent Russia from completely exploiting them. One was membership in the WTO, which Russia sought. Georgia said that it would allow Russia in if the sanctions were ended. The other ace was the ability of neighboring Azerbaijan to provide most of the gas Georgia needed through its huge Shah-Deniz field. However where Georgia only had a high pair, Russia had a full house. Putin was able to get a pledge from Bush to support Russian accession to the WTO in exchange for Russia's UN Security Council vote for sanctions on Iran. Clear US support for Russia joining the WTO makes Georgian opposition basically a moot point. The Azerbaijan gas supply also became a problem as "technical difficulties" pushed back the beginning of gas flow to Geogia, which was supposed to begin on Friday. Georgian Prime Minister Zurab Nogaideli said it may take weeks to fix the problem. Therefore Georgia was faced with a winter without gas and no way to get Gazprom to lower the price. The effects of this price increase will be a weaker Georgian economy and thus a loss of support for the pro-Western, anti-Russian Georgian government. Is it possible that Russian agents are responsible for the "technical difficulties" at the Shah-Deniz facility? I would say that considering Gazprom's obvious Kremlin connections it is a strong possibility.
Another hint at this possibility is in the announcement by the Azeri president that they may not buy gas from Gazprom anymore. Gazprom is demanding the same $235 price from Azerbaijan. The Azeris are hoping they can meet their energy needs locally. However this will mean that they will have much less to export to Georgia and through the BTC pipeline to Western Europe and the US. This pipeline was seen as a strategic victory for the West over Russian dominance of Caspian energy reserves. However if the Azeris are going to stop buying Russian gas (which is actually Turkmen gas, to tie everything together), this multi-billion dollar pipeline may find itself as empty as Bush's presidential library.
And if we needed another reminder of Gazprom's growing power in the Eurasian energy market, they signed a contract with Europe's largest gas provider Gaz de France extending the two companies' gas supply contract until 2030. For the first time Gazprom will now provide gas directly to some European consumers.
Update: According to Georgian TV, there was a "terrorist attack" on the Azerbaijan-Georgia pipeline on Wednesday. This has not been confirmed by Georgian or Azeri officials. Is this the cause of the "technical difficulties" at the Shah-Deniz field? Or are there two separate problems?
Correction: The BTC pipeline from Azerbaijan to Turkey's Mediterranean coast through Georgia only transports oil. The gas pipeline runs through the same countries but currently ends in Central-Eastern Turkey in a city called Erzurum. The hope is that this pipeline will be connected to Europe through the Nabucco pipeline.
Peace (if everything else fails)
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