Transcript Pipeline Politics: The Energy Dimensions of U.S.

Pipeline Politics:
The Energy Dimensions
of U.S.-Russian European
Relations
A Presentation by Michael T. Klare
Five College Professor of Peace & World
Security Studies
University of New Hampshire
October 22, 2014
Energy: Fulcrum of World Affairs
• Energy has become the
fulcrum of world affairs,
playing an ever-increasing
role in inter-state relations.
• This is evident, for
example, in such recent
developments as: the
Russia-Ukraine crisis;
territorial disputes in the
East and South China Seas;
the Islamic State’s drive to
control Iraqi and Syrian
oilfields (and US attacks on
these fields); and the
debate over the Keystone
XL pipeline.
President Obama meets with European leaders
to discuss tougher sanctions on Russia at NATO
summit, Newport, Wales, Sept. 4, 2014
Energy and World Affairs
Energy became a pivotal issue in ChinaVietnam relations in May 2014 when
China deployed a drilling rig in
Vietnamese-claimed waters, provoking
clashes at sea and violent anti-Chinese
protests across Vietnam.
Why Energy?
• An abundant source of
affordable energy is essential for
economic vitality and growth.
• Energy is the most valuable
commodity in international
trade, and a major source of
government income for leading
producing states
• Oil provides 97% of world
transportation energy;
consequently, oil is essential for
globalization and world trade
• Oil is essential for mechanized
agriculture; natural gas is the
primary “feedstock” for artificial
fertilizers.
• Oil is essential for modern
warfare.
Why Now?
• Growing doubts about the
long-term sufficiency of
primary energy supplies.
• With the end of “easy oil,” a
growing reliance on energy
from hazardous and contested
areas (e.g., the Arctic, South
China Sea).
• Energy-rich states becoming
more assertive in world affairs
(e.g., Iran, Russia, Venezuela).
• Concerns over climate change.
• The diminished credibility of
military action.
Vladimir Putin and Hugo Chavez, Sep. ‘12
Consumer vs. Supplier States
Although all nations have
a vital interest in the
global flow of energy,
consuming states and
supplier states have
differing needs and
interests.
• Consuming states lack
sufficient domestic supplies to
meet their needs, and so rely
on imports from supplying
states to meet their national
requirements.
• Supplier states produce more
energy than they consume,
and so seek economic gains
from the export of their
surplus.
Presidents Vladimir Putin of Russia
and Xi Jinping of China sign major
energy deal, March 2013.
Consumer vs. Supplier States
Consumer states seek…
• Assured access to adequate
supplies at affordable
prices.
• Protection against
disruptions in the global
flow of energy.
• Protection against political
coercion by the major
energy suppliers.
Supplier states seek…
• Assured access to
international energy
markets.
• High enough prices to
finance government
operations and (in some
cases) allow ambitious
political endeavors abroad.
• Long-term market stability.
Russia as a Supplier State
• Russia possesses the world’s largest
reserves of natural gas and its 7th largest
reserves of oil.
• In 2013, Russia was the world’s 2nd
leading producer of oil and 2nd leading
producer of natural gas.
• Russia is the leading supplier of natural
gas to Europe and the former Soviet
republics.
• Oil and gas revenues account for more
than 50% of the central government’s
budget revenues.
• Gazprom, the world’s #1 gas producer, is
51% owned by the Russian state; Rosneft,
the country’s #1 oil producer, is 75%
owned by the Russian state.
Russia’s Coercive Use of Energy
• Russia’s top leaders have close
ties to the nation’s oil and gas
industry.
• Dmitry Medvedev, the prime
minister and former president,
was originally chairman of
Gazprom; Igor Sechin, a close
Putin ally, is the CEO of Rosneft.
• Gazprom has repeatedly
threatened to or actually cut off
the flow of gas to neighboring
states that have shown proWestern inclinations, as in the
2006 and 2009 cutoff of gas to
Ukraine.
Europe’s Consuming States
• Most European states
are highly reliant on
imported oil and gas
for a significant share
of their energy supply.
• Much of this imported
energy is provided by
Russia and delivered
by pipeline.
• Most European
countries seek to
increase the diversity
of supply and reduce
their reliance on
Russia.
The Distinctive Role of Pipelines
• Pipelines represent a long-term
relationship between supplier
and consumer, involving vast
investments and, typically, longterm delivery agreements.
• Pipelines provide recipient
countries with a guaranteed
source of supply, but also
produce dependence on the
supplier.
• Transit countries, like Ukraine,
derive significant funds from
transit fees.
• Pipelines are vulnerable to
sabotage and disruptions – a
significant vulnerability for
consumer states.
Energy’s Pivotal Role in the RussiaUkraine Crisis
• From the very beginning, energy has played a pivotal role in the
Russia-Ukraine crisis.
• The crisis began on Nov. 17, 2013, when Ukraine’s president, Victor
Yanukovych, abandoned plans to sign a trade agreement with the
European Union (EU), prompting anti-government protests in Kiev.
The agreement would have imposed EU rules on the Ukrainian
energy system, diminishing Russia’s energy clout.
• The crisis gained momentum in December, when Yanukovych
agreed to join a Russian-brokered trade agreement and was
promised lower prices for Russian gas in return.
Ukraine’s Dependence on Russian Gas
Primary energy mix
Nat. gas
Coal
Nuclear
Oil
Hydro
Source: International Energy Agency, Ukraine 2012.
• Ukraine is highly dependent
on imports of Russian
natural gas for its energy
supply.
• According to the
International Energy Agency
(IEA), Ukraine obtains about
40% of its primary energy
supply from gas, compared
to 31% from coal and 17%
from nuclear.
• Approximately 2/3 of
Ukraine’s gas supply is
imported from Russia.
Russia’s Energy Warfare
• After Yanukovych fled Ukraine and the country’s new leaders
pledged to sign the EU agreement, Russia cancelled the price
break promised by Putin in December and threatened to halt
gas deliveries altogether if Ukraine failed to pay for gas
previously delivered (now recalibrated at the higher price).
• On June 16, citing the unpaid bills, Gazprom cut off gas
deliveries to Ukraine.
• “This is not about gas. This is a general plan for the
destruction of Ukraine.” –Ukrainian Prime Minister Arseniy
Yatsenyuk.
Crimea and Energy
• Russia’s seizure of Crimea in March
2014 was no doubt motivated by
several factors, including nationalistic
sentiment at home and a desire to
weaken Ukraine.
• In doing so, however, Russia also gained
control over an additional 36,000 sq. mi.
in the Black Sea, including areas thought
to hold oil and gas reserves worth
hundreds of billions of dollars.
• Major Western oil companies, including
ExxonMobil, were negotiating with
Ukraine over their development, but
will now have to deal with Moscow.
Crimean offshore waters of the Black Sea before and after Russian seizure of Crimea. Brown:
Ukrainian-controlled waters. Purple: Russian-controlled. Maroon: area acquired by Russia.
Ukraine Accepts Russian Peace Plan
• On Sept. 5, Ukrainian President Petro Poroshenko agreed to a
ceasefire with anti-government rebels in the Donetsk region
following peace talks with Vladimir Putin in Minsk.
• Although Poroshenko agreed to the deal because Russian support
for the rebels had made a Ukrainian military victory impossible,
some analysts believe he was also driven by a desire to restore
Russian gas supplies to Ukraine.
• On Oct. 17, at a meeting in Milan, Putin told Poroshenko that gas
deliveries will be resumed if Ukraine honors the ceasefire
agreement (which leaves the Donetsk region under rebel control).
Presidents Putin and
Poroshenko meet in
Minsk, Aug. 26, 2014
Europe’s Dependence on Russian Gas
• Europe, as a whole, is also highly dependent on Russian gas.
• According to the US Energy Information Administration (EIA),
Europe obtains about 30% of its total gas supply from Russia.
• An estimated 50%-60% of this gas transits Ukraine through
major pipeline systems.
Europe, Ukraine, and Russian Gas
• Although Russian gas supplies to Ukraine have been cut off,
Gazprom continues to ship gas to the rest of Europe through
pipelines transiting Ukraine.
• European gas supplies could therefore be at risk is Ukraine
siphons off some of this gas to supplement shrinking domestic
reserves as winter approaches.
• This occurred once before, in January 2006, when Gazprom
cut off supplies to Ukraine in another dispute over prices and
Ukraine siphoned off gas meant for Europe, producing
shortages in many countries.
European Reluctance on Sanctions?
• Many analysts also
believe that the EU
countries are afraid
to impose crippling
sanctions on Russia
out of anxiety over
their own natural gas
supplies.
• Moscow has warned
that any effort by
Ukraine to siphon off
supplies meant for
Europe could result in
reduced deliveries to
the EU countries.
Energy Sanctions
The West Alpha drilling rig in the Kara Sea, a
joint project of Rosneft and ExxonMobil
• Nevertheless, the EU
and US have imposed
sanctions on Russia’s
energy sector,
especially state-owned
Rosneft and statecontrolled Gazprom.
• The sanctions are
specifically aimed at
barring Western
companies from
helping Russia develop
its unconventional and
Arctic hydrocarbon
reserves.
Russia’s Vulnerability to Sanctions
• Russia is considered
vulnerable to these
sanctions because it is
highly dependent on
oil and gas exports for
government revenue
and because output is
falling at its existing
oil and gas fields.
• Russia can
compensate for
declining output at
existing fields by
increasing production
in the Arctic – but it
needs Western
technology to do so.
Responding to Supplier Coercion
• Import-dependent states
often seek to reduce their
vulnerability to such
coercion by increasing
reliance on domestic
supplies (e.g. through
exploitation of domestic
shale reserves or greater
reliance on renewables) or
by diversifying their sources
of supply.
• The EU countries have
pursued both strategies,
including by building gas
pipelines that bypass Russia
and/or Ukraine.
Russia’s Combative Response
• Russia has responded to EU
efforts at diversification by
acquiring major shares in
European gas utilities
(prompting anti-trust efforts
by the EU) and by building
Southstream to compete
with Nabucco and its
successor, the Trans-Adriatic
Pipeline.
• Russia’s military
intervention in the 2008
Russia-Georgia war can also
be interpreted as an implied
threat to the safety of
alternative pipelines.
Washington’s Response
Sabine Pass LNG export terminal, Cameron
Parish, LA., under construction, 2014.
• Buoyed by a surge in
national gas production
from shale, US leaders
have sought to diminish
Russian clout in Europe by
seeking to export US gas to
Europe in the form of LNG.
• At present, however, the
US lacks operating LNG
export facilities and its first
such facility will not open
until 2015.
• Also, LNG is sold on the
spot market, and the
highest prices are offered
by Asia, not Europe.
A New Era of Energy Warfare?
“Russia has been playing a much
more intricate game than the
United States in recent years…. The
ability to turn the tables and put
the Russian leader in check lies
right beneath our feet, in the form
of vast supplies of natural energy….
In response to Mr. Putin’s
aggression in Ukraine, President
Obama should announce a series of
steps that will dramatically expand
production of American-made
energy,” beginning with expedited
LNG exports.
--House Speaker John Boehner,
March 6, 2014
An Alternative Approach
• Significantly increased
reliance on renewable
forms of energy – wind,
solar, geothermal, tidal –
can substantially reduce
consumer states’ reliance
on problematic imports.
• Germany is leading the
way, aiming to rely on
renewables for 80% of its
electricity supply by 2050;
it obtained about 31% of
its supply from
renewables in the first
half of 2014.