Analytics magazine of global energy

The true interests of the USA, Russia and the EU in the European gas market
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The true interests of the USA, Russia and the EU in the European gas market

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Politics are not the only field that has been turbulent towards the end of 2019 and beginning of 2020. Around that same period of time a whole heap of events occurred in an industry known as the international gas trade. As a result of repeated consultations, Russia, Ukraine and the European Commission were able to work out a compromise, an alternative version of the agreements on the transportation of Russian gas to European countries using Ukraine’s gas transmission system.

The latest serving of US sanctions has been the most successful one so far: the construction the Nord Stream 2 gas pipeline got temporarily suspended. A solemn ceremony took place in Turkey in honor of the inauguration of the TurkStream gas pipeline whose deliveries began even a bit before leaders of Russia, Turkey, Serbia and Bulgaria actually gathered in Istanbul. In addition, Israel, Cyprus and Greece have signed an agreement on the construction of the EastMed gas pipeline in which it is planned to supply natural gas from offshore fields in the Eastern Mediterranean to the southern region of Europe. It is not possible to get an understanding on the situation that is currently taking place on the European gas market by looking at all these events separately. It is important to see how these events intertwine and how they affect one another; such approach is what will allow us to identify general trends and give us an idea of how things may turn out in the future.

We will begin with a brief analysis of what is it that the three main actors whose interests intersected on the European gas market are seeking: the EU is far from being monolithic in its economic interests, the USA who delivers small but growing volumes of liquified gas to Europe, and Russia for who has growing shares in its regular European gas market despite the efforts of various politicians trying to expand anti-Russian policies to face its economic expansion. These are the exact three “corners of the triangle” that determine both the architecture and the dynamics of the development of the European gas market by using methods that are far from being restricted to the market itself.

USA. The unreality of the “American Stream”

The most widespread version is that American politicians do everything in their power to expel any Russian company from the European gas market an completely replace Russian gas with supplies of LNG produced in the United States. This sounds lovely but is far from the truth, since it is indisputably refuted by very simple arithmetic. The volume of Gazprom’s supplies to Europe over the past two years comes about 200 billion cubic meters of gas per year, which can be obtained regasification of about 150 million tons of LNG. It is necessary to add about 4% to this volume in order to make up for the losses that occur during transportation through the Atlantic Ocean as well as during the regasification process, hence totaling 155 million tons of LNG. We must recall that as for today, the largest producer of LGN in the world is Qatar whose state-owned companies liquefy about 77 million tons of LGN annually. Therefore, in order to achieve the hypothetical goal of completely replacing Russian gas in Europe, the USA must surpass the world leader by twice its annual production, which also implies having to leave every other market it is currently supplying, and thus no more providing a single gram of LGN to neither Latin America nor Southeast Asia.

LNG tanker

But that not all yet: even if such an incredible amount of LNG was to be produced in the USA, it must still be learned how to properly deliver it to European shores. The workhorse (or the most common type of gas tanker) is designed to contain a volume of 170 thousand cubic meters, which would hold about 100 thousand tons of LNG. Journeys across the Atlantic and back take about a month because of weather conditions, technical regulations and other minor repairs. Therefore, when operating on shuttle mode, one tanker can annually transport about 1.1 million tons of LNG from the USA to Europe. A steel stream of 140-150 tankers tirelessly scurrying the Atlantic ocean can only seem like a “reality” in completely het up brains whose operators do not understand that ships are not build to function with a wave of magic wand but require the tenacious work of shipbuilders who would take a dozen years provided they will not sell a single gas tanker to some third party. Thus, it certainly does not reflect reality.

USA. “Divide and rule”

So what is it that the States really want, if we discard the scenario where they aspire to save Europe from totalitarian Russian natural gas by generously providing their own LNG with molecules of freedom? We shall leave the philanthropic rhetoric aside since in this case, everything is quite as per usual: first we have pure economic interests deprived of any sorts of humane consideration. We hear a lot about the war opposing the United States to China, but the EU is just as dangerous of a competitor for the US to which Washington is definitely not planning on giving up its place. Every increase in the EU’s economic power is a threat to the States and even more so to their current leader whose slogan is “Make America great again”.

Donald Trump, President of the USA

There are three ways for the USA to achieve this “greatness”: by growing their own economy, by not allowing their competitors to achieve such growth, and by a combination of both. Moreover, as Europe is increasingly dependent on imports of energy resources, its energy sector is the most sensitive part of its economy. Any problems, any interruption in the rhythm of supplies, any increase in the costs of Energy resources are Europe’s greatest risks. Not only are these a threat for energy security and sufficiency, these are also the reasons for the increase of the costs of any goods that are being produced EU countries. The higher the costs of European costs, the more likely the US are to win this competition. The shortage of natural gas in Europe puts at risk both the chemical industry and agriculture, as agricultural fertilizers are among other products processed out of natural gas. Therefore, the task the United States have set themselves isn’t the replacement of Russian gas but the creation of obstacles and difficulties for the European energy sector and its chemical industry. There are going to be significant periods of time delaying the construction of Nord Stream 2. It is also possible that the necessary investments in the construction of new power plants as well as varnish, paint, solvent and fertilizer factories will automatically increase in quantity.

The “South Stream” becomes… the “Turkish” stream

The States already succeeded in performing this “trick” once back in 2015 when Bulgaria withdrew from the list of participants in the “South Stream” project, thereby making its implementation impossible. We must recall that “South Stream” was meant to have an annual capacity of 60 billion cubic meters and its route was supposed to “avoid” going through all the possible transit states from Russia’s Black Sea coast to the coast of Bulgaria. Now it is often said that Bulgaria’s decision resulted from the pressure of the European Commission, and we tend to forget this decision was taken only a few days after a whole delegation of US senators and a number of employees of the US state department landed in Sofia. Until this moment, Bulgaria was being hesitant: one day it would come up with numerous reproaches directed towards Gazprom, and the next day it would agree with the fact that the “South Stream” project is a useful, important and necessary one. Following the order of the “Washington regional committee”, Bulgaria not only deprived itself of considerable transit benefits, it also significantly complicated the situation for the entire EU.

The problem is not simply the fact that the TurkStream project (which came as a replacement for the “South Stream”) has half of the capacity (31.5 billion cubic meters per year versus 60.0 billion) of its predecessor, but also that as a result of the implementation of the TurkStream, influence on the EU grew not only for Russia, but also for Turkey with its head of state Recep Erdogan who is quite an uncomfortable business partner for Brussels. Turkey has been for 30+ years in the humiliating position of “applicant of a EU membership”, has shown its character on multiple occasions, sometimes literally blackmailing the EU with millions of Syrian refugees who have been held in camps on Turkey’s territory for several years. Turkey’s threats were simple, though quite severe: if you, gentlemen of the European bureaucracy, intend to keep on imposing your rules on us, there will be a wonderful moment when the head of the refugee camps guards might announce that he’s tired of waiting, and Europe will experience on itself all the charms of a new refugee wave turning into a tsunami. And now, in addition to these threats, Ankara has also received the status of a gas hub for Europe.

The Turkish Stream gas pipeline commissioning ceremony, with the participation of the presidents of Russia, Turkey, Serbia and Bulgaria.

It is in Europe that we find the Third Energy Package, the Energy Charter and so on. In Turkey, everything is completely different, and this supplier does not hold Gazprom in any esteem. The USA obtained the desired outcome: Europe didn’t end up with as much gas as it expected to with the South Stream project, and the EU itself got a pin in the side by inevitably having to listen to the shrewlike Erdogan. Not only that: the TANAP was completed almost simultaneously with TurkStream, another gas project which provides Europe with gas coming from Azerbaijan, once again passing through Turkish territory.

Israel, Cyrpus Greece; and where to next?

According to the authors of this project, the gas pipeline is going to have its main source in the Leviathan gas field located on Israel’s offshore territory. It is to be connected to the pipeline’s secondary source: the Aphrodite field located on the coast of Cyprus. By connecting both fields the offshore part of EastMed will have to extend to the coast of Cyprus, get into Greece, and then get to Italy through the not yet built “Poseidon” interconnector.

The EastMed project didn’t just pop out of the blue; a number of events surrounding it have already taken place. For quite a long time, negotiations about building economic relations between Cyprus and the Republic of Northern Cyprus (which hasn’t been acknowledged by anyone expect Turkey) seemed to have every chance of succeeding. But it seems to have turned out that as soon as Ankara got familiar with the details of the EastMed project, the delegation of Northern Cyprus left the negotiations in full force without any sign of the possibility of resuming these negotiations in the foreseeable future. The next step in the confrontation was made almost immediately after: Turkey announced that Cyprus had no rights to develop the Aphrodite field without taking into account the interests of Northern Cyprus since it is located in a disputed zone partially located on the territory of Northern Cyprus. To whose who thought this announcement was a joke not worth paying attention to, Turkey provided an additional explanation not only through diplomatic notes: its warships began to push away from the field any ships trying to conduct drilling operations over there. The peak of this phase of the resistance was the ramming of a Greek warship by one of the ships of the Turkish navy when Greece was trying to help Cyprus against Turkey. Not a single note coming from the outraged European Commission did change the events: Turkey and Greece (both NATO members) come from time to time to the brink of an open armed conflict with each other.

In the fall of 2019, Turkey took another step: it signed an agreement with the GNA (Libya’s Government of National Accord). This agreement dealt with their maritime border which now crosses the route that was planned for EastMed. Notes of the EU’s indignation are fusing, Washington refuses to acknowledge the treaty’s legitimacy, voices of offended politicians ring, only Erdogan doesn’t even consider paying attention to all this “white noise”. After NATO’s aggression on Libya (which resulted in the overthrow and murder of Muammar Gaddafi) the situation in the country, as surprising as it may seem for the initiators of this action, was far from being ideal. The abovementioned GNA’s control practically extends only over the capital Tripoli, the rest of the country being under control of various paramilitary groups. In order to at least somehow save face, the EU and the USA nevertheless decided to acknowledge the GNA as the state’s legitimate government, after what this same acknowledgement was made on the UN’s side. All this does indeed look quite funny, but in this case, the collective West did dive itself into a corner: from an international law point of view, there is no way to justify its refusal of acknowledging the Libyan-Turkish maritime border agreement. One legitimate government has signed an agreement with another legitimate government, which means that everything is orderly.

It is worth pointing out that the USA’s indignation from such a situation isn’t very active: the State Department has limited itself to a single comment and didn’t intervene any further. This is quite logical: so far, the “gas game” it has been playing with the European Union has been satisfactory for the States. If the EU manages to implement the EastMed project and thereby diversify its gas supplies, this can only happen in a somewhat foggy future. Even more so since on January 3rd, only three countries signed the agreement on this project. Italy (on whose territory EastMed is supposed to end) did not send its representative to these negotiations at all. Moreover, the fate of “Poseidon” (which was meant to connect the gas systems of Italy and Greece) is far from being obvious. Italy approved of it once, however it wasn’t made by the Prime Minister but by the Minister of Energy. In our opinion, the reasons for that are quite clear: the leadership of Italy does not believe that EastMed can be implemented at all. So far, the only thing it has got is an approval from the United States, the decision that the project shall be allowed exceptions to the rules of the Third Energy Package by the European Commission itself, and €74 million allowed by Brussels for the development of a feasibility study. The approximate date for making the final investment decision is scheduled in 2023, which means that the project exists but not quite yet. But there has already been a lot of necessary strong talk about how it is going to become a powerful competitor to any of Gazprom’s projects, and liberal activists who confidently declare the next “strategic loss of the Russian gas concern” have already been found even in Russia itself.

There is no pipe, no gas, no feasibility study, nothing clear with the financing part, but of course Gazprom already “lost”. This situation has become quite an usual one, as Gazprom is yet again being defeated by everyone at once: Quatar’s LNG and LNG being produced in the USA, shale gas fields in Ukraine, the “Arab gas pipeline” originating from the “Pars” field which Qatar has put so much effort into building, the southern gas corridor through which trillions of cubic meters of gas from Turkmenistan and Iran fell into Europe with a mighty jack. But where are all these “winners”? And why does Gazprom control about 40% of the European gas market, gently increasing this percentage at the exact time when it’s supposed to have been crushed by all these victories? However, the States can be quite happy of their actions in Southern Europe: there is not much Russian gas there yet, the degree of tension between the EU and Turkey has grown, and even the relations between Italy and Greece are starting to get difficult. Whether or not the European Commission (which ended up outwitting itself by always nodding at their overseas partner) is going to draw conclusions, we must wait and see, based on observations of what events will occur around the NS 2 project.

Europe. “Divide and conquer” with a European accent

On one hand, companies of the EU are Gazprom’s usual business partners, many of which the company has long-established mutually beneficial and equal relations with. However, as the Geoenergetics.ru has written on several occasions, the EU consists of two parts, two layers for the Russian gas industry. The European Commission (which, which a bit of a stretch, can be considered as the EU’s government) is not only a supranational structure as ever since the 00s, EC officials have often carried out not pro-European, but rather pro-American policies. We have just examined one of the obvious examples: having taken the US’s side in matters related to the “South Stream” project, the EC led itself into a frank dead-end. If this project was to be implemented, the EC would be able to quite seriously influence the economic interests of Gazprom since it has tools known as the Third Gas Package and the Gas Directive. But after the “South Project” got closed, another one was implemented: the TurkStream, which allowed Turkey to sharply consolidate its position in its relations with the EC. However, this example cannot be considered as a typical one: most of the time, the EC does achieve its goals. If this is not obvious enough, let’s figure out what exactly these goals are.

Europe is not the largest part of the world, yet historically it is where what we refer to as the “developed” countries all gathered. The most developed industries, sciences, energy, the most advanced technologies are all about good old Europe. The thing is that the basis of all these wonders, just like in any other country, is energy. And the basis of energy are energy resources, and these are two axioms out technological civilization cannot argue with. Ever since the beginning of this new millennium, Europe’s energy supplies have been declining, and the rate of this decline has been increasing with every passing year. Coal deposits have reached their final stage of development, there are no more large oil and gas deposits left on the land part of Europe, uranium mines, mines of Germany, Bulgaria and Czech Republic are all empty. The conclusion is inevitable: every year Europe is increasingly dependent on imports of all types of energy resources and there are no politicians, nor any kind of military bloc have ever been able to reverse this process. Even if all of Europe was covered with US military bases, even if there was to be a missile sticking out of every bush, and even if every single glade was to become a military airfield, hydrocarbons and fresh uranium are not going to appear.

After Russia officially withdrew out of Europe’s Energy Charter in 2009 (thus refusing to open its fields and infrastructure to European companies), two opposing conclusions were drawn simultaneously in Europe. For the business part of the EU and its energy companies there was no fatality in this event: since Russia decided to take such a fundamental step, it is necessary to build civilized, equal relations with its oil and gas companies in order to provide all consumers with the necessary energy resources. But at that same time, US-like-minded politicians came from the cold war postulate: Russia is the enemy, and therefore it must be defeated by any means possible. Also in 2019, the EC introduced two documents that have enough of an anti-Russian orientation: the RES directive and the Third Energy Package (which we’ll refer to as TEP). We have already talked about how the TEP was introduced into the legislations of EU countries, breaking numerous judicial hammers on its way.

Courts, fines, blackmail in the form of refusal to subside any rebels with European funds, eight years of hard work (that is command and control methods such as the ones the USSR used to be criticized for employing) were all used at their full capacity. The 2009 RES directive, just like the TEP, does not have any technological justification, and the scheme is in all ways similar to the command and control one: in 2020, renewable energy resources should have a 20% share in Europe. In 2030, it is to be 30% and so on. Naturally, by 2020, the stated goal was not achieved as the laws of physics unfortunately do not obey to political directives. Humans still haven’t learned how to control wind and clouds, and solar panels and wind farms are still the exact same thing they used to be: an intermittent alternative energy generation for energy professionals. However, not only does the European Commission not even think of abandoning the rhetoric, but renewable energy propaganda has gained momentum over the past couple of years as it is being supported by the slogan of a struggle for the decarbonization of energy. The European Commission encourages to abandon as soon as possible the use of any possible carbon compounds in the energy sector as this chemical element is the basis of oil, heating fuel, natural gas and oil. The reason being stated is that an increase in the amount of carbon in the Earth’s atmosphere accelerates the increase in the Earth’s temperature, which can lead to global climatic disasters resulting in the complete death of human civilization. Let’s even leave aside the fact that anthropogenic contribution to global temperature rise is by no means the ultimate truth but rather the main subject of controversy among climatologists, ecologists, geologists and representatives of numerous other sciences. Without carbon (that is, without the use of a chemical reaction of combustion), in addition to solar and wind power plants, atomic, hydropower and geothermal plants do function confidently and reliably. But European officials and politicians are urging to abandon the use of nuclear power plants and hydroelectric power stations as well. Is there any logic in this propaganda? At first glance, there aren’t even hints of it, but things are not that simple.

Natural gas as an energy resource

The large, well-balanced, integrated energy system with a sufficient amount of traditional reserve capacity copes with intermittent alternative generation which accounts for up to 25-30% of total generation. This is precisely were the secret behind achievements in the development of renewable energy lies, like for example in Germany which triumphantly reports that its generation from the Sun and wind grew up to 46% in 2019. The German energy system does not exist on its own: it is part of the UCTE, the Union for the Coordination of Transmission of Electricity in the central zone of Europe. Were are speaking “Europe”, not the EU, since the UCTE includes the energy systems of Germany, France, Spain, Portugal, Austria, Italy, Belgium, the Netherlands, the western part of Denmark, Switzerland, Luxemburg, Slovenia, Croatia, Poland, The Czech Republic, Slovakia, parts of Hungary, Greece, Bosnia and Herzegovina, Macedonia, Serbia, Montenegro, Bulgaria and parts of Romania. The German “alternative saw of generation” is reset in order to balance the energy system of all neighboring countries. The thing is our caring European media tend to forget about such details, preferring to talk exclusively about Germany.

Another powerful energy association in Europe is NORDELL, which includes the energy systems of Sweden, Norway, Finland, Iceland and the eastern part of Denmark. The united energy system of Ireland ATSOI is connected to the united energy system of Great Britain UKSTOA, both of them being part of the association of European transmission operators ETSO. In Europe there is also a practically virtually integrated energy system of the Baltic republics that goes by the abbreviation BALTSO. To be more precise, it’s even semi-virtual. In 2025, BALTSO should become real, but as for today it falls under the BRELL energy rung (which includes Belarus, Russia, Estonia, Latvia and Lithuania). However, BRELL is just a beautiful, politically correct name for a part of the North-West region of the UES (United Energy System) of the USSR, which was invented with the specific intent of buttering up the political pride of Baltic states. Nothing more.

Since 2009, Europe has been trying to implement one of history’s largest engineering projects combining all these six energy systems into a single whole: ENTSO-E, which should result in the creation of a unified energy system of 34 states. As Geoenergetics.com doesn’t suffer of political correctness, we must state the obvious fact that BALTSO is interested in ENTSO-E’s develops only in the quality of the best option for the territorial connection of UCTE and NORDELL. The Baltic energy industry is slightly more interested in independent significance of Baltic states than in the fate of last year’s snow. The greater the “capacity” of the combined energy system, the greater the amount of intermittent alternative generation it is able of balancing. Work on the creation of ENTSO-E has already started, as one would easily have guessed, back in 2009: the larger the share of renewable energy in the “old” Europe, the less it is going to be dependent on Russia’s energy resources. Yes, because of this, there are inevitably going to problems for new member states of the EU, but who cares? It is enough not to remember this “out loud”, not to let journalists and the media talk about this, and there will be no reasons for any unrest. There are enough things to talk about: for instance, how the share of renewable energy is growing in both Germany and England. The more conversations of this kind, the higher the tension in the liberal part of Russian media and blogs of authors who adhere to a similar ideology: “Russia is doing everything wrong, refusing the European pillar road, we are all going to die!!!” Have any of you heard or seen such things? Also it is uneasy to argue with them, as in order to do so one must remember all the abovementioned abbreviations and the meaning behind them.

RES for Africa, or the conservation of underdevelopment in developing countries

But this is not it yet. Greta Thunberg did not just get to the EU’s rostrum. It is that same “green” ideology that calls to develop the energy sector solely through renewable energy, without any nuclear or hydroelectric power plants that is imposed upon developing countries by Europe itself, including countries in which a large part of the population does not have any access to electricity or has serious issues with it. Why is this being done? There’s only one reason for it: so that the EU remains the most attractive market for all energy resource suppliers and so that they compete with one another for bits of the European energy market so that no signs of monopolization ever show up. Solar and wind power plants will not allow the creation of unified energy systems, therefore not allowing the development intensive energy sectors in the economy such as ferrous and non-ferrous metallurgy or chemical production. Without those, economic growth is impossible, which means that “developing” countries will remain that way and it will go on like this forever and ever. African countries will keep on trading their valued minerals for basic necessities and food, and will drive waves of immigration into the EU until their countries are left without no population at all.

This part of the European Commission’s work is pretty successful: for instance, suppliers of natural gas such as Russia are forced to endure all mockery coming from the EU such as TEP and the gas directive. Europe is worried about the “Power of Siberia” through which Gazprom began supplying gas to China. China is our first major consumer of pipeline gas outside the EU and this is thus the first step in becoming independent from the EU gas market. However, the journey is only starting and it won’t move any further as long as things remain the way they currently are: Russia is struggling to establish new pipeline routes, although Gazprom is determined to supply European customers with exactly what they are lacking more and more with every year that goes by. Hence the “flirting” of the old Europe with LNG projects originating from Norway, Algeria, Qatar and the USA. It is a “Russia, you better behave obediently or we’ll run away from you” thing. Again, we must emphasize on the fact that everything we mentioned above applies to the globalist part of Europe, whilst European energy companies have nothing against equal cooperation and collaborative projects: Russia has long established itself as a reliable, predictable partner whose work is mutually beneficial.

European energy companies and Gazprom. TAG, TAP, TANAP and other abbreviations

Our magazine has repeatedly talked about how do joint projects of European companies and Gazprom look like. These do not only include Nord Stream, Nord Stream 2, Yamal-Europe and Blue Stream, but also gas pipeline within Europe itself such as OPAL, NEL, EUGAL and even the ones through which Germany was able to significantly advance the integration of the occupied GDR such as STEGAL, MIDAL, JAGAL, WEDAL and RHG (to those who do not like the word “occupation” we must remind that the “unification” of the GDR was held without a referendum and lustration took place in all power structures of the GDR, as well as in educational institutions and in the management of industrial enterprises. The rights and interests of GDR residents were infringed under privatization of state property and so on). Joint projects are currently taking place. We will recall that with the continuation of NS 2 on the territory of the Czech Republic will be called the NGP Gazelle 2, and the continuation of the second branch of the TurkStream is already under construction in Bulgaria and Serbia while Hungary and Slovenia are getting ready to work. Relations with Italy are, however, a separate story. More precisely, it has to do with relations with the gas trading company Eni and with the transport company Snam. We must recall that Italy is the third country in Europe in terms of purchases of Russian gas, that gas from Siberia has been supplied to the Apennines since 1969, that Italy is, historically, the very first European country to have ever started importing soviet oil. 1958 was the year when legendary concern leader Enrico Mattei signed an agreement on the supply of 80 thousand tons of soviet oil in exchange for counter deliveries of 15 tones of synthetic rubber. From 1961 to 1966 there was an effective agreement between Italy and the USSR according to which the latest wouldn’t be supplying oil to any other country in Europe. This was one of the terms of the agreement under which the USSR exported 12 million tons of oil to Italy in exchange for high-tech products and equipment for oil and chemical industries.

In 1966, a new contract was signed for already 28 million tons of oil, followed in 1968 by the first gas contract. The Italian government decided to finance the construction of our first international NGP following the USSR — Czechoslovak Socialist Republic – Austria – Italy route, including a joint venture with Austria’s leading gas company Österreichische Mineralölverwaltung AG. Strangely, it is commonly accepted to refer to this company using the abbreviation OMV, even though we are still pronouncing the full name of the Icelandic Eyjafjallajökull volcano located near the Mýrdalsjökull ice cap in the Suðurland region. The TAG (Trans Austria Gasleitung) NGP, the trans-Austrian gas pipeline is still in operation. Its owner and operator is Gas connect Austria which ever since 2016 has been blocking stakes in Snam.

Snam is Europe’s largest infrastructure company. It is engaged in the construction and management of gas transmission infrastructure facilities (pipelines, underground storage facilities, LNG regasification terminals). Snam is financing the construction of the TAP (trans-Atlantic pipeline) which will be a continuation of the TANAP (trans-Anatolian pipeline). Theoretically, TAP and TANAP are one single project whose route is as grandiose as its costs. Natural gas coming out of the offshore field “Shah Deniz 2” in Azerbaijan passes through the Caucasus mountains and into Georgia, then “dives” back into the Black Sea, gets out on the coast of Turkey and makes its way through its territory until it reaches the Greek border. From there, it goes through Albania in order to reach the Adriatic Sea which leads it to Italy where it meets its end. This took 42 billion USD, which makes it the most expensive NGP in the history of the European gas industry.

Isn’t it beautiful? Well, only if you close your eyes on the power of this engineering miracle. 16 billion cubic meters are to be annually supplied to Turkey through the TANAP, 6 billion of which are going to remain there for Turkish use. The other 10 billion will continue their way to Greece. By subtracting the needs of Greece and Albania we can evaluate remnants that will be left for Italy. Snam did evaluate this too and decided that its investment in this colossal structure would be of €270 million. There is however one more nuance: TAP’s capacity is of 20 billion cubic meters, which means that the European Union is building a gas pipeline twice as powerful as the volume that Azerbaijan is capable of providing to Europe. It is no coincidence that in 2015, Gazprom formally asked the European Commission if it had the right, based on the provisions of the Third Energy Package, to become an alternative supplier for the TAP. The answer was clearly gritted: yes, there are no legal obstacles to it, however nor there is any gas: the second branch of the TurkStream got to Europe by the Balkan route (Turkey – Bulgaria – Serbia – Hungary – Slovenia – Austria, Baumgarten).

Another portion of the EC’s dreams of reducing its dependence on Russian gas crashed into the geological reality of the TAP: it can be used to 100% of its capacity only with the help of Gazprom. Negotiations with Turkmenistan on the eventuality of a project of supplying gas to Europe are still going, but are somehow becoming more and more sluggish. The circulation of Turkmen gas through three seas (Caspian, Black and Adriatic) is more of a legend than a possible reality, whereas the new agreement of the old partners Gazprom, Eni and Snam on the conditional “Turkish Stream” has no reason not to be worth considering, especially since it is already known that Recep Erdogan will not even think of objecting? Snam’s attitude toward the EastMed project is even more skeptical, since it doesn’t take any part in it at all. Territorial disputes with both Northern Cyprus and Turkey, three-kilometer depths on individual sections of the route, 2027 being the closest possible date, 10 billion cubic meters of annual capacity (with parts of this volume being to remain in Greece and Cyprus), well, no thank you, we’ll pass. And the Italian company Snam is far from being the only one sharing such skepticism about EastMed.

The economy of Israel will grow through Egypt

In mid-February 2019, the Israeli company Delek Drilling and its American partner Noble Energy announced the signature of contracts with Egyptian East Gas on the supply of gas to Egypt from the Israeli Leviathan and Tanam field. These were meant to begin in January 2022 with a delivery capacity of up to 7 billion cubic meter per year. Both the Israeli and American companies confirmed their intentions with an agreement on the repurchase of a 39% stake in the Israeli-Egyptian interconnector Eastern Mediterranean Gas, after what the parties began to investigate the construction of a LNG plant in Egypt whose capacity should be up to 7.2 billion tons per year.

The point is not only that Israel has strong “green” positions, but also that the plant can be built on the East coast of Egypt, which will save the project from costs of gas tankers having to go through the Suez Canal. The project is not designed to supply LNG to Europe with its competitive and bureaucratically regulated market. The project’s participants are “targeting” Southeast Asia.

Italy, Norway, Libya, Switzerland, Poland, the Netherlands, Ukraine, Russia – it’s a small world

Let’s go back to the plans of the Italian company Snam which is more interested in the needs of its domestic consumers rather than the geopolitical intrigues of the European Commission. In the spring of 2017, without waiting for the protracted process of Naftogaz’s unbundling, it made a proposal together with the Slovak gas transmission company Eustream of jointly investing €2 billion into “Ukrtransgaz”. The goal is to repair and modernize the part of the gas transportation system that is used to supply Russian gas to Baumgarten, Austria (where the TAG NGP begins) via Slovakia. The Italians know how to look at Russian projects with a sober glance: both NS 2 and the second branch of the TurkStream will be ending in Baumgarten, Russia is thus building some kind of “gas ring” and Italy is to remain outside its perimeter. As a result, the Baumgarten hub is to become dominant in Central Europe, and prices for the entire European market are to be determined there and in Germany. New agreements with the new operator of the GSTU give Italy a chance to compete with these projects, an opportunity to try and become a hub for Southern Europe and a chance to support the significance of the PSV hub.

The unbundling of Naftogaz was completed by the very end of 2019. The new GTS operator became a company with the very original and unexpected name “Operator of the Ukrainian GTS” (OGTSU). There has been no information about Snam being ready to initiate negotiations with the OGTSU, but the probability of such thing happening, in our opinion, is much more likely than Italian participation in the intricate EastMed project. The transit agreements signed by Russia and Ukraine guarantee the functioning of the Ukrainian gas transportation system for the next five years: this is the period of time during which the OGTSU has the opportunity to agree on joint activities with Snam. Will Ukraine resist if made a reasonable offer? This is quite unlikely: there doesn’t seem to be any other European company interested in cooperating with OGTSU at the moment, especially since these companies are patiently waiting for the completion of the NS 2 project and the continuation of the second branch of the TurkStream.

In 2018, Gazprom delivered 22.7 billion cubic meters of gas to Italy. The results for 2019 have not yet been announced. Does Italy need even more? In 2018, Italy became a gas exporter for the first time in its history, having started delivering to Switzerland while its own demand keeps growing, but this isn’t the main point. Gazprom’s supplies make up for about one third of Italy’s needs as Italy also has other suppliers. The “transitgas” pipeline that goes through Switzerland also brings gas from Norway and the Netherlands, about 18 billion cubic meters per year. The Green Stream gas NGP connects Italy to Libya, providing 8 billion cubic meters per year. Libya is a perspective county from any point of view and Marshal Haftar can confirm this to anyone. In 2023, production in the Dutch Groningen will stop. From 2022 onwards, Poland is planning on abandoning Russian gas in favor of gas coming from Norwegian fields located in the Black Sea. This does sound a bit surprising, but facts are facts: the successful implementation of the Polish-Danish project “Baltic Pipe” will become an incentive for closer cooperation between Gazprom, Eni and Snam. Whether that be in the form of “TurkStream no.2” or in the form of increasing the supplies of the TAG in connection with the modernization of the Ukrainian gas transportation system, or perhaps even a combination of both, only time will tell. One thing is certain: this cooperation will not correspond to globalist, pro-American position of the European Commission. Italy and Europe have been cooperating in the gas industry for over 60 years, and in this case, such a fact will outweigh all the others.

Russia. The Rosatom model for gas and oil companies – to be or not to be

Our only interest is the observance of our own interests while simultaneously working on developing as actively as possible import substitution in the most critical sector, as well as ensuring that alternative energy markets to the European one appear on the planet. Rosatom clearly demonstrated how to do so: it is completing a power plant in Belarus and already has a fuel contract until the end of the plant’s life. Rosatom is also building a nuclear power plant in Bangladesh and also has a contract for that “Rooppur” one. Rosatom has not yet started working in Egypt but already has a fuel contract for its El Dabaa power plant until its end. The life of VVER-1200-based power units is 80 and for all these 80 years Rosatom will be supplying fresh nuclear fuel as well as taking back the irradiated fuel for processing.

Our coal companies, suffering from the volatility of quotes, supply coal as a commodity. One day everything is fine, the next day there are painful negotiations with the Russian railways (for it to offer discounts on its tariffs) and even delays in the payments of salaries of their own employees. NOVATEK has put “Yamal-LNG” into operation but it does not provide complex services (such as terminals, pipelines connecting the coast to inland regions, power plants) to its potential new customers. Only last year did Gazprom for the first time ever use Gazprom Energoholding outside of Russia by starting building a gas power station in Serbia. Seems excellent at first since the process started, but it turned out to be so only because the technology supplier was Siemens, not Russian companies.

We have watched the first Russian-African forum with great hopes. It is possible that economic relations might as well develop in the energy sector. LNG and terminals in exchange for diamonds, uranium and other non-ferrous metals are mutually beneficial and a serious step towards our independence from the European gas market. Therefore, we are in crucial need of high technologies in out traditional energy: coal-fired boilers with a fluidized bed, powerplants using supercritical and ultra-supercritical technology, development of the newest filters, technologies for processing coal ash and slag.

“Do you want economically inexpensive and environmentally friendly coal generation? Here you have a whole set of possible solutions that we are ready to provide, but there is one nuance: all technologies are developed for our coal grades. If you’re ready to pay with molybdenum, tungsten, cobalt and oil, then we have a deal.”

The problem is these are long-term games we are not ready for and unfortunately, we do not know if we even are preparing for them at all. Very recently it became known that an agreement was signed between Gazprom, NOVATEK and Rosneft on the fact that these leading Russian energy companies will no longer be lone rangers, but jointly support the creation and development of local technology for large-scale LNG liquefaction. In 2019, Gazprom bought back shares of “REP Holding” from Gazprombank. Ever since, there are unfortunately no more news of Russian companies moving towards creating a comprehensive offer to potential customers.

The technologies of coal-fired boilers with a high-temperature circulating fluidized bed are only being developed by the LLC “Pektrokotel-VTKS” (St. Petersburg). There is no information for these developments to have been supported by any Russian coal company. In February 2016, the first Russian boiler with a circulating fluidized bed designed for supercritical steam parameters was completed at the power unit No. 9 of Novocherkasskaya State District Power Station. It is a joint development of the Taganrog Red Boiler and the British company Amec Foster Wheeler. That’s all for the list of participants from the coal sector.

2020: the era of low gas prices, or the lesser of two evils

In such circumstances, Gazprom has only one strategy left to hold and try to expand its share in the European gas market: preventing prices from rising above the level at which competitors will break into this market. In 2019, there was a sharp decline in LNG prices in Southeast Asia: the level is now such that transportation costs may turn out to be (and actually do turn out to be) such that it becomes profitable for producers to transport LNG to Europe. According to preliminary estimates, LNG supplies to the European market almost doubled. There is only one way to deal with this trend: pipeline deliveries should become cheap enough for the trend to die out. Having withstood the intrigue around the problem of continuing Ukrainian transit, by the end of 2019 Gazprom managed to catch up with the volumes of European exports. After the transit agreements with Ukraine were signed, a decrease in the volume of deliveries was recorded as European companies have carefully pumped gas into all the available underground storage facilities, and now they are quickly pumping it to consumers.

Spot prices in Europe’s largest hubs are already below $120 per 1000 cubic meters. It would seem that Gazprom needs to slow down and reduce the volume of its supplies, but that is not happening. Even before the official inauguration of the TurkStream, Russian gas began to flow to Bulgaria which, using the given opportunity, had already began to re-export towards Montenegro and possibly might extend it to Romania. The goal is obvious: in spite of the prices and profit, it is crucial not to let any competitors enter Europe. It is difficult to estimate how long this period will last in Gazprom’s biography, but it is already obvious what exactly is going to happen in 2020.

Norman four summit

The construction of the Bulgarian section for the continuation of the second branch of the TurkStream should be completed by the end of May 2020. Serbia is already at the last stages of its part of the work, and therefore it is certain that this NGP is going to work at 100% of its designed capacity. Gazprom is technically capable of completing the construction of NS 2, and it is quite likely that deliveries to Europe will begin towards the end of 2020. Germany has already appealed against the European Commission’s decision to limit up to 50% of the supply capacity under the OPAL NGP, so it is possible that as a result, this decision will be canceled.

In summary, there isn’t going to be any less Russian gas in Europe. It is going to continue influencing the price levels in this market; in fact, it will lower them. The most unpleasant thing is that Gazprom does not have to fight foreign competitors only: in 2019 LNG deliveries from the Yamal-LNG plant increased sharply, and thus Russian pipeline gas competes with Russian liquefied gas. NOVATEK is not the only shareholder of YAMAL-LNG: there are also two Chinese state-owned companies and the French company Total that have long-term contracts and freedom of action in regards to the choice of end consumers. The transshipment company base in Kamchatka (which is supposed to facilitate the supply of LNG to Southeast Asia) so far only has plans to build an atomic icebreaker of the Leader class, which will be able to provide year-round navigation along the Northern Sea Route east of the Laptev Sea. However, this has not even been put into contract yet. There doesn’t seem to be any concrete reasons for the Chinese and French partners to refuse supplying Russian LNG to the European market, and this is also a factor that Gazprom has to take into account. Over the course of 2020, gas prices in Europe will at best not decrease, but in the worst case scenario Gazprom will have to reach its minimum level of profitability.

Gazprom’s financial well-being and the amount of taxes it will have to contribute to the Russian budget will depend on several parameters: on negotiations with China regarding the “Power of Siberia 2” and “The Power of Siberia 3”, on how fast and how successfully the implementation of natural gas processing projects at the Amur gas processing plant and the Novy Urengoy gas chemical complex will go, on how quickly the preliminary stage of designing a gas cluster in Ust-Lug will be completed. It will also depend on whether that be possible or not to expand LNG production volumes on Sakhalin and whether the construction of the Portovaya compressor station LNG plant in the Leningrad Region will be completed or not.

Also, on whether or not it is possible to accelerate the construction of new gas stations in Russia, and whether or not it will be possible to expand this segment of the business to other countries, and, as it seems to us, whether or not the leaders of the gas sector and Department of Energy will think of Russia selling not only the gas itself, but also to make proposals for all technologies ensuring its use in power plants and processing. The successful implementation of each of these factors will be important, but for now we must point out that both the European Union and Russia have entered a period of low gas prices. It isn’t the best of times, so one can only hope that it won’t last too long.

Translated by Ellina Hensen
Original text: geoenergetics.ru

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