Gazprom still faces pipeline uncertainties
Posted: 15 October 2009
This week, Russia made news with the signing of a major trade deal with China that included a commitment to supply nearly 2.5 trillion cubic feet of natural gas to China annually.
Meanwhile, construction continues of the Nord Stream pipeline in Europe, which would supply Russian gas under the Baltic Sea to Germany and bypass Eastern Europe.
These ambitious plans would seem to signal a return of Russian strength based on its power as an exporter of energy, but the reality is more complex, according to Joseph Dresen of the Woodrow Wilson Center’s Kennan Institute.
"Gazprom is still reeling from the economic crisis and the aftermath of the natural gas dispute with Ukraine in January," Dresen said.
"Demand is lower, and costs from its gas suppliers in Central Asia are higher because of contracts signed before the crisis. While Western European nations are lining up to participate in Nord Stream, giving just cause for concern among its neighbors in Central and Eastern Europe, the impetus to diversify away from Russian supplies of gas remains high."
The energy deal with China is even more tenuous, according to Dresen.
"Russia may have the reserves to fulfill the commitment to China, but it lacks the pipelines to do so, either from Siberia or from Sakhalin," he said.
"Russia and China entered into a similar agreement in 2006, and are no closer to having settled on the route or the financing of any pipelines. In the meantime, China is aggressively pursuing pipeline deals with the Central Asian nations of Kazakhstan and Turkmenistan. If successful, those pipelines would not only undercut China’s demand for Russian gas, but also impact supplies for Russia’s pipelines to Europe."
Posted by Richard Price, Editor, EnergyME.com
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