A CASE IN POINT

E.U, Kazahkstan Pact Aims To Bypass Russia
Marc Champion, December 4, 2006 (Dow Jones Newswires via Rigzone.com)
- In the European Union's growing struggle to break Russia's grip on the bloc's gas imports, all roads are leading to Kazakhstan.

- Today, the EU signs a memorandum of understanding with Kazakhstan on energy aimed at binding this vast country -- which stretches from the Caspian Sea to China -- closer to Europe.
- Yesterday, EU Energy Commissioner Andris Piebalgs signed an accord on nuclear cooperation, with a view toward increasing Kazakhstan's share of uranium sales in the EU to 20% from 3%…
- Last week, Mr. Piebalgs, a Latvian who speaks fluent Russian, attended an EU-inspired meeting in Kazakhstan of regional energy ministers that produced a road map toward integrating their countries' energy grids and regulatory systems with the EU's.
- Yet in all this flurry…the thing Mr. Piebalgs and many EU countries want most -- the construction of a gas pipeline across the Caspian Sea that would connect the gas-rich countries of Central Asia directly to Europe -- isn't mentioned.

- Kazakhstan is critical to building the home stretch of a new southern energy corridor that would carry gas from the Caspian and beyond to the EU, via the Caucasus and Turkey. Such a corridor for the first time would allow the countries of Central Asia to sell gas directly to the EU, rather than to Russian gas monopoly OAO Gazprom, which can then re-export the gas at a high profit, as it does currently. Russia accounts for 44% of EU gas imports, a proportion that is expected to rise significantly, especially after Russia builds a northern gas corridor directly to Germany, under the Baltic Sea…
- A raft of pipelines to make this new East-West energy corridor are either in planning stages or under construction. A gas connector from Turkey to Greece and from there to Italy…Another…Nabucco…is planned to take gas from Turkey north to Central Europe, Austria and beyond. Another…promoted since Gazprom cut off gas supplies to Ukraine in a price dispute last winter, would take gas across Georgia and directly to Ukraine and Romania via the Black Sea.
- But…there has to be gas to fill them. Russia is offering to expand its pipeline…but that would only increase the EU's dependency on Gazprom.

- Iran, with the world's second-biggest gas reserves, after Russia, could hook up to Turkey's grid and send gas to Europe, but relations between Tehran and the EU are poor…Connections to bring gas from Iraq and Egypt to Turkey also are possible but equally uncertain.
- Gazprom, at least, is skeptical about the EU's pipeline ambitions…
- The EU itself remains divided over pipeline routes…
- Mr. Piebalgs is eager to secure a new southern gas route as soon as possible. Kazakhstan could choose to pipe its gas to China instead of Europe, even if the cost and distance involved would be far higher than crossing the Caspian. But Kazakhstan President Nursultan Nazarbayev, who visits Brussels this week, is proving cautious. Closely allied to Moscow, the Kazakh government is wary of inviting the kind of retribution that has met Georgia's snubbing of Russian power…Nine oil- and gas-pipeline projects…were all taken out, largely for fear of angering Russia over the trans-Caspian issue…

- The EU made an earlier feasibility study for a shorter trans-Caspian gas-pipeline route from Turkmenistan to Azerbaijan, but that has since been abandoned because of Turkmenistan's refusal to get involved…Mr. Piebalgs is hoping to get the Russians involved…When the EU created its regional energy integration initiative in 2004, Kazakhstan declined to sign, as did Russia. This weekend, Russia still attended as just an observer…
- When a U.S.-backed consortium built an oil pipeline from Azerbaijan to Turkey against fierce Russian opposition, Kazakhstan again refused to get involved. But in June, with the pipeline completed against all expectations, Kazakhstan signed up and is now building capacity to ship oil across the Caspian and feed it into the BP PLC-operated pipeline, which can carry one million barrels of oil a day from Baku in Azerbaijan to Ceyhan on Turkey's Mediterranean coast, via the Georgian capital Tbilisi…

- The EU only got serious about gas-supply routes this year…after Russian supplies to Ukraine and Georgia were cut off in January, and a Russian pipeline to Lithuania's oil refinery shut down in the wake of Lithuania's decision to sell the refinery to a Polish, rather than a Russian, buyer in the summer.
- Russian officials insist the loss of gas supplies to Western Europe in January was due to Ukraine's theft of transit gas; that the pipeline to Georgia was blown up by Chechen or other terrorists; and that the refinery hitch is technical…