GEORGIA’S PIPELINES AND EUROPE’S CHOICE – HISTORY AS IT HAPPENS

The grandparents, Russian and East European immigrants, used to refer to a painful buildup of gas in the belly as “ah-ji-tah.”

The conflict between Russia and Georgia over the breakaway province of South Ossetia is giving European nations “ah-ji-tah.”

The latest news is that the Russians ARE pulling back. Reports to now have trumpeted the Russia-Georgia conflict as a threat to the Baku-Tbilisi-Ceyhan (BTC) oil pipeline but that line was closed by a terrorist attack in Turkey before the August 6 explosion in South Ossetia. Though a vital line of non-OPEC oil to Europe, the BTC pipeline is not Europe’s central concern. Why? Russia needs European oil markets and there are other places Europe can get oil.

Much more important is what this situation means for Europe’s vital natural gas supply.

The South Caucasus Pipeline (SCP) is a natural gas line running along the same route as the BTC from Azerbaijan through Georgia to Turkey. Controlled by a non-Russian consortium, it represents a crucial circumvention of Russia as Europe’s natural gas supplier. The SCP now carries 16 billion cubic metres (bcm) of natural gas. Germany, as one example, gets 40% of the natural gas it depends on for warmth in the winter through the SCP and other lines from Russia.

Considering that Russia already used its gas as a weapon against EU member states when it cut supplies to Ukraine, Belarus and the Czech Republic in mid-winter 2005, the SCP, even more than the BTC, is what Europe is thinking about as it chooses whether and how it will confront The Bear.

Europe is in the process of planning the Nabucco pipeline and/or the South Stream pipeline. The Nabucco pipeline would, like SCP, supply Europe with non-Russian gas via a non-Russian route. The only problem: The problematic SCP delivers the gas Nabucco takes on to Europe. The South Stream pipeline would come online at the same time as Nabucco and carry 3 times the volume of natural gas and bypass the tumultuous areas of the breakaway states – but it would carry gas supplied by Russia’s Gazprom, giving Russia the leverage over Europe the EU nations don’t want it to have.

Europe’s best alternative supply is gas from Iran. Yes, the Iran Europe is trying to leverage away from nuclear development with a threat of economic boycott. Not a great alternative.

Charles Ebinger, director, Energy Security Initiative/Brookings Institution: “..the South Stream project has been strengthened by the current situation and Nabucco may fall by the wayside…Russia has the whip hand over Europe in terms of energy policy.”

Did Russia start the conflict with Georgia to push EU nations toward the South Stream line? There is no certainty Russia actually even started the conflict. But there is little doubt the pipeline situation adds to Russia’s willingness to respond to circumstances aggressively.

A British think-piece draws this conclusion: “…energy from Russia seems to reconcile Europe's regional strategic interests with security of supply at a smaller diplomatic cost. But it is only the lesser of two evils.”

If the tensions between Russia and Georgia ease according to the stated agreements, the question will remain: Does Europe choose to depend on Russian natural gas supplies (the South Stream line) or potential disruptions from conflicts in Georgia and other breakaway regions (the Nabucco line)? The earliest indication of their choice will come when NATO members next meet.

A decision to fast track Ukraine and Georgia for NATO membership is one of the primary items on the meeting’s agenda. Bringing those breakaway states into NATO would mean further confrontation.

The BTC, SPC and major auxillary lines. (click to enlarge)

Europe’s energy source lies in the shadow of Russia’s anger
Alex Brett, August 17, 2008 (The Observer via UK Guardian)

WHO
Natural gas-dependent EU nations; Gas-rich Russia; Transit nations

WHAT
The Russo-Georgia conflict threatens the South Caucasus Pipeline (SCP) and typifies the instability in Russian breakaway states that throws into doubt Europe's ability to diversify its natural gas supply, putting Russia in a stronger position to use energy as a weapon against EU nations.

click to enlarge

WHEN
- 2005: Russia cut gas supply to Ukraine, Belarus and the Czech Republic.
- The South Caucasus Pipeline (SCP) was closed August 12 but reopened August 14.
- 2013: The planned Nabucco pipeline to go online, carrying 30bcm.
- 2013: The planned South Stream pipeline to go online, carrying 10bcm.
- 2021: Nabucco complete, carrying 31bcm.

WHERE
- The South Caucasus Pipeline (SCP) runs from Azerbaijan to Turkey with Georgia being the only viable transit because Azerbaijan is technically at war with Armenia.
- The Nabucco project would go from the Shah Deniz gas fields in Azerbaijan to Turkey and from there into Europe. It could take on inputs from Iran and Iraq.
- The South Stream project would start on the Russian Black Sea coast and carry Gazprom gas through Romania and Bulgaria (new EU states) into the rest of Europe.
- The Baku-Tbilisi-Ceyhan (BTC) oil pipeline delivers Caspian Sea region oil, via Georgia, to the Turkish Black Sea port of Ceyhan for distribution to all points west.

WHY
- The BTC oil pipeline has a 1 million barrel/day capacity but was carrying approximate 850,000 barrels/day until it was shut down by the terrorist attack in Turkey a week before the August 6 Russo-Georgia explosion.
SCP carries Caspian Sea gas.
- BP owns 25.5% of SCP. TNK-BP, BP’s subsidiary, is involved in an ongoing series of conflicts with Russia. Other owners include Norwegian, Azerbaijani, Russo-Italian, French, Iranian and Turkish companies.
- The Georgian conflict puts in doubt the viability of the Nabucco and South Stream gas lines.
- The Nabucco pipeline cannot transit Turkmenistan because supplies there go to Iran, Russia and China. That leaves Turkey and Russia as the only transit routes to the continent.
- Turkey is currently cooperating with Russian and Ankara has been silent on the Georgia situation.

Existing lines on which Europe depends. (click to enlarge)

QUOTES
- Nick Day, CEO, risk consultant Diligence, on Russia’s use of natural gas as a foreign policy tool: “…the greatest threat to Western companies in the region is renationalisation in former Soviet countries, which has already been taking place in Russia. As a result of this conflict, countries neighbouring Russia may offer oil and gas contracts to Moscow as an olive branch.”
- Valery Nesterov, energy analyst, Troika Dialog: “…the resource base for the South Stream is stronger than that of Nabucco. The South Stream has a head start; Nabucco has been dealt another blow…deeper co-operation between Russia and Turkey is likely. It is to both countries' advantage.”