Center for World Conflict and Peace

Center for World Conflict and Peace

Tuesday, November 5, 2013

Geopolitical Risk in Russia’s Central and Eastern European Energy Market

Europe remains the single largest market for Russia’s energy exports. Russia’s use of energy as a political weapon in Central and Eastern Europe, however, has prompted the latter to pursue alternate energy sources and supply routes. The Russian economy has failed to sufficiently diversity its exports, and still relies heavily on energy exports for income. As Russia’s economic growth slows and Central and Eastern European states seek energy partners besides Russia, there is a geopolitical risk that Russia could react negatively to prevent its customers in these sub-regions from taking their business elsewhere.
 
In February, 2013 the World Bank predicted that Russia’s GDP would grow by 3.3%, .3% lower than it predicted in October, 2012. Russia’s GDP growth has fallen since 2011, from 4.3% to 3.4% in 2012. It is currently projected to grow 3.6% in 2014, yet another .3% drop in the original estimate for that year. This reduced growth is attributed in part to the lowering of global oil prices.
 
Some argue that Russia may simply shift its market focus to other countries or regions, such as China. Yet a decisive shift from the European market is unlikely for economic and security reasons. Economically, turning away from Europe would limit Russia’s much-needed customer base. From a security standpoint, Russia needs a buffer zone to protect it from the West, and a customer base of countries dependent upon Russian energy is a sure way to maintain this protective belt.
 
Thus, Russian security is partly jeopardized by the Central and Eastern European search for alternate energy sources. It’s implausible that Russia would use its old tactic of temporarily shutting off energy supplies to Europe, since this is what prompted the Central and Eastern European search for alternate sources in the first place. Nevertheless, Russia will likely attempt to reverse this trend, and possibly with methods that include some form of military action.
 
Three states--Lithuania, Poland, and Ukraine--provide excellent examples of the search for alternate energy supplies in Central and Eastern Europe, and may represent the main factors in the geopolitical risk to Russia’s Central and Eastern European energy market, and any related security risks to the region.
 
Lithuania’s energy minister Arvidas Sekmokas has stated that Lithuania possesses 100 billion cubic meters (bcm) of shale gas, which would last the country between 30 and 40 years. Juozas Mockevičius, director of Lithuania’s Geological Survey, however, has misgivings about the idea, and states he isn’t sure if the estimates are correct. Still, the potential for energy production is there, and may represent a risk for Russia in the Baltics, as Lithuania could become not only relatively energy-independent, but a source of energy imports for Estonia and Latvia as well.
 
In Poland, oil accounts for 26% of the country’s energy imports, 95% of which is imported from Russia via the Druzhba pipeline. In 2009, Poland produced 5.9 billion cubic meters of natural gas, which satisfied 37% of energy needs. While still a net importer of energy from Russia, Poland is determined to develop natural gas as its main energy source, as Poland will only have to pay around USD 100 per thousand cubic meters for LNG. A port for LNG brought by tanker is currently under construction at Świnoujście on the Baltic Sea. Poland’s national gas company, PGNiG, signed a deal with Qatargas to purchase 1.5 bcm of LNG a year starting in 2014. The Świnoujście terminal will handle up to 5 bcm of gas, and while Poland may not use all the energy the facility will be capable of processing, it will nonetheless significantly reduce Russia’s ability to exert pressure on the country. If Poland so chooses, it could even sell some of the unused LNG to neighboring countries.
 
Earlier this year, Ukraine held discussions with Hungary and Slovakia on the transportation of gas through their territories into Ukraine, at a volume of 7 billion cubic meters per year (in 2011, Hungary held talks with Turkmenistan about transporting natural gas into Central Europe via the Southern Corridor). Ukraine’s national gas company, Naftogaz, announced that it plans to buy 18-20 billion cubic meters of natural gas from Russia in 2013, a significant decrease in the volume set to be purchased from Russia in 2012 (52 bcm). When Ukraine petitioned Gazprom to reduce the purchase contract from 52 bcm to 27 bcm, Russia refused, and subsequently billed Ukraine USD $7 billion under the “take it or pay” formula.
 
There are, however, still no facilities in Central or Eastern Europe to process non-liquefied natural gas, limiting the ability of states in the region to seek alternative sources, thus continuing their dependence on Russian pipelines for their energy needs, least for the near future.
 
How far Central and Eastern European states are from developing alternate energy sources depends upon issues such as financial capital and outside technological assistance. While Russia cannot prevent regional governments and firms from establishing contracts with outside bodies, Russia does have the military projection capabilities to make importing alternate energy difficult. This is the case for Lithuania and Poland in particular, which border Russia’s Kaliningrad exclave, home of the Russian Baltic Fleet.
 
This raises the issue of NATO’s role in Central and Eastern Europe’s energy security. Former NATO Secretary-General Jaap de Hoop Scheffer first discussed the NATO’s role in the issue in February, 2006, and U.S. Senator Richard Lugar has called Russian manipulation of energy supplies a “weapon” (which, in his estimation, could lead to the invocation of NATO’s Article Five). All this creates a risk of Central and Eastern Europe’s energy market becoming a militarized issue for Russia seeking to maintain its economic hold on regional energy, and to keep peripheral states subdued in order to maintain a cordon sanitaire. It remains to be seen how much of the Central and Eastern European market Russia is willing to sacrifice, and if movements toward energy independence could provoke a military reaction from Russia.

1 comment:

  1. Awesome ! i really found very informative article here and bookmarked this blog. Thank you.Solar Panels for sale

    ReplyDelete