Gas, Russia and the Nord Stream project

The Estonian government on Thursday refused to allow the environmental surveys in the Estonian Exclusive Economic Zone (EEZ) for the proposed Nord Stream Russia – Germny gas pipeline project. The decision was influenced mostly by populist propaganda, which seemed to overturn the opinions of all ministries and specialists consulted in Estonia (except one). The rational decision would have been to allow the surveys, keep a close eye on them, and subsequently deny any possible request for the construction of a pipeline. Instead, now the EU is unhappy, we have seemingly annoyed the Finns and given Russia a good reason to claim that Estonia is a small, vengeful and petty country which for some reason tries to drive a wedge between the EU and Russia’s otherwise good relations.

However stupid, populist or irrational the government’s Thursday’s decision was, it was also a democratic decision made by the democratically appointed government, unianimously. The decisions of the EU are also more or less democratic. But are the decisions of the Russia state? Is this a project between equal partners, having the same understanding and values? I guess not.

My understanding of the pipeline project is that nobody in Europe has a sensible reason to support the project any more. In 2000, when it was granted TEN-E status by the Commission it might even have made sense to make this pipeline to bypass the Baltic countries. More strange is that it has been left in there when the Baltic States and Poland acceeded to the EU in 2004. Logically there is no reason for it to be in the environmentally delicate seabed of the Baltic Sea, when it could go through directly to the EU (Lithuania or Poland). One of the priorities of the EU is environmental protection, as well.

My understanding is that the EU (or at least the Commission) now has a sceptical view to the project and it is only kept alive thorugh the efforts of Germany and the influence Gerhard Schröder and Putin still have in EU capitals. The project and Gazprom’s other interests in Europe have been investigated for example in an article in this week’s Stern (english translation available here, courtesy of Robert Amsterdam). The article gives a chilling overview of Gazprom’s business activities, which seem to be tailored in order to corrupt and provide slush funds for Gazprom’s managers. It also states that Gazprom might actually not have any gas to sell, as it has not invested in capacity building. Are the brass of Gazprom capable of running a successful business at all or are they interested in pumping out what they can and leave after the inevitable happens?

There is another aspect to this. The EU is in the final stages of liberalising its energy markets (the new rules became effective July 2007). It seems bizarre that Gazprom is building its business in such vertically integrated way, especially regarding how this might be incompatible with European anti-monopoly rules. It is interesting to check also the new proposals from the Commission (energy commissioner Andris Piebalgs of Latvia), which call for the separation of supply and distribution networks, making sure that “companies from third countries wish to acquire a significant interest or even control over an EU network” comply with the same rules, etc. The Commission seems to be worried about the looming Russian control of the EU gas market and therefore is already making preventative steps to put a stop to this. See the thinly veiled threat in this Gazprom press release regarding Commission’s proposals (“The Company feels sure that its voice will be heard”).

When looking at the “big picture” the Nord Stream pipeline seems to be another Gazprom project which has mainly political goals and those goals are served even right now. I am beginning to think that the pipeline project is actually another political lever and an opportunity to provide income for certain key people (Schröder = € 250 000 per year), rather than an honest attempt to build an actual pipeline. Hopefully Europe comes to its senses, and does it sooner rather than later…