Russia Expands Its Natural Gas Infrastructure (Agenda)
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Video Transcript:
Colin: Russia, blessed with what could be the world's greatest gas reserves, is spreading the tentacles of its pipeline network to Europe -- partly to try and fend off potential competition from the United States and elsewhere. Three new pipelines are planned by state energy company Gazprom: one through Belarus and across Poland to Germany and Slovakia; one under the Black Sea to Southern Europe; and a third in the Nord Stream set under the Baltic to the Netherlands. Russia provides about a quarter of gas consumed in the European Union. The controversial pipeline is the one through Poland. It bypasses Ukraine, with whom Moscow has been in a long-standing squabble over gas prices.
Welcome to Agenda this week, introducing Marc Lanthemann, a European analyst with Stratfor. First Marc, what are the geopolitical and economic implications of this pipeline through Poland?
Marc: This pipeline is particularly important geopolitically because it allows Russia to bypass Ukraine. Russia and Ukraine have had a variety of problems over the years, culminating in 2005 and 2009 in two gas shortages throughout Europe. And as Russia tries to position itself as a reliable supplier of cheap and steady natural gas to Europe, it has to show that things like those cuts will not happen again. And this is why they are trying to go around Ukraine. So this is where you see pipeline projects like Nord Stream that goes under the Baltic Sea and South Stream, which eventually will go under the Black, come to fruition. And this is another part of the strategy where you have a pipeline that goes through Belarus, bypasses Ukraine and goes through Poland into Western Europe.
Colin: I'll come back to Ukraine in a moment. Let's come to the statement by the Polish government -- by both the Polish prime minister, actually, and the treasury minister -- that Poland going to accept a plan from Gazprom. Is that a hard statement, or just a negotiating point?
Marc: That was a harsh statement. And it is quite indicative of some of the tension that still exists between Warsaw and Moscow. That being said, that statement was tempered right after by other Polish officials. For example, you had the Polish economics minister fly to St. Petersburg on Monday to talk to Alexei Miller, the CEO of Gazprom, and evidently they discussed this idea of the pipeline. Poland has shown itself willing to negotiate on this issue. It's a pipeline that has some, if not a lot of, potential for Poland. So you know, you should keep the treasury minister statement within that context as more of an isolated statement rather than the definitive answer off the overall polish government.
Colin: So, Marc, what kind of deal could be done between Poland and Russia?
Marc: Well you know at this point Poland is not a great consumer of natural gas, but they do import the overwhelming majority of the gas they consume from Russia. So, you know, things that could be on the table may be natural gas price discounts. Eventually in the future they may start thinking about maybe sharing the pipeline, although that is difficult to happen. So that's sort of what's on the table right now. And you know, Poland is at the crossroads of natural gas in Europe, so it's also in their interest to keep a food in that game.
Colin: Poland is anxious I know to develop it shale deposits, but when I was in Warsaw recently I found government officials frustrated by what they saw as dirty tricks by the Russians in funding environmental groups in the European Union to try to get it blocked.
Marc: The development of shale gas and the shale gas industry in Poland is actually not living up yet to the expectations. You know, back a couple of years ago everybody thought, "Oh, the shale gas in Poland is going to be exactly like the shale revolution that happened in United States and is currently happening. That was a great boost economically for the United States, and can we replicate that in Central Europe?" The answer is still: maybe. And what has happened -- and this is an interesting development that happened over last week -- was that the European Commission itself, while still taking into account that sort of opposing position from France and other sort of environmentally concerned nations, has put out what they call a green paper, saying, "You know what, shale gas is a desirable form of energy for the future of Europe, mostly because it's going to allow us to become more independent from Russian supplies and because it's going to make natural gas cheaper and therefore help us boost our economy." And they really do need that boost right now.
Colin: Let's fall back to Ukraine. When I was there the Polish government's energy chief told me the shale basin stretched across the border into Ukraine. So he saw the two countries cooperating together because they're on good terms with a fairly open border.
Marc: That's right, and you know, Kiev has been very, very interested in boosting their own production of natural gas. They already have some production, but again with the technical advances that allow us to tap into the shale system (shale reserves), they're hoping that they can increase their domestic production and therefore be less dependent on Russian natural gas. At this point they import a 100 of their natural gas from Russia, which places them in a very strategically delicate situation. That being said, the problem is that you're ready have problems in the regulatory environment in Poland to develop shale gas, and you've had companies like ExxonMobil leaving some of their developments in Poland. And all this bureaucratic red tape that you face in Poland, you find it multiplied in Ukraine, which is not an EU member, where you know, making business is not as easy as you'd think. So you know the challenges really, really multiply want to cross the border from Poland Ukraine.
Colin: You mentioned earlier in the Russians' plans for further pipelines. To what extent is this motivated by the shale revolution in the United States and the prospect of the Europeans buying gas from across the Atlantic?
Marc: And I think this is really at the heart of the question. Russia's realizing that there is a slew of natural gas producers that have come online. And one of the big ones is the United States, thanks to it's shale gas revolution. And it means that Europe will have access to larger volumes of cheaper gas in the near- to medium-term future. What Russia is doing right now is positioning itself, through building additional infrastructure, as a reliable and safe and cheap supplier of energy. What they're doing is locking in a lot of that their customers in long-term contracts, ranging from five to 15 years, so that they can secure their revenue stream ahead of that change in the natural gas market in Europe.
Colin: Marc Lanthemann, thanks very much for your analysis. And that's agenda for this week. Thanks for being with us. Goodbye.
