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May 28, 2013 | 11:00 GMT

Russia's Strategic Search for Natural Gas Storage

Russia's Strategic Search for Natural Gas Storage
(JENS SCHLUETER/AFP/Getty Images)
Summary

Recent actions by Russia highlight the role that natural gas storage facilities play in Moscow's broader energy strategy in Europe. Belarusian President Aleksandr Lukashenko signed a decree May 22 calling for Russian-controlled Gazprom Transgaz Belarus to expand the capacities at the country's Mozyrkoye and Pribugskoye underground storage facilities. The construction and commissioning of these projects, which are expected to increase storage capacity by 1 billion to 2 billion cubic meters, will occur between 2013 and 2020. Lukashenko's decree comes amid Russia's attempts to acquire natural gas storage facilities in another former Soviet state, Ukraine. As the energy dynamics in Europe evolve, Russia's access to downstream storage facilities will help determine Moscow's position on the Continent.

Natural gas storage facilities are important for several reasons. They help countries manage their natural gas inventories, and they provide energy security for countries that rely on natural gas as a substantial component of their industrial production and household heating, including most of the countries in Central and Eastern Europe. In case of a natural gas cutoff or during consumption peaks, stored natural gas supplies can serve as backup or emergency supplies. Additionally, storage facilities can allow countries to purchase excess natural gas during the summer, when demand is typically lower and supplies are cheaper, and resell those supplies on the spot market (rather than through long-term, fixed-price contracts) in the winter, when demand and prices are higher.

Storage facilities are especially important for Russia, which is one of the leading natural gas producers in the world and the leading exporter to Europe. There is an expansive pipeline and storage infrastructure linking Russia to its various European consumers across the continent. Access to these storage facilities has allowed Russia to maintain a steady flow of supplies to its European customers and has been a major source of revenue for Moscow. However, the ownership of pipeline and storage infrastructure varies across Europe, and the status of these strategic assets often becomes politicized.

Belarus

Belarus Locator Map

For example, Russia acquired complete control of Beltransgaz (renamed Gazprom Transgaz Belarus) in 2011, thus gaining access to Belarus' storage facilities and pipeline system, which, at the time, moved 20 percent of Russia's natural gas exports to Europe. This has allowed Russia to dictate the energy supply flow through Belarus on its own terms and has made it possible for Russia to strengthen its position in the Belarusian energy sector. According to the decree signed by Lukashenko, Gazprom Transgaz Belarus will build the third and fourth phases of the Mozyrkoye underground storage facility (created in water-bearing formations) in the Gomel region to expand it from 150 million cubic meters to 1 billion cubic meters, while the Pribugskoye facility (built in salt-bearing formations) will be expanded from 400 million to 600 million cubic meters. Along with the Osipovichskoye storage facility, which has an active storage capacity of around 300 million cubic meters, these projects could give Belarus a natural gas storage capacity of up to 2 billion cubic meters.

However, Belarus' storage capacity — even if it does double with these expansion plans — is miniscule compared to that of its southern neighbor, Ukraine, which has 13 underground natural gas storage facilities with a combined capacity of more than 30 billion cubic meters. This storage capacity is a major factor in Russia's interest in acquiring Ukraine's state energy firm Naftogaz. However, Ukraine (which is a transit state for most of Russia's energy exports to Europe) has been less willing than Belarus to cede its energy infrastructure to Russia. Instead, Kiev has sought to increase cooperation with the European Union and has proposed the formation of a consortium involving Ukraine, Russia and the European Union to manage Ukraine's pipelines and storage facilities jointly. Aware of the strategic nature of storage facilities and pipelines, Ukraine has shown interest in granting Moscow partial access to these assets but has not been willing to let Russia acquire them outright, even in exchange for lower natural gas prices.

Political and economic disputes between Russia and its two major transit states, Belarus and Ukraine, previously have led to cutoffs of natural gas supplies, which was a major factor in Russia's creation of alternative pipeline projects, notably Nord Stream through the Baltic Sea and the planned South Stream through the Black Sea. But while Nord Stream (and potentially South Stream) has enabled Russia to circumvent these transit states considerably, they do not give Russia access to natural gas storage facilities. Because Nord Stream and South Stream are primarily underwater pipelines, they do not address Russia's needs for underground storage facilities — and the expansion plans in Belarus show that constructing new facilities can be a long and costly affair. 

This explains not only why Russia acquired Gazprom Transgaz Belarus and is now increasing its storage capacity there, but also why Moscow continues to court Kiev (along with other countries to the west, such as Hungary) to get access to its expansive storage infrastructure regardless of its pipeline plans. Maintaining and building access to such storage facilities will be important for Russia as its energy relationship with Europe faces increasing challenges in coming years. Whether to ensure reliable supplies or to maintain Russia's energy-reliant economic growth and stability, access to and control over natural gas storage facilities will play a significant role in Moscow's broader energy strategy for years to come.

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