Extraction and the Politics of Natural Resources.

[CHORNYVOLK]

Check to Ukraine and checkmate to Nabucco
14:21 | 13/ 03/ 2008



MOSCOW. (Igor Tomberg for RIA Novosti) - A new deal between Gazprom and its Central Asian suppliers evokes images of a "gas-OPEC."

On February 11, Gazprom, Kazmunaigaz, Uzbekneftegaz and Turkmengaz officially declared that starting in 2009 Gazprom will pay European prices for Central Asian gas.

The price formula has not yet been found, and it is therefore too early to talk about the details of the agreement. Gazprom officials maintain that this formula will be a subject of the talks. The price is expected to be somewhere between $200 and $230 for a thousand cubic meters, depending on the location of its transfer to Gazprom. The price is based on current European prices (in Slovakia and Romania the relevant figure is about $330).

In the new-year forecasters were predicting that European consumer prices would reach $360 for a thousand cubic meters by 2009. That figure has now been drastically revised upwards, with analysts expecting prices to hit $380 in 2008, and possibly reach $400 by the end of this year. Many warn that, given the rapid growth of oil prices, the true figure may be even higher.

The statement came on the eve of yet another round of talks with Ukraine, which buys Central Asian fuel for far less than its European neighbors. Yet Ukraine presents itself as the main victim.

Gazprom annually buys about 42 billion cubic meters of Turkmen gas, and another 8 billion cubic meters each from Uzbekistan and Kazakhstan. This year, their respective prices are $140, $145, and $160 per thousand cubic meters. Gazprom currently supplies the bulk of this gas to Ukraine for $179.5 - a price acceptable to Ukraine and modestly profitable for Gazprom.

The recent price hike by the Central Asian producers means that Ukrainians will no longer enjoy cheap gas. Faced with such a sudden and dramatic price increase, Kiev may well seek to resolve some of its problems at Gazprom's expense.

The transit fee for Russian gas flowing across Ukraine to Europe has long been exploited by Kiev, and it will be no surprise if Yulia Tymoshenko's government raised transit costs to compensate for Central Asia's price leap. In that case, Gazprom would be compelled to pay up to $1.5 billion for the higher profits of its Central Asian partners.

Needless to say, Gazprom is doing all it can to prevent a radical revision of the transit price, all the more so since it could increase its own tariffs for the transit of Central Asian gas across Russian territory.

Russia currently charges the Central Asian republics $1.70 for the transit of a thousand cubic meters of gas over a distance of 100 km. All in all, delivery of Central Asian gas to Ukraine via Russian pipelines costs about $10 for a thousand cubic meters. Gazprom could double this figure.

The sides have not yet started specific calculations, and much will depend on the eventual agreement on the European price formula and transit tariffs. It would be safe to say, however, that new gas prices will encourage further talks on Gazprom's access to the domestic market in Ukraine, and will revive discussion of an international gas consortium.

Gazprom's decision to accept the terms of the Central Asian gas producers will finally bury the U.S. and EU-promoted trans-Caspian Nabucco project, which would have brought Turkmen gas to Europe via Azerbaijan, Turkey, and the Balkans. Central Asian partners could only be replaced with Iran, but that would not be politically correct.

The transition to European prices will consolidate the Russian and Central Asian project to build their own Caspian gas pipeline. An extension of the old Central Asia-Center gas pipeline, it will transit an additional 10 billion cubic meters of Turkmen and an equal amount of Kazakh gas, and is taken by many as a sign of enhanced cooperation between the ex-Soviet gas producers.

This change brings to mind associations with OPEC, the international oil cartel, especially in the context of media reports that the joint statement by three Central Asian gas companies, which coincided with the visit of Ukrainian monopoly Naftogaz to Moscow, was made with the full approval of the Kremlin.

Russia has long been working to form an association of former Soviet gas producers and exporters modeled on the famed oil cartel. It was clear that Gazprom could not control Central Asian gas supplies forever. Transition to the European price formula, which Moscow has carried out in respect of CIS countries, therefore elevates their understanding and cooperation to a new level. Despite the efforts of Western gas consumers, the four CIS countries appear to have adopted a common strategy in foreign markets.

Igor Tomberg, Ph.D., is a senior research fellow with the Center for Energy Studies, the Institute of World Economy and International Relations at the Russian Academy of Sciences.

[Lonevolk]

Gas is relatively under valued at the moment considering how much oil has gone up. Most people expect a doubling if not more of gas prices within a year or so.....if it happens, the current problems with Ukraine might only be the start of a prolonged conflict.


As far the "Nabuco" pipeline goes, it looks pretty much dead at the moment, but I'm pretty sure they will try to get their hands on Iranian gas either through some sort of deal or maybe through war. Also, Iraq apparently has vast untapped reserves of gas as well, which could be utilised at a future date

[medo]

According to the Serbian national television (RTS) web site President of the Serbian parliament Oliver Dulich, who is member of the pro-western DS - Demokratska Stranka which is part of the ruling coalition, rejects the idea that Serbian parliament can ratify the oil/gas deal between Serbian and Gasprom.

2nd news in www.rts.co.yu/kategorija_vesti.asp?redosled=prioritet&IDCategory=92

(title says: "Moscow concerned about ratification of the (Serbian) deal with Gasprom")

[medo]

I would strongly recommend that this time Russia does not interfere in the upcoming elections in Serbia, neither through media nor by accepting visits. Official Russia should not invite any of the Serbian politicians to visit Russia.

Patriotic forces do not need Russian (or any other) help since their ideology is to gain trust from the people. However pro-western forces try to manipulate the people and the only trust they expect to gain is one from Brussels and Washington.

If Russia calculates that the oil/gas deal would be surely ratified in case of patriots win the elections so if it therefore decides to support pro-western forces and if they win the elections then Russian leadership could go to Brussels rather than to Belgrade to talk about the destiny of the Serbian- Russian gas/oil agreement, since nothing will depend on Belgrade.

If Russia implicitly or explicitly decides to support pro-western forces it shall lose not only patriotic forces in Serbia but also the whole Serbia since pro-Western forces do not care about Russia but only EU and NATO.

[SRBIN-MILOS]

MAN I HATE THOSE DS BASTARDS!!!!

NOTHING BUT A BUNCH OF FILTHY GANGSTERS!!!

they will lose the elections though trust me on this, it has been written.....


PEACE!!!

[gleb]

This situation with gas deal is temporary and it is only a question of time.

[CHORNYVOLK]

Serbia's political crisis delays gas deal
21:59 | 14/ 03/ 2008



BELGRADE, March 14 (RIA Novosti) - Serbia's parliamentary speaker Oliver Dulic said on Friday that ratification of a January gas deal with Russia to build a pipeline through Serbia has been affected by the recent dismissal of the parliament.

President Boris Tadic dismissed parliament and called early elections for May 11 after Prime Minister Vojislav Kostunica refused to govern alongside Tadic's Democratic Party over disagreements on EU integration.

"It is [ratification of the South Stream agreement by parliament] unrealistic, particularly since the energy agreement needs to go through parliament," Oliver Dulic told Belgrade's Tanug news agency.

Russia and Serbia signed an agreement on January 25 as part of the South Stream project to construct a pipeline for the transit of the Russian natural gas through Serbia to the Balkans and on to other European countries.

The pipeline will pump 30 billion cubic meters of Central Asian natural gas to Europe per year. Serbia and Hungary joined the project, already involving Italy and Bulgaria, earlier this year. Greece announced plans to join South Stream last summer

[Lonevolk]

Whoever is in charge will have to implement it sooner or later because there is no alternative to it. Even Hungary and Austria are part of it.

The DS and their allies are not happy about the deal over the Oil industry where Gazprom gets the majority share (51% for Gazprom - 49% Serbia). They're saying that it shoud be the other way around or at least 50-50, like in the case of Bulgaria.

[CHORNYVOLK]

EU warns water shortage in Central Asia could spark conflicts
15:37 | 15/ 03/ 2008



BRUSSELS, March 15 (RIA Novosti) - The severe impact of climate change in Central Asia is causing water and food shortages that could lead to regional conflicts, EU foreign policy chief Javier Solana warned.

Solana delivered a climate change and security report from the High Representative and the European Commission to leaders at the European Union summit held on Thursday and Friday.

"An increasing shortage of water, which is both a key resource for agriculture and a strategic resource for electricity generation, is already noticeable" in Central Asia, the report said.

"The glaciers in Tajikistan lost a third of their area in the second half of the 20th century alone, while Kyrgyzstan has lost over a 1000 glaciers in the last four decades. There is thus considerable additional potential for conflict in a region whose strategic, political and economic developments as well as increasing trans-regional challenges impact directly or indirectly on EU interests."

Climate change topped the agenda at the summit in Brussels. In the 27 leaders' final declaration, they urged world powers to sign up to an international agreement to cut greenhouse gas emissions, and threatened to impose sanctions on nations that boycott an agreement.

The climate change report concluded: "The impact of climate change on international security is not a problem of the future but already of today and one which will stay with us. Even if progress is made in reducing the emissions of greenhouse gases, weather patterns have already changed, global temperatures have already risen and, above all, climate change is already being felt around the globe

[CHORNYVOLK]

Relax and float south stream
By Pepe Escobar

There's a Central Asian energy revolution going on. In the key arena of gas geopolitics, it's no secret Russia favors the creation of a gas "OPEC" - to the despair of the George W Bush administration. But Alexei Miler, the powerful head of Russia's Gazprom, was in for a rude shock this Tuesday when the three state gas companies in key Central Asian "stans" - Uzbekneftgaz, Turkmengaz and Kazmunaigaz - told him that starting next year, they will only sell their gas to Gazprom according to European rates. Gazprom, although with deep pockets, could have never expected that Uzbekistan, Turkmenistan and Kazakhstan would all gang up on it this way.

Gazprom used to buy around 4 billion cubic meters of gas from Uzbekistan at US$140 for a thousand cubic meters, and 8 billion
cubic meters from both Turkmenistan and Kazakhstan at, respectively, $145 and $160 for a thousand cubic meters. According to the Russian daily Kommersant, by 2009 Turkmen gas will probably be charged from $250 to $270. Gazprom can realistically expect to sell its gas in Europe for around $300 the cubic meter.

The great loser, according to Russian daily Vremia Novostiei, is Ukraine, which basically buys Central Asian gas transported by Gazprom. But Ukraine could brandish the weapon of transit tax of Russian gas; thus "the alignment to an European level may offset the effect of the Central Asian diktat. In that case, it's Gazprom which will be the victim."

This new development threatens to turn upside down the success of Russian President Vladimir Putin' s visit to Kazakhstan and Turkmenistan in May 2007 - when he made sure that prized Turkmen gas would arrive in Europe only through Kazakhstan and Russia. Putin convinced the "stans" just as an "anti-Russian energy summit", as dubbed by Kommersant, took place in Krakow, uniting Poland, Ukraine, Azerbaijan, Georgia and Kazakhstan itself.

These five countries somewhat agreed to build a new pipeline from Odessa to Gdansk, bypassing Russia, and part of the TransCaspian pipeline. But the agreement was basically rhetorical. Poland wanted it to mean the beginning of an "energy NATO". It didn't work. Instead, Putin's key objective was reached - to reinforce Gazprom's iron clad position in an "energy dialogue" with the European Union (EU).

And now for a real energy war
What's taking place between Russia and the EU is more of an energy war than an energy dialogue. The EU and the US pin all their hopes on the 3,300 kilometer-long, $5.8 billion Nabucco pipeline, planned in 2004 and with construction about to start in 2009, already approved by the European Commission. Nabucco would transport Caspian Sea natural gas (potentially even from Iran, barring US opposition) from Erzurum in Turkey to Baumgarten an der March in Austria via Bulgaria, Romania and Hungary.

Nabucco is owned by a consortium including Romania's Transgaz, Bulgaria's Bulgargaz, Austria's OMV, Turkey's Botas and MOL and Germany's RWE. France's Gaz de France may soon join. Nabucco is thus the EU's channel to not import natural gas only from Russia.

Russia's answer to Nabucco is the 1,200km, $15 billion South Stream pipeline, carrying Siberian natural gas by way underground of the Black Sea from Russia to Bulgaria. From Bulgaria, one branch would run south through Greece and southern Italy while the other would run north, through Serbia and Hungary towards northern Italy. The memorandum of understanding for South Stream was signed in Rome in June 2007 by Gazprom and Italy's ENI.

It's very easy to see who's winning in the Nabucco vs South Stream war. In early January, Bulgargaz spurned insistent EU siren calls for Nabucco and opted for South Stream - despite the fact that Bulgaria is both a EU and NATO member. Then Serbia also came on board - with Gazprom taking a 51% stake in NIS, the Serbian oil monopoly.

What the three "stans" have done to Gazprom this week softly mirrors what Gazprom has done to Ukraine - no more gas if you don't pay what we want. This is enough to raise plenty of multinational heartbeats at the European Commission in Brussels - terrified that the EU, which import 40% of its gas from Russia, will become a hostage of Gazprom's whims.

The same day the three "stans" were handing Gazprom their new tariffs for 2009, energy experts from the 27 EU member countries were meeting in Brussels with Energy Commissioner Andris Piebalgs to debate what to do as Gazprom decided once again to pump less gas to Ukraine - and thus to Europe.

The Iraqization of Nabucco
Nabucco is hardly a solution for Europe, for a number of key reasons. Will the EU be able to buy Iranian gas via Nabucco? Will the "stans" have enough gas to supply both Russia and China? Will they renege on their deals with Gazprom? Or will they keep rising their prices to Gazprom, as they announced this week?

Turkmenistan, for instance, pledged to sell 50 billion cubic meters a year to Gazprom; it also has to provide 30 billion cubic meters for a pipeline to China starting in 2009; and it needs to supply 30 billion cubic meters for Nabucco. Few believe it can export that much.

All these variables have led Duma deputy speaker Valery Yazev to already declare "the death of Nabucco". Reinhard Mitschek, the head of the Nabucco consortium, flatly disagrees, extolling its "future potential".

Finally, in late February, Putin signed a bilateral agreement with Hungarian Prime Minister Ferenc Gyurcsany at the Kremlin. Hungary was also on board of South Stream; 10 billion cubic meters of gas a year running through Hungary after running through Bulgaria and Serbia. Now Romania is the only southern European country still pledged to Nabucco.

What this all graphically spells is Caspian - and Siberian - gas basically arriving to the EU via Russia. Bulgaria, deciding to go the Gazprom way, definitely split up the EU amalgamation. Italy also went the Gazprom way. Putin went to the heart of the matter in late February, while he was still president: "Our partners should do a very simple thing: they should take a calculator and see what is more profitable."

As for US deputy assistant secretary of state Matthew Bryza, he has been crying "Follow your wallet" like a madman; for him, it's Nabucco that makes commercial sense, cutting the EU's dependence on Gazprom by up to 25%. He insists this is all in European countries' "national interests" even though no US energy multinationals are part of the deal.

But what this is in fact is classic George W Bush administration thinking. First of all anything goes to bypass Russia. And of course there is always the unspoken, invisible Iraqi angle.

The Bush administration still hopes that the Iraqi Parliament will approve its key "benchmark" - the new Iraqi oil law, which will in fact denationalize the oil industry. Thus, in this best of possible worlds, Iraqi gas, pumped through Syria, would be able to fill Nabucco, which would not be wholly dependent on the "stans". And there's always that neo-con dream of regime change in Iran - enabling Iranian gas to reach Europe but under US terms.

Any speculation about what Russian president-elect Dmitry Medvedev is up to is idle. As Viatcheslav Nikonov, president of the Politika foundation, wrote in the Russian daily Izvestia, "Russia remains a force in itself, preserving sovereignty in all its domains" and developing its economic, political and military power. "We are too big to follow anyone."

Medvedev, says Nikonov, is all for "free market, democracy, the force of the state, sovereignty and traditions". He is a conservative. He was personally chosen by Putin. And he is a Gazprom man. So everybody better relax and float South Stream.

Pepe Escobar is the author of Globalistan: How the Globalized World is Dissolving into Liquid War (Nimble Books, 2007). He may be reached at [e-mail].

www.atimes.com/atimes/Central_Asia/JC14Ag01.html

[CHORNYVOLK]

Gazprom blocks plans to pump Caspian gas to EU bypassing Russia

Moves by the European Commission and the United States on the Caspian have forced Russian natural gas monopoly Gazprom to act. Yesterday its CEO Alexei Miller proposed to Azerbaijan's President Ilham Aliyev that Russia would buy gas from the republic at market prices under a long-term agreement.
A source familiar with the proposal said purchases could start next year. Gazprom is ready to buy any amount offered by Azerbaijan at world prices, which may rise beyond $300.
Previously, Azerbaijan imported Russian gas. In 2005, the monopoly sold it 4.5 billion cubic meters at $60 per 1,000 cubic meters, and in 2006, at $110. In 2007, gas supplies were cut by two thirds after prices rose to the average market figure of $230. Azerbaijan chose to increase its own production by exploiting the Shah Deniz gas field and agree a redistribution of gas quotas with Georgia and Turkey.
Azerbaijan has 1.5 trillion cubic meters in known reserves, including 1.3 million in recoverable resources on the Shah Deniz field, located in the Azeri sector of the Caspian shelf. Azerbaijan consumes 11-14 billion cubic meters of gas per year. Despite this, the field's export potential, even in the first phase, is estimated at 12 billion cubic meters.
During the second phase there are plans to increase exports by 5 to 7 billion cubic meters. In view of high transportation costs to Turkey and beyond through pipelines not yet built, whose estimated costs are rising all the time, Azerbaijan will find it difficult to compete with Gazprom.
According to information available to Vremya Novostei, Aliyev said he would consider the proposal. After all, it opens a window of opportunity for further bargaining with gas buyers - Turkey, Greece, Italy and Austria. The fixed and moderately priced contracts have been concluded only with Turkey's Botas, and for 6.6 billion cubic meters.
On the other hand, Baku is the main bastion of Western diplomacy in the Caspian region. Until now it was Azerbaijan that led the support for plans to create corridors for shipping energy resources to Europe bypassing Russia. There is a mix of interests here: first, transit (Azerbaijan and Turkey are linked by the Baku-Tbilisi-Ceyhan oil pipeline and Baku-Tbilisi-Erzerum gas pipeline, which are far from operating at full capacity), political relations (especially with Washington) and a sort of grievance against Gazprom. In addition, to agree to Russia's proposal would mean leaving its own pipeline to Turkey empty.

[medo]

Nord Stream will prove our reliability: Medvedev

President Dmitry Medvedev has staked Russia’s reputation on the $US 10 BLN Nord Stream gas project, saying it will prove the country’s energy reliability. Flanked by German Chancellor Angela Merkel, Medvedev said he expected the pipeline to be finished on time, by 2011.

The Russian president said that during the meeting with his German counterpart, they discussed the possibilities of expanding the pipeline system, including the promotion of the Nord Stream – a massive gas pipeline project, which is a joint venture between Germany and Russia.

"We have a common vision on it as a global project of European scale and thus, it meets the interests of reliable energy supply and energy security of all European countries," he said.

Medvedev was in Germany on his first trip to Europe and the West as Russia's President. The Russian leader said it’s no co-incidence that Germany was the first western country he visited and Merkel was the first foreign leader whom he met in Moscow several days after being elected Russia's President. He said this shows Russia’s priorities.

"For us, Germany is a strategic partner, with which we have a very high level of trade and economic interaction and very good level of political contacts," he said.

During a joint media conference, Medvedev also raised concerns about the widening gap between Russia and the West on global security. He cited disagreements over NATO enlargement and U.S. missile defence plans.

"That is why we hope that the high level and the priority relations between Russia and Germany are capable of being an orienting point for a new quality of relations between Russia and the EU," the Russian president added.

Human right issue was also touched upon, specifically the case of a Russian businessman Mikhail Khodorkovsky – the former head of oil company Yukos. In 2005 one of the richest men in Russia was sentenced to 9 years in prison for tax evasion – the move many in the West saw as politically motivated.

Commenting on the issue, Medvedev stressed that matters related to penitentiary procedures, including those involving Khodorkovsky, are based on domestic legislation and cannot be a subject of interstate discussions.

Both leaders said they are satisfied with the talks.

Chancellor Merkel added that economic contacts can bring a lot of opportunities for both countries, especially in energy field. She said she was pleased with how the relations between two countries are developing and expressed hope they will develop further in the future.

To watch the joint conference with the two leaders, please follow the link.

After the meeting with Chancellor Merkel, Medvedev has met representatives of German business. In his speech and a Q&A session that lasted more then an hour he voiced his position on a range of issues from media freedom to human rights to international politics.

Delivering his first major speech to the West as president, Medvedev spoke about a number of issues, including NATO expansion, which he believes threatens to undermine Russia’s relations with the alliance.

"NATO has been unsuccessfully trying to find some new meaning of its existence," the Russian leader said.

“These days that meaning is being looked for on the track of globalizing the alliance's mission - to the detriment of the UN Security Council prerogatives, by inviting new members. It is obvious, though, that the task set cannot be resolved in this way.”

He added: “Some people say that NATO’s expansion eastwards can be exchanged for something else. I think all these things are illusions. Our relations with the alliance will be undermined if this ever takes place. There will be no confrontation, but the price will be very high.”

The president also called for a new Russia-EU security treaty similar to the Helsinki Act signed in 1975.

“We should develop and sign a legal agreement on European security. We could have organisations that already exist in the Euro-Atlantic space. And these organisations can be party to such an agreement,” Medvedev said.

He suggested that a European summit should be called “that would give a start to the process of developing such a treaty”.

“It is important for all states to operate as single nations, leaving aside the concept of blocs,” he added.

The Russian leader has once again reaffirmed his determination to fight corruption in the country. The freedom of the press was one of the parts of that mission, with Medvedev claiming it still needs protection.

"Several years ago, it needed protection from direct enslavement by corporations. Now it should be protected from attacks by administrative machinery at all levels," he said.

"We're already standing on the threshold of a fully free mass media that will rely on technological progress - and the growing opportunities of the internet in the first place."

Compared to three million people in Russia who used the internet in 2000, today their number has increased tenfold and it will continue growing at a fast rate.

Medvedev added: "This situation not only moves the freedom of the press center-stage, it sets up the task of maintaining moral and cultural values in the field of information. This task is bigger than one on a national or European scale. It's a global task."

Medvedev said that all cases of attempted murder against journalists would be investigated, no matter when the crime took place.

www.russiatoday.ru/news/news/25782

[medo]

Please pay attention to Mr. Medvedev's statement about NATO’s eastward expansion that I bolded.

I was thinking last few weeks that Germany and France might come to a silly idea to ask from Russia something in return for their rejection to accept Ukraine and Georgia in NATO, what was demonstrated at the last NATO summit in Bucharest. If Mr. Medvedev was thinking about that when he warned about unacceptability of "exchanging NATO’s expansion eastwards for something else" then I greet his statement.

I am saying this because very often since Bucharest I read in European and German media on Internet that Germany was the most creditable why Ukraine was not invited to NATO. All these comments hinted that Germany deserves something in return. But I would reply to those people that it was not Germany which deserves credit on this issue since it is not and it shall not be Germany or any other country which will decide on fate of Ukraine, but instead Ukrainian people. It is not A. Merkel but people of Ukraine who firmly reject in 70% majority to join NATO. Only 20% approve such idea. The rest are unsure.

As regards Georgia as far as I know Abkhazians and South Ossetians do not want to live in a NATO country. Therefore Georgians shall have to decide - either territorial integrity outside NATO or Georgia in NATO but broken into pieces no one will ever put together.

[CHORNYVOLK]

Russia Outflanks EU's Pipeline Plan

Seeking New Source of Gas,
Europe Meets a Kremlin Blitz
By GUY CHAZAN
June 16, 2008; Page A1

BUDAPEST -- During the Cold War, the balance of power was measured in nuclear warheads. Now a new kind of contest is playing out. The battlefield is Europe's energy market. The objective is pipeline proliferation. And Russia is winning.
Europe is witnessing a race between two mammoth pipeline projects that would bring natural gas to the Continent from the Caspian and beyond. One of the plans -- hatched in Europe, championed by Washington and named for a Verdi opera -- has been hobbled by bureaucracy. The other, backed by the Kremlin, is rolling ahead with a speed and success that has surprised and frustrated the West. The outcome could shape energy supplies, and political influence, in Europe for decades to come.
KREMLIN RULES

• The Race: Europe is seeking to build a pipeline to help ease the Continent's dependence on Russian gas. Moscow has proposed a pipeline of its own.
• The Playing Field: The European project has bogged down in red tape. The Russian plan, backed by full Kremlin firepower, has raced ahead.
• The Impact: A Kremlin-backed pipeline would increase Russia's leverage over Europe as its natural-gas needs are expected to soar.


The European Union has been desperate to reduce its dependence on Russian fuel ever since Moscow turned off the gas tap to Ukraine two years ago in a pricing dispute, disrupting supplies to Western Europe in the middle of winter. The EU's proposed solution was the Nabucco pipeline, which would pump gas from Central Asia and the Caucasus without going through Russia.
But earlier this year, in the last few months of his presidency, Vladimir Putin mounted a diplomatic push on behalf of the Kremlin's own proposed pipeline, called South Stream. Moscow enlisted the support of former Eastern European satellites through which the new supply route would pass -- including Hungary, which had been a signatory to the rival Nabucco plan.
South Stream's triumphant march through Europe attests to the potency of Mr. Putin's brand of state-directed capitalism. The Kremlin and its gas monopoly, OAO Gazprom, negotiated swiftly and ruthlessly. That contrasts with the European approach: Seeking consensus and hewing to laws meant to foster competition, Nabucco's backers provided Moscow ample time to capture the lead.
"The Russians were just much faster," says Abel Garamhegyi, a senior official at Hungary's Economics Ministry.
Soaring crude prices have catapulted Russia, holder of the world's biggest natural-gas reserves, to the status of energy superpower. Gazprom already provides just under a quarter of the EU's gas. With the bloc's gas demand expected to climb, consulting firm Wood Mackenzie projects the Russian share to rise to one-third.
Increased Leverage
In Western capitals already worried by Gazprom's dominance, some fear that additional pipelines will let Russia increase its leverage over its biggest customers. "This is all about Gazprom, a state-run monopoly, exerting monopoly pressure to restrict competition," says Matt Bryza, U.S. deputy assistant secretary of state for European and Eurasian Affairs, who has led the losing battle to fend off South Stream. "The Russians want to maintain our allies' dependence on Gazprom so as to keep gas prices high."
With its gas supplies in hand, Gazprom expects to finish a feasibility study for South Stream by the end of this year, arrange financing and launch the pipeline in late 2013. The Nabucco consortium says its groundwork in Europe is nearly complete and it expects to start building in 2010 and begin pumping gas as early as 2012.
But Nabucco's future is murky, and upcoming decisions by several key countries could determine its fate. The consortium's negotiating position is in danger of being weakened by Gazprom, which has recently offered to pay Azerbaijan and Central Asian producers market rates for their gas. That puts the squeeze on Nabucco, which will be forced to fight harder to win supply deals and may find it difficult to secure financing for construction.

Nabucco was supposed to help Europe diversify its supply. In 2002, five gas-transportation companies -- from Turkey, Bulgaria, Hungary, Romania and Austria -- dreamed up a plan for a 2,046-mile, $7.7 billion pipeline that would bring gas from the Caspian Basin and the Middle East through Turkey to a European gas hub near Vienna. The consortium ordered a feasibility study and met in Vienna two years later to approve it. To celebrate, the partners went to see Nabucco, the Verdi opera.
They were impressed by the exotic tale of Nebuchadnezzar, king of Babylon -- present-day Iraq, which they expected to provide some of the pipeline's gas. So, they adopted Nabucco as the project's name.
When President Putin heard about it, he was dismissive. "He said you can only build a pipeline if you have gas to fill it," Janos Veres, the Hungarian finance minister, recalls Mr. Putin saying at a Kremlin lunch in 2005.
He had a point. The companies building Nabucco don't themselves extract natural gas. The EU's antimonopoly rules forbid gas producers from building and owning the infrastructure to transport their fuel. Pinning down the gas to fill Nabucco has proved hard.
In 2006, the European project gained a powerful backer. The Bush administration, alarmed by the Ukrainian gas cutoff, threw its weight behind Nabucco.
Driving the new policy was Mr. Bryza, a career foreign-service officer who has been a linchpin of U.S. energy policy in the Caspian for a decade. He was a key architect of the pipeline that ships crude from Azerbaijan to the Turkish Mediterranean. Named Baku-Tbilisi-Ceyhan, or BTC, it was the first non-Russian export route for Caspian oil.
Early on, Mr. Bryza identified Azerbaijan as the main potential source for Nabucco gas. He began courting Ilham Aliyev, the Caspian state's authoritarian leader. The two had worked closely on BTC and enjoy a "warm relationship," Mr. Bryza says. Some of Mr. Aliyev's ministers attended Mr. Bryza's wedding in Istanbul last year.

Mr. Bryza encouraged Mr. Aliyev to open up his vast gas reserves to fill Nabucco. He says the Azeri president was unsure there would be enough demand in Europe to justify the vast investments needed. Mr. Aliyev wanted clear signals from the often-divided Europeans that they were committed to buying his gas.
The Russians, meanwhile, began considering a rival plan. Their inspiration was Blue Stream, a costly pipeline Gazprom had built with the Italian energy giant ENI SpA that pumped Russian gas to Turkey along the bottom of the Black Sea.
In November 2005, when Russian, Turkish and Italian leaders gathered in the Turkish port of Samsun to inaugurate the line, Mr. Putin boasted that it was just the start. "The Russians said, 'Why don't we build another one across the Black Sea directly to Bulgaria?'" says Paolo Scaroni, ENI's chief executive.
In January 2007, Italian Prime Minister Romano Prodi visited Mr. Putin at his residence in the Black Sea resort of Sochi. Over lunch, they agreed to set up a working group to look into the new supply route.
Putin 'Knows Everything'
Just five months later, at a ceremony in Rome, ENI and Gazprom bosses inked the deal to build a $15 billion pipeline that would carry gas 558 miles under the Black Sea from Russia to Europe. It would finish up at Baumgarten, the same Austrian hub as Nabucco. South Stream was born.
The mastermind of the project was Mr. Putin. "He knows everything about the price of gas," says Mr. Scaroni. "I wish European politicians knew as much about gas as Putin does."
The EU's top energy official, Andris Piebalgs, welcomed the plan, saying it wouldn't pose a threat to Nabucco. The EU's own figures show that the combined capacity of South Stream and Nabucco will fall far short of the bloc's expected increase in demand over the next decade or so.
"There's plenty of room for both," says Alexander Medvedev, the head of Gazprom's export business.
Russia also argued that new pipelines would, if anything, improve Europe's energy security. Gazprom was worried about the condition of pipelines crossing Ukraine and frustrated by spats with Kiev over unpaid bills and transit fees. The same arguments had led Moscow to initiate a new pipeline from Russia to Germany under the Baltic Sea, also avoiding Ukraine, called Nord Stream.
But Nabucco and South Stream began bumping up against each other.
In June 2007, the Bush administration saw an opportunity to reassure Mr. Aliyev of Nabucco's viability. At a summit of Black Sea states in Istanbul, a meeting was arranged between the Azeri leader and the Greek prime minister, Costas Karamanlis. The U.S. side hoped the Greeks would persuade the Azeris that there was a European market for their gas.
But Mr. Karamanlis snubbed the Azeri, huddling instead with Mr. Putin. Afterwards, he announced that Greece was backing South Stream. U.S. officials were deflated.
A Greek government official said Greece also supports alternatives to Russia, such as gas supplies from Algeria and through Turkey. "But we have to make sure we secure all our necessary future supplies," he said.
Countries Flip-Flopping
Other countries were also flip-flopping. By 2007 Hungary, one of Nabucco's initial backers, was worrying that the project wasn't commercially viable and that Azerbaijan, the main source of the gas, wasn't a democracy.
Last spring, U.S. diplomats went to work on the Hungarians to persuade them of the wisdom of diversifying gas suppliers. Hungary swung back to Nabucco. At a conference in Hungary in September 2007, Prime Minister Ferencz Gyurcsany pledged his "total support" for the project. "Our job is to find gas resources independent of Russia," he said.
Russia struck back. Mr. Putin and his senior aides began moving through Eastern Europe, wooing local leaders and signing deals. Within weeks, Russia had recruited Bulgaria and Serbia as transit countries for South Stream. Gazprom acquired half of a key gas-trading hub in Austria.
The talks didn't always go smoothly. Negotiations with Greece were overshadowed by the issue of its existing long-term supply agreements with Gazprom. The Russian gas giant threatened not to extend the contracts, which expire in 2016, unless Athens allowed Gazprom to sell its gas directly on the Greek retail market. "As soon as this issue is resolved, the supply contracts will be extended," Gazprom's Mr. Medvedev says.
Russia began to press Hungary, now the missing link in South Stream's route. On Feb. 22, Russian and Hungarian officials gathered in Russia's Energy Ministry in downtown Moscow to hammer out a transit accord. Gazprom wanted to take a 51% stake in the joint venture operating the Hungarian branch of the pipeline and win tax breaks. But such incentives would go against EU rules. Hungary balked.
After the talks broke down, Mr. Veres, the Hungarian finance minister, set off for his flight home. On the road to the airport, as his car sat in traffic so heavy that it caused him to miss his flight, he says he received a call from Russia's ambassador to Hungary. The envoy told him that Dmitry Medvedev, then Russia's deputy prime minister, would come to Hungary the following Monday to resume the South Stream talks.
Such high-level trips normally take weeks to plan; the Hungarians had two days' notice. Russia's political clock was ticking. Presidential elections were scheduled for the following Sunday in which Dmitry Medvedev, Mr. Putin's handpicked successor, was widely expected to win. "It's clear they wanted to close this deal before the elections," says Mr. Veres. "It's a prestigious project for them."
Within a few hours of his arrival, Mr. Medvedev had given in to Hungary's key demands. Ownership of the pipeline joint venture would be split 50-50. There were no promises on taxes. Russia also agreed to let Hungary have access to the gas in the pipeline and stockpile it in underground storage tanks on Hungarian soil.
Signing Ceremony
"We knew that if we didn't agree, they'd investigate other routes," said Mr. Garamhegyi of Hungary's Economics Ministry. No pipeline meant no lucrative transit fees for Hungary.
Four days later, Mr. Gyurcsany, the Hungarian prime minister, flew to Moscow for the signing ceremony.
In Hungary, the deal caused a firestorm. "Instead of reducing our energy dependence on Russia, they're increasing it," said Zsolt Nemeth, a lawmaker in the opposition Fidesz party.
The U.S. was furious. "Moscow has responded to the advance of the Nabucco project by exerting pressure on Hungary and its neighbors to strike a quick deal on South Stream," Dan Fried, U.S. assistant secretary of state, wrote in a Hungarian newspaper. "This is not the right time to have our attention diverted by a pipeline...which will be used by a monopoly to stifle competition."
Waiting on the EU
But Hungary was frustrated by Nabucco's slow pace. In February, Mr. Garamhegyi prepared a draft agreement on the Nabucco project and handed it to EU ambassadors. Three months later, he was still waiting for most of them to respond.
"I'm a former businessman, and this is not the way to do business," he says.
Russia is pressing its advantage. In May, the Nabucco company announced that spiraling steel and energy prices had pushed costs for the project up 58% from initial projections, to $12 billion.
Earlier this month, Gazprom offered to buy Azerbaijan's gas on long-term contracts at market rates. Such a deal would destroy any advantage the Nabucco buyers would have over Gazprom in competing for Central Asian and Caucasian gas. Azerbaijan has yet to respond.
Gazprom's Alexander Medvedev criticizes the U.S. for opposing its pipeline plans. "Resisting South Stream and Nord Stream is condemning Europe to energy famine," he says. "How will you then sate that hunger? We have a proverb: You can't feed nightingales with fairy tales."
Write to Guy Chazan at [e-mail]

[TsarSamuil]

Russia pressured hungary? what pressure? they willingly threw themselves over the goodies. This article is over eu n gas, but what about oil? Europe gets most from the north sea i believe, and some from russia n a bit from the arabs..

Increased oil from russia would ease the pressure from arab states, their leverage to the eu to be more pro-muslim or rather to give in more to their demands. After all, politicians are whores for money, and arabs got too much power already...