The issue of energy diversification seen from Moscow

On January 13 in Baku, Azerbaijan’s President Ilham Aliyev and European Commission President José Manuel Barroso signed a Joint Declaration on the establishment of a Southern Gas Corridor (SGC). While there is no mention of the gas volumes to be delivered to Europe by the former Soviet republic, there are nevertheless reports of 10 billion cubic metres per year. Although Barroso described the agreement as “a major breakthrough”, the volume of gas supplies from Azerbaijan would not be enough for the Nabucco pipeline, the main gas line project in the SGC whose planned capacity is equal to 38 billion cubic metres per year. While Brussels is always more engaged in finding alternative supply routes bypassing Russia, Moscow faces the opposite problem: how to diversify its export routes.

The need of diversifying the number of oil and gas export markets available to Russia is one of the reasons why the Kremlin agreed on the construction of the ESPO pipeline. The Eastern Siberia Pacific Ocean is a projected 4,700 km pipeline system aimed to deliver crude oil from Eastern Siberia to the Asian Pacific markets of Japan, China and Korea. Although the second stage of the project is due to be finished by 2014, at the start of January, the ESPO pipeline already began delivering 300,000 barrels of Siberian oil to China, overturning decades of Russian dependence on European markets. The pipeline opens up a huge, new market for Russian oil, since it is expected to move 15 million metric tons of crude each year until 2030 from the Russian town of Skovorodino to the city of Daqing, in northeast China.

The pipeline could help Russia in reducing its dependence on European gas market, too, as Moscow was reportedly in talks with Beijing on natural gas supplies from 2015. “Russia is ready to meet China’s full demand in gas,” Russia’s Deputy Prime Minister Igor Sechin stated in Beijing last year. The battle to secure routes for supplying oil and gas from the energy rich Caspian region is intensifying. The region contains giant fields such as Kashagan in Kazakhstan, the world’s largest offshore oilfield, and South Yoloten in Turkmenistan, one of the world’s top three gas fields, but the problem faced by the landlocked Central Asian producers, as well as Azerbaijan, is how to deliver it to the markets. For instance, Baku aims to sell gas from the Shah Deniz platforms to European customers via the Southern Corridor and this is why it is actively backing the Nabucco project, conceived as a means to break the Russian grip on the regional energy sector. The 3,300 km long pipeline is expected to bring gas from Azerbaijan and possibly other Caspian states, and even Iraq, through Turkey, Bulgaria, Romania, Hungary and Austria. 

While Brussels is concerned by the long-term implications of South Stream, the Russian pipeline projected to deliver Russian gas to Europe through the Black Sea and whose construction could frustrate all efforts made by the European Union for breaking away from its dependency on Russia, the construction of the ESPO pipeline in Asia is an indication that Moscow is also endeavoring to diversify its gas exports away from Europe. Nevertheless, in an age of energy shortages like the one we are going to face in the next decades, Europe’s main goal should be to secure for itself the immense resources of Siberia from the thirst of energy of major economies such as China, India and Japan, rather than engaging in a geopolitical war with Russia. In this sense, a major agreement on the establishment of a free-trade between the European Union and the Russian Federation would be the best solution to gas disputes, turning Russian energy resources into the basis of an integrated economic community stretching from Lisbon to Vladivostok.