Pipeline Wars: Realpolitik Meets Geography

Written by Tom Luongo; Originally appeared at his blog

The headlines are ablaze this month with news from all over about new pipeline projects coming into Europe.  Never one to miss an opportunity to do the U.S. State Department’s bidding in how it presents pipeline politics, Oilprice.com published a howler of a piece about the Southern Gas Corridor.

Titled, “Is This the World’s Most Critical Pipeline?” the piece is pure marketing fluff designed to make you think that Azerbaijani gas will change the face of European gas politics.

The beginning is the most telling, “Europe wants to become less dependent on Russian gas and use more clean energy…” This is a lie.

Europe doesn’t want this as a continent, the leaders of the European Union who are aligned with the United States who view Russia as the enemy want to become less dependent on Russian gas.

Most of Europe wants Russia to supply them with natural gas because it is 1) cheap and 2) plentiful.  For geopolitical reasons the U.S. doesn’t want an ascendant Russia.  The EU technocracy agrees because a strong Russia owning more than 40% of European gas sales is a Russia that can’t be destabilized through currency and proxy wars.

Southern Gas Boondoggle

The Southern Gas Corridor is a nearly 4000km (2500 mile) gas pipeline project to bring Caspian Sea natural gas into southern Europe.  It is slated, when completed with all the side projects tying into it, between 60 and 120 billion cubic meters of gas annually (bcma) starting with an unknown amount from Azerbaijan in 2019.

That number comes from an announcement in the Financial Times circa 2008.  A better number for it is closer to just 16 bcma.

It’s estimated cost at the time of negotiation was over $41 billion.  Today, it’s $45 billion with corruption and graft likely to take that number higher.  This is the very definition of a solution in search of a problem.  It is nothing more than a $45 billion bribe to both the U.S.-favorable regime in Azerbaijan and BP who is sitting on the major Shah Deniz gas deposit with out a market to sell it to.

The U.S has been using EU countries hostile to Russia, namely the Baltics and Poland, to delay or scuttle new Russian gas projects into Europe; projects that countries like Italy, Greece and Bulgaria are screaming for.

The Real Southern Gas Route

In 2014 political pressure on Bulgaria from the EU and the U.S. scuttled the South Stream pipeline from Russia.  South Stream was to bring gas from Russia’s southern fields across the Black Sea into Bulgaria, who would have profited nicely from the billions in transit fees annually.

Since the South Stream debacle, Bulgaria has had a change in government. The people got rid of the U.S. satrap government and installed one much more hostile to geopolitical games which keep them poor.

Putin and Gazprom, the state gas company behind South Stream, quickly shifted gears and announced a re-route of it through Turkey.  The new project is called Turkish Stream and will terminate in Greece.  Hungary negotiated a spur off of Turkish Stream with Gazprom last summer.   The intervening countries all want the transit fees.

The European Union has not signed off on Turkish Stream legs inside the EU, but the first leg which will bring 15.75 bcma to Turkey will be completed this year and that gas will be used by Turkey to strengthen its relationship with Russia.

The cost for this project? Just $12 billion.  And it goes under the Black Sea.

The Nord Stream 2 Gorillia in the Room

Then let’s turn our attention to the very controversial NordStream 2 pipeline.  This is the one that would double the capacity of the existing Nordstream pipeline bringing cheap Russian gas from basically St. Petersburg to Germany.

It brings 55 bmca a year to the EU as I write this.  Nordstream 2 would double that.  It’s only 780 miles long. It will be finished by next year.

The price tag? Just under $10 billion.

And Gazprom bent over backwards to make this a European-owned project, partnering with no less than five European oil and gas majors to own half of the project.  Poland stepped in and declared the joint venture illegal and Gazprom had to go it alone.  Eventually it worked out a deal where its former partners became its financiers by getting loans directly from them to build the pipeline.  The loans were for the same amount of money they were initially going to put into the joint-venture.

The EU has done everything to stop Nordstream 2 short of simply writing a law outlawing it, which it cannot do.  And it finally threw in the towel earlier in the month.

The European Commission antitrust enquiry is effectively retracted from the DG Comp’s agenda after Gazprom agreed not to object to cross-border sales of resold Russian gas and make destination clauses flexible.

The EU legal service’s legal opinion on the applicability of the Third Gas Package to an offshore pipeline Nord Stream 2 (it found it was not) all but buried any future European Commission aspirations to block the project. The European Council chief, Donald Tusk, keeps on urging member states to adopt new EU gas rules which would specifically target maritime gas pipelines feeding the EU, however, Germany and France seem highly reluctant to go along with it.

Tusk is a Polish EU-Firster and Russophobe par excellence.  He’s also one of the most odious men in the EU hierarchy, and that’s saying something considering the company he keeps there.

The EU changed the rules during the lead up to South Stream as well, implementing new rules for pipeline ownership ex post facto of the contracts being signed and the permits issued. This is what made it easy for Bulgaria to scuttle the project.

Again, all to satisfy a United States hell-bent on keeping Russia bottled up and maintaining political control over the EU.

Politics Over People

What’s important in all of this is the massive effects that power politics plays on the economic welfare of people.  Politicians, generals, CEOs of corporatist nightmares don’t make decisions in the best interest of the people they are supposed to serve.  They make them in the interest of policy goals that more often than not do little more than waste precious capital on boondoggles like the Southern Gas Corridor project.

That project has been the goal of EU and U.S. politicians for more than a decade.  It has required an unbelievable amount of political maneuvering to get off the ground. And the final product will be less than twenty percent of its original capacity.

On the other hand, with Putin cancelling South Stream in 2014, he moved quickly on the two projects highlighted here which will be operational despite the roadblocks before the Southern Gas Corridor will be.

The goal of diversifying Europe’s gas purchases is one born of politics not energy safety.  The immense trade benefits that Russia gains from these pipelines are not things they will jeopardize over a single missed payment.

Energy security is simply a fear-mongering tool to mask banal corruption and articles like the Oilprice.com one that inspired this response are simply cheap forms of propaganda.

Europe’s future is more secure with Turkish Stream and Nordstream 2 providing the people of Europe gas at half the price of Caspian gas.  Don’t believe me?  Ask Ukraine, who for three plus years have been buying re-sold Russian gas at twice the price from Germany and Poland to avoid buying it directly from Gazprom.  Schools and businesses have had to shut down simply because they don’t have the money to heat the buildings.

With this year’s frigid winter, they’ve finally relented and will begin buying gas directly Gazprom again, now that their legal challenge was settled by the Stockholm Arbitration Court.

This is what is driving European politics populist.  It, along with insane immigration, is eroding the political power of the globalists who run the EU.  Gazprom, despite all of the rhetoric, supplied a record amount of gas to Europe in 2017 and will likely increase those deliveries by another 6% in 2018.

Eventually economic reality overwhelms realpolitik.