13. GREAT CHALLENGE: BALTIC PIPELINE HARDLY CONDUCIVE, OR OUTRIGHT HARMFUL, TO EUROPE’S ENERGY SECURITY

ANALYSIS & COMMENTARY: By Janusz Steinhoff
Former Polish Deputy Prime Minister & Minister of Economics
Summary of an article featured in Rzeczpospolita
Polish News Bulletin, Warsaw, Poland, Friday, Dec 30, 2005

The following is a summary of an article, featured in Rzeczpospolita, by
Janusz Steinhoff, former deputy prime minister and minister of economics in
the conservative Jerzy Buzek cabinet (1997-2001). The, pending for some time
now, Polish energy security debate, writes Steinhoff, has recently been
joined by Wolfgang Clement, minister of economics in the Gerhard Schroeder
cabinet.

The fact that a former minister responsible for Germany’s energy policy
makes an attempt to convince the Polish public to his arguments relating to
Europe’s energy security is laudable. Alas, Clement’s arguments are hardly
convincing. Clement stresses on several occasions the importance for western
Europe of ensuring fluent natural gas supplies in a situation where its
consumption has been rapidly growing. It is forecast that the EU’s gas
imports will grow by 100 billion cubic metres by 2015.

While one can hardly question those forecasts, it needs to be noted that a
further steep fall in the EU economy’s energy intensity, or a substitution
of the basic energy sources, could reduce the forecast gas import needs. It
is of course beyond debate that Europe’s own gas resources are limited and
do not make it possible to boost production proportionately to growing
consumption.

It is also beyond dispute that energy security depends to a significant
extent on the diversification of supplies and on storage capacity. Of
course, “diversification” means not only diverse gas suppliers but also
diverse transport routes. All those arguments, cited by Clement, are obvious
and beyond dispute.

Alas, his other arguments, referring to the Northern Gas Pipeline project in
the context of Europe’s energy security, are hardly acceptable. Firstly, Mr.
Clement has failed to notice that, since May 1, 2004, Lithuania, Latvia,
Estonia, and Poland are rightful EU members, and that cooperation with
Ukraine and the region’s other countries is as important as developing good
economic relations with Russia. The EU’s energy policy, aimed at ensuring
the continent’s energy security, will only be effective if it respects the
interests of all member states.

Nor has Mr. Clement noticed the fact that, in the recognition of, among
other things, its western neighbour’s energy needs, Poland signed in 1993 an
agreement with the Russian government on the “development of a gas pipeline
system for the transit of Russian gas, and on supplies for the Republic of
Poland.”

Under that agreement, and an additional 1995 protocol, a system of transit
pipelines was to be developed consisting of two pipelines of a joint annual
capacity of some 65 billion cubic metres. The length of the pipeline
stipulated in the above agreement, known as the Yamal pipeline, from the
Polish-Belarussian border to the Polish-German border, amounts to 665 km.

So far, only the first pipe has been developed, which transports gas to
Germany. Poland receives from that pipeline only some 2.5 billion cubic
metres, receiving the bulk of its Russian gas supplies from existing
Ukrainian and Belarussian terminals.

Due to the Russian government’s decision, the pipeline’s second line hasn’t
been developed so far, and the chances that it ever will, in the light of
the intensely promoted concept of the Baltic pipe, appear ever slimmer. It
is worth noting that Poland has granted significant public aid to the second
Yamal line project, and the Polish-Russian company EuRoPol Gaz (in which
Germany’s Wintershall also holds a small stake) has actually spent funds on
documentation and planning work.

The second Yamal line would be supplying some 32 billion cubic metres of gas
to Germany annually. One therefore needs to ask what was the rationale of
awarding the Baltic pipe a higher priority than that awarded to the
continuation of the second Yamal line?

The economic arguments leave no doubt: at some 1 billion euro, the cost of
developing the second Yamal line would be three to four times lower than the
cost of the Baltic pipe. The latter, connecting Vyborg near St. Petersburg
with Greifswald in northern Germany, with a length of some 1,200 km, has a
planned annual capacity of 27.5 billion cubic metres, and, in the twin-pipe
version, 55 billion cubic metres. The forecast transit cost of $3-3.5 per
1,000 cubic metres per 100 km is high compared with average transit costs in
European land pipelines.

Mr. Clement points to one advantage of the northern pipe: higher energy
security for the EU as a result of securing a direct connection between
Germany with the Yuzhno-Russkoye deposit in Russia, and thus eliminating
transit countries, which, according to Mr. Clement, would be significantly
impairing the certainty of supplies. That is an argumentation one cannot
agree with.

Does Mr. Clement rate the credibility of Lithuania, Latvia, Estonia, and
Poland, all four EU members, below that of the Russian Federation? Sad to
say, everything suggests that he does indeed.

Mr. Clement also suggests that the Northern Pipeline, which will run “only”
100 km from the Polish shore, will improve the energy security of Poland and
the Baltic states, because, as Mr. Putin has pledged, it will be possible in
the future to connect those countries to the pipe.

Well, writes Steinhoff, that argument is simply absurd. Why should linking
those countries to the Baltic pipe be more rational, even putting the
economic arguments aside, than simply transporting gas through their
territories through a ground pipe?

The argument about the uncertainty of transit through Ukraine and Belarus is
also false. Mr. Clement seems to be forgetting that last year’s
perturbations in gas supplies to Poland and Germany weren’t in any way
caused by Belarus, but were instead the result of Gazprom’s conscious
decision to pull the plug.

Thus, in its dispute with Minsk over pipe ownership issues, gas prices, and
transit fees, Gazprom reached for instruments of pressure seldom used in the
civilised world. In the Russian-Ukrainian dispute, too, Mr. Clement sides
firmly with the Russians, as if he didn’t know, or refused to acknowledge,
that the EU mediators’ position on this dispute has hardly been unambiguous.

One needs to remember that business disputes should be solved through
arbitration and on the basis of international law, rather than through
blackmail by a gas provider who, due to historical factors, has achieved a
monopolistic position.

Mr. Clement should therefore demonstrate greater distance and empathy to
both sides’ positions instead of locating his sympathies so clearly. The
consecutive Polish cabinets have always stressed the importance of energy
security for Europe. We have always believed that, as a transit country, we
should be a credible partner for the suppliers and recipients of energy
commodities. We have been and will be, writes Steinhoff, open to proposals
of transporting gas through our territory from various directions.

Poland was also interested in the concept of the so called inter-system
connector, an idea that reflected growing gas consumption levels in southern
EU. The Jerzy Buzek cabinet initialled contracts for the supply of gas from
Denmark and Norway as an important element of the Baltic Pipe project. One
is convinced that all those projects were in line with a rational vision of
Europe’s energy security, without harming Poland’s relations with its
neighbours.

Unfortunately, judging by the arguments presented by Mr. Clement, the
Northern Pipeline project, supported so strongly by the German and Russian
governments, is hardly consistent with a rational vision of Europe’s energy
security. In fact, it is actually harmful for it, and for the new government
in Warsaw, the situation represents a major challenge. -30-

Advertisements

Leave a comment

Filed under Uncategorized

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s