[R-G] Uneasy Reliance on Russia Likely to Persist + Brussels Told to Pursue Azerbaijan Pipe Dream + Etc.

[Yoshie Furuhashi]

<http://www.ft.com/cms/s/0/11616546-7ae2-11dd-adbe-000077b07658.html>
Uneasy reliance on Russia likely to persist

By Ed Crooks, energy editor

Published: September 5 2008 03:00 | Last updated: September 5 2008 03:00

The American and British governments have been holding out hopes this
week of the European Union curbing its reliance on Russian gas.

Dick Cheney, the US vice-president, and Gordon Brown, prime minister,
have stressed the importance of alternative energy supply routes
following Russia's clash with Georgia last month.

Gas industry experts, however, believe hopes of making a significant
difference to the EU's need for Russian gas are likely to be in vain.

As Simon Blakey of Cambridge Energy Research Associates, the research
company, says: "The scale of the inter-dependence is so huge it is
really not possible to make a major difference to it even over the
space of two decades."

US concern about western Europe's dependence on Russia for energy
supplies dates back to the cold war.

In 1982, following the crackdown on the Solidarity movement in Poland,
Ronald Reagan's administration tried to stop the Soviet Un-ion
increasing its gas exports to Europe.

Worried that Europe's reliance on Russian energy would make it ever
more susceptible to Soviet influence, the US blocked exports of
equipment for gas production and transport to the Soviet Union and
tried to limit west European countries' purchases of Russian gas to 30
per cent of their consumption.

Today, the European Union buys about a quarter of its gas from Russia,
but that proportion is set to grow. It is likely that the old 30 per
cent limit will be exceeded in the next decade.

Demand for gas in Europe is likely to rise for another decade, at
least. Old nuclear and coal-fired power stations will be going out of
use as they end their productive lives. Gas-fired plants are the
quickest and cheapest ways to replace them.

The EU's emissions trading scheme, which will reward power generators
that have lower carbon emissions, will also favour cleaner, gas-fired
generation in the next decade.

EU countries have agreed demanding targets for increasing the
proportion of their energy that is derived from renewable sources to
20 per cent by 2020.

But even if that policy succeeds, which many experts doubt, and there
is substantial fresh investment in nuclear power, gas demand then will
be about the same as it is now, according to Cera.

Europe's domestic gas production, meanwhile, is in steep decline. By
2020, it is likely to be only about half of 2006's output of 218bn
cubic metres, Cera believes.

Russia, with the world's biggest gas reserves on the EU's doorstep, is
the obvious place to look to fill that gap.

There are alternatives, but all of them have their difficulties.
Several European countries have been building new terminals for the
import of liquefied natural gas: super-cooled gas carried in tankers.
But strong Asian demand and delays in big LNG developments have
created a very tight market and pushed up prices.

Frank Harris of Wood Mackenzie, another research company, said: "The
ability of Europe to diversify away from Russian gas with LNG is
strictly limited in the short to medium term."

Long term, after 2015 or so, there is potential for more imports of
LNG to come from countries such as Nigeria, Egypt and Libya.

But in many countries with large gas reserves, their willingness or
ability to export is curtailed by strong growth in their domestic
demand.

Nordine Cherouati, the director of Algeria's hydrocarbons agency, told
a conference in Slovenia this week: "We cannot export gas while the
needs of the domestic population are unmet."

Other countries supply the EU with gas through pipelines, most notably
Norway and Algeria. The EU has high hopes for the proposed Nabucco
pipeline to bring gas from the Caspian region to Austria and the rest
of Europe. Algeria hopes to build a pipeline for gas from Nigeria. But
all these countries are subject to the same problems of competing
demand for limited resources.

Nabucco, for example, is heavily dependent on gas from Azerbaijan,
which has plans to increase its production to 40bn cubic metres a year
by the end of the next decade. However, its ambitions are viewed
sceptically by some analysts.

As is widely appreciated in continental Europe, the EU cannot simply
cut itself off from Russian gas, or even reduce demand.

At the same conference in Slovenia, Rüdiger Freiherr von Fritsch, the
German foreign office's directorgeneral of economic affairs, stressed
the "mutual dependence" of Russia and the EU.

Geography and economics dictate that the EU is dependent on Russia for
gas, whether politicians like it or not.

<http://www.guardian.co.uk/business/2008/sep/05/nabucco.pipe.energy>
Energy: Brussels told to pursue Azerbaijan pipe dream
· Commissioner pushes for route through Georgia
· Line would reduce energy dependency on Russia

    * David Gow in Brussels
    * The Guardian,
    * Friday September 5 2008

The EU must redouble its efforts to build the $12bn Nabucco gas
pipeline and reduce its dependence on imports from Russia in the wake
of the Georgian crisis, its energy commissioner said yesterday.

The conflict in the Caucasus has led many experts to dismiss Nabucco,
the planned 3,300km pipeline from Azerbaijan to Europe via Georgia and
Turkey. But Andris Piebalgs said the aim of diversifying energy
sources and routes was even more important now.

"We need more political engagement to remove all the political
obstacles to Nabucco to bring gas from the Caspian basin to the EU,"
he said in the face of evidence that the ambitious project to bypass
Russia is foundering.

Gazprom, the Russian gas monopoly, has already offered to buy Azeri
gas at world prices and has put its weight behind two alternative
pipelines, Nord Stream and South Stream, to Europe.

Piebalgs won backing from Nabuo Tanaka, executive director of the
International Energy Agency, who said alternative import routes would
enhance the EU's energy security and reduce its dependence on Russia.
Russia provides 42% of the EU's overall gas imports and 30% of its oil
but accounts for up to 80% of energy imports in some countries.

Moscow and Gazprom have succeeded in dividing the EU by signing
bilateral supply deals, notably with Germany, Italy and Austria, and
by persuading member states to take part in its own sponsored
transnational pipelines even when they are already involved with
Nabucco.

But Tanaka, presenting the IEA's first review of EU energy policies,
said Russia's dependence on Europe was much higher, with the EU taking
70% of its oil and gas exports. "It's more and more important to have
a single European energy market and a single EU voice," he said. "In
the long run countries conducting relations on a bilateral basis will
lose out."

The 220-page IEA report adds: "Speaking with one voice and acting in a
consistent and unified manner will be crucial to moving towards closer
relationships between the EU and the external suppliers on which it
will increasingly depend in the future."

The ultimate aim of the six partners in the Nabucco project and the EC
is to import gas from the Middle East, including Iraq, via the
pipeline.

The IEA also urges the EU to step up its efforts to promote renewable
sources of energy if it is to reach its 20% target of consumption by
2020 and combat climate change. Tanaka said that an extra $45tn
(£25tn) of investment in renewables and other green technologies would
be required globally by 2050 if the world were to cut carbon emissions
by a half - the EU's own long-term goal. This would be on top of the
$22tn required globally to reach interim targets.

The agency endorsed the EU's "bold and innovative" energy and climate
change policies but said continued use of nuclear power "is almost
certainly going to be necessary" to achieve its goals.

<http://www.ft.com/cms/s/0/bb12bc12-7ae1-11dd-adbe-000077b07658.html>
Nabucco backers remain composed

By Haig Simonian

Published: September 5 2008 03:00 | Last updated: September 5 2008 03:00

The backers of the Nabucco pipeline, an ambitious 3,300km scheme to
ship gas from central Asia to Europe, remain confident the project is
on track, in spite of the conflict between Russia and Georgia.

Christened at a dinner in 2002 after the project's founders had seen
the Verdi opera of the same name, Nabucco has been backed strongly by
the European Union and the US, keen for Europe to access gas supplies
without Russia.

Under the €7.9bn ($11.63bn, £6.38bn) project, due to start
construction in 2010 and ship gas supplies three years later, a new
pipeline will run from Baumgarten in Austria to Turkey and on to the
Georgian and Iranian borders.

That will provide access to new fields in Azerbaijan, due to come on
stream in 2013, sufficient to fill Nabucco's initial capacity of 8bn
cubic metres a year. Subject to a separate link across the Caspian,
Nabucco could go up to 31bn cu m annually via supplies in
Turkmenistan. Further links could involve Iran, Kazakhstan, Iraq or
even Egypt.

"The Georgian conflict has no impact on Nabucco or its planning, which
envisages first deliveries in 2013, so there is enough time to solve
the political issues," says Reinhard Mitschek, chief executive of the
six-nation project.

A top manager at OMV, the Austrian energy group that is one of
Nabucco's backers, Mr Mitschek is a veteran of the gas infrastructure
industry.

"We are focused on developing the project properly. Nabucco is on
track and all partners are determined and fully committed to realise
it," he says.

Nabucco, which forms part of the EU's Trans European Network
programme, has gained strategic importance as concerns about energy
dependence on Russia have grown. Planned to traverse Turkey, rather
than Russia or Ukraine, the scheme should improve Europe's energy
security.

As head of a six-nation consortium, Mr Mitschek is reluctant to
discuss the intricacies of Russian foreign policy or aims.

"We are watching the situation closely, but prefer not to comment on
the political issues. Looking back, we've always had a long-term and
stable energy partnership with Russian companies and we have no doubt
that matters will stay like that. Russia, the Caspian region and
Europe have close common links: everyone has something to offer the
other."

But cost inflation has made the pipeline a more expensive venture than
when it started out and despite announcements of promises from Caspian
countries, Europe has yet to secure the gas it needs.

Nabucco executives reject reports that the project is late, that
supplies are not certain, or that some partners are having second
thoughts. A market survey last month suggested "huge demand" for
Nabucco's capacities.

"More than 100 per cent booking from day one in 2013 shows huge
demand," says Mr Mitschek.

He dismisses fears that Russian plans for a roughly parallel pipeline,
to be called South Stream, could reduce Nabucco's appeal.

"South Stream and Nabucco are not competing projects. Europe is facing
a strong rise in gas demand in the next 20 years. Our own European gas
production is declining, so we will need different projects and
additional routes.

"It's not a question of South Stream or Nabucco: we will need both."

<http://www.presstv.ir/detail.aspx?id=68471&sectionid=351020101>
Iran objects to Caspian seabed pipelines
Thu, 04 Sep 2008 17:38:27 GMT
Five countries border the Caspian Sea
Iran has questioned plans to lay pipelines on the seabed of the
Caspian Sea, saying the move would cause environmental pollution.

The Caspian Sea is the largest enclosed body of water in the world and
is of crucial importance as its littoral states-- Iran, Russia,
Kazakhstan, Turkmenistan and Azerbaijan-- enjoy vast oil and gas
reserves.

The body of water, however, is polluted by industrial emissions, toxic
and radioactive wastes, agricultural run-off, sewage and oil leaks
resulting from extraction and refining.

The Caspian environment has also been plagued by a proposal to build
The Trans-Caspian Gas Pipeline to transfer energy to Europe.

In cooperation with the United Nations Environment Program (UNEP), the
five littoral states signed the Framework Convention for the
Protection of the Marine Environment of the Caspian Sea in 2003.

Article 2 of the convention calls for the protection of the Caspian
environment from all sources of pollution, including "the protection,
preservation, restoration and sustainable and rational use of the
biological resources of the Caspian Sea."

The parties to the convention are therefore urged to prevent and
reduce seabed activities and dumping.

A particular challenge for littoral countries will be addressing the
potential consequences of the recent growth in oil and gas production.
In 2004, regional oil production reached roughly 1.9 million barrels
per day, and other oil supplies transit the region via ship and
pipeline.

A senior Iranian official, however, responded to plans to increase
seabed activities in the Caspian Sea on Thursday and declared that
Tehran opposes any action that pollutes the environment.

"Since suitable conditions for energy transit through Iran and Russia
exist, there is no need to jeopardize the Caspian Sea ecology by
building pipelines on the seabed," asserted Iranian Deputy Foreign
Minister Mehdi Safari.

He was speaking on the sidelines of the 23rd working group meeting of
the Caspian Sea littoral states in Baku. The working group has been
set up to discuss the legal regime of the Caspian Sea.

The Caspian Sea legal regime is based on two agreements signed between
Iran and the former Soviet Union in 1921 and 1940. The three littoral
states established after the collapse of the former USSR - Kazakhstan,
Turkmenistan and Azerbaijan - do not recognize the prior treaties and
have sparked a debate on the status of the world's largest lake.