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Grigory Pasko: The Gas Emperor

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A few days ago the Russian mainstream media were talking about all the agreements reached with Turkey during the most recent visit of the Prime Minister, hailing the accords as the latest Putinite achievement. Supposedly positive but vague results were achieved with respect to negotiations on the construction of the South Stream and Blue Stream gas pipelines; on the Samsun-Ceyhan oil pipeline, as well as the construction of nuclear power stations. In covering the Turkey visit, they showed the joy of Turkish and Italian prime ministers in signing these deals, and the unintelligible babble of the Russian one, who was able to clearly express a thought about how the Turks – are “difficult negotiators.”

But so many gas pipelines – is this good or bad? Depends on who you are. For Turkey, as an example, it’s good: she will get both gas supplies while at the same time collecting hefty fees for transit. For Ukraine, things will get worse in some ways: less gas is going to be pumped through her territory. (But there still will be some, and not a little).  For the rest of Europe, it is unambiguously good: irrespective of whether the latest Putinite gas pipeline is realized or not, deliveries of gas to her are still guaranteed on account of other diversified routes (the Scandinavian countries, the African ones, Nabucco).

Putin, having called the Turks “difficult negotiators,” was obviouslybeing modest in his assessment.  They are top-notch negotiators, especially ifthey managed to milk the presumptive “national leader” for everythingthat was advantageous for them, even including the much coveted nuclear power stations on the cheap.  Once again in Turkey we got to see a familiar sight:  Putin in the international arena is like a bull in a china shop.

But okay, let’s leave this skillful diplomat stuff aside for a moment.  Just one thing interests me: why are Western leaders falling for these kinds of stunts?  If anybody should understand that there’s nothing with which to fill all these Nord-, South-, and Blue-Stream pipelines and
other supply routes, it should be them.  Not today, not in five years, not even in ten.

Just look at the opinion of Boris Nemtsov and Vladimir Milov from their famous paper “Putin and Gazprom”:

So the gap betweeninternal demand and gas supply is increased from 72 billion m3 in 2001to nearly 132 billion m3 in 2007. Today, Russia is forced to get aboutone third of its gas from non-Gazprom sources.

This gap hastraditionally been filled by deliveries of gas from Russian independentproducers and gas imports from the Central Asian countries. However,the independent producers have only a limited capacity to expandproduction and dependence on gas imports at rapidly rising prices fromCentral Asia is leading to a sharp rise in supply failures by Gazprom. (…)

Bluestream has now been built. It is running at half its capacityand in its first 4 years ran at one-third capacity (because in 1997Gazprom, as many experts foresaw – including the authors of thispaper – overestimated Turkey’s potential demand for gas). The constructions of Gazprom’s section of the pipeline cost $3 millionper kilometre, against a world average of $1-$1.5 million. Theproject was endowed with over a billion dollar’s worth of tax relieffrom the state, this at not the best of times – 1998-2002 – from thebudget’s point of view.

Today, gas exported down Bluestream continues to enjoy relieffrom export duty in accordance with intergovernmentalagreements ratified in 1999 when Putin was still premier. This iscosting the state $600-$700 million a year at today’s gas prices. The conclusion leaps to the eye: eitherall this hullaballoo about new gas projects is just a machination or weRussian consumers will have to pay for increased in gas exports throughreduced consumption of gas or its replacement by more expensive coaland atomic energy…

Some voices on the blogosphere assure us that all these unfeasible gas pipeline projects represent prolific opportunities to launder money for the corruption entrepreneurs.  For example, all you’ve got to do is draw up a project and a budget that is never going to beneeded and that nobody intends to build. The author makes theconclusion that if you don’t do anything, but just “draw the project”,then “the farmers are going to reap dough” in no small amount.

The author didn’t mention only that there’s also no small number of “farmers” in Gazprom: the numerical strength of the personel at Gazprom has grown without deviation, having increased from 391,000 employees in 2003 to 445,000 in 2007 (see the report of Nemtsov-Milov).

We can assume that Putin will take his next voyage first tosomewhere in Sweden – to lobby-plug «Nord stream«, and then – to China.There’s a story there too – the idea of building the latest gaspipeline – «Altai» from Western Siberia to China. At Gazprom they’redeclaring that the cost of construction of this pipeline will comprise between $4 and $5 billion. If we take into accounts that they intend to buildthe Nord Stream pipeline with a length of 1200 km for 12 bln dollars,while the span of the «Altai» route is – 2800 km, then it’s not hard tocome to a conclusion about how the Gazpromovites are lying.

In theopinion of the authors of the report of Nemtsov and Milov, there is noway the cost of the «Altai» project will comprise any less than $10 billion (based on an assumption of more than $3 million perkilometer).

…In short, get ready for the latest series of the soap PR-operaunder the name of “The great gas emperor Putin and his successfulforeign policy.