By Dawn's Early Light

Holding the Russian Energy Bear at Bay

The WSJ had an encouraging piece last week on Georgia's economic development.  President Mikhail Saakashvili has been taking on autocratic Russian President Vladimir Putin over Europe's growing energy dependence on Russian natural gas supplies through the Ukraine.  Russia's strategy, according to the WSJ, (subscription required) is:

"Gazprom -- the leading vehicle of Kremlin energy influence -- has accelerated a three-pronged strategy. First, it is campaigning to bottle up its control of Central Asian gas resources. Second, it is consolidating and expanding its hold on energy infrastructure among countries that were once part of the Soviet Union. Finally, it is trying to use a deepening war chest to acquire private and privatizing energy assets elsewhere in Europe.

Rising tensions with Moscow reached a crescendo last week when Mr. Putin, before meeting with German Chancellor Angela Merkel in Tomsk, Siberia, accused the West of "unfair practices" and agreed with Mr. Miller that it would redirect supplies elsewhere if its European expansion plans were blocked. A senior EU official says Mr. Putin's "pipeline rattling" is in direct response to EU pressure that Russia ratify an International Energy Charter requiring it to open pipeline access to competitors -- much as telecommunications companies share their bandwidth.

Secretary of State Condoleezza Rice, who said at a Senate hearing recently that energy politics is "warping" international diplomacy, joined the battle in Ankara, Turkey, urging Turkey and Greece to reduce their dependence on Russia by favoring new pipeline plans that rely on Azerbaijan. Vice President Dick Cheney flies to Kazakhstan this week as part of a continued effort to get it and Turkmenistan to join pipeline plans that would reduce Russia's near-complete dominance of Central Asian resources."

Europe's growing dependence on Russian natural gas was brought home to the average European when Russia cut off supplies to Ukraine during the last winter season, demanding steep increases in payments.  According to the Washington Post:

"Europe relies on Russia for about a third of its natural gas supplies. Those supplies arrive via two major pipeline routes constructed in the 1980s over the objections of the Reagan administration. Today the United States realizes that Russian gas will remain vital to Europe, but it is pushing nations to diversify supplies so that Russia cannot exploit Europe's energy dependence for political purposes....

At the same time, however, Russia sells 80 percent of its natural gas to Europe and is worried about European plans to increase gas purchases from Algeria and Libya, as well as about liquefied natural gas from Qatar, which plans to triple its exports."

Mr. Saakashvili is working with Germany's Angela Merkel and other European countries, including Turkey, to bypass the old Soviet system.  In today's Wall Street Journal story "In Russia's Shadow, Georgia's Leader Remakes Nation":

"Mr. Saakashvili, who has strong backing from the U.S., is trying to transform Georgia's economy in a hurry. His aim is to end centuries of Russian domination and to forge new ties with the West. Corruption is down, and tax revenues have at least doubled since 2003, due in part to a new flat tax and improved collection, helping to pay for the government's many projects. The nation's gross domestic product rose 8.5% during the first quarter....

New pipelines that pass through Georgia are coming on line this year, giving Western nations access to oil and gas from the Caspian Sea area, one of the world's few significant new sources of energy outside of the Middle East and Russia. Georgia also is a key plank in the Bush administration's efforts to promote democratic governments in the former Soviet bloc."

The US embassy in Tbilisi supports a 650 person staff.  The United States is very committed to economic and energy reform in Georgia to counter Mr. Putin's impressive efforts in consolidating state control over Russia's energy and using it as a political weapon with Europe, the West and Asia.  To counter this, ahead of the upcoming G-8 summit, the US has been working to support alternative routes that bypass Russia and its reserves of natural gas.  Referring back to the Washington Post article:

"Bryza and more senior U.S. officials have been promoting pipeline routes that would bring gas from fields in Kazakhstan, Turkmenistan and Azerbaijan near the Caspian Sea through Turkey to Europe. One such pipeline, from Azerbaijan through Georgia to Turkey, opens Oct. 1. U.S. officials have been saying that reserves in Azerbaijan alone could justify bigger pipelines even if territorial disputes over the Caspian Sea are not resolved. (Missing from the U.S. vision: supplies from Iran, whose natural gas reserves are second to only Russia's.)

Former Soviet Bloc countries are enthusiastic, especially since Russia has boosted prices on gas sold to Moldova and Belarus. Georgia President Mikheil Saakashvili said during a recent visit here that he supports a pipeline that would bring gas from the Caspian Sea basin through Azerbaijan and Georgia, then under the Black Sea (to avoid Russia) to Romania and then north to Poland. Building that line would take at least five years."

Germany would be one of the largest beneficators of an alternative route for energy, and Ms. Merkel has met with the Georgian President to discuss these options.  It will be interesting to see if Turkey's desire to provide an alternative route for energy supplies could become an important area of leverage in their often troubled bid to become a member of the European Union.

Regardless, Georgia represents an improved US and European ally in trying to roll back Russian advances in energy control.

US Efforts Diversify Oil Supplies

Dating back to 1994, the US government, along with a consortium of British, American and European oil concerns, put forward an ambitious project to build an oil pipeline that would span over 1,040 miles (1,770 km) and link the Caspian Sea to the Mediterranean Sea from Azerbaijan through Georgia on to Turkey.  What is crucial about the pipeline is threefold:

1. It will increase production from 300,000 barrels per day (bbl/d) to 1,000,000 bbl/d by 2008 from Azerbaijan, or 1% of the world's oil supply
2. It doesn't flow through the volatile Middle East or the democratically regressing Russia, while enriching two important states in Russia's "near abroad".
3. The world will benefit from the increase in world oil supplies.

President Ahmet Necdet Sezer of Turkey, President Mikhail Saakashvili of Georgia, US Energy Secretary Samuel W. Bodman, President Ilham Aliyev of Azerbaijan were joined by Lord Browne, the chief executive UK BP for the opening of the pipeline yesterday.

Azerbaijan went into an economic decline after the breakup of the Soviet Union with a GDP that contracted 60% in the first half of the 1990s.  With a current GDP of roughly $30 billion in Azerbaijan, the oil pipeline, which cost over $3.6 billion to build, will contribute a substantial gain to the country's fortunes and help bring stability to a former Soviet state while increasing Georgia's wealth as well.  The country has somewhere between 7 to 17 billion barrels of potential oil reserves, and the pipeline has the capacity to move 10 bbl/d of high quality crude oil.

US diplomatic support to Azerbaijan as noted on the State Department's website reveals:

"The United States has been actively engaged in international efforts to find a peaceful solution to the Nagorno-Karabakh conflict. The U.S. has played a leading role in the Minsk Group, which was created in 1992 by the Conference on Security and Cooperation in Europe--now the OSCE--to encourage a peaceful, negotiated resolution to the conflict between Azerbaijan and Armenia. In early 1997, the U.S. heightened its role by becoming a Co-Chair, along with Russia and France, of the Minsk Group.

The U.S. supports American investment in Azerbaijan. U.S. companies are involved in three offshore oil development projects with Azerbaijan, and U.S. companies in other fields such as telecommunications have been exploring the emerging investment opportunities in Azerbaijan.

The United States is committed to aiding Azerbaijan in its transition to democracy and formation of an open market economy."

The US is actively involved in solving ethnic and border disputes, promoting long-term stable economic investment and economic development to ultimately produce a more stable democratic nation that is over 90% Muslim. 

Such diplomatic and capitalist triumphs are important to take note of for they demonstrate models of constructive multi-country engagement and economic improvement that support long-term democratic change.

Note: An excellent source of maps, oil and economic information on the pipeline can be found from the US Department of Energy (DOE) here.

UPDATE: The Economist has an article worth reviewing on the pipeline out today.  One of its key quotes:

"The BTC pipeline, though the most expensive option for exporting Caspian oil, was backed by America because it avoided Russia, thereby reducing the dependence of the Caucasus and Central Asia on Russian pipelines. The pipeline also provided an opportunity to bolster regional economies that the West is courting, especially those of Georgia, Azerbaijan and Turkey, a NATO ally, and build support for America in the region. Georgia’s location gives it a 'strategic importance far beyond its size', according to America’s State Department.

Upgrading an alternative route through Georgia to Supsa on the Black Sea would have made for a far shorter (and cheaper) pipeline. But Turkey complained that it would lead to an unsustainable level of shipping passing through the Bosporus Strait that bisects Istanbul. At Washington’s urging, the BTC pipeline wended its complex way through Azerbaijan, Georgia and Turkey."

(May 27, 2005)