Russ Oil-Gas

January 14, 2008 - International Herald Tribune by Judy Dempsey - BERLIN: Gazprom, the Russian state-owned energy company, is making a big bid to build and control natural gas routes in southeastern Europe in a move that could leave the European Union's energy policy in the region in disarray, according to Balkan analysts. The move by Gazprom could be sealed this week when President Vladimir Putin of Russia begins on Thursday a two-day visit to Bulgaria, a country that depends almost entirely on Russia for its energy but that has been seeking ways to diversify its natural gas sources. At the same time, Gazprom is poised to take control of the state-owned Petroleum Industry of Serbia, known as NIS, despite divisions within the Serbian government over the price and terms of the takeover. NIS consists of two oil refineries, a crude-oil supply pipeline and the bulk of Serbia's distribution networks for oil products and fuels. The $400 million contract - which other energy companies, including OMV of Austria and MOL of Hungary have said is underpriced - would give Russia a big advantage over the EU in the region. Analysts said the deal would allow Gazprom to build a pipeline across Serbia, construct a large storage facility for its natural gas and turn that part of the western Balkans into a hub for Russian energy. By establishing a foothold there and signing long-term supply contracts with countries in the region, Gazprom could further weaken the EU's goal of building the Nabucco natural gas pipeline. The Nabucco pipeline, still awaiting financing and construction permits, is intended to provide Europe with alternative sources of natural gas instead of increasing the bloc's dependence on Russia. "There is a clear connection between Putin's visit to Bulgaria and Gazprom's recent offer to take over 51 percent of NIS," said Dick de Jong, an energy specialist at Clingendael, the Netherlands Institute of International Relations. "Both deals are important for Russia's plans to build the South Stream pipeline, which when completed would strengthen Russia's influence in the region." Putin was to arrive in Sofia, the Bulgarian capital, to start the "Year of Russia" celebration and observe the 130th anniversary of Bulgaria's liberation from the Ottoman Empire. He wants to use the visit to confirm the participation of Sofia in the South Stream pipeline. This ambitious but costly project, estimated to cost as much as $10 billion, is being built by Gazprom and Eni of Italy but requires the participation of Bulgaria and Greece. Gazprom and Eni signed a memorandum of understanding in June to build the 900-kilometer, or 550-mile, pipeline from Russia to Bulgaria via the Black Sea. Such a project would weaken Gazprom's dependence on Turkey, which is a major transit country for Russian natural gas. It could also hinder Turkey's own ambitions to become a hub for energy from Russian and the Caspian region. In Bulgaria, the pipeline would have two spurs, one going westward to Greece and Italy, the other traveling north to Serbia and possibly into Austria or Hungary. So far, Russian negotiations have proved difficult for Bulgaria. The country joined the EU a year ago and is still eager to prove its European credentials, despite its dependence on Russia for energy. "Bulgaria is in a very tricky situation," said Plamen Pantev, director of the Institute for Security and International Studies in Sofia. "On the one hand, if the government agrees to the deal with Gazprom, it would mean we would become an important transit country. And that would be lucrative. On the other hand, we would become even more dependent on Russia for our energy. It will be very difficult to get the balance right." Since the end of the Cold War in 1991, successive Bulgarian governments have sought, but failed, to diversify their energy imports. Bulgaria is already a member of the Nabucco consortium. The other countries in the consortium are Romania, Hungary, Turkey and Austria. The idea behind Nabucco is that Europe would reduce its own dependence on Russian natural gas by building a 3,300-kilometer pipeline that would carry natural gas from Iran and Azerbaijan via Turkey, up through Bulgaria to southern and western Europe. The €5 billion, or 7.4$ billion, project, however, has faced several delays, with disagreements over the route and the costs. Above all, there is the political aspect. Iran is supposed to supply natural gas to Nabucco, something the United States opposes. Analysts say that the EU delays in forging contracts with the countries around the Caspian Sea has proved to be a bonus to Gazprom. "The longer the delay in getting Nabucco off the ground, the greater the chance that Gazprom will consolidate its grip over southeastern Europe and the rest of the Balkans," said Borut Grgic, director and founder of the Institute for Strategic Studies in Ljubljana, Slovenia. "That is why Putin's visit to Bulgaria is so important." Last month, Russia signed a major deal with the Central Asian republics of Kazakhstan and Turkmenistan to build a natural gas pipeline along the Caspian Sea, a move that could strengthen Russia's monopoly on energy exports from this region and, at the same time, undermine Nabucco.