24.03.2016 Author: F. William Engdahl

EU Messes up in Balkan Gas Geopolitics

1026048422In their determination to bypass their dependency on Russian natural gas, the bureaucrats of Brussels have approved construction of a trans-Adriatic gas pipeline from Azerbaijan to Greece. It looks workable on paper. There’s only one problem. It isn’t. It’s the latest move in the self-defeating EU pipeline war with Russia. The main losers are EU consumers and industry.

The European Commission has just approved an agreement between the Greek government and the TAP AG company for construction of the Trans Adriatic Pipeline (TAP) gas pipeline bringing Azeri gas to Europe. The Danish European Commissioner for Competition, Margrethe Veestager stated, “The Trans Adriatic Pipeline will bring new gas to the EU and increase the security of energy supply for Southeast Europe.” TAP AG will be granted an eased tax regime in Greece. To get the agreement the debt-ridden Greek government gave a 25-year tax break to TAP, a consortium between BP, Azeri state energy company SOCAR, and Italian and Belgian companies. TAP will connect to the EU’s Southern Gas Corridor and transport Caspian natural gas to Europe, crossing Greece, Albania and the Adriatic Sea, then onto Southern Italy. The planned pipeline is expected to have a capacity of 10 billion cubic meters of gas per year.

Hasty reply to Gazprom

The TAP deal was hastily announced by Brussels only days after Russia’s Gazprom unveiled a new proposal to supply gas to the Balkans, independent of war-torn, dysfunctional Ukraine.

 On February 25 Gazprom announced a new project to build a pipeline under the Black Sea to deliver Russian natural gas to Greece by transit through an unnamed third country and continue to Italy. Gazprom CEO Aleksey Miller, Greece’s Public Gas Corporation (DEPA) and Italian company Edison SpA in Rome signed a memorandum of understanding on the project, a new attempt to supply Russian gas to southern Europe. It would avoid using the uncertain Ukraine pipeline network, or Turkey, which is in an extremely hostile relation with Russia over the Syrian war and Turkey’s illegal shooting-down of a Russian jet fighter last year over Syrian airspace.

Until strong Washington pressure via the EU on the Bulgarian government to cancel its contract for a gas pipeline with Russia, Gazprom planned to complement its Russia Baltic undersea Nord Stream I gas pipeline to northern Germany with what it called South Stream for the states of southern Europe via Bulgaria. Previously, Russia wanted to deliver gas to Europe via the $40 billion South Stream pipeline with a 63 billion cubic meter capacity that was intended to go through Bulgaria on to Serbia, Austria, Hungary, all independent of Ukraine. Brussels and Washington pressure on Bulgaria and Gazprom destroyed that project. Brussels claimed South Stream was noncompliant with the EU’s Third Energy Package, devised de facto to block Gazprom’s growing presence in the EU gas market. That finally led Russian President Vladimir Putin to cancel the Bulgarian South Stream which had been negotiated with Bulgaria as the landing point into southern EU markets. As the British and other EU peoples are realizing, there is no national right to sovereign decisions in the centralized planning of the EU.

That same day in December, 2014, in Ankara, meeting with Erdogan and Turkish officials during more friendly days, Putin announced that Gazprom and the Turkish state-owned BOTAŞ Petroleum Pipeline Corporation were in serious talks with Turkey for a new undersea gas pipeline that would end at the Turkey-Greece border. From there, it would go into the EU via pipelines built and owned by the various EU states, not Gazprom, avoiding the EU Third Energy Directive. Now that Russia has imposed economic sanctions on Turkey over the downing of the Russian Su-24 military jet in November 2015, Turk Stream is also dead.

US Intervenes with TAP

 Within a week after Gazprom met with Greece and Italy to sign the new Memorandum of Understanding on a new Russian gas pipeline, called Poseidon, Greek media reported that “European Union and the US are distancing themselves from the resuscitation of the South Stream gas pipeline project for the transmission of Russian gas to Europe via Greece and Italy.” The wording is revealing. What legal basis does the United States Government have to “distance” itself from a Greek, Italian, Russian energy deal, let alone to distance Brussels? Have they assumed the right to control the world energy flows?


There is a slight problem in Washington’s hasty move to sign a deal with the Azerbaijan government to supply gas to Greece. Acute shortages of gas supply offshore Azerbaijan are forcing the Azeri government and its state oil and gas group, Socar to look at possible gas imports from…Russia’s Gazprom.

Socar’s vice president for strategic development Tofig Gahramanov announced on February 19 that “active work on the Socar OGPC project has been temporarily frozen.”

The problem for the Azerbaijani authorities, and particularly for Socar, is that even though the energy minister Natiq Aliev has said that overall gas output will increase modestly from 29.1bn m3 in 2015 to 29.3bn m3 in 2016, a fall in Socar’s own production means that existing export commitments risk leaving it short of gas for domestic use. That’s to say nothing about the new export of gas to Greece under the TAP project Washington and Brussels are forcing.

Azerbaijan’s main source of gas for export from the giant offshore BP-operated Shah Deniz field is already contracted for export to Turkey and Georgia. BP says gas production will be stagnant for the next several years. No gas for Greece and Italy

All the Washington and Brussels energy geopolitics against Russian gas is creating major crises in southern European economies. Serbia just announced that it will definitely be left without Russian gas shipped through Ukraine in 2019, “and will by then have to find a way to get gas.”

Washington plans to offer the states of the EU shale gas in liquefied form hardly look like a viable alternative. The US shale gas and oil sector is in an existential crisis, given the present very low oil and gas prices. The future for shale gas has been described by industry insiders as “bleak.” Many shale energy companies are filing for bankruptcy and laying off tens of thousands as their banks are cutting credit lines. Aside from that, the rapid depletion of shale gas formations means that many of the most productive shale gas wells or formations are beginning a phase of rapid decline. The US shale gas and oil bubble has burst. As well, at present, there is only one single shale gas LNG terminal in operation in the entire United States in Texas.

The US and Brussels behavior reminds of a roomful of spoiled brats squabbling over who gets to play King of the Hill. The world is getting tired of Washington always taking that role. It’s boring.

F. William Engdahl is strategic risk consultant and lecturer, he holds a degree in politics from Princeton University and is a best-selling author on oil and geopolitics, exclusively for the online magazine “New Eastern Outlook”.

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