University of Groningen Russian Gas for Europe Smeenk

University of Groningen Russian gas for Europe Smeenk, Tom IMPORTANT NOTE: You are advised to consult the publisher's version (publisher's PDF) if you wish to cite from it. Please check the document version below. Document Version Publisher's PDF, also known as Version of record Publication date: 2010 Link to publication in University of Groningen/UMCG research database Citation for published version (APA): Smeenk, T. (2010). Russian gas for Europe: Creating access and choice. Underpinning Russia's gas export strategy with Gazprom's infrastructure investments. Clingendael International Energy Programme . Copyright Other than for strictly personal use, it is not permitted to download or to forward/distribute the text or part of it without the consent of the author(s) and/or copyright holder(s), unless the work is under an open content license (like Creative Commons). 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Download date: 30-09-2021 PART II 109 110 Chapter 5 Soviet Union’s gas export strategy to Europe 5.1 Introduction Shortly after the Second World War, the Soviet Union began exporting natural gas to Poland on a very small scale. 108 Only in the 1960s did the export of natural gas expand to include other European countries that fell under the Soviet sphere of influence through the CMEA 109 . Austria was the first capitalist country in Western Europe to purchase a small volume of gas from the Soviet Union, followed in the 1970s by larger Soviet sales to West Germany, Italy and France [Victor and Victor 2006]. In the Soviet period and before the liberalisation of the gas market in the EU, the chosen institutional framework for Soviet gas supply to Western Europe was relatively stable, with an oligopoly of importers and exporters being connected to each other through long-term contracts. Governments were typically also directly involved in the realisation of gas projects, through ownership interests and investment guarantees (see also Chapter 2) [Finon en Midttun 2004]. In this chapter a description is given of the Soviet export strategy for natural gas in Europe before the disintegration of the Soviet Union and before the European liberalisation of the gas sector, which began in the 1990s. For Europe, a distinction is made between the Cen- tral and Eastern European countries that belonged to the CMEA and the Western Euro- pean countries. The export strategy is described in light of the rationale of the Soviet Un- ion for commencing gas production and marketing it. In the analysis, emphasis will be placed on economic aspects. The chapter starts with the internal (institutional) gas market developments in the Soviet Union, Western Europe and the CMEA countries. Section 5.2 looks at the developments in the Soviet Union gas market up until the fall of the Soviet empire and of the centrally planned economic model. Section 5.3 describes the structure of the gas market in Western Europe before the gas market liberalisation and that of the gas market in the CMEA under the Soviet Union’s sphere of influence. In Section 5.4 the supply and transport of Soviet gas to the CMEA and Western Europe are discussed. The chapter ends with a concluding section. 108 For an extensive description and analysis of the Soviet gas deliveries to Europe and the institutional development of Soviet gas, see: Maarse [1976]; Stern [1980]; Stent [1982]; Stein [1983]; Gustafson [1985]; Stern [1987]; Gustafson [1989]; Van der Linde [1991]; Stern [1993]; Victor and Victor [2006]. 109 The unofficial designation is Comecon. The CMEA was an organisation that supported economic cooperation between the Central and Eastern European communist countries, largely under the command of the Soviet Union, and was a reaction by the Soviet Union to the Marshall Plan. The CMEA had to guarantee the implementation of financial assistance to these countries, initiated by the Cominform. In this research, the CMEA-6 is used as the collective term for six countries in central and Eastern Europe with a planned economy, namely East Germany, Poland, Czechoslova- kia, Hungary, Romania and Bulgaria. The Soviet Republic, Cuba, the People’s Republic of Mongolia and observers North Korea and North Vietnam, which also were part of the CMEA, fall outside the CMEA-6 group in this research. Former Yugoslavia, as associated member of the CMEA, and Albania are listed separately where relevant. 111 5.2 Rationale for Soviet’s gas production and exports and its institutionalisation In the 1820s, natural gas was used for the first time for central lighting on St. Petersburg’s Aptekarsky Island. In the course of the nineteenth century, other cities followed St. Pe- tersburg’s example.110 Gas was captured on a larger scale at oil production sites in Azerbai- jan in the 1870s [CE/CIEP 2007]. However, gas production in the Soviet Union remained limited to 3 bcm/y until after the Second World War [Victor and Victor 2006]. 5.2.1 Rationale for Soviet’s gas production and exports During Stalin’s last governing years (1945-1953), energy consumption grew by more than 9 percent per year. The underlying causes were strong industrial growth in combination with inefficient use of energy. However, the share of gas in the Soviet energy mix remained limited (2 percent, or 9 bcm, in 1953) due to the dominant roles of coal and, to a lesser extent, oil, during this period [Victor and Victor 2006]. In 1942, gas fields were discovered in the Kuibyshev region and around the same time the development of the gas field near the village of Elshanka was commenced, largely to the benefit of the industry in Sara- tov, southeast of Moscow. In 1943, the first long-distance pipeline (160 kilometres) began to be used between Bouguruslan and Kuibyshev. Substantial transport of gas started three years later – shortly after the Second World War – with the realisation of the 843 kilome- tre-long gas pipeline between Saratov and Moscow. In the 1950s, other gas fields were linked to the gas network around Moscow.111 Until the mid-1950s, gas production in the Soviet Union was largely limited to the Saratov region and Ukraine [Victor and Victor 2006]. Under Khrushchev the position of gas gained importance, although at first oil was pre- ferred due to the flexibility with which it could be used in industry. In his first five-year plan112 (1956-1960) he formulated goals for equalling the American economy within 25 years. He intended to reach these goals through the modernisation of the economy, in which modern fuels received an important place because of their flexible and efficient application. In the seventh five-year plan (1959-1965) gas was increasingly consumed in the industry [Victor and Victor 2006]. The increased demand for gas by the Soviet Un- ion’s heavy industry needed to be met with new production from the gas fields in the Soviet republics in the Caspian region (mainly Turkmenistan). In order to link the gas 110 In the period that Russia was ruled by tsars, under the Romanov dynasty, the following important cities, among others, were supplied with natural gas (in addition to St. Petersburg and Moscow): Kiev, Kharkov, Rostov-on-Don, Odessa, Riga, Vilno, Tver en Kazan [Victor and Victor 2006; Gazprom 2008a]. 111 This started with the gas pipeline Dashava-Kiev-Bryansk-Moscow in 1950, followed by the Tula-Moscow and the Stavropol-Moscow pipelines [Gazprom 2008a]. 112 The sixth in a row in Soviet history. A five-year plan formulates the goals for five years and is an important instru- ment in the communist centrally-guided economy. In the Soviet Union, the Gosplan established roughly policies for economic growth. The plans were in principle focused on fast industrialisation (especially of heavy industry). 112 fields to the markets around Moscow and elsewhere, in 1959 the North Caucasus Center gas pipeline was brought into use; this was followed in the 1960s by a corridor from Cen- tral Asia and the Boukhara-Ural pipeline [Efegil and Stone 2001]. 113 Moreover, in the early 1960s gas was being used from the Ukrainian Soviet Republic, in particular the Shebe- linsky gas field [Victor and Victor 2006; Gazprom 2008a]. This turned the satellite republics in the Caspian region and Ukraine into important areas of gas production and transit for the Soviet Union. In the eighth five-year plan (1966-1971) the importance of the western Siberian gas re- serves, located to the east of the Ural Mountains, was recognised by the then-ruling Soviet leader Brezhnev. 114 In the same period, gas fields were also discovered in Orenburg (north of Kazakhstan), followed by the discovery of the gas fields on the Yamal Peninsula at the beginning of the 1970s (including the Bovanenko and the Kharasevey fields) [Stern 2005]. Due to the development of the gas fields in the Nadym Pur Taz (NPT) region in western Siberia, the centre of gravity of the Soviet gas sector shifted from the end of the 1970s on: • the geography of the Soviet production portfolio changed because gas production in the regions east of the Ural Mountains exceeded the production west of the mountains [Victor and Victor 2006]; and • the Soviet Union became a net exporter of natural gas.

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