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Europe’s Energy Security Gazprom’s Dominance and Caspian Supply Alternatives Svante E. Cornell Niklas Nilsson Editors Europe’s Energy Security: Gazprom’s Dominance and Caspian Supply Alternatives Svante E. Cornell and Niklas Nilsson Editors © Central AsiaAsia----CaucasusCaucasus Institute & Silk Road Studies Program ––– A Joint Transatlantic Research and Policy Center Johns Hopkins University-SAIS, 1619 Massachusetts Ave. NW, Washington, D.C. 20036 Institute for Security and Development Policy, V. Finnbodav. 2, Stockholm-Nacka 13130, Sweden www.silkroadstudies.org "Europe’sEurope’s Energy Security: Gazprom’s Dominance and CCaspiaaspiaaspiann Supply AlternativesAlternatives" is a Monograph published by the Central Asia – Caucasus Institute & Silk Road Studies Program. The Central Asia – Caucasus Institute & Silk Road Studies Program is a joint transatlantic independent research and policy center. The Joint Center has offices in Washington and Stockholm and is affiliated with the Paul H. Nitze School of Advanced International Studies of Johns Hopkins University and the Stockholm-based Institute for Security and Development Policy. It is the first Institution of its kind in Europe and North America, and is today firmly established as a leading research and policy center, serving a large and diverse community of analysts, scholars, policy-watchers, business leaders and journalists. The Joint Center aims to be at the forefront of research on issues of conflict, security, and development in the region. Through its applied research, publications, research cooperation, public lectures and seminars, it aspires to function as a focal point for academic, policy, and public discussion regarding the region. © Central Asia – Caucasus Institute & Silk Road Studies Program, 2008 ISBN: 978-91-85937-09-7 Printed in Singapore Cover photo credits: Bottom left and top right - Courtesy of British Petroleum Azerbaijan. Middle - Courtesy of Azerbaijan International Magazine, search at http://azer.com. Distributed in North America by: The Central Asia-Caucasus Institute Paul H. Nitze School of Advanced International Studies 1619 Massachusetts Ave. NW, Washington, D.C. 20036 Tel. +1-202-663-7723; Fax. +1-202-663-7785 E-mail: [email protected] Distributed in Europe by: The Silk Road Studies Program Institute for Security and Development Policy Västra Finnbodavägen 2, 131 30 Stockholm-Nacka Sweden Email: [email protected] Editorial correspondence should be addressed to Svante E. Cornell, Research and Publications Director, at either of the addresses above (preferably by email). Table of Contents Preface ................................................................................................................................................................................... ................................................................................................ ................................... 555 Executive Summary ................................................................................................................................................................................... ................................................................................. ............ 999 Part I: European Energy Security and Central Eurasia .................................................................................... 171717 Europe and Caspian Energy: Dodging Russia, Tackling China, and Engaging the U.S. ................................................................................................................................................................................... ............................................. 191919 Robert L. Larsson The Black Sea/Caspian Region in Europe’s Economic and Energy Security ...... 414141 Mamuka Tsereteli Part II: Gazprom in Russia’s Domestic and Foreign Policy ........................................................................ 575757 Russian Super-Giant in its Lair: Gazprom’s Role in Domestic Affairs ................59595959 Pavel K. Baev Gazprom, the Prospects of a Gas Cartel, and Europe’s Energy Security .............. 717171 Vladimir Socor Part III: EnerEnergygy Transit and Supply Diversification .......................................................................................... 858585 The Role of the Black Sea Region in European Energy Security .......................... 878787 Temuri Yakobashvili Turkey’s Role in European Energy Security ...................................................................................................................... 999999 Volkan Özdemir Azerbaijan – A Partner for Europe in Energy Security .................................................................................. 115115115 Elin Süleymanov Part IIV:V: Achieving Access to Supplies: Key Projects ...................................................................................... 125125125 The Nabucco Pipeline: Reemerging Momentum in Europe’s Front Yard ......... 127127127 Nicklas Norling Trans-Caspian Pipelines and Europe’s Energy Security ............................................................................ 141141141 Svante E. Cornell Developing a Cohesive EU Approach to Energy Security ............................................................................ 155155155 Zeyno Baran List of TableTabless and Figures Table 1: Gas suppliers to the EU(25) ................................................................. 20 Table 2: EU Imports of Crude Oil (EU15) (in million tons) .......................... 22 Table 3: Supply potential of EU via Turkey .................................................... 113 Table 4: Turkey’s Natural Gas Sale and Purchase.......................................... 114 Figure 1: The BTE and BTE (SCP) Pipelines .................................................. 29 Figure 2: The Planned Burgas-Alexandroupolis oil pipeline ........................... 30 Figure 3: The Planned Nabucco Pipeline ........................................................... 31 Figure 4: The Blue Stream Pipeline ................................................................... 32 Figure 5: The Two Suggested Routes of the Proposed White Stream Gas Pipeline ............................................................................................................... 34 Figure 6: Schematic map of Black Sea oil transit routes (IEA, 2005). ............ 89 Figure 7: Schematic map of Black Sea natural-gas–transit routes (IEA, 2005). ............................................................................................................................. 90 Figure 8: Current and projected Caspian basin oil production (IEA, 2007). ... 91 Figure 9: Annual FSU oil exports, by Black Sea point of origin (EIA, 2007). 92 Figure 10: Proposed Black Sea electricity market (World Bank, 2006). ......... 96 Figure 11: Turkey: Current Cross-Border Oil and Gas pipelines .................... 113 Preface The politics of energy have been key to the political and economic development of the Caspian region from the very first days of independence. Indeed, the energy security of the nations of the region has been at the heart of their efforts to build sovereign and prosperous states. This has been true whether countries have been endowed with large resources of fossil fuel, or completely devoid thereof. For producers, the arrangements governing the exploration and transportation to world markets of their energy resources has been a central element of their foreign policies, and in fact has largely decided their level of meaningful sovereignty. For consumers of energy, levels of dependence on energy-endowed powers have been equally important in determining their ability to formulate their domestic and foreign policies independently. Small wonder, then, that any analysis of the politics of the region has to factor in the political, economic as well as societal role of energy. Yet for Europe, the discovery, on a higher political level, of the importance of energy security has been more recent, and mainly linked to the increasingly assertive policies that the Russian government and especially its monopolistic subsidiary, Gazprom, have adopted over the past years. This has led many Europeans to increasingly think in terms of the diversity of supply of oil and gas, and to realize Europe’s highly problematic position vis- à-vis Russia. As Europe has begun to explore ways to diversify its supply of energy, the potential role of the Caspian region has inevitably emerged on the agenda. Indeed, the Caspian Sea region is the most obvious candidate to serve as a new and relatively untapped source of natural gas and oil for Europe. Geographically, the region is located in Europe’s vicinity, and both the states of the region and those that link it to Europe are largely friendly to, and seeking greater integration with, Europe. 6 Europe’s Energy Security Indeed, Caspian resources are already becoming a part of Europe’s energy mix. In 2005, long before successive energy crises catapulted the issue of diversification of supply to the headlines of European media, the Central Asia-Caucasus Institute & Silk Road Studies Program released a book entitled The Baku-Tbilisi-Ceyhan Pipeline: Oil Window to the West. This book coincided with the completion of the first pipeline linking Caspian resources to the West, assessing this milestone to be of vast importance both to the region and to Europe. But the project, followed by a parallel natural gas pipeline, was only the first step in the long