91ÌìÌÃÔ­„“

Despite its importance, the EU is a declining market for Russia’s long-term oil and gas exports owing to the rise of Asia as the world’s largest energy consumer. Russia has therefore been developing oil and gas fields (e.g. those of Siberia and Sakhalian islands) to generate oil and gas export capacities to meet this market’s growing demand, while building export infrastructure, including terminals, LNG plants and, of course, pipelines.

As detailed below, certain developments since last year affecting major energy consuming and exporting countries have provided opportunities or pressures for short and possibly medium-term increase of Russian oil and gas exports in Asia with a bearing on pipelines. They may help Russia fully utilise its pipelines’ capacities and/or possibly provide an incentive to speed up its ongoing projects or begin its planned ones earlier to cash in when the opportunity presents itself.

Thanks to a phenomenal increase in American shale gas production, set to make the US self-sufficient in gas in a few years, Russia’s loss of the American gas (LNG) market has made the country focus on the Asia-Pacific region in terms of gas exports. The Fukushima tragedy of 11^th March 2011 resulted in a sudden increase in Japan’s demand for imported oil, gas and coal following its shutting down just about all its nuclear reactors (in total 54 generating about 30% of Japan’s electricity demand) but two to undergo stress tests. The so-called Arab Spring, affecting many Arab oil and gas exporters now facing serious political instability (Egypt and Algeria) and outright civil wars (Libya and Yemen), has created uncertainty about the sustainability of these countries’ exports. Against a background of continued war in Iraq sitting on the world’s fourth largest oil reserves, the threat of expansion of the ‘Arab Spring’ to the major Arab oil and/or gas exporters of the Persian Gulf (Saudi Arabia, Kuwait, UAE, Qatar and Oman) has created an additional uncertainty about the availability of their supply.

Uncertainty about Arab supplies has been paralleled by those of Africa. Nigeria’s continued and expanding civil war has decreased its oil and gas exports as its pipelines, among others, have become a steady target of attacks, theft and vandalism. Sudan’s division into two countries in July 2011 both now engaged in under-reported civil wars has raised uncertainty about Sudanese oil exports.

In this situation, Russia having phenomenal oil and gas reserves, a growing export infrastructure and a strong incentive to turn itself into an energy superpower is in an excellent position to fill in the realised and future gaps in the global oil and gas supplies caused by the mentioned developments and other factors. In this light, the Russian pipeline activities are examined below.

Nord Stream

Nord Stream is Russia’s and certainly Europe’s major ongoing project designed to feed Germany and then from here connect to Belgium, the UK, Denmark, the Netherlands, France, and the Czech Republic, with Russian gas. It consists of two parallel 48 in. pipelines across the Baltic Sea, each 1224 km with a capacity of 27.5 billion m³/yr. The first pipeline’s construction began at Russia’s Portovaya Bay in April 2010, and was completed in April 2011 to start supplying Germany in mid-November 2011. The construction of the second pipeline began in May 2011, and is planned to become operational in Q4, 2012. The two pipelines connect the Russian onshore feeding pipeline near Vyborg to the German onshore pipeline near Greifswald.

The pipelines have certain political significance as they enable Russia to bypass Ukraine and Poland, while satisfying 25% of the EU’s additional needed gas imports by 2030. Contradicting Brussels’ declared policy of decreasing the EU’s reliance on Russia for energy, the project reflects the growing energy nationalism in the EU at the expense of the EU collective interests.

ESPO

East Siberia Pacific Ocean (ESPO) is a major undertaking by Russia designed to carry Russian crude to the Asian-Pacific markets (China, Japan and South Korea) and the US. The first stage of the 4857 km pipeline, the Taishet-Skovorodino line (2757 km; 48 in.; US$ 12.27 billion) connecting Russia’s Irkutsk to the Amur Region via Yakutia (30 million tpy capacity) went online in January 2010. Scheduled to go online in December 2012, its second stage, the Skovorodino-Kozmino (2100 km; 48 in.), will enable Russia to export a larger volume of oil (30 million tpy) to the Asian-Pacific countries. Currently, in absence of this link, oil (15 million tpy) is transported by rail from Skovorodino to Kozmino’s oil terminal on Russia’s Pacific coast from where the oil is exported to the designated buyers by oil tankers. ESPO’s completion will help Russia establish itself as a major oil supplier to the Asia-Pacific economies.

South Stream

Similar to Nord Stream, the South European Pipeline or South Stream is meant to bypass Ukraine when exporting Russian gas to Europe (Italy and Austria) via the Black Sea. Having estimated cost of US$ 14.4 - 20 billion, its construction has been delayed from the initially-planned 2010 to 2012 for completion in December 2015.

The pipeline construction will start in December 2012 (earlier than decided in 2011) with a designed maximum throughput of 63 billion m³/yr. Given that the EU has considered the project as a means for Russia to prevent the construction of EU envisaged projects to import gas from Turkmenistan and Azerbaijan bypassing Russia, particularly Nabucco, the seemingly final decision to build South Stream registers another victory for the Russian energy industry and yet another setback for Brussels, revealing the growth of centrifugal tendencies among the EU countries.

Meant to carry Russian and eventually Central Asian gas, the pipeline has onshore and offshore segments. The Russian onshore section will run from the Pochinki compressor station to the Beregovaya compressor station at Dzhubga.

Other projects in the pipeline

Apart from the current undertakings, the Russian oil/gas companies are involved in negotiations for major projects, including the following.

Samsun - Ceyhan oil pipeline

Rosneft and Transneft are seeking a major stake (25%) in a planned Turkish pipeline, the Samsun-Ceyhan oil pipeline, to be built by Turkey’s Calik Holding and Italy’s Eni. Linking the Turkish ports of Samsun on the Black Sea and Ceyhan on the Mediterranean Sea, its planned capacity is 50 million tpy to be supplied by Russia (25 - 30 million t) and certain Caspian oil exporters such as Kazakhstan.

Russian - Chinese gas pipeline

Despite the success in securing piped oil exports to China (Skovorodino-Daqing), the fate of Russia’s efforts to secure a piped gas export agreement with China is still unclear. After years of negotiations between Moscow and Beijing, the two sides are yet to agree on the pricing of gas to be exported via the envisaged pipeline. As per its November 2011 agreement with Turkmenistan, China’s access to Turkmenistan’s gas at a reported price (US$ 250/1000 m³) significantly lower than that of Russia (by US$ 150) is a major obstacle. Other obstacles include Beijing’s concerns about over reliance on Russia for energy and also Russia’s reliability as a gas supplier as evident in its closing down its gas pipelines to Europe via Belarus and the Ukraine in the recent years.

This is an abridged version of the full article from Dr Hooman Peimani, which was published in the May 2012 issue of 91ÌìÌÃÔ­„“ Pipelines, available for subscribers to .

Written by Dr Hooman Peimani.