Gas Curtain
By Yvonne Chen Contributor October 18, 2010

A new cold war is brewing in Europe. In this war, Russia is still a powerhouse, but some players have switched sides. The crux of the conflict is no longer economic ideology, but rather energy policy. One or two snowstorms in the winter are bad, but imagine it without heating. Then, imagine it lasts for seven months. This is the situation Poland, Ukraine, Slovakia and Czech Republic are facing if construction of the new Northern European gas pipeline, Nord Stream goes according to plan.

Experts have coined the term “energy poverty” to describe the gap in winter heating affordability among Poles. In fact, Polish gas prices were up 23 percent by its national operator PGNiG in October 2009, just before the long winter. Over nine billion cubic meters of the total 14 billion cubic meters demanded last year was imported through from the Yamal gas pipe from Russia. Poland currently has no capacity to develop transmission from domestic and non-Russian sources. Only one billion cubic meters annually comes from non-Russian sources.

In much the same way that the United States is dependent on Middle East oil, Europe is reliant on Russian gas (with the exception of Norway due to its offshore sources and small population). Gas is used for heating. Gas is sent to Europe from Russia through pipelines (see map).

But high prices are just the beginning. While the Cold War is long over, Russia’s new weapon of choice is its natural gas monopoly. In the summer of 2009, Russia threatened that it would cut off gas transmission to Poland in retaliation for siding with Georgia during the Russian-Georgian war the previous year. A 2007 report issued by the Swedish Defense Research Agency counted over 55 incidents since 1991 of cut-offs, explicit threats, coercive pricing policy and certain takeovers regarding political bargaining connected to Russia’s gas monopoly. The largest demonstration to date occurred in January 2006 and January 2009, when Russia cut off Ukraine for months each time and, in turn, cut off the rest of Europe.

Countries in Western Europe are hoping to avoid another crisis caused by poor political relations between Russia and other Central European transit countries. That is why they are partnering with Germany to get the gas directly. With completion anticipated in 2012, the Nord Stream pipeline runs beneath the Baltic Sea from Vyborg, Russia to Griefswald in Germany. It is expected to carry a maximum of 55 billion cubic meters annually and to save over $1 billion annually in transit taxes and lower prices for Western Europe. Gazprom, Russia’s state owned natural gas company owns 51 percent of Nord Stream shares while E.ON and BASF each own 20 percent, and N.V. Nederlanse Gasunie 9 percent.

Russia experts Piotr Dutkiewicz and Richard Pipes argue that Russian identity is still at odds with the loss of its empire. Russia faces huge modernization challenges, while still trapped in a paradigm of imperial policy. The most noticeable manifestation of this tension is its attitude to the small former Soviet bloc states. To countries that are highly dependent on Russian gas such as Poland and Ukraine, the opening of the new pipe is worse than any previous threat. All of the gas to Western Europe currently flows through current gas transit countries in Eastern Europe that includes Poland. Poland is at risk of huge energy insecurity because Russia is planning to send gas to Western Europe through the Baltic Sea. When the project is finished in 2012, Poland will have to beg Russia and Germany for access to Nord Stream. In fact, Poland has already started negotiating the construction of a connection to Nord Stream.

Some experts argue that the pipeline is more political than just good business for Russia and Western Europe, noting that it is doubtful that the project will be profitable at all. It is expected to cost up to 12 billion USD but nobody can be sure about the final cost – Nord Stream must lay the pipe on the bottom of the Baltic Sea. It is impossible to predict how many World War II-era sea mines require removal. Moreover, the Baltic Sea is a small, shallow, inland sea. If the pipe breaks, there will be a huge and expensive ecological catastrophe to clean up.

Russia may enjoy good economic and political relations with Western Europe now – but will this always be the case? After Nord Stream is launched, it will be interesting to see how Russia handles its European gas monopoly over Western Europe.

This image is being used under Creative Commons licensing. The original source can be found here.