IN THIS ISSUE:

* Russia may pull the plug on Nord Stream pipeline project
* Belarus warms to Europe after lifting of EU travel ban
* Russian embassy in Kyiv promotes Georgian war documentary
* Athens and Ankara squabble over possible Aegean energy reserves

Russia Says It May Abandon Nord Stream Pipeline and Switch to LNG

Vladimir Socor

Russian Prime Minister Vladimir Putin warned on November 12, and Gazprom Vice-President Aleksandr Medvedev echoed on November 18, that Russia might abandon the project to lay a gas pipeline, Nord Stream, on the Baltic seabed to Germany. Instead, Putin and Medvedev asserted, Russia could switch to liquefaction and export the liquefied natural gas (LNG) from Russia’s Baltic shore to world markets (Interfax, November 12, 18).

Hosting Finland’s Prime Minister Matti Vanhanen in Moscow, Putin said: “Europe must decide whether it needs this pipeline or not. If not, we will drop Nord Stream and build liquefaction plants and send the gas to other markets. We will sell it to you [Europeans], too. But it would be more expensive [in liquefied form]” (Kommersant, November 13).

Six days later Medvedev seconded the warning that Russia could opt for seaborne exports by LNG tankers worldwide, if Europeans dragged their feet on Nord Stream. This is the second round of Russian doubt-casting on Nord Stream. In late October the chairman of Russia’s Natural Gas Society (and vice-chairman of the Duma), Valery Yazev, cautioned that project cost overruns and the international financial crisis would delay both Nord Stream and its main designated supply source, the Shtokman gas extraction project in the Barents Sea. Both projects would ultimately be implemented, because they were “important to the whole world” but would cost more and take longer to complete than had been envisaged (BNS citing Helsingin Sanomat, RIA Novosti, Interfax, October 27, 28).

The Nord Stream consortium includes Gazprom with 51 percent of the shares, Germany’s E.ON Ruhrgas and BASF/Wintershall with 20 percent each, and Nederlandse Gasunie with 9 percent. The Nord Stream board had announced as recently as mid-October that the first stage of the pipeline would go into operation in 2011 (deferred from 2010, however), with the second stage expected by 2012, for a combined annual capacity of 55 billion cubic meters of gas. Also in October, President Dmitry Medvedev and Chancellor Angela Merkel reaffirmed strong political support for Nord Stream during the Russian-German annual intergovernmental meeting in St. Petersburg. Publicly at least, there was no threat of Russian abandonment of the project.

Evidently surprised and apparently stung by the Russian officials’ latest remarks, some European managers with the consortium are downplaying the situation. They maintain that the pipeline’s first stage can still be commissioned on the revised schedule by 2011 and that the project’s importance should ensure borrowing on financial markets despite the credit crisis, albeit at a higher cost (Reuters, October 29, November 17; Financial Times, November 18). All this almost certainly spells further delays.

The Russian officials’ unprecedented statements reveal a loss of confidence in the viability of Nord Stream and, indirectly, reflect the larger problems confronting Russia’s gas sector. Those issues impinge on Germany due to its overdependence on Russian gas. Germany’s total consumption amounts to more than 90 billion cubic meters annually, more than40 percent of which comes from Russia. Some of Germany’s most influential business interests as well as the government have made a strategic decision to rely on Russian gas, in contrast to the European Union’s strategy—and the actual situation of most countries in the “old” EU—of ensuring a diversity of suppliers.

The German government’s latest report on energy security, released on November 5, maintains that the Nord Stream project is “indispensable, in order to secure growing volumes of [Russian] gas in the future too.” The report claims that Nord Stream would not replace any existing transit routes and does not compete with other planned pipelines. These claims are not entirely accurate. Nord Stream is, in fact, intended by Gazprom to redirect some of the gas export volumes that have traditionally been handled by the Polish and Ukrainian transit pipeline systems. Moreover, insofar as Gazprom plans to rely increasingly on Central Asian gas to sustain its exports to Europe, the Nord Stream project competes indirectly and possibly even directly with the Western-supported Nabucco project for Caspian gas.

Anticipating strong growth in the German demand for gas, the government’s report extols the clean-fuel qualities of natural gas but also admits that it “entails a steadily growing import dependency and price risks” (Frankfurter Allgemeine Zeitung, November 5).

The single most important factor behind the gas demand growth in Germany, however, is the political decision to reduce reliance on nuclear power and eventually abandon it altogether. The former Social Democrat-Green government forced that decision on Germany and adheres to it rigidly in the current coalition government, despite growing objections by the Christian Democrat/Christian Social Union.

Changing Priorities in Belarus

David Marples

Several recent events suggest that changes are underway in Belarus as it emerges from isolation and begins new dialogues with the countries of the European Union. According to sociological surveys, the electorate remains behind the president; and after a brief shock engendered by sharp price rises at the end of 2007, Belarusian society rapidly returned to apathy, which is described in the official media as “stability” (Belorusy i Rynok, November 17-24). That allowed the government of President Alyaksandr Lukashenka to enjoy a comfortable victory in the 2008 parliamentary elections, albeit in a restrictive environment.

After the much-touted removal of the travel ban to Europe imposed by the EU on Lukashenka and his associates two years ago, the Belarusian leadership has taken initiatives in a number of areas that suggest change is imminent. On November 18 a Belarusian Investment Forum opened in London, with the participation of Prime Minister Syarhey Sidorski and senior European business executives. It took place at the Church House Conference Center, a venue originally built to mark Queen Victoria’s Golden Jubilee in 1887 (Belapan, November 18). Sidorski met with members of the two British houses of parliament as well as with Lord Mayor of London Ian Luder to discuss potential cooperation between the two countries at a time of global financial crisis. The Belarusian prime minister urged his British counterparts to visit Belarus (Narodnaya Volya, November 18).

Although relations with the United States have been less smooth in recent months, Lukashenka announced his desire for the start of a new dialogue in an interview with The Wall Street Journal on November 11. Much of this interview was shown on Belarusian Television’s Channel One on November 14, and it featured the Belarusian leader bemoaning the effects of U.S.-imposed sanctions on trade between the two countries (www.naviny.by, November 16). Lukashenka expressed his pleasure at the election of Barack Obama as the next President of the United States, referring to him as a “new, young, and unblinkered man” and drawing parallels to himself when he was first elected in 1994. Americans, according to the president, comprehend the importance of Belarus as “a key country in Europe” (Reuters, November 11).

The changing nature of elite politics in Belarus was also discussed by Valeriy Karbalevich, in a paper presented to the Second Conference of the Institute of Strategic Studies, held in Kyiv, Ukraine, on November 11 and 12 and published in an abbreviated format in a Belarusian opposition newspaper. Karbalevich noted Lukashenka’s self-appointed task of making Belarus’s investment climate one of the 30 best in the world as well as starting to “normalize” its relations with Europe. Belarus formerly revered its Soviet past and supported a union with Russia, but today the emphasis is on stability derived from the activities of the president and the strengthening of Belarusian sovereignty (Belorusskaya Delovaya Gazeta, November 18).

However, Karbalevich continued, these new developments had in turn posed some problems for the regime. In 1998, after the financial collapse in Russia, Belarus strengthened its administrative command system; but a decade later its focus is on liberalization. This change of policy has led to changes in the social basis of support for the Lukashenka regime. A consumer boom period from 2003 to 2008 led to the birth of a new middle class. Increasingly, says Karbalevich, this group, which supports the president, is to be found in Minsk and the larger cities, thereby taking away the former areas of support for the opposition. The economic crisis, however, is forcing the government to satisfy this group by expanding economic freedom. The outcome in the long term could be the development of a new center of power in the country, creating what the author calls a nomenklatura-oligarchic regime that could restrict the previously unlimited authority of the president.

Lukashenka, according to this account, seeks a “Chinese” solution to his problems (economic reform while retaining a strong central government) rather than the sort of outcome that befell Mikhail Gorbachev in 1991. Though persuasive, the argument is not entirely convincing. One could make an equally plausible case that Lukashenka’s machinations are dictated more by external circumstances than any initiatives from Minsk. A feature of his long period in office has been his tendency to switch policies on an almost weekly basis. How does one equate a reluctance to recognize the independence of Abkhazia and South Ossetia with Belarus’s apparent agreement with Russia at Sochi last August to create a joint defense system? It was reported that Lukashenka recently discussed the possibility with Moscow of installing Russian Iskander missiles in Belarus, a prospect described by the United States as “unhelpful to regional security” (VOA News, November 14; www.belradio.fm, November 13).

Furthermore, although several political prisoners have been released in recent months, there is not the slightest indication that Belarus has created a more tolerant political climate for members of the opposition, unregistered youth groups, and other malcontents. Despite such repressive tactics, the Europeans have decided it is preferable to open a door to Lukashenka and his associates, mainly because of perceived threats from Russia and despite an election that fell well below acceptable standards. Finally, the changes in the sectors of support for the president will hardly be a lasting phenomenon if Belarus suffers the full effects of the current recession, as seems likely. The new middle class could disappear as quickly as it emerged.

Were Ukrainian Arms Supplies to Georgia Illegal?

Pavel Korduban

A Ukrainian parliamentary commission investigating arms supplies to Georgia has claimed that they were illegal. The commission chairman, Valery Konovalyuk from the pro-Russian Party of Regions (PRU), insists that President Viktor Yushchenko was aware that Ukraine supplied arms to Georgia illegally. The Security Service of Ukraine (SBU) denied this and prevented the presentation in Kyiv of a Russian documentary that reflects Moscow’s interpretation of Ukraine’s role in the August Russian-Georgian conflict over South Ossetia, a point of view shared by the commission.

According to Moscow, Kyiv supplied arms to Georgia ahead of and during the conflict in violation of bilateral agreements and international laws. Kyiv does not deny that the supplies took place but insists that they were legal. Moscow also claims that there were Ukrainians fighting on Georgia’s side in the conflict. Kyiv denies this. The opposition, especially the PRU and the Communists, are inclined to believe Moscow. On September 2 the Ukrainian parliament set up an ad-hoc commission to look into the issue. The commission is dominated by the opposition, so its preliminary findings, reported at the end of September, were not surprising. They generally coincided with the Kremlin’s official line, but the focus was slightly different.

Konovalyuk, who visited South Ossetia in the wake of the war, said that he had evidence confirming the participation of Ukrainian nationalists in the conflict. Konovalyuk also claimed that Yushchenko personally coordinated arms trade with Georgia, that Kyiv had known about Georgia’s preparations for the war, and that offensive rather than defensive weapons were shipped to Georgia. At the same time, Konovalyuk’s focus was on the alleged damage from the arms trade to the Ukrainian army and the economy.

Konovalyuk said that arms were sold to Georgia at artificially low prices and to the detriment of Ukraine’s own military capability. According to Konovalyuk, certain weapons that the Ukrainian army was short of were supplied to Georgia rather than to Ukrainian army units. “We have found proof that we were arming a foreign state that, I am sure, was preparing for military aggression, while destroying our own defense capacities,” said Konovalyuk. He also suggested that a fire at the Ukrainian ammunition depot near Lozova at the end of August was arson masterminded in order to cover up the smuggling of arms to Georgia (www.liga.net, www.regnum.ru, September 26).

Konovalyuk said that most of the funds raised from the arms trade during the past few years, not only with Georgia, did not go into the state coffers. According to his calculations, Ukraine’s losses from arms supplies to Georgia amounted to some $100 million (Interfax-Ukraine, October 8). The Ukrainian Defense Ministry and the state arms trade company, Ukrspetsexport, flatly denied Konovalyuk’s conclusions. The National Security and Defense Council, a body chaired by Yushchenko, said that Konovalyuk’s commission had been set up “in order to use in domestic political fights the dangerous myth forged by Ukraine’s opponents about Ukraine’s involvement in the Russia-Georgia conflict” (Ukrainska Pravda, October 8).

Konovalyuk planned to show Ukrainian officials and journalists, as well as foreign diplomats, a Russian documentary about Ukraine’s alleged participation in the Georgia war. The five-star hotel in Kyiv where the documentary was to be shown on November 12 refused, however, to host the event after warnings from the SBU, according to Konovalyuk (Kommersant-Ukraine, November 13). The Ukrainian Foreign Ministry officially protested against the Russian Embassy’s involvement in organizing the showing of a documentary that, the Ministry said, “was fabricated by Russian special services.” In reply, the Russian Foreign Ministry accused Ukraine of “hiding the truth” about “Ukraine’s involvement in the events in South Ossetia” (Interfax-Ukraine, November 13).

Speaking in the Ukrainian parliament on November 13, Konovalyuk echoed Moscow’s accusations. “The actions by the SBU chief are aimed at covering up crimes in the sector of arms exports, the violations that the commission exposed, and the damage inflicted on our state, its defense capabilities, and security,” he said (Interfax-Ukraine, November 13). He also said that his commission wanted to summon Yushchenko to ask him questions about the arms supplies to Georgia (UNIAN, November 14).

Konovalyuk also alleged that the United States had helped Ukraine ship arms to Georgia. “Tanks were loaded for the first 15 days at the military airfield in Kyiv Region at night. The military air transport units of the United States and NATO were loading missile systems and tanks,” he claimed (UT1, November 14).

The SBU, after questioning Konovalyuk, said that it had completed its own investigation and found that his statements did not correspond to reality and that they had damaged Ukraine’s national interests. The SBU said that it had found no violations of either Ukrainian or international laws in the arms trade with Georgia (Ukrainska Pravda, November 17). Konovalyuk said that the PRU would insist that SBU chief Valentyn Nalyvaichenko be summoned to parliament to report about the Security Service’s investigation (Channel 5, November 18).

Greece and Turkey Spar over Offshore Oil Exploration

John C. K. Daly

While Turkey and Greece historically agree on very little, one thing that they have in common is a deficit of easily useable energy resources. The U.S. government's Energy Information Agency (EIA) statistics tell the tale, listing Greece's proven oil and gas reserves as "none” (www.eia.doe.gov/emeu/cabs/Greece/Profile.html). The 2006 issue of Oil and Gas Journal lists Greece as having oil reserves of 7 million barrels and natural gas reserves of 35 billion cubic feet (bcf). While the truth is probably somewhere in between, the reality is that Greece's hydrocarbon reserves are insufficient to meet the country's needs.

The picture is better for Turkey, as in 2006 the EIA listed Turkey's proven oil reserves at 300 million barrels and its proven natural gas reserves as 300 billion cubic feet (bcf) (www.eia.doe.gov/emeu/cabs/Turkey/Background.html). Turkish oil production at 43,000 barrels per day (bpd) is dwarfed, however, by a consumption rate of 637,000 bpd, and a similar disparity exists in its natural gas industry with an annual production of 24 bcf versus usage of 793 bcf.

This production shortage has led both nations to prospect across their territory; and this led to a misunderstanding in the southeastern Aegean on November 14, when the Norwegian seismic survey vessel Malene Ostervold, commissioned by the Turkish Petroleum Corporation (TPAO) to survey the southeastern waters 80 miles south of Greece's Megisti Island (Turkish "Meis" and "Kastelorizo" in Italian), a few kilometers away from Turkey's southern coast. The Norwegian vessel was escorted by the Turkish navy's TCG Gediz, an Oliver Hazard Perry G-class, 4,100-ton frigate (Hurriyet, November 16).

According to the Greek general staff, the PG Polemistes gunboat was sent to the area to impress "that this sort of research requires permission from Greek authorities," and the Greek Ministry of Foreign Affairs summoned Norway's ambassador to Greece Sverre Stub to lodge a protest (Athinaiko Praktoreiho Eihdiseohn, November 15). After Greek Foreign Minister Dora Bakoyannis called her Norwegian counterpart Jonas Gahr Store, the two vessels left the area (Hurriyet, November 15).

The departure of the two boats did not end the dispute, however, as Greece claims the area as part of its continental shelf. Greek Foreign Ministry spokesman Yeoryios (George) Koumoutsakos said:

Given that in accordance with the relevant provisions of the International Convention on the Law of the Sea [under which] a large section of this region includes the Greek continental shelf, the Foreign Ministry, in constant communication and coordination with the Defense Ministry, proceeded yesterday to make a demarche to the Norwegian and Turkish ambassadors in Athens, as well as to the Turkish Foreign Ministry in Ankara, on the level of assistant deputy undersecretary for foreign affairs (www.mfa.gr/).

The Turkish Foreign Ministry countered that "the zone where the Turkish Petroleum Corporation, or TPAO, contracted the Norwegian ship M/V Malene Ostervold [to carry out] geophysics research" is under Turkish sovereign maritime authority (Hurriyet, November 16).

Megisti, Greece's easternmost island, is roughly two miles off Turkey's southern Mediterranean coast and the town of Kas, about 68 miles east of Rhodes, and is the largest of the Dodecanese Archipelago, a cluster of 12 larger and 150 smaller islands and islets. When conflicting assertions of maritime sovereignty are added in, the islands represent a convoluted cartographical and legalistic conundrum of overlapping and contradictory claims and counterclaims, made worse by the lack of a comprehensive legal formula delineating the area. Further complicating the picture, Greece ratified the United Nations Convention on the Law of the Sea (UNCLOS) in 1995, while Turkey has not.

UNCLOS provides maritime nations with a 12-nautical-mile definition of territorial waters, as well as defining "archipelagic waters," but both definitions fall by the wayside in the Aegean. While Greece maintains a territorial limit of six miles around its approximately 2,000 Aegean islands and islets, Athens has consistently maintained it has the right to extend its territorial waters to the 12 mile limit as defined by UNCLOS, while Turkey has said such an extension would be a cause for war. Under UNCLOS Article 22, the Mediterranean is defined as a "semi-enclosed sea," with competing claims by 21 coastal states with delimited sovereign rights over exclusive maritime economic zones, which includes Turkey's and Greece's overlapping Aegean maritime, air, territorial, and boundary disputes.

Last year Turkey and the Republic of Cyprus were involved in a dispute over oil exploration in the eastern Mediterranean after Nicosia, in its first attempt to tap speculated deepwater reserves, tendered 11 offshore blocs, totaling nearly 27,000 square miles of its southern Mediterranean waters, for bidding, leading to protests from Ankara (EDM, March 21, 2007).

Athens' protest has already caused Norway's Ministry of Foreign Affairs to caution its commercial fleet to avoid contested maritime zones, warning:

Norwegian authorities do not take a position on any unresolved issues of maritime delimitation between third states. It is up to the states that have overlapping claims in a maritime area to settle outstanding issues and achieve agreement on boundaries, on the basis of the law of the sea.

Norwegian authorities do not have the power to issue instructions to Norwegian companies or vessels engaged in activities in other states’ maritime areas of jurisdiction. The companies concerned, however, have the responsibility to ensure that they have all necessary authorizations. In potentially disputed areas there are particular grounds to exercise caution and restraint ("Norsk skip i Midelhavet," www.regjeringen.no, November 15).

Greek-Turkish relations have deep historical precedents for their turbulence, but ironically recent relations between Athens and Ankara have greatly improved with Greek Prime Minister Kostas Karamanlis earlier in the year making the first visit to Turkey by a Greek premier in nearly 50 years. While the search for indigenous hydrocarbon resources is understandable, geological surveys up to now seem to indicate that those of both countries are modest at best.

Both Athens and Ankara might pause to reread the EIA's relevant country briefs, which noted of Greece, "Improved relations with neighboring states could help Greece achieve its goal of becoming a major regional energy hub," while commenting about Turkey, "Turkey lacks significant domestic energy resources. However, its location makes the country an important energy transit country…" Transit nations have the "inside track" in negotiating with energy-exporting nations for both transit fees and deliveries, which are also a more certain bet than wildcat drilling at a time of falling energy prices during a global economic slowdown.

If, however, nationalists are looking to rattle sabers, then an opportunity will present itself early next year, when in January an Energy Exeter jack-up rig is mobilized from the North Sea to drill a well in Greece's Aegean waters (Lloyd's List, November 17). If history is any guide, the rig will likely produce only empty boreholes and heightened tension.

To view other artciles published by Eurasia Daily Monitor, The Jamestown Foundation click here