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Russian energy deal adds to Europe fears

Russia expanded its growing European energy empire Friday, signing two more deals in a drive that is raising fears Moscow could use its vast oil and gas resources to meddle in the affairs of its neighbors.
Russian President Vladimir Putin, center, Serbian Prime Minister Vojislav Kostunica, left, and Serbian President Boris Tadic, right, before their meeting in the Kremlin in Moscow on Friday. Russian and Serbian officials signed a multibillion-dollar energy deal that would make Serbia a key hub for Russian energy supplies. Sergei Chirikov / AP
/ Source: The Associated Press

Russia expanded its growing European energy empire Friday, signing two more deals in a drive that is raising fears Moscow could use its vast oil and gas resources to meddle in the affairs of its neighbors.

Russia already supplies a quarter of Europe's natural gas and oil needs, and some Western leaders worry the growing dependence is giving the Kremlin a powerful geopolitical weapon.

Announcing the signing of two agreements with Serbia, Russian officials said the deal would make the poor Balkan nation an important hub for the distribution of Russian gas.

Moscow has been rushing to build or acquire European pipelines, storage facilities, ports and energy companies. But Russian government and corporate officials say the expansion is strictly a commercial effort that benefits both sides and ensures Europe gets the energy it needs.

"This network will be long-lasting, reliable, highly efficient, and what is very important, help boost energy supplies to Serbia and the entire European continent," Russian President Vladimir Putin said after the deals were signed.

Skeptics in Washington and some European capitals say Russia has already used its energy clout as a coercive tool of diplomacy. The U.S. has led an effort to limit its inroads — in part by planning new energy pipelines that would bypass Russian territory.

An energy powerhouse  
But there are doubts the alternative pipelines will ever be built, and many analysts say the European Union's quest for energy independence has fizzled.

"I think you can now say that Russia has either won the war or is very close to winning the war" over gas supplies, said Chris Weafer, chief strategist at UralSib, a Russian investment bank. "Because the EU, which sought non-Russian import routes and non-Russian gas supplies, has failed to achieve anything."

He said fast action by Russia to increase its energy deals has made it difficult for Western countries to organize the huge financial investment needed for rival pipelines.

"The Kremlin moved much more quickly and much more decisively," Weafer said.

Russia is an energy superpower. It is the biggest exporter of natural gas, the second largest exporter of oil after Saudi Arabia and has almost a third of the world's proven natural gas reserves. Russia also is the main conduit for oil and gas shipped from the former Soviet republics of Central Asia.

Weafer said the Kremlin is simply applying an important lesson it learned from the end of the Cold War.

"They're not going to become a global superpower by military means," he said. "They will only achieve that status by economic means, and that is the focus now."

Gas expert: Russia is no threat
Some experts feel the anxieties about the Kremlin's intentions are overblown.

Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies, said Russia's role as an energy supplier does not threaten Europe.

What the continent faces, he said, is the looming threat of gas shortages as supplies plateau or even drop over the next few years in the face of escalating demand.

Stern and others say Russia's gas fields are rapidly being exhausted. There is a real question whether Russia will be able to meet its customers' demands starting around 2010, several experts warn.

"Where are we getting our gas from after then?" Stern said. "That's the problem."

The two agreements signed Friday, worth a total of $2.2 billion, call for construction of a major gas pipeline and storage facilities in Serbia and give the Russian gas monopoly, Gazprom, a majority stake in NIS, Serbia's state oil company.

"This agreement has huge strategic importance for Serbia," Serbian President Boris Tadic said. "It will strengthen Serbia's strategic positions in southeastern Europe, since it will serve as a transit point for gas supplies to the EU's southern flank."

The agreement follows a series of other energy deals that buttressed Russia's role as a crucial energy supplier to Europe.

Just last week, Bulgaria agreed to become a major hub for the South Stream project, a proposed 550-mile underwater pipeline from the southern Russian coast to the Black Sea's western shore. It is expected to cost more than $14.6 billion.

The West becomes worried
In December, Turkmenistan signed a deal with Moscow to build a pipeline that would increase shipments of gas to Russia by 700 billion cubic feet annually — more than the volume consumed by Belgium. That deal guarantees Russia a supply of gas to pump through South Stream.

Some in the West have worried about Russia's potential use of energy as a club after it threatened gas cutoffs to win agreements from several nations in recent years to accept big price increases.

Those pricing disputes with former Soviet countries, including Ukraine, Moldova and Georgia, came at times of political tensions.

Anxiety over Russia's huge role in Europe's energy market peaked in January 2006, when Russia cut gas supplies to Ukraine for 30 hours — shutting off 80 percent of Russian gas shipments to Europe in a pricing dispute. Moscow's relations with Ukraine have been tense since late 2004, when voters elected a pro-Western president.

To settle the dispute, Ukraine was forced to double the price it paid for gas. The deal also opened the door for Gazprom to gain a foothold in Ukraine's domestic energy industry, according to a U.S. Congressional Research Service study.

In the case of Moldova, the crisis ended with Gazprom nearly doubling gas prices and increasing its stake in Moldova's government-controlled pipeline company.

In October, Secretary of State Condoleezza Rice said the U.S. respects Russia's interests.

"But no interest is served if Russia uses its great wealth, its oil and gas wealth, as a political weapon, or that if it treats its independent neighbors as part of some old sphere of influence," she said.