It should be emphasized that, on the whole, the Balkan countries were correct in their decision to step up cooperation with Russian energy companies and in their expectations of receiving real benefits from such cooperation. According to data published by Top Energy (the Balkan dispatch center), gas supplies to the Balkan countries increased 13.2% in 2007, while Bulgaria (Russia’s main partner in the region) purchased 4.7% more Russian gas. In addition, a record volume of Russian gas transited Bulgarian territory in 2007.
Gazprom CEO Aleksey Miller and OMV10 Chairman and CEO Dr. Wolfgang Ruttenstorfer signed a framework agreement in Vienna on April 24, 2010 concerning cooperation in the South Stream project within Austria, where the production rate is to amount to at least 177–353 BCF of gas per year. The document set forth the terms and timeline for Gazprom and the Austrian OMV oil and gas company to complete the Austrian segment of South Stream, and also established the principles and mechanisms by which the two parties will interact during the project’s pre-investment phase. In accordance with the agreement, Gazprom and OMV began making joint preparations in 2010 for a feasibility study on the Austrian segment of the pipeline, which will contain a detailed evaluation of all the project’s technical, legal, financial, environmental, and economic features and indicators. In addition, the two companies set up an equally owned joint project company that will handle the subsequent design, financing, construction, and use of the Austrian segment of the South Stream pipeline. As part of this project, OMV expects to receive additional natural gas supplies of some 70 BCF on a long-term basis.
Currently, a debate is ongoing in the European press about a few so-called alternative projects for gas supplies to the EU. The most prominent of these projects is Nabucco, which calls for a pipeline to be routed from the Caspian Sea region to Austria via Iran and Turkey at an estimated cost of $6.14 billion. An international consortium led by OMV is to build and operate the gas pipeline. Nabucco’s maximum carrying capacity is estimated at 1.1 TCF of gas per year. Turkey, Bulgaria, Romania, Hungary, and Austria have all expressed a desire to take part.
Leading energy experts have given an extremely skeptical assessment of the viability of this project. Commenting on Nabucco, André Mernier, secretary general of the Energy Charter Secretariat, said: “Implementing the project under uncertain circumstances in areas close to the Black Sea region is extremely difficult. In the present situation, it is very hard to predict when the problems of Iran and Iraq will be resolved, and so, given the heightened risk and high costs [of the project], it will be difficult to find companies that will invest in it. In addition, the region does not have sufficient natural gas reserves to implement the Nabucco project.”11 This view was shared by Necdet Pamir, the general coordinator at the Center for Eurasian Strategic Studies, who said: “There clearly is not enough Iranian and Azerbaijani gas to implement the project.”12 Pamir maintains the Nabucco pipeline will not be profitable without Russian and Turkmenian natural gas.
Looking at the situation objectively, it should be noted that Azerbaijan is only planning to reach a production level of 706 BCF of gas per year in 2012, and there is even greater uncertainty surrounding gas supplies from Iran. It appears that the EU has recognized this fact and has gradually begun to push back the schedule for the Nabucco project’s implementation, initially until 2011 and then to 2012. In February 2008, the Nabucco Gas Pipeline International consortium postponed the launch of the Nabucco gas pipeline by another year, until 2013. Not long after this, Gaz de France withdrew its bid to take part in the construction of the pipeline.
Ensuring global energy security is a complex and systemic problem that can only be resolved on the basis of close and mutually beneficial international cooperation that considers the interests of both the countries exporting crude hydrocarbons and the countries consuming the energy resources. In this regard, it is clear that a new agreement on Russian-European strategic energy cooperation is long overdue. This could be one of the most important components of anew Russia-EU cooperation agreement. The main issues that should be covered in this new document are: determining a mechanism to make long-term forecasts of energy resource demand so that Russia can coordinate the introduction of new production capacity in addition to infrastructure projects; developing a legal mechanism to ensure Russia and the EU make reciprocal investments in the energy sector; developing framework terms for the sale of energy resources; and defining the main parameters of energy resource transit. There are other issues, of course, including the lifting of unjustified barriers to trade and investment, as well as the assurance of preliminary consultations when a government considers making a decision on the energy sector that affects a partner’s interests. Russian oil and gas companies are respectful of EU regulatory laws and have expressed willingness to constructively take part in a discussion of sensible European Commission proposals that raise important issues not only regarding property, but also investment, price policy, and the security of crude hydrocarbon supplies. Moreover, if the parties are able to reach agreement on issues concerning the transit of energy resources and take the balance of interests into account, perhaps a legally-based Transit Agreement could be drawn up and passed as part of a new Cooperation Agreement. Other countries transiting crude hydrocarbons could later join such an agreement.
On the whole, Russia and the EU need more openness and predictability with regard to their national energy strategies, as well as the joint development of common rules and institutions to regulate the energy market. All of this will ultimately and undoubtedly contribute to stronger global energy security and a higher level of transparency and predictability in the global energy market, as it will balance the interests of all parties—energy resource consumers, producers, and transit countries. The implementation of these and other sensible proposals will make it possible to reach compromises on other similar complex issues concerning the sustainable development of the global economy as well as modern civilization.
Is There a Real Alternative to Oil Today?
Along with the problems of the world oil market, one of the most popular subjects discussed in the Russian and foreign media has become the possibility of a rapid reorientation of the world economy toward alternative forms of fuel based on nonfossil raw materials, in particular, the broad use of biofuel. There is no dispute that the development of renewable sources of energy simultaneously reduces the use of conventional sources of energy, and accordingly reduces the release of pollutants into the atmosphere. For example, adding only 10% bioethanol to common gasoline reduces atmospheric emissions from automobiles by 30–50%.
Of late, many different countries of the world are pinning great hopes on alternative sources of energy. Today, many European countries facing an impending energy deficiency have turned to developing an alternative energy system, betting on energy from the sun, wind, water, waves, and tides, as well as the production of biofuel. On the whole, the contribution of alternative energy sources in various European countries ranges from 5% to 10%, although by 2020 the European Union plans to increase its share to 20%, and to 40% by 2030. Japan hopes to produce 1.35% of its electricity from alternative energy sources by 2010, not counting geothermal stations or industrial hydroelectric plants. Egypt expects alternative energy sources to account for 14% by 2020. And so forth.
In 2006, US President George Bush’s ambitious national program “20 by 2010” set the country’s energy policy the goal of reducing automotive gasoline consumption 20% by 2010. Accompanying this was the loud slogan: “Big corn will replace big oil.” And earlier, in 2005, the US Congress passed the Energy Policy Act, which set the goal of increasing bioethanol production from 4 billion gallons in 2006 to 7.5 billion gallons in 2012. Such radical measures are explained by the necessity of reducing dependence on crude hydrocarbon imports and concern for the environment. In October 2007, the US Department of Energy published a progress report on the 20-year plan for strategic scientific research aimed at developing conventional and alternative energy. The original plan, dated 2003, listed 28 key types of research and set priorities and deadlines. The report said that bioenergy research was aimed at studying efficient ways of converting cellulose and other types of plant biomass into sugar, the primary feedstock for biofuel. Since January 2005, the number of operational ethanol production plants in the US has increased from 81 to 129, and another 80 are under construction.