The Southern Gas Corridor

The end of Russian Hegemony or an expensive distraction?

In 1990 the Cold War ended, the Iron Curtain fell and former Soviet satellites dashed towards Europe and the US to learn from them and emulate their apparent success. Nearing the end of 2012 and things look slightly different. Russia is re-emerging as an economic and political power, bolstered by its vast energy reserves and the high global price of oil and gas, whilst the EU remains in the doldrums of economic stagnation and the US recovery teeters on the edge of its self-created “Fiscal cliff”.

But despite this current state of affairs, many former Soviet Satellites have boomed since the end of the cold war and with their ascension into the EU, particular states like Poland whose growth rates have remained high and its political clout has grown have boomed. Romania, Hungary, Bulgaria are also former Russian satellites that are on the ascendance too, with an increasingly educated populace, strong national work ethics and cost competitive environments for manufacturing. Yet despite weaknesses in governance and the power of organised crimes in many of these states, it is Energy security, or perhaps more appropriately, independence from Russian gas that garners the greatest concern in these states about their future prospects.

For the last decade Russia has utilised its gas hegemony in Europe to economically pressure and cajole its former satellites and when that has failed, such as the deployment of US missile defence systems in Romania, Russia has punished these states with crippling energy prices. Little wonder therefore why the dream of the “Southern Gas Corridor”, to break Russia’s seeming stranglehold over the regions gas supplies, has such a strong appeal.

The Shah Deniz Stage II Consortium

The Southern Gas corridor plan that exists today began life as a plan by a consortium of Eastern European nations, with EU and US endorsement, to bring gas from Azerbaijan’s largest gas field, Shah Deniz Stage II, to Europe via Turkey. This idea, originally conceptualised in the planned “Nabucco Project” has subsequently faced several alterations and has now broken up into 3 pipeline projects.

The main pipeline route from Shah Deniz to Europe will be provided by the Trans-Anatolian-Pipeline or TANAP that will bring the gas from Turkey’s border with Georgia through to Turkey’s European border. From there the Shah Deniz consortium, led by BP, will decide in spring 2013 whether to award the next stage to Nabucco West or its rival the Trans-Adriatic-Pipeline (TAP).

 Nabucco West

Nabucco West planned route.

 TAP

 

 

 

 

 

Trans-Adriatic-Pipeline planned route.

South Stream and regional politicking:

Of course Russia has not exactly been blind to these plans and has been developing its own pipeline route called “South Stream” which aims to undermine those states that currently provide the transit point for Russian gas into Europe, most notably Ukraine. For Russia the southern gas route provides an opportunity for diversifying its supplies into Europe, thus weakening the transit states it has been traditionally forced to negotiate with whilst also increasing Russia’s hegemony of gas supplies into the region.

The existence therefore of two fundamentally competing visions for the Southern Gas Corridor, one Russian, one European, has inevitably stimulated intense political manoeuvring by the transit states, perhaps most notably Bulgaria. For those states within Eastern Europe both projects represent inherent risks and potential pitfalls which has required careful consideration. To ignore or refuse to cooperate with Gaprom on the Russian South Stream project may leave states in Eastern Europe facing potential price hikes in their gas imports, which for many states may be as much as 80% of their total gas which is sourced from Russia. Yet to endorse South Stream at the expense of Nabucco West (and to a significantly smaller extent TAP), will continue to leave Russia in control of Eastern Europe’s energy supplies.

Thus the planned transit states of Eastern Europe are all seemingly playing a double game. They have mostly endorsed both South Steam and its rival Nabucco West and have made public statements in support of both projects.

What happens next and why is the Southern Gas Corridor a “Distraction”?

The title of this post alluded to the author’s personal belief that the Southern Gas Corridor is a distraction and indeed this author does believe that the Southern Gas Corridor is a distraction from the more effective options available to provide Eastern Europe with the Energy security it craves.

The flaws of Shah Deniz:

Most significantly in the mythology that surrounds TANAP, TAP and Nabucco West is the unspoken acceptance that Shah Deniz Stage II can supply meaningful levels of gas to Europe at a cost efficient level for the medium to long term. This would seem not only an absurd assumption when we consider that the Nabucco West pipeline combined with TANAP would require in excess of 3,500km’s of pipeline to be laid (which appears the most logical choice by the Shah Deniz Consortium), which in turn requires this vast pipeline to be secure from attacks over 2,000km’s of mountainous Turkish hinterland as well as the security of the pipelines within Georgia and Azerbajan.

Furthermore, the real gas providers in the region, namely northern Iraq and Turkmenistan (and realistically Iran), are all unfeasible in the current geo-political environment, yet offer the only real long term gas reserves at a price competitive level to make the European Southern Gas corridor viable.

The Russian bluff – sourcing South Stream:

Whilst I have criticized the viability of the EU endorsed TANAP –TAP-Nabucco West vision, the Russian South Stream project is even more questionable. Whilst the old adage of beware a Greek bearing gifts is an old cliché, the idea that Russia is able to source 63 billion cubic meters of gas to Europe via South Stream by 2018, after completing the pipeline (4 pipes together) under the Black sea and across over 3,000km’s of territory by 2015 seems very much like an empty present.

Not only has Gazprom not yet identified where it will source this vast quantity of gas that it intends to supply, it also has stated that it will personally cover the cost of creating the vast majority of the pipeline. Again it seems questionable that Gazprom would invest such a vast sum into a project with so many as yet unresolved variables.

The fundamental issue – the myth of $100 a barrel:

Perhaps the single greatest flaw that underpins the Southern Gas Corridor is the belief that the oil price will remain above $100 per barrel and with it, the price of natural gas will remain high too. To maintain oil at $100 a barrel or greater will require some very intense discussions and negotiations between OPEC and other oil and gas hubs in the future as Europe increases its usage of Renewable energy, the US moves towards Shale gas.

At its heart the dilemma is that many oil sources are only viable at $100 per barrel to develop at a profitable level, yet if demand falls then either the price must decline or the supply must decline, both factors which will reduce the state revenues that OPEC members have traditionally relied above in order to suppress internal dissent and exert political power on the international stage.

With the global shipping industry moving towards eco-ship designs, “cold ironing” and gas driven designs, the airline industry actively pursuing reduced fuel sources and the increasing use of alternative fuel sources in automobiles, cane sugar in Brazil, a core market for oil products has a clearly declining demand trajectory.

Thus it seems unlikely in the medium to long term that either pipeline project, whether Russian or EU backed will live up it its much hyped expectations. Rather, the Southern gas corridor will become just another small part of the European energy supply network. Not insignificant, but perhaps not the anticipated game changer.

If the Southern Gas Corridor is a distraction, then what?

The key issue that the EU seems consistently unable to address is that of a European wide energy grid. For Europe, a totally integrated Energy grid would be able to deliver multiple immediate benefits with relatively few drawbacks:

  1. The construction of the infrastructure needed for a European energy grid would help to stimulate economic growth.
  2. A Europe wide grid would reduce wastage within national grid systems by allowing surplus energy from one state to be moved to another.
  3. Greater regional integration and cooperation as all states become more closely intertwined.
  4. A more consistent energy prize for all European citizens and states.
  5. A significant reduction in the dependency of any European energy state on one energy source.
  6. Greater political independence from Russia.

Whether people like the idea of greater European integration or not, it is inevitable that the future energy security of Europe will not be secured by grand visions like the Southern Gas Corridor but rather by integrating those networks that are already in place. That is the true answer and path to Europe’s energy security.

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Who Moves Next?

Is Israel prepared for the consequences of Status Quo?

As an outsider who has had the privilege to work and study for brief periods in Israel and also count amongst my friends some truly loving and kind Israeli citizens, it is a country that makes for a fascinating read. Formed in 1948 following the conflict that engulfed the British withdrawal from British Mandate Palestine, there is scarcely a more controversial state that exists in the world today. It has one of the most educated populations in the developed world, a young and entrepreneurial people, whose technological designs have extended from creating the world’s first online firewall to supplying drone technology to Turkey and Azerbaijan amongst others.

Yet like so many places in the world today, a country with so many wonderful resources is at risk of destroying itself from the inside by its refusal to make the tough and necessary decisions in respect of the Palestinian people. Few conflicts have been so protracted in the world today, and even fewer look still so far from resolution, yet looking at the history it’s not hard to see why it is so protracted.

Without covering ground that so many others have been over before though, and avoiding the always present danger to cite history in Israel/Palestine discussions, I want to suggest where the current trajectory of Israel/ Palestine will go next, (assuming there is no major breakthrough in peace talks in the short/medium term (5-10 years) ).

The Status Quo:

Contrary to the opinion which was once so prevalent amongst Israel/Palestine watchers, the demographic balance has swung away from a Palestinian majority in recent years and this key fact lies at the heart of why Israel cannot afford the status Quo. The explosion in birth rates of the settler population of Israel and the Haredi Jewish community will now ensure that Israel will, for the current term, retain a Jewish majority. This change in demographic fortunes comes at a political price however.

The Haredi population and that of the settler community represent two existential challenges to Jewish policy makers which will only exacerbate in the longer term.  The first is the settler’s unwillingness to exchange any land for peace and the second is the Haredi’s unwillingness to work or serve in the army, whilst living off the state. Simply put. The growth of the Settler and Haredi groups will lead to a more Conservative Israeli State that will be unwilling to negotiate on most of the Palestinian’s key terms and yet in tandem the state will have less pecuniary and human resources to utilise in the maintenance of the necessary state apparatus to maintain the status quo.

This change therefore represents challenges and opportunities therefore to various actors within the peace process. For the immediate to short term, it strengthens the hand of more nationalistic, to some extremist, parties. For Hamas and Likud, the current population growth dynamics give Likud a larger electoral base to enable the party to adopt more radical measures, which in turn plays into the Hamas’ narrative that the Israeli’s cannot be negotiated with. In contrast it is the left and centrist Israeli parties like the Labour Party and Fatah in the Palestinian Authority who are left seemingly out of touch with their electorate and the desires of the people.

Making predictions:

The question then is what happens next? And in tandem, what moves are there still available?

The Israeli’s:

For the short term it seems unlikely that the Israeli right, led most likely by Likud, will be politically outmanoeuvred by any moderate or peace advocacy movement. The Arab spring and the instability among Israel’s borders, perhaps now more unstable than at any time since arguably post 1973, will ensure that a highly militarised populace will continue to desire a strong military, fortress-esque mentality.

The medium to long term however is where I would predict the most interesting changes to occur, and by that I mean at least 5 and perhaps closer to 10 years. The Israeli protest movements over affordable housing in 2012 showed the clear frustrations amongst young Israelis over the social status quo, whilst the number of young Israelis who choose to emigrate is continuing to rise. The next generation of Israelis are increasingly deciding that whilst Israel may provide them with a great education, it is increasingly unattractive to raise a family in a country where rockets can reach every city and few people can afford a home, even with a mortgage, before 30.

The Medium term, (which in turn will affect what room to manoeuvre is left long term), has two apparent paths for Israel:

  1. A grass-roots campaign to restore the peace process but along different parameters.
  2. A continuing fortress mentality and growing conservative culture in society that will lead to a greater emigration of liberal, atheistic and/or agnostic Israelis.

The peace process parameters as set in the 1990’s cannot work today because quite simply Israel is not able to remove 500,000 people from the West Bank with a population of 6 million itself. The question therefore is whether those within Israel today will push for a change in the status quo or not. If the country cannot negotiate a resolution to the conflict then gradually you will see a migration of the best and brightest from the state. As this drain of talent continues the Israelis state will face two major long term issues that will further inhibit peace: a smaller electoral populace in favour of peace and a significant decline in the human and materiel resources of the Israeli state to keep its Security apparatus intact.

The Palestinian’s:

It is often said that there is very little that the Palestinian people are able to do to move the conflict away from the status quo. Militarily they are unable to seriously threaten the IDF and economically they are totally dependent on Israeli government cooperation and foreign aid, whilst politically the US veto has guarded Israel at the UN.

Yet Palestinians themselves do still have two big splits to consider in their medium to long term future:

  1. Continue to support violence and acts of terrorism as forms of resistance.
  2. Utilise the changing global status quo, their new UN position and the gradual change in US politics to reverse their relative power position with Israel internationally.

What do I mean by the last point? If Israel continues to become more radical and uncompromising, more and more of its major backers, certainly in Europe where pro-Palestinian sentiment is high, will refuse to support Israel’s actions. In addition the US is not the firm ally it once was to Israel and with the US pivot to Asia underway, the importance of Israel will surely diminish in US grand strategy.

There are other reasons for the US change though, particularly due to the growth of the US Hispanic population. Those in the US who were once described as “WhiteAngloSaxonProtestant’s” are now on the decline and as the Israelis’ continue to pursue an agenda which receives greater international ire, the PA could easily manoeuvre the US into a situation where Israel is facing war crimes charges in the ICJ without EU support. This scenario has been further developed by the US explosion in Shale Gas which has dramatically reduced the US demand for Middle Eastern Oil and Gas.

This final point, the development of Shale gas, is perhaps most significant and its repercussions will continue to reverberate throughout the global energy market and re-adjust the international geopolitical-economic balance. With the US less responsive to the troubles in the Middle East whilst Chinese, Indian and other developing economies move into the area to secure energy sources for the future needs, the regional-political balance will be re-calibrated, most likely to the expense of Israel.

Concluding remarks and Concerns:

To quote Selina Kyle from Batman (if I may!), “There’s a storm coming” for Israel, sadly it seems that its leaders are either unable to see it or more worryingly, unable to address it. For a people who endured such suffering and hardship in their history, it is simply madness that the Israeli’s are unable to see that their actions do not buy them security, they weaken it.

On the construction of Israel’s Security Fence in the West Bank an Israeli High court judge was quoted as saying that “High Fences makes good neighbors”. As anyone from Northern Ireland can vouch, separating people may reduce violence but it certainly does not foster respect or trust. Perhaps the two most important, missing, aspects in resolving this conflict.

Israel faces one of the most significant choices in its existence in the next 5-10 years. It cannot assume US support unconditionally as it once could, its allies in Europe and elsewhere are fading. The arab spring has emboldened the nations surrounding Israel to reject the status quo arrangements they despised, both domestically and externally, whilst the increasing military sophistication of Hamas and Hezbollah arsenal now threatens every Israeli town and city.

With a population that increasingly will not negotiate on the core, substantive issues, that will not work or serve in the army, Israel has a unique window to negotiate a final settlement to this conflict. For all that people have criticized the Israeli leadership of the political right for being radical fundamentalists, unwilling to compromise, it was Ariel Sharon that withdrew settlers from Gaza and Ehud Barack, one of Israel’s most decorated soldiers, that took Israel to camp david.

Israel has often shown its ability to innovate and surprise its watchers. It must do so again and soon. The future of Israel and its relationship with the wider world is on the line, its Israel’s move or Israel’s fall.

From a kind Palestinian gentleman living in Israel.
From a kind Palestinian gentleman living in Israel.

A Humble opinion – an Introduction to this Blog

The Politics of the 21st Century: Energy Security and sustainability.

When people look at history and try to define key themes that shaped the relationships of states, non-state actors and the lives of individuals at that time, then surely the history of the 21st century will have Energy Security at the heart of their analysis. The explosion in economic development across the formerly “Third World” has seen nations like China take 1 billion people out of poverty in little over a decade and seen the BRIC nations becoming increasingly assertive in the international economic and political arena. But at the heart of the largest revolution in global living standards that arguably the world has never seen before, lies the question of Sustainability.

The modern world and modern lifestyles have become increasingly dependent on energy in all aspects. Whether this is the increasing use of IT and mechanisation, the greater mobility of people by train, plane, automobiles and ships, the ability of businesses to outsource all manner of business functions to nations across the globe or even in some of the basic areas like food production and accessing clean fresh water, the question of how we sustain our Energy requirements arises. But sustainability has developed as a concept now far beyond the narrowly constrained definition that Thomas Malthus and his subsequently advocates at the Club of Rome historically articulated. Sustainability is now about Climate change and economics too.

The oft quoted line by Malthusians is that the world as it stands does not have the resources to sustain its current lifestyle. Whether this is by looking at the resources needed to give everyone in the globe a European lifestyle, or even more recently, even the lifestyle of the average Chinese citizen is seen as an unsustainable lifestyle to function as a global model.

What makes this unbearable however is that it would appear, at least on our current trajectory, that the followers of Malthus will be proven right in their assertions, but not by the factors that they believe do make the current global development “unsustainable”. As is often the case in history it is not that the human race does not have the answers or solutions to address the problems it faces, rather, it is the inability of the collective body of global key decision makers total inability to act in a purely rational manner where their collective aim is the global benefit of all, not some.

What this blog will try to do is to look at some things, just a few, where we as a global populace can do better. Where there are ways to think more rationally in the greater interest of all actors involved and not just the few and to try and concentrate on how in certain fields of this authors knowledge, such as Energy, that we Must do better.