Pipeliners

April 9, 2008 - International Herald Tribune by Judy Dempsey - BERLIN: Gazprom of Russia, the world's largest producer of natural gas, and Eni of Italy are preparing to join forces to pipe natural gas from Libya across the Mediterranean to Southern Europe. The ambitious deal would enable Russia to diversify its energy sources but also further increase Europe's dependence on Gazprom, which is state-controlled. After talks between Gazprom and Eni held last week in the wooded surroundings of Novo-Ogaryovo near Moscow, the official residence of President Vladimir Putin, both sides agreed in principle to work together in Libya. Paolo Scaroni, chief executive of Eni, said the deal with Gazprom would involve "the swap of assets outside of Russia." A statement issued by both sides after the meeting referred to "the realization of upstream joint projects in third countries." Upstream refers to oil exploration and production. Eni officials confirmed that these projects referred specifically to Libya. Some analysts describe Gazprom's moves in North Africa as a "pincer" attack on Europe. They say if Gazprom succeeds in Libya and in Algeria, where it is already competing for contracts, it could end up dominating the supply routes to Southern Europe. That would be in addition to its current ambitions in southeastern Europe and parts of Northern Europe, where Gazprom is planning to build an elaborate network of new natural gas pipelines. "Europe is sleeping as Gazprom makes every effort to become a global player and increase its grip on Europe," said Igor Tomberg, an energy expert at the Institute of World Economy and International Relations in Moscow. "It is very important what Gazprom is doing in Libya and other parts of North Africa," he said. "By diversifying its supplies and gaining even more access to European markets, geopolitically, it is surrounding Europe." The European Commission, the European Union's executive body, says it has been monitoring Gazprom's growing interests in North Africa. Andris Pielbags, the EU's energy commissioner, recently said he was concerned that Gazprom might try to create a natural gas cartel that would involve Algeria, where the Russian company is also seeking to win production contracts. Algeria supplies 13 percent of Europe's total natural gas needs. Russia already supplies more than a quarter of Western Europe's energy needs, and nearly 80 percent of Russia's natural gas exports are sold to Europe. But most current pipelines pass through intermediate countries like Ukraine, Poland and Turkey, which charge transit fees. The new Nord Stream and South Stream pipelines being built on the beds of the Baltic and Black Seas are aimed at reducing Russia's dependence on those transit countries. The South Stream pipeline in particular will compete directly with one backed by the EU, known as the Nabucco pipeline. Nabucco is designed to reduce the EU's dependence on Gazprom and Russia by having natural gas sent from Azerbaijan via Turkey across to Europe. But construction has yet to start and supply contracts to feed the pipeline have yet to be signed. Indeed, as talks over Nabucco drag on, several of the EU's 27 member states, particularly Italy but also Germany, Hungary, Bulgaria and Austria, continue to strike their own separate contracts with Gazprom. Such contracts have only weakened the EU's hand in devising a strategy for diversification or dealing with Russia. "As Nabucco shows, the EU has no serious and united energy policy," said Kevin Rosner, energy analyst at the independent Institute for the Analysis on Global Security in Washington. For some countries, including Italy, and most East European countries, the dependence on Russia for energy supplies can be as high a 90 percent. "Europe has few cards now to play," Tomberg, the energy expert in Moscow, said. "Russia wants to get the markets in Europe, like any big company. That is what it will try to do by establishing itself in Libya as well." Gazprom officials said the company was seeking new sources of energy and was behaving like any other big energy company. Libya has the fourth-largest natural gas reserves in Africa after Algeria, Nigeria and Egypt Gazprom bought exploration and development licenses last year in Libya and has said it plans to invest $300 million in the project over the next year. As it does so, Gazprom is getting help from Eni. Along with German and British energy companies, Eni rushed into Libya soon after Libya abandoned its nuclear, chemical and biological weapons program in 2003 and the United States lifted sanctions. Eni already holds a 50 percent stake in the Greenstream pipeline in Libya, which has an annual capacity of eight billion cubic meters, or 280 billion cubic feet. Eni also holds a stake in a liquefied natural gas plant in Libya, for transporting natural gas by ship, and a 33.3 percent stake in the Elephant oil field. Last year, the company said it had agreed to expand its contracts for the production and export of Libyan oil and natural gas for next 25 years. At the same time, Eni has been developing a close relationship with Gazprom. The two companies in 2006 forged a strategic partnership by agreeing to an asset swap. Eni entered the production, or upstream, business in Russia, a rare privilege for a foreign company, in return for Gazprom's entering the downstream, or retailing, distribution and transportation network in Italy. Eni also holds a 50 percent stake in the Blue Stream pipeline, which Gazprom built under the Black Sea a few years ago, and is involved in Gazprom's new South Stream project.