Oil, Gas and more!? Economic Relations between Russia and the EU

By Elisabeth Hellenbroich

On September 8^th Axel Piur, a lawyer and financial auditor, was invited guest speaker at an event of HERUS ( Federal State of  Hesse and Russian Federation association for cultural exchange and humanitarian assistance) in Wiesbaden. The topic of his presentation was: Oil, gas and more?! Economic relations between Russia and the EU.  In his speech Axel Piur reflected a basic feeling, which despite the Ukraine conflict in the past two years and tough economic sanctions is expressed by a growing number of strategic farsighted thinkers  and economic policy makers: What they commonly reflect is that in light of the gigantic global challenges and in order to solve the explosive geostrategic crisis and bring the German –Russian cooperation on a qualitatively new level, there is urgent need to involve Russia in the search for solutions of the problems.

Axel Piur has specialized since the 1990ies on energy law and is well informed about Russia. Despite the devastating consequences which the EU economic sanctions had on Russia and in particular on the German-Russian trade, Piur assumes that the Russian energy company Gazprom is interested in getting more involved on the European gas market. This concerns not only the supply of gas but also the desire of the Russian energy company to further invest in the retail business on the European energy market. A positive signal concerning future energy cooperation, was according to Piur, the agreement concluded September 4^th between the Russian energy giant Gazprom and the German chemical company BASF. The German Daily Frankfurter Allgemeine Zeitung (FAZ) reported September 4^th that the multibillion Dollar deal between Gazprom and BASF, which due to difficult political circumstances had been cancelled end of 2014, has finally been concluded. “Gazprom receives among others  a majority share in Germany’s second largest gas trading company Wingas; in return BASF will become co-owner of two Russian gas fields”, the FAZ reported. Even if the political environment has not changed very much since the outbreak of the Ukraine crisis, the conviction has gained ground, as FAZ stated, that Russian gas is necessary for the supply of Europe. The commentary noted that “BASF was pleased to jointly explore natural gas and gas condensate with its partner Gazprom in Western Siberia.” This applies in particular for the Western Siberian natural gas filed Urengoi, which with 8.1 trillion cubic meters is one of the largest natural gas deposits in the world.

According to Piur Gazprom and BASF together with the other members of the Nord Stream pipeline consortium agreed on joint shares in the joint venture for the enlargement of the Baltic Sea gas pipeline. Thus Gazprom will hold a 51% share in the project company E.ON, Shell, the Austrian OMV Group and BASF will hold each 10% and the French Energy supplier Engie will have 9% shares in the project. Piur referred to the announcement which Gazprom made in June at the St. Petersburg Economic Forum. Gazprom had stated that they wanted to raise the capacity of Nord Stream to a total of 110 billion cubic meters of gas annually. Accordingly two additional lines should be constructed through the Baltic Sea.

The first Baltic Sea pipeline went into operation in 2012, as Piur could show with the help of graphs. He qualified the recent agreement between BASF and Gazprom as a “positive signal” and stressed that for him personally “a stone fell from my heart.” And that the recent deal illustrates, that the Russian energy business with Europe is continuing.

European energy supply, Germany and Russia

Having become operational in the year 2012, the 1200 km long Nord Stream (Baltic Sea) pipeline runs from Vyborg (near St. Petersburg) to Greifswald, Germany. It is an offshore, sub –sea gas pipeline running through the Baltic Sea, with its route passing other countries -including Sweden, Finland and Denmark. According to Piur Sweden was one of the countries which had blocked the Baltic Sea pipeline project, given its fears of the Russian neighbour. He reported that around one third of the gas consumed in Germany is imported by Russia; another part comes from Norway and another one from the Netherlands. Gazprom wants to strengthen its position on the European gas market, Piur stated; he referred to the “South Pipeline Project” which has been planned by Russia since 2009 and for which initial work had already begun. In December last year, on orders of Russian President Putin, the entire project got cancelled. It is an ambitious energy project with the help of which Russia wanted to diversify its natural gas supplies to Europe, in particular to South- and South Eastern Europe. Connected to the project there were joint ventures for the offshore part of the pipeline, including Gazprom(50%) ; the Italian energy company ENI (20%) ; the French energy company EDF(15%) and the German Company Wintershall, a BASF subsidiary with 15%. The cost of the project was estimated at 63 Billion Euro. Due to the crisis in Ukraine and growing pressure coming from the EU, the project got stopped on orders by President Putin in December 2014.

There were many reasons for the cancellation of the project, Piur stated: First there was the Ukraine crisis and the concern that with its new project Russia would bypass the Ukraine as transit country. Strong objections had also been raised from the side of the EU. The EU had made clear that they wanted a strict separation between “suppliers” and “pipelines” and that Gazprom was not to get control over the pipelines crossing EU territory. Due to pressure from the EU, Bulgaria finally got out of the project. What is now under discussion, Piur reported, is the project “Turkish Stream”. It is an international project involving a gas pipeline with 4 tubes running at the bottom of the Black Sea. The entire pipeline is supposed to be 1100 km long and from the Turkish/ Greek border a distribution network should go into the European countries. With this project Turkey would potentially gain more strategic weight.

Within the EU Germany is the most important importer of Russian gas and oil and therefore it needs to have good cooperation with Russia, Piur stated. The energy mix for Germany is 35% Russian oil and 36% Russian gas. In turn Germany exports machines, motor vehicles and chemical products to Russia. But in comparison to all other EU partners Germany has been most severely hit by the EU economic sanctions. It is confronted with 30% losses in exports, in comparison to Italy which only lost 9%. Most strongly hit by the economic sanctions is German agriculture, where alone 150.000 work places are endangered, while 20.000 work places are endangered in mechanical engineering. This is true despite the fact that Russia only constitutes 4-5% of the total German exports. Piur pointed out that in addition to oil and gas, there are also other raw materials in Russia which Russia exports, including nickel, copper as well as diamonds.

He called for an open attitude towards Russia and quoted at the end from a speech which had been given by the well-known Russian writer Fyodor Dostoyevsky in the year 1880 in Moscow, at the occasion of the unveiling of the Pushkin monument. In this speech Dostoyevsky had urged our “European brothers” not to look arrogantly at Russia: “If he (Pushkin) had lived longer … He could have perhaps explained them what is really the truthfulness behind all our endeavors; and they would begin to understand us better than they do now; they would begin to guess who we are and no more look upon us with so much mistrust and arrogance.”

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