Putin and Schroeder get tough with Latvia

by Boris Yunanov

The political elites in Poland and the Baltic States were shocked to hear about the Russian-German agreement on the Vyborg-Greifswald gas pipeline to be built under the Baltic Sea. They see the agreement as an attempt to recarve Europe's political landscape.
Although more a while has passed since the signing of the "Putin-Schroeder pact," as the project is labelled by a Polish magazine, there is no end of disparaging statements from the leaders of the Baltic States.

For example, Latvian President Vaira Vike-Freiberga admonishes: "This project will be more expensive by one-third [as regards transportation costs]. If it is economically unprofitable to such an extent, then it is clear that this is a political decision."
Russian Senator Mikhail Margelov responded by pointing to "unreliable nations" that are seeking to capitalize on the transit of Russian gas across their territories; he insists that the project is economically gainful for Russia and Germany.

A costly project
The stated cost of the Vyborg-Greifswald project is $ 5 bn, and it could increase further. Roland Gotz, an expert with the Berlin Institute of International Relations and Security, puts the cost at $ 12 bn, saying that the gas pipeline "will most probably reach Britain some day."
When construction of the pipeline is completed in 2010, it will carry around 55 bn cm of gas per year. Evidently, the project will not entirely cover Western Europe's gas needs, which have been growing from year to year. In 2004, Russian utility Gazprom supplied the Western European market with about 140 bn cm of gas. Roland Gotz says the market's needs over the next decade will come to 500 bn cm a year.

In the search for fuel, Western Europe puts its main stake on Russia as a supplier. The main alternative suppliers, Norway and Britain, will quit the market in 10 to 15 years owing to the depletion of their reserves, analysts have predicted.
What other alternative remains? There is a high-cost and not quite reliable gas pipeline from Algeria (with reserves to last at least until 2051). Then there is the global gas supplier Iran (with proven reserves enough to last until 2083).

Chancellor Gerhard Schroeder, whose country is suffering from record high gasoline prices, is well aware that these prices will not fall considerably in the near future. Germany and other countries have no choice but to lessen their dependence on world oil supplies by switching to other sources of energy.
For the energy security of Germany, the backbone of the European economy, Russian gas is the most reliable option. However, deciding on the route for supplying the gas is just half of the work. The scheme for laying the pipeline is equally important.

The Baltic choice
The plan for a Russia-Europe gas pipeline was drawn up many years ago at the Gas Research Institutes in Moscow and St Petersburg. Out of all the versions, the most profitable was held to be the branch lines passing through Latvia. Their main advantage was the possibility to use underground storage facilities ensuring stable gas supplies.
In winter, when consumption increases approximately five-fold, the capacities of the gas mains are not enough to meet demand. Extra supplies from storage facilities in wintertime allow larger quantities of gas to be exported just when it is needed most.

In Latvia, with its unique geological relief of underground layers, which allow the storing of great volumes of gas, the largest underground storage space is found -- in Incukalns and Dobele. Together with other existing storage facilities, the storage capacities in these two places total 50 bn cm of gas.
With 70 bn cm pumped to Europe a year, there is no better buffer storage facilities than Latvia's. In winter, the storage facility in Incukalns provides gas not only to Latvia and Estonia, but also to northwest Russia, which lacks storage space in Nevsky and Gatchina.

The Baltic option has some other irrefutable advantages. Pipeline laying on land is cheaper than on the seafloor because on land it is easier to build compressor stations all along the route (for every 500 km of pipeline, at least one station is needed). Moreover, the road to Europe through Latvia is the shortest for Russian gas. In this case, it would be possible to use the existing gas branch lines from Izborsk to Liepaja, from where the line would run to Germany on the seafloor.
The distance from Vyborg to Greifswald is 1,200 km; the distance from Liepaja is less than half as much. Moreover, such a branch line would not require a transit compressor station. In short, the economic benefits are obvious. Thus, the main problems here seem to be political.

Blocked
Who is to blame for the present impasse? Is it only Moscow, for which the Baltic Sea pipeline project is a trump card it can play in the political dispute with its capricious neighbours?
Says Lyudmila Pribylskaya, editor of the Riga magazine Biznes-Klass: "Given normal political relations between Moscow and Riga, the gas pipeline issue could be resolved within days. Relations between the gas companies are good: Russia's Gazprom and Itera hold the controlling share package in Latvijas Gaze; besides, Latvia, unlike Ukraine, is a bona fide partner who will fulfil all his contract obligations".

It seems that the problem is that the political elites in Latvia have simply "passed over" the gas issue. Assuming the "big eastern neighbour" is an embarrassing partner, why can't the Baltic States raise the issue of gas transit with the Germans?
The only Latvian leader who did so in talks with Schroeder was Prime Minister Indulis Emsis. True, this move came too late -- Schroeder had already reached an accord with Putin on the "northern project."

The project's opponents had been placing their bets on the September 18 elections in Germany. Their reasoning was Schroeder would lose the elections to Christian Democratic Union leader Angela Merkel, who would review Berlin's position and opt for laying a gas pipeline across the Baltic countries and Poland.
Alas, a more pragmatic option has not come to anyone's mind: To use the situation surrounding the gas pipeline as a reason for establishing new, constructive relations with Moscow. The natural gas belongs to Russia after all.