CRIFES Working Paper Series
The Struggle for Pipelines: Gazprom’s Attempts at Strategic Expansion in the “Near Abroad” Andrey Vavilov and Georgy Trofimov
September 2013
603 Kern Building, The Pennsylvania State University, University Park, PA 16802 www.crifes.edu [email protected] {CN}Chapter 2{/CN}
{CT}The Struggle for Pipelines: Gazprom’s Attempts at Strategic Expansion in the “Near
Abroad”{/CT}
{AU}Andrei Vavilov and Georgy Trofimov{/AU}
Building a pan-European energy empire required Gazprom’s expansion into Russia’s “near
abroad”---the former Soviet republics besides Russia, often called “formerly Soviet countries,”
or FSCs. This diverse group comprises the Baltic states (Estonia, Latvia, and Lithuania), the
eastern European states (Ukraine, Belarus, Moldova), the states of the trans-Caucasus (Armenia,
Azerbaijan, and Georgia), and the Central Asian states (Kazakhstan, Kirgizia, Tajikistan,
Turkmenistan, Uzbekistan). After the Soviet collapse in 1991, Gazprom lost control over energy
assets in these countries: the new independent states got control of the extensive gas
transportation infrastructure within their borders. This infrastructure served not only domestic
gas consumption and distribution but also the transit of Russian gas export to Europe. Three
Central Asian FSCs---Turkmenistan, Kazakhstan, and Uzbekistan---also possessed in their
territories significant gas fields that were of strategic importance to Gazprom because they
served as reserves to make up for falling gas production in Russia itself. Ukraine and Azerbaijan
also are gas producers. In the first decade of the twenty-first century, Gazprom made several
concerted attempts to restore its control of the gas reserves, infrastructure, and markets in all of
these countries.
It was crucial for Gazprom to maintain control of gas transportation routes linking the
Russian gas network with lucrative downstream European markets, on the one hand, and with
the vast upstream gas reserves in Central Asia, on the other. Downstream acquisitions in Europe
1
(discussed in chapter 1) would not make much sense without midstream integration aimed at
getting control of gas transportation infrastructure in the gas transit states of Ukraine, Belarus,
and Moldova and without upstream integration to ensure control over the resource base in
Central Asia. Unfortunately, Gazprom’s efforts to implement this strategy were basically
unsuccessful; in this chapter we explain why.
To restore control over export pipelines, Gazprom implemented an “active” foreign
energy policy: one combining the use of various tools of diplomacy, political lobbying for
projects, price leverage and threats of cutoffs, blackmailing in negotiations, and other types of
pressure. After the breakup of the Soviet Union, in 1991, Gazprom’s attempts to integrate the gas
infrastructure were based on the company’s dominant position in the “lock-in” trade relations
that were a holdover from the centrally managed Soviet gas industry. This lock-in scenario was
maintained in the two decades following 1991 because the pipeline network did not offer any
alternative options for the FSCs. Gazprom could have taken advantage of its monopoly power in
price setting---which was based on intergovernmental bilateral agreements---to extract far
greater profits from these countries, but for a long time it did not do so. Instead of extracting
monopoly surplus from trade, Gazprom in effect indirectly subsidized its FSC trade partners
through low non-market prices, which for most FSC countries were way below standard
European levels net of transportation costs.
Since the time of Peter the Great, Russian rulers have viewed the neighboring countries
as the sphere of Russian political influence. The post-Communist political leaders of Russia
continued to view the FSCs---now independent states---as if they were still all parts of an empire
that no longer existed. Consequently, for a long time the energy relations of Russia and the FSCs
were not strongly market-oriented and were in many cases policy-motivated. But these types of
relationships did not make sense for Gazprom as a commercial entity, because it meant forgoing
the potential benefits from a market-based trade with the FSCs. Gazprom’s forgone profits were
2
considerable because the FSCs are an important market---some of these countries, for example,
Ukraine and Belarus---have Russian gas imports comparable to those of Germany and Italy.
This situation began to change in the second half of the 2000s, as the Russian government
gave a higher priority to economic benefits from gas trade. Gazprom was trying to bring gas
contracts with neighboring countries into closer alignment with the European model, but it was a
difficult task because of conflicting goals. The transition to market prices, reasonable per se,
proved to be chaotic because Gazprom’s actions were motivated by a mixture of commercial and
strategic goals and political intrigues. This incompatibility of motives in Gazprom’s energy
policy led to “gas conflicts” with Belarus and Ukraine that caused a severe gas crisis in central
and southeastern Europe in January 2009 (discussed in more detail in chapter 4). The transition
to market prices also led to a radical change in Gazprom’s relations with gas producers in
Central Asia, where the Russian giant had lost its monopsony prerogatives.
{A}2.1 Overview of Gas Market (Production and Trade) in the FSCs and Worldwide{/A}
Seventy-six percent of total reserves and 75 percent of gas production in the area of the former
Soviet Union are in Russia, so Russia clearly dominates this market. Five FSCs, however--Turkmenistan, Kazakhstan, Uzbekistan, Azerbaijan, and Ukraine---are also endowed with large
gas reserves (see table 2.1). All of them are net gas exporters, except for Ukraine, most of whose
gas consumption is covered by Russian imports.
An overview of world gas reserves shows the central significance of Russia and the FSCs
as gas producers currently and in the long term. Russia’s reserves account for 23.7% and
Turkmenistan, Uzbekistan, and Kazakhstan account for 6.2% of world gas reserves. However,
Turkmenistan’s reserves are uncertain because of the country’s lack of transparency and large
variations in estimates. BP’s estimate of 8.1 Tcm is a third the volume of reserves announced by
Turkmenistan’s president, Gurbanguli Berdymukhamedov, during his visit of the United States
in the fall of 2007 (Grib 2009, 207). BP’s estimate of proven Turkmen gas reserves is 15--20
3
Tcm (Adyasov 2010). Belarus, Moldova, the Baltic States (Latvia, Lithuania, Estonia) and the
Caucasian states Armenia and Georgia have no domestic gas resources.
Table 2.1
Proven Natural Gas Reserves and Annual Production, Russia and FSCs, 2009
Russia
Reserves
Turkmenistan Kazakhstan
Uzbekistan
Azerbaijan
Ukraine
44.38
8.10
1.82
1.68
1.31
0.98
527.50
36.40
32.20
64.40
14.80
19.30
(Tcm)
Annual
Production
(bcm)
Source: BP Statistical Database (2010).
Traditionally, only Gazprom was allowed to export directly to Europe; this export trade
brought in hard currency for Russia. Until recently, this meant that the Central Asian countries
exported gas only to Gazprom, which then re-exported it to Ukraine and the Caucasus countries.
In addition, since the early 2000s, Central Asian gas has covered the persistent gap between the
demand for Gazprom’s gas and supply. Before the world financial crisis of 2008--9, from 1990
until the mid-2000s the volume of Russian gas production had been declining, while the external
gas demand had been steadily growing. Thus, Central Asian producers’ contribution, especially
Turkmenistan’s, was indispensable to the Russian gas trade and to Gazprom’s ability to meet its
export obligations to European countries.
The FSCs constitute substantial external markets for Gazprom because of the relatively
high proportion of natural gas in these countries’ primary energy consumption and their
geographical proximity to Russia. Table 2.2a presents Gazprom sales and average wholesale
prices for its main outlets: the FSCs, Europe and Turkey, and Russia. One can see from this table
4
that the FSCs’ share of Russian gas exports was 32.9% in 2005 and 30.7% in 2009, and that
these countries’ share in total revenue of Gazprom increased in that period from 9.8% to 18.9%.
(The share of the FSCs in Gazprom’s total sales was 14.2% in 2005 and 14.0% in 2009.)
The reason for the gap in shares was the presence of a significant export price differential
between European and FSC gas markets mentioned earlier (see table 2.2b). This differential was,
however, notably narrowing during the period from 2005 to 2009: Gazprom’s average sale price
increased by 268.2% for the FSCs and by only 73.2% for the EC and 77.5% for Russia.1
Table 2.2a
Volume of Gazprom Gas Sales, by Market,
2005 and 2009
Volume of Sales
(bcm)
Percentage in
Gazprom’s Export
Salesb
2005
2009
Percentage in
Gazprom’s Total
Revenue
2005
2009
2005
2009
Percentage in
Gazprom’s Total
Salesa
2005
2009
76.6
67.7
14.2
14.0
32.9
30.7
9.8
18.9
EU and Turkey 156.1
152.8
28.9
31.6
67.1
69.3
62.1
56.0
Russia
262.6
56.9
54.4
---
---
28.1
25.1
FSCs
307.0
Source: Authors, based on Gazprom (2010).
a. The sum of all sales;
b. The sum of sales in FSCs, Europe, and Turkey.
Table 2.2b
Average Wholesale Prices of Gazprom Gas Sales, by Market,
2005 and 2009
1. The revenue shares of the European market fell from 59.7% in 2005 to 56.0% in 2009; those
of Russian markets fell from 29.9% in 2005 to 25.1% in 2009.
5
Average Wholesale
Price ($/tcm)
2005
2009
Wholesale Price
Growth between 2009
and 2005 (%)
FSCs
49.2
181.3
368.5
EU and Turkey
137.8
238.6
173.2
Russia
35.1
62.3
177.5
Source: Authors, based on Gazprom (2010).
As noted earlier, Ukraine and Belarus are big consumers of Russian gas whose purchases
are comparable with imports by Gazprom’s biggest European customers, Germany and Italy (see
table 2.3).2 Ukraine is the biggest importer of Russian gas among the FSCs, though it produces
on average 19 bcm per year itself. In 2009 domestic production covered 41 percent of Ukraine’s
gas consumption, which dropped that year by 21.7%, from 60 to 47 bcm, as a result of the
economic crisis and also the dramatic upsurge of the price for imported Russian gas (a story to
which we return later in the chapter). As a result of the spike in the cost of Russian gas,
Kazakhstan, Turkmenistan, and Uzbekistan---already big consumers of their own domestic gas--substantially increased gas exports to non-Russian outlets, while Russia reduced Central Asian
gas imports from 66 bcm in 2008 to 36 bcm in 2009. The Baltic and Caucasian states and
Moldova consume relatively small volumes of gas. Table 2.3 shows the relatively heavy
dependence of the European FSCs, except for Azerbaijan and Georgia, on Russian gas.3
Table 2.3
2. In 2009 Germany bought 33.5 bcm from Gazprom and 19.1 bcm from Italy.
3. Georgia is supplied by Azerbaijan, and Moldova imports 43% of its gas from Kazakhstan. The
small Central Asian countries of Kyrgyzstan and Tajikistan are supplied by Kazakhstan and
Uzbekistan.
6
FSCs’ Total Gas Consumption, Russian Imports, and Dependence of FSCs
on Russian Imports, 2009
Total
Imports of
Dependence (Russian
Consumption
Russian Gas
Dependence (Imports
(bcm)
(bcm)
as Percentage of
Consumption)a
Belarus
16.10
17.6
109.3
Ukraine
47.00
37.6
80.0
Moldova
2.50
1.70
68.4
Kazakhstan
19.60
3.10
15.8
Turkmenistan
19.80
0
0
Uzbekistan
48.70
0
0
Armenia
1.60
1.70
106.0
Azerbaijan
7.70
0
0
Georgia
1.70
0.10
5.9
Latvia
1.60
1.10
70.5
Lithuania
2.70
2.50
92.6
Estonia
0.66
0.80
121.2
{TFN}Source: Authors’ compilation, based on Gazprom in Figures (2010) and BP Statistical
Database (2010).
a. “Dependence” is the ratio of imports to consumption. It may be over 100% because of reexporting to third countries.{/TFN}
There are no clear long-term trends in the FSCs’ gas demand. The transition to a market
economy in the 1990s led to a significant contraction of gas consumption both in Russia and the
7
five FSCs that are the biggest consumers of gas (see figure 2.1). In the 2000s gas demand grew,
most notably in Russia, but this trend was interrupted by the global financial crisis. Between
1999 and 2008, Ukraine’s gas consumption decreased by 15.4% . But in Belarus---with a quasimarket economy subsidized by the Russian government in various ways, including politically
motivated below-market gas prices---gas consumption increased by 29.7% in the same period.
{TN}Figure 2.1{/TN}
{TT}Gas Consumption in Russia and Belarus, Kazakhstan, Turkmenistan,
Ukraine, and Uzbekistan{/TT}
450
400
Billion cubic meters
350
300
250
200
150
100
50
Five FSC
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0
Russia
Source: BP Statistical Database (2012).
{A}2.2 Gazprom Targets Gas Infrastructure in the FSCs{/A}
The Soviet Union created the Eurasian gas infrastructure in the 1970s and ’80s as a unified gas
supply system for transportation and distribution within the USSR and abroad, comprising
pipelines, gas-pumping units, compressor stations, storage capacities and distribution facilities. It
was centrally managed from Moscow in a reasonably efficient fashion OKunder the planned
8
economy framework. After the Soviet Union broke up in 1991 this system was divided into 15
national segments, and the facilities were inherited by the FSCs as they became independent.
Because of the pipeline interlinks, the Eurasian gas network continued to work as a complex
system of technologically interconnected facilities. The myriad difficulties of the transition to a
market economy and, more specifically, the lack of market reform in the Russian gas industry
hindered the evolution of this system into a regional gas market. This evolution is yet to be
accomplished.
For a number of geographical, economical and technological reasons, Gazprom
maintained a dominant position in this FSC market but lost direct control over a significant part
of gas infrastructure outside Russia. The main trunk pipelines connecting Russian fields with
Europe are the Brotherhood; the Northern Lights, built in several stages between 1975 and 1994;
and Urengoy-Pomary-Uzhgorod, built in 1983. The Yamal-Europe export pipeline traversing
Belarus and bypassing Ukraine was put into operation in 1999. The total length of large-diameter
high-pressure pipelines in Russia’s portion of the unified gas supply system is 1,604,000
kilometers, while the total length of such pipelines in all the other FSCs is 77,000 kilometers.
Ukraine, Belarus, and Moldova inherited the largest transit capacities, and export routes to
Europe from gas fields in West Siberia pass through these countries (see table 2.4). The route to
southeastern Europe goes through Ukraine and then Moldova, which is geographically the next
transit state after Ukraine. Ukraine provided transit of 80 percent of Russian gas export and
Belarus, 20 percent. The Central Asia---Center pipeline network provided gas imports to Russia
from Turkmenistan, Uzbekistan, and Kazakhstan (imports for re-export by Russia to other FSC
countries).4
Table 2.4
4. Part of the gas that Kazakhstan exports to Russia is refined there and then re-imported to
Kazakhstan.
9
Length and Capacity of Large-Diameter Pipeline in Gas-Transiting and Gas-Producing
FSCs
Ukraine Belarus
Length (km)
Kazakhstan
Turkmenistan
Uzbekistan
(transit) (transit) (transit)
(producing)
(producing)
(producing)
14,000
Capacity (bcm) 170.0
Moldova
2,800
900
2,200
3,000
4,000
51.0
44.5
77.0
50.0
86.5
Source: Gazprom, URL TK.
After the Soviet collapse and the disintegration of the Soviet gas industry, Gazprom, was
still able to coordinate operation of this system as a whole and manage cross-country reallocation
of gas flows, even though gas infrastructure in the FSCs was serviced by decentralized
dispatching offices. Gazprom sought to regain full control of all the gas infrastructure, but in the
1990s this was not a priority of Russian foreign policy. Things changed at the beginning of the
2000s, when Vladimir Putin came to power. Putin introduced a new emphasis on active foreign
energy strategies, meaning a more aggressive effort by the state to take control of midstream
energy assets---focusing first on the former Soviet gas industry’s infrastructure in the FSCs. This
goal was vividly formulated by President Putin in his speech to Chancellor Gerhard Shroeder on
October 9, 2003: “This network is a child of the Soviet Union, and only we are able to [keep] it
workable, even if we talk about parts located outside Russia” (Pshennik 2004). The subsequent
dramatic growth of oil and gas prices strengthened the willingness of Russian top officials to
extend control over gas infrastructure in the FSCs.5
5. At the start of the gas trade, long-term contracts were designed with prices linked to the price
of oil, to protect long-term bilateral relations from competition with oil products. This type of
pricing has been made obsolescent by the gas spot trade and conditions of oversupply. See
also box 2.1.
10
A second prong on the new active foreign energy strategy was to use this control of
infrastructure as an instrument of political influence in the FSCs. Reintegration of the former
Soviet gas network was supposed to contribute to a general movement toward restoration of the
so called “economic space” of the former Soviet Union and thus to enforce the economic
reintegration of the FSCs under Moscow’s leadership. This goal was announced by Vladimir
Putin in 2000, at the very beginning of his presidency. Putin did not state publicly the goal of
political restoration of the USSR, but he did state: “The collapse of the USSR was the greatest
tragedy of the twenty century.” These words had a very strong political effect in 2000 and
revealed a shift in the thrust of Russia’s foreign policy, toward reintegration of the FSC under
Russian leadership. The Organization for Eurasian Economic Cooperation was established in
2000; its members were Russia, Belorussia, Kazakhstan, Kirghizia, and Tajikistan. After his
reelection, in 2004, Putin formulated a new strategic task: transforming Russia from the critical
gas supplier for Europe to a global energy superpower. Restoring control over energy assets in
the “near abroad” of the FSCs was seen as the first step in this ambitious strategy.
There were both technical and commercial reasons to regain control of the whole
network. From a technocratic point of view, restoration of centralized, integrated vertical control
over the Eurasian gas infrastructure seemed logical to Gazprom’s top managers: it would lead to
improved information exchange, manageability, and efficiency of the whole system. They
emphasized the technological specificity of gas grids. Gas production, transportation, storage,
and distribution are continuous, indivisible stages of a technological process within the network.
Hence, to avoid mistakes and minimize loss of gas, technological risks, and damage to facilities,
it is most efficient if decisions at all stages are coordinated by one decision-maker controlling all
informational links.6
6. To some extent, a chaotic market transition justified maintaining centralized control of the gas
network, quite apart from the possible parochialism of Gazprom managers’ views. In mature
markets with competing users, suppliers and pipelines, however, this practice is unnecessary,
11
Gazprom’s commercial challenge was that it wanted to avoid paying too-high transit fees
and sharing extra rents from export with transit states; the surge in energy prices had given them
incentives to exercise and seek benefit from their monopoly power over transit.7 A radical
strategy to prevent this and to guarantee free access to end-users was to deprive the transit states
of the leverage their monopoly position (“transition monopoly”) gave them, through acquisition
of midstream pipelines, as described in the next section. Gazprom also managed to maintain
indirect control of upstream gas infrastructure and gas reserves of Central Asia for quite a long
time, as a result of its transition monopoly in those countries, political support by Russia of the
authoritarian regimes in this region, and resort to state-to-state agreements on gas supply.
Control over midstream and upstream physical assets in the FSCs would have ensured Gazprom
a unilateral monopoly position over gas production, distribution, and export in that market.
{A}2.3 Lock-in Pricing and Power Levers{/A}
A pipeline network imposes a “lock-in” relationship on buyers and suppliers: they cannot engage
in market-based negotiations and are trapped by the rigidity of the bilateral link through the
physical fact of the pipeline (Ericson 2009). The FSCs were locked into the unified gas network;
lacking opportunities to switch to alternative fuels or producers, they were especially tied in to
the Russian gas supply because of the rigid and obsolete structure of production and technologies
inherited from the Soviet Union. Gazprom had a dominating position as the monopoly supplier,
but for a long time after the breakup of the USSR it set prices for the FSCs that were way below
as the liberalization of the U.S. and UK gas industries has demonstrated (discussed in greater
detail in chapter 4).
7. Turkey is another example of a transit state that can get essential benefits from its
geographical position by setting monopoly fees for its transit services for oil and gas.
12
the European netback prices or netbacks that were based on the oil-linked gas pricing formulas
(see box 2.1).
{BN}Box 2.1{/BN}
{BT}Oil-Price Links in Contract Gas Pricing{/BT}
For several decades prior to the late 2000s, the gas trade rested on bilateral long-term contracts
between producers and buyers. Since the early stages of the European gas industry in the 1950s and
’60s, gas was a substitute for oil. At that time there was no gas market in Europe that would have
reflected movement in gas prices, so the price of gas was linked to the price of oil. The oil-linked
contract pricing of gas was designed to give users incentives to consume gas instead of oil. The
contract gas price was indexed to the world oil price according to a formula devised by the Soviet
gas ministry and later, Gazprom. Such formulas were specified in any standard long-term contract
in European gas trade and were valid for the duration of the contract. The gas monopoly applied
these formulas in its deals with European states, but the formulas were nontransparent and would be
adjusted on an ad hoc basis for a variety of reasons. When it came to the gas trade with the FSCs,
the gas monopoly didn’t even use such “formulas.” Until the mid-2000s, the sides renegotiated the
sale price every year with no reference to movements in the oil price. These contract gas prices
were set arbitrarily, and were way below the netbacks dictated by the standard formulas. The
substantial price gap provided Gazrpom with numerous opportunities to blackmail the buyers with
threats of price increases.
The netback is defined as the European border price less the transit charge and the export
tariff, and it differs for each consuming country along the pipeline. The state-to-state agreements
envisaged gas supply to each FSC under arbitrary prices whose upper boundary was the netback,
13
whcih provided a limited degree of monopoly power to the supplier. Yet even this power was not
exercised fully by Gazprom until the mid-2000s, because the company indirectly subsidized
some FSCs and was constrained in extracting monopoly rents.
One of the reasons for such “benevolence” was the above-mentioned political motive to
enforce reintegration of the FSCs under Moscow’s umbrella. Another reason was that the postCommunist economies had substantial opportunities to conserve energy by closing obsolete
energy-intensive plants. A too-rapid gas price increase could trigger structural shifts leading to a
reduction in gas demand and a rupturing of lock-in relations. Since all these economies were
severely liquidity-constrained during the market transition, Gazprom offered a compromise
solution of bilateral or multilateral barter arrangements. However, these resulted in the
accumulation of arrears and debts by the customers. Low gas prices were negotiated in packages
with low transit tariffs and debt rescheduling, but Gazprom could not gain a lot from these
schemes.
The situation changed dramatically in the mid-2000s when the market transition was
basically over and Russia began to implement its active energy policy: using gas supply to
perform political tasks and to exert political pressure, and political lobbying, using
nontransparent political instruments in GP’s attempts to take direct or indirect control of
pipelines that are located abroad and that transit Russian gas. Gas pricing became a powerful tool
that could be used as a carrot or a stick, depending on the circumstances. Annual negotiations on
prices and debts often involved issues of gas infrastructure. For example, in July 2006. Gazprom
announced that all FSCs had to transition to netback prices based on the European gas price
formula. It traded a timetable of slow or fast conversion to European parity for concessions by
FSCs regarding control rights over pipelines and other energy assets. Since Gazprom was
offering gas prices just a fraction of the netback, it was in a strong negotiating position because it
could threaten to increase the price of gas if the opposite side rejected the concessions Gazprom
demanded. Gazprom’s use of this price-setting leverage is indicated by the variation of price
14
paths between FSCs that were gas-transit countries and consuming countries in the EU, as shown
in table 2.5.
Table 2.5
Comparison of Gas Price Increases in Gas-Transit FSCs and the EU, 2004 to 2010
US$/tcm
2004
2005
2006
2007
2008
2009
2010
Ukraine
50.0
77.0
95.0
130.0
180.0
232.5
255.2
Belarus
40.0
55.1
55.1
118.0
126.5
151.0
171.5
Moldova
80.0
80.0
160.0
170.0
232.0
245.0
242.0
137.7
213.7
285.2
294.1
418.9
307.8
323.7
EU
Source: Authors’ compilation, based on Gazprom in Figures (2011) and Pirani et al. (2010, 7).
Gazprom’s bargaining position has improved even more with the upsurge in world oil
prices and the rapid rise in European gas prices since the mid-2000s. The gap between the
European netbacks and the negotiated gas prices for the FSCs widened, thus increasing
Gazprom’s opportunity costs from subsidizing these states. Besides that, economic growth in
most of the FSCs led to an increase in the demand for gas and opportunity costs of users.8
Gazprom now faced a dilemma---a conflict between two of its main goals: to continue trying to
get control of FSC gas infrastructure by slowing conversion to European netbacks, or to take
advantage of the favorable market situation to increase prices abruptly and extract rents.
Gazprom’s trading partners also had to make a decision: whether to agree to debt-equity swaps
8. Higher gas demand implies that users would be ready to pay higher prices. “Opportunity cost
to users” here refers to the price a buyer would agree to pay to a hypothetical alternative
supplier but has no opportunity to access. Another term for this is “buyer’s reservation price.”
15
paired with longer timetables for price transition, or to maintain strategic ownership that
defended them against the power of Gazprom, paired with much higher prices for their gas
according to a faster convergence/conversion timetable.
Gazprom’s attempts to get control over gas infrastructure failed in the Baltic states and
Georgia---four countries that basically opposed Russia in foreign affairs. From their earliest
emergence as independent states in 1992, they drifted away from the sphere of Russian influence
toward integration with Europe and NATO. Gazprom could not use the lever of nonpayments
and debt swaps with the Baltic states because they had paid for their gas in hard currency since
they became independent, although they did enjoy significant discounts from the European parity
price. When the Baltic countries joined the EU, in 2004, they signed agreements with Gazprom
providing for a three-year transition to European prices and they also gave Gazprom
noncontrolling shares in the national gas companies: 34% in Latvijas Gaze, 37.1% in Lietuvos
Dujos, and 37.02% in Eesti Gaas. To neutralize Gazprom’s strategic influence, they sold similar
percentages in the three state companies to E.ON-Ruhrgas.
Georgia’s relations with Russia became especially hostile after the “Rose Revolution” in
2003 and continued to deteriorate until the Russia-Georgia War (also called the South Ossetia
Conflict) erupted in August 2008.9 Georgia is a transit state for gas delivery to Armenia, and at
the end of 2006, Gazprom had made a tough bid to take over Georgian pipelines and pumping
infrastructur. Gazprom threatened to increase the price from $110/tcm to $230/tcm if Georgia
did not sell its pipelines to Gazprom at a low price---no data are available on the price Gazprom
offered for Georgian pipelines, but clearly the takeover attempt was hostile. Georgia refused to
sell any energy assets to Gazprom and switched to importing gas from Azerbaijan at $170-180/tcm. Azerbaijan could either sell its own gas or resell Russian gas to Georgia. Azerbaijan
9. The conflict was caused by the long-lasting Russian-Georgian dispute concerning the
separation of Abkhazia and South Ossetia from Georgia. It had nothing to do with the energy
relations of the two countries.
16
received the same aggressive price offer from Gazprom and ceased purchasing Russian gas in
2007. It intensified its indigenous gas extraction from the Shah Deniz field, under the south
Caspian Sea (Sadeh-Zadeh et al. 2008) and began to export gas to Georgia and Turkey through
the new Baku-Tbilisi-Erzurum pipeline, which became operational in March 2007. Three years
later, Russia itself became an importer of Azeri gas, purchasing 1 to 1.5 bcm annually.
Gazprom succeeded in its attempts to acquire foreign pipelines in the two small countries
of Armenia and Moldova. Armenia had been a geopolitical ally of Russia since the breakup of
the USSR in 1991, and even earlier, when Russia supported Armenia in its long-lasting conflict
with Azerbaijan. Armenia lacks any significant mineral resources, and so it easily gave it to
Gazprom’s demands. In 2006 Gazprom increased its stake in the national gas distributor
ArmRosGazprom, founded in 1997 as a joint Russian-Armenian natural gas pipeline project,
from 45 to 72% in exchange for freezing the gas price at $110/tcm from 2006 to 2008.
Moldova, a gas-transiting country, had strained political relations with Russia in the
1990s because of Moldova’s war with its break-away region Pridnestrovie, in which Russia
supported Pridnestrovie. In 2000, Gazprom attempted to take over the Moldavian national gas
company, Moldovagaz, by offering a swap of the company in return for $300 million owed by
Moldova as gas debt. Moldova rejected the offer. Gazprom’s second attempt, in 2006, was
successful: it acquired 50% + one share of Moldovagaz in exchange for the state-to-state price
agreement envisaging convergence to European parity by 2011. The deal with Moldovagaz gave
Gazprom control over the segment of the pipeline to southeastern Europe that traversed
Moldova---but this acquisition was of limited value to Gazprom unless Gazprom could also get
control over the Ukrainian trunk pipelines. Gazprom’s aims with its deals were in many cases
obscure. One guess is that the point of the Moldava deal was to take over a segment of the export
pipeline passing through Moldova, just because it was easy to do, and then to take control of the
whole pipeline. The deals in Ukraine are discussed in further detail later in the chapter.
17
The transition to market-based prices and restructuring of gas debts were reasonable as
commercial goals, but using these actions to enforce strategic deals or to exert political pressure
led to a mess, because it was difficult to separate the economic and political motives of
Gazprom’s actions. Rational economic tasks were fulfilled with the same tools as political
actions that sometimes were beyond economic rationality. Arrears became chronic. Gazprom
aggravated this situation by imposing quantity restrictions on users who were in arrears.
Disruptions of gas supply as a tough disciplining device were justified to some extent, but using
this stick for political pressure proved to be futile. Two Swedish defense analysts, Jakob
Hedenskog and Robert L. Larsson (2007), identified 25 cases of coercive energy policy actions
taken by Gazprom and its affiliated trading company Itera against FSCs from 1991 to 2006,
including supply cuts, coercive pricing, threats, and sabotage.10 They found that using heavyhanded energy “weaponry” was, in general, unsuccessful in attaining strategic goals such as
acquiring transit pipelines or a military presence in the FSCs.
The FSCs, too, used blunt instruments in their energy relationships, many of which bore
the marks of earlier conflicts between the former Soviet republics and the center. Energy
10. In their study, Hedenskog and Larsson (2007) identified a total of 55 such cases of Russia’s
disrupting gas, oil, and power supply to neighboring countries in order to punish or coerce
them. The greatest concentration of such energy supply disruptions took place in 1992 and
1998, and the main targets were Lithuania (17 cases) and Georgia (12 cases). Lithuania was
punished several times for withdrawing from the Soviet Union and refusing to join the
Commonwealth of Independent States (the formal successor of the USSR) and to hand over to
Gazprom and Russia energy facilities such as the Mazeikiu oil refinery. Georgia opposed
Moscow by supporting Chechen guerrillas, aspiring to NATO membership, and advocating
the Baku-Tbilisi-Ceyhan pipeline, which undermined Russia’s position in the Caspian Sea
(Hedenskog and Larsson 2007, 50--51). Neither of these countries changed its external policy
stance, despite the pressure from Russia.
18
diplomacy alternated with tough blackmailing. The gas transit countries Moldova, Ukraine, and
Belarus possessed an effective defensive weapon: the threat of cutoffs to European consumers.
Moldova was the first one to exercise this tool: in 1994 and 1998 it threatened to cut gas transit
to Bulgaria, Turkey, and Greece, as a response to Gazprom’s threats to reduce gas supply to
enforce Moldova to pay its arrears. Even though the mutual threats did not materialize, they
proved to be effective and were tried again later, in the “gas wars” between Gazprom and the
largest transit states Belarus and Ukraine from 2004 to 2010.
{A}2.4 The “Gas Wars”: Russia vs. Belarus and Ukraine{/A}
The conflicts that came to be called the “gas wars” would not have occurred were it not for the
personal involvement of the top politicians of Russia, Belarus, and Ukraine. Personal
relationships between these key decision-makers are just as important in understanding what
happened as the nature of the countries’ political regimes. All of the parties demonstrated their
talent in the art of political blackmailing and manipulation, and undertook a few coercive actions
in connection with pipeline acquisition or gas-price price increases. Unfortunately, mutual
threats of disrupting the delivery of gas materialized in Ukraine, with substantive negative
impact on consumers of gas in eastern Europe. These incidents had a very deep resonance in the
international media.
{B}2.4.1 Belarusian Poker{/B}
Belarus is the second most important gas transit country of the FSCs after Ukraine; before 2012
about 20 percent of Russian gas exports to Europe ran through Belarus. The president of Belarus,
Alexander Lukashenko, first elected in 1994, functioned for many years as a strategic
counterparty of Gazprom on behalf of Belarus. At the time of his election he was a protégé allied
with of Moscow. Lukashenko’s first presidential campaign was supported by Gazprom and,
more personally, by Prime Minister Viktor Chernomyrdin, the founder of Gazprom, because
19
Lukashenko expressed firm pro-Russian positions in the energy sphere. He promised to promote
reintegration of Belarus within the “former Soviet space” and to cooperate with Gazprom in its
efforts to gain control of Belarus’s gas infrastructure.11 After his election Lukashenko became
the unmovable ruler of Belarus---but as of 2011 Russia had failed to acquire control over
Belarusian pipelines. In our view, it saw little benefit from having Lukashenko as a strategic ally.
Lukashenko practiced cunning diplomacy toward Russia, effectively using political
leverage and often succeeding at wringing benefits from Russia in return for promises---on
which he then reneged. One trump card was the idea of unification of Russia and Belarus: it was
very popular in both countries in the 1990s (and is still popular in Russia, but has almost
completely lost public support in Belarus). Another card was the introduction of a common
currency zone based on the Russian ruble. Lukashenko’s promises of “firm friendship” may have
been mere atmospherics, but Russia willy-nilly remained dependent on Lukashenko’s consent to
preserve strategic radar installations and other Russian military objects located on his territory.
He used these and other levers to good effect in the annual negotiations over gas and oil exports
to Belarus and other trade issues. Russia usually conceded the field by keeping energy prices for
Belarus very low, thus letting Belarus gain not only from getting cheap energy but also from reexporting oil. The estimated subsidies of the Belarusian economy usually amounted to $4 billion
to $5 billion annually.
Vladimir Putin tried to revise the rules of this strange game during his first presidency
(2000--2004). In the spring of 2002 he forced Lukashenko to sign an agreement on gas relations.
It guaranteed that Belarus’s gas prices would remain low ($32/tcm) in exchange for Belarus’s
charging a low transit tariff and conceding to Gazprom control of the state-owned gas
transportation monopoly Beltransgaz through the creation of a joint-stock enterprise (Gazprom
11. Belarus’s gas tranportation infrastructure comprises seven main pipelines with a total length
7,500 kilometers, five compressor stations, 233 gas distribution stations, and three
underground gas storage facilities.
20
wanted total control, but at the first stage it took over only 50%). 12 Six months later Lukashenko
initiated a renegotiation by announcing an increase in the transit tariff to be paid by Russia and
suspending the ownership deal. Gazprom responded by charging $50/tcm, but Lukashenko made
a counter bid of $40/tcm (Grib 2009, 43).
The sides could not reach an agreement and, after a sequence of tactical moves, found
themselves at a deadlock. The first European gas conflict started on February 18, 2004: Gazprom
cut off the gas supply to Belarus and Belarus responded by shutting down the transit of gas to
Poland and Lithuania. The blockade lasted just 18 hours, but demonstrated the potential risks of
winter “gas wars” for consumers. Poland made a claim to Russia for undelivered gas worth $400
million, and Gazprom had to solve this problem. It was the first cloud European consumers saw
on the horizon concerning Gazprom, and they became seriously alarmed and began to question
the reputation and intentions of Gazprom. Lukashenko rejected Gazprom’s offer to swap 50% of
Beltransgaz for gas debt worth of $600 million and instead informed the Russians that the price
for a 100% stake in Beltransgaz was $5 billion worth of Belarus’s debt. If he didn’t get the price
he wanted, Lukashenko also threatened to shut down transit to Europe, which would have
provoked a gas conflict between Russia and Poland. His gambit worked perfectly: Russia backed
down from the takeover attempt and accepted Lukashenko’s counterbid on the price of gas of
$40/tcm. Evidently, Gazprom lost the first gas dispute with Belarus.
Negotiations on the price of gas and the debt-equity swap dragged on for three years.
Finally, at the end of 2006, Gazprom threatened to cut off the gas supply once again. The two
countries were on the brink of the second gas conflict but this time they resolved the crisis---on
New Year’s Eve. In 2007 the gas price for Belarus went up, to $100/tcm, but still yielded
12. This agreement related only to the segment of the former Soviet export pipeline Northern
Lights that traverses Belarus and that belonged to Beltransgaz until 2012. The agreement did
not concern the Belarusian segment of the Yamal-Europe pipeline; it was built after the
breakup of the USSR and so initially was owned by Gazprom but operated by Beltransgaz.
21
Gazprom just a third of the European netback. To make a profit Gazprom required a price of
$200/tcm. The sides also agreed on a deal for Beltransgaz that was based on Lukashenko’s
terms: Russia agreed to buy 50% of Beltrangaz for $2.5 billion in cash.13 Still, Gazprom did not
get a controlling share of Beltransgaz, and Belarus did not get the money transfer from Russia
scheduled for 2007, because Gazprom wrote off part of the sum as cancellation of Belarus’s gas
debt.14
Gazprom stipulated concessions to Lukashenko by a commitment to complete transition
of the gas price to the European parity by 2011, but it didn’t come about. Belarus enjoyed a
privileged price of gas delinked from Russia’s export tariff (companies exporting oil and gas
from Russia are charged by this tariff, which is transferred to the Russian federal budget). The
deduction for Belarus meant that from 2008 to 2010 Belarus enjoyed a 30% to 35% discount in
its gas price as compared to Ukraine---even though Ukraine and Belarus are roughly equidistant
geographically to Russia and theoretically should be charged nearly equally. But Ukraine’s price
was set significantly higher, since it was linked with the export tariff (compare Belarus’s and
Ukraine’s prices shown in table 2.5).
Now, Gazprom set a timetable of fast conversion to the European netback for Belarus.
The price of gas for Belarus was delinked from the discount in the export tariff that it had
enjoyed.15 This meant that in effect the federal budget of Russia had been subsidizing Belarus’s
gas consumption, and the fast convergence timetable set a limit on this privilege.
13. This evaluation was confirmed by the Dutch bank ABN Amro, which Belarusian authorities
hired to do an audit in July 2006.
14. The payment occurred between 2007 and 2010, in four annual installments each worth $625
million.
15. The price agreement specified transitioning to the European parity for three years, 2008,
2009, and 2010, increasing the discount factor each year, from 0.67 to 0.8 to 0.9 in 2010, and
no discount for 2011 (Manenok 2011).
22
Lukashenko had two additional political levers at his disposal, which enabled him to use
aggressive tactics while Dmitry Medvedev was president of Russia, from 2008 to 2012. Soon
after the Russia-Georgia War in August 2008, Lukashenko had promised to recognize Abkhazia
and South Ossetia, two breakaway republics from Georgia, but had not yet done so. It was
important for Moscow to get Lukashenko’s recognition of these republics, because just a few
countries had done so (Vanuatu, Nicaragua, and possibly one other). Lukashenko could use this
leverage in negotiations on gas.
Second, the Russian authorities took an important step toward economic and political
reintegration of the former USSR by proposing an agreement to establish a trade organization,
called the Eurasian Economic Community (EEC), whose members would be Russia, Belarus,
and Kazakhstan, and they wanted Lukashenko to get on board with this plan. Lukashenko saw an
opportunity to set conditions of the participation of Belarus in the trilateral treaty, namely, he
would cooperate in return for Russia’s financial support, which the country acutely needed
during the global economic crisis of 2008--9 and the severe Belarusian financial crisis of 2010-11.
Moscow’s negotiating position in the endless bargaining with Minsk (the capital of
Belarus) notably improved after the Lukashenko regime completely lost legitimacy in the eyes of
Western democracies in the wake of his reelection in December 2010, in which various
irregularities, including a crackdown on opposition candidates, were charged. This loss of
legitimacy meant that Lukashenko no longer was able to maneuver between Europe and Russia
as he had earlier. With Lukashenko’s government under a cloud, earlier negotiated IMF loans
and regular generous Russian subsidies were no longer available to Belarus. The combination of
reduced external funds and the state’s now unrealizable social commitments led to a sharp
devaluation of the Belarusian ruble and left the regime on the verge of bankruptcy.
Against the background of Belarus’s many troubles, Gazprom’s top officials declared in
the spring of 2011 that Beltransgaz was of little interest to them because Nord Stream, the new
23
bypass pipeline from northern Russia to Germany, was expected to be operational soon. This
was probably a bluff on Gazprom’s part to get the Beltransgaz assets cheap. A weakened
Lukashenko had no choice but to agree to Belarus’s joining the Eurasian Economic Community.
Russia and Kazakhstan now adopted a mechanism for rescuing Lukashenko’s regime. The issue
of privatization of Beltransgaz and other Belarusian energy assets---primarily the Mozyr and
Novopolotsk oil refineries engaged in re-export of Russian oil to Europe---was resolved in a
package offering Belarus a three-year credit line of $3 billion, approved by Vladimir Putin in
May 2011.16
In 2011 Belarus received $1.2 billion providing that the sale of state-owned assets to the
private sector would generate at least $2.5 billion in revenues per year for the three-year duration
of the agreement (this was pressure to privatize). In November 2011, Gazprom agreed to pay
exactly this amount of money for the remaining 50% stake of Beltransgaz and to restructure
Belarus’s gas debts. The export price for 2012 was set at $166/tcm, or 58% of the European
netback net off 30% discount set previously for Belarus This netback with 30% discount was set
previously for Belarus to be charged in 2012, but Lukashenko got a more significant price
discount because of Belarus’s consenting to join the EEC. Trilateral negotiations resulted in this
price being based on the Russian domestic gas prices, which are much below the export prices.
The new price is actually a “net forward” based on the Russian domestic costs of gas extraction
and transportation (unlike “netback,” which is linked to the final market price or price at the
border).17
16. This credit line is financed from the anti-crisis fund of the Eurasian Economic Community.
Russia has contributed a total of $7.5 billion to the fund, and Kazakhstan $1 billion.
17. The new “net forward” price for Belarus included the cost of extraction in Yamal, a transport
tariff of $2.70 per 100 kilometers, and the cost of storage ($6.20) and distribution ($1) per
thousand cubic meters (Loseva 2011).
24
Under this scheme, the expected cost to Gazprom of subsidizing the Belarusian economy
in 2012 was $2.7 billion (Loseva 2011). Essentially this subsidy is payment for granting Russian
businesses permission to penetrate Belarus. Vladimir Putin said quite frankly to the Belarusian
prime minister, Mikhail Myasnikovich, when the deal was done in May 2011, that “the gas price
reduction is not a gift and the Russian side expects preferential conditions for Russian
companies” (Voronova 2011), where “preferential conditions” actually means a “green light” for
strategic investment and substantial transformations in the ownership structure. The jury is still
out as to whether or not President Alexander Lukashenko is ready to concede part of his control
over the Belarusian economy and to accept the new rules of the game with Russian big
businesses---but given his track record, it would not be surprising if he reneged.
{B}2.4.2 The Russia-Ukraine Gas Wars{/B}
Since 1998, the state-owned company Ukrtransgas, a company affiliated with the national jointstock company Naftogaz of Ukraine, has run Ukraine’s gas infrastructure. With a capacity to
transit 140 bcm of natural gas to Europe, it transports as much as 120 to 125 bcm of natural gas
destined for 20 countries of Europe (roughly 80% of exported Russian gas). In addition, 50 to 60
bcm for consumers in Ukraine pass through Ukrtransgas’s pipelines. The company manages
22,160 kilometers of pipeline, with altogether a maximum throughput of 178.5 bcm. The gas
transportation system includes 71 compressor stations, 1,449 gas distribution stations, and 12
underground gas storage facilities with a total capacity of 31 bmc. No wonder, then, that getting
control of Ukrtransgas was the key strategic goal for Gazprom from the very beginning of its
outward expansion into the near abroad. In the 1990s, Gazprom repeatedly tried to pressure
Naftogaz, its counterparty in the gas trade, to exchange its stake in Ukrtransgas for Gazprom’s
writing off gas debts incurred by Ukraine as a result of barter schemes and non-payments.
After these attempts failed, Gazprom resorted to a more sophisticated tactics. The idea of
International Gas Transportation Consortium had been hatched in the course of negotiations
25
between Ukraine’s President Leonid Kuchma (1994--2005) and Russia’s President Vladimir
Putin in 2002. In the summer of 2003 Gazprom established on parity with Naftogaz the
International Gas Consortium as a vehicle, it said, for improving the Ukrainian gas transportation
system via modernization of existing infrastructure. The consortium offered Naftogaz the
opportunity to extend its pipeline capacities and to modernize the network. In fact, Gazprom’s
plan was that the consortium would ultimately replace Ukrtransgas in management and control
of Ukraine’s gas infrastructure. Gazprom tried to involve E.ON-Ruhrgas and Gaz de France in
this consortium, but the project failed to materialize.
At about this time Gazprom put substantial effort into ending the practice of barter deals
whereby Naftogaz got gas in return for providing transit and storage services to Gazprom.18 The
barter schemes ceased in 2004, but despite the services Naftogaz had traded, it still had an
outstanding gas debt of $1.7 billion (the market could not be cleared perfectly under barter),
which had to be restructured. The situation was complicated by the opacity of gas distribution
and underground storage in Ukraine: there were no exact figures on how much gas was
transported and how much was in storage, and there was little oversight of storage facilities. This
lack of solid information offered myriad opportunities for Ukraine to siphon off gas and sell it
illegally to Europe, which benefited some top politicians and officials involved in such schemes.
In fact, in the winter of 2005 a huge volume of gas destined for Europe, 7.9 bcm, worth $1.2
billion, disappeared from the underground storage facilities near the western Ukraine’s border.19
This occurred soon after the so-called Orange Revolution (November 2004 to January 2005),
which intensified the political struggle around gas supply and transit across Ukraine.
18. In 2002 Gazprom and Naftogaz signed an important contract for gas transit to Europe across
Ukraine for the years 2003 to 2013, which guaranteed that at least 110 bcm of gas would
transit through Ukraine annually (Pirani et al. 2009).
19. Most likely Gazprom had indirect information about illegal gas exports through longdistance monitoring of gas flows, but had no reason to disclose what it knew.
26
Viktor Yushchenko, who had won the presidency in November 2004 as a result the
outcome of the Orange Revolution, advocated integrating Ukraine with Europe and joining
NATO. He viewed the Gazprom monopoly as a cornerstone of Ukraine’s political dependence
on Russia. The main problem was that Gazprom had a stranglehold on gas delivered to Ukraine
from Central Asia. It had signed 25-year purchase contracts with Turkmenistan in 2003 and
Uzbekistan in 2005 and was in a position to dictate the price of gas to Ukraine. In March of 2005
Yushchenko tried to get direct access to Central Asian gas by negotiating a 20-year contract with
Turkmenistan for delivery of 50 to 60 bcm per year. Gazprom blocked this attempt by offering
Turkmenistan payment in cash instead of barter and by committing to a significant increase in
the price it would pay for Turkmenistan’s gas in 2006. In late 2005 Gazprom announced a
fourfold price increase for Ukraine in 2006, from $55/tcm to the European netback, $230/tcm;
Naftogaz offered $75 to $80/tcm and a gradual transition to the European parity (Grib 2009, 81-82).
Gazprom’s desire to take over Ukraine’s transit capacities exacerbated the already
simmering hostility in Kiev and Moscow’s gas negotiations. This desire was made most manifest
in Gazprom’s International Gas Consortium idea. Gazprom offered Ukraine to cancel the gas
debt in return for dialing back the drastic price increase and getting Ukraine to agree to the
creation of and participation in the new International Gas Consortium. Yushchenko planned to
integrate the Ukrainian pipelines with the European gas network, so he had no interest in
Gazprom’s consortium, nor in accepting investment funds from Russia. Indeed, in 2006
Ukraine’s parliament passed a law forbidding privatization of national gas infrastructure.
Gazprom’s takeover of any part of Ukrtransgas, and its attempt to create a new infrastructure
entity in the form of the International Gas Consortium, would have constituted a privatization of
a portion of Ukraine’s gas infrastructure and thus were blocked by this law.
These moves and countermoves led to a series of gas disputes between Russia and
Ukraine from 2006 to 2009. The first Russia-Ukraine “gas war” occurred in January 2006
27
because the parties had failed to agree on the terms of gas supply and transit by the end of 2005.
Gazprom cut off gas supply to Ukraine on January 1, and Yushchenko issued an order to
blockade all gas in transit to Europe and divert it to Ukraine’s gas storages. Even though the
blockade lasted only three days and the damage to European consumers was relatively
insignificant, the disruption highlighted the urgent issue of energy security in the European
Community. But this was of minor importance to both Gazprom and Naftogaz---Gazprom had its
sights set on benefiting from surging energy prices while Naftogaz sought to maintain strategic
control over pipelines in Ukraine and apply the brakes to the rate of increase in the price of
imported gas. As the gas supply resumed, the sides agreed to let a trading intermediary,
RosUkrEnergo, take charge of managing the repayment of Ukraine’s gas debts for deliveries and
lost volumes and to mediate Ukraine’s imports from Central Asia and Russian exports to Europe
that transited through Ukraine. (At that time RosUkrEnergo was the sole importer of natural gas
from Gazprom, reselling it to Naftogaz.) Gazprom hoped through this mediator to gain control
over some gas storage and distribution capacities in Ukraine, but these plans failed.20
Gazprom’s Ukrainian gas deals were complicated by domestic conflicts in Ukraine:
between political and business groups in Kiev and in particular by disagreements between Viktor
Yushchenko and Prime Minister Yuliya Tymoshenko regarding economic policy. Tymoshenko
was against using mediators in the gas trade with Russia but was ready to revive the International
Gas Consortium in exchange for a resolution of the debt problem and an acceptable price
agreement. The trilateral gas game between Ukrainian top politicians and Vladimir Putin was too
intricate and left no place for political compromise. The deep economic recessions and the
currency devaluations that occurred in both countries in the fall of 2008 aggravated the gas
dispute. Negotiations on the terms of gas supply and transit broke down again at the turn of the
year. This time both sides proved to be well prepared for a new gas conflict and had no interest
20. In 2006 RosUkrEnergo established on parity with Naftogaz a joint company, Ukrgasenergo,
that could have given Gazprom access to industrial gas consumers in Ukraine.
28
in backing down. The crisis that erupted in January 2009 was preceded by aggressive
information campaigns in both countries. Gazprom notified European countries in advance of the
threat of new disruptions of gas supply. Naftogaz filled underground storage areas and prepared
to draw gas flows from storage facilities in the west of the country to major consuming areas in
the center and the south.
The second “gas war” began on January 1, 2009. It started as a déjà vu of January 1,
2006, but ended up as a Europe-wide energy crisis. On December 31, 2008, Naftogaz came close
to agreeing with Gazprom on a reasonable import price increase, from $180/tcm to $235-$250/tcm and had made a payment of $1.52 billion to RosUkrEnergo for outstanding gas
deliveries. Unfortunately, the money was delayed on the way to Gazprom’s banking division,
Gazprombank, because of the duration of New Year’s holidays in Russia, which last 10 days.
Gazprom used the delay as a pretext to cut off almost all gas supplies to Ukraine. In response,
Ukraine reduced, by the same amount, the transit of gas destined for Europe.
Very probably the real issue behind this conflict, which lasted 20, days was control of
Ukrainian pipelines. The gas dispute had attained geopolitical status but Gazprom still had no
idea how to deploy political and economic tools to get what it wanted.21 Clearly, there was no
need to disrupt Europe’s gas supply over the holidays, during an unusually cold winter, in order
for disagreements on gas and transit prices and debt management to be negotiated. The Ukraine’s
gas debt was only $600 million at the beginning of 2009, and the debt problem was not driving
the conflict to the point of complete cut-off in gas delivery to Europe. This outcome seriously
damaged both Russia’s and Ukraine’s reputations.
Finally, on January 19, 2009, Gazprom and Naftogaz signed a 10-year contract on gas
supply and transit, and gas deliveries to Europe resumed. Both sides rejected the use of
intermediaries in bilateral trade and agreed on the standard European provisions for gas trade
21. On December 16, 2008 the defense ministers of the United States and Ukraine signed a
charter on energy security that mentioned the possible membership of Ukraine in NATO.
29
with oil-linked netback price.22 In 2010 this price began to increase, following a post-crisis surge
in oil prices, which became an increasing burden on the Ukrainian economy. Viktor Yanukovich,
elected president in the 2010 election, attempted to alleviate the country’s situation by a show of
loyalty to Moscow: he extended Russia’s lease on a naval base in Sebastopol, in the Crimea. In
return, in April, Gazprom agreed on a 30% discount to the netback price capped at $100/tcm for
Naftogaz.23 Yet Ukraine found this concession unacceptable because the netback exceeded
Gazprom’s import prices for some European customers. In September 2011 President
Yanukovich said in September 2011 that the fair import price for Ukraine would be the price for
Germany less $70/bcm of the transit cost differential (Manenok 2011). Anyway---and more
fundamental---was the fact that the link to the price of oil products is irrelevant for Ukraine
because it uses oil products in just 7 percent of it power-generating plants, so gas and oil are
basically not competing fuels in Ukraine’s energy sector (see box 2.1).
Gazprom---and Russian leaders---did not give up on attempts to use price negotiations
with Ukraine as opportunities to suggest various deals to the Ukrainians that would give
Gazprom control of some Ukrainian infrastructure. In the course of intergovernmental
negotiations in April 2010, Vladimir Putin, then Russian prime minister, made an unexpected
offer---to merge Naftogaz with Gazprom, creating a joint-stock company via a merger involving
an exchange of Ukrainian gas transportation infrastructure for some Russian gas fields. Ukraine
rejected this deal, which would have implied a de facto takeover of the proposed merged
company by Gazprom. Putin now made another offer: for Ukraine to join the Eurasian Economic
Community of Russia, Kazakhstan, and Belarus in return for a much lower gas import price---the
22. All parties involved acknowledged that RosUkrEnergo had initiated the gas conflict, and it
was obliged to fulfill its contractual obligations to Poland and to return to Gazprom 12.1 bcm
of gas that had disappeared from Ukraine’s underground storage.
23. Naftogaz had to pay for gas with a discount equal to the abatement in the export tariff set
previously for gas supplied to Ukraine by the Russian government (Smeenk 2010, 342).
30
same price as that charged in Russia. Membership in this group would also have meant removing
barriers for trade in goods and services, capital flows, and labor migration in trilateral trade. The
key point of this offer was integration of Ukraine in the post-Soviet economic space]The
Ukrainian government turned down this proposal as well and offered an idea of associated
membership for Ukraine in the Eurasian Economic Community---which was better for Ukraine
because Ukriane would not lose alternative opportunities for economic integration with Europe.
This proposal was rejected by Russia. Basically, Ukraine was not interested in becoming
integrated with Russia and other FSCs but strongly preferred negotiations on entering the EU
free trade zone and integration of its gas infrastructure into the European energy system.
As of June 2013 Putin has once again revived the old idea of the International Gas
Consortium, and both Russia and Ukraine have returned to the basic situation in 2002, when the
idea first surfaced. Ukraine urgently needs to modernize its gas infrastructure, which it could do
with the help of the International Gas Consortium, but it is very unlikely that it will accept
strategic ownership as a quid pro quo for such assistance.24
24. Besides bargaining on political solutions with Russia, the Ukrainian government has been
searching for unilateral ways to reduce the burden of the contract gas price. The imprisonment
of the former prime minister Yuliya Tymoshenko, on charges of having signed the January
2009 gas agreement without sufficient authority, may be used by the Ukrainian government to
contest the contract’s legality in the international court. A possible radical reform of Naftogaz
in conformity with the European rules is another pretext to revise the contract. At the
beginning of 2012 the Ukrainian government also announced a significant reduction of its gas
purchases from Gazprom and an intention to buy gas from European countries at spot prices.
A scheme with so-called “virtual gas import” from Germany had been contracted by PGNiG
(Polish Oil & Gas Company) to reduce the effective price of imported Russian gas (Kublik
2011). With this scheme, Ukraine replaced purchases of expensive Gazprom gas destined for
Ukraine with cheaper Gazprom gas destined for Europe, but which Europe did not need. By
31
{A}2.5 The Central Asian “Knot” and Gazprom’s Gas Trade with the Central Asian States{/A}
Historically, relations between Russia and Central Asia have been more about geopolitics than
economics. This region was always an intricate knot---a geopolitical Gordian knot---of
conflicting interests of dominant and competing geopolitical players. In the nineteenth century
the Russian and British Empires competed for Asian territories and influence. Britain planned to
protect its “pearl,” India, from the threat of Russian expansion to the south by conquering
Central Asia, which was a buffer zone. In the 1870s Russia acted preemptively, occupying
Central Asia to prevent the British Empire from expanding too close to Russia’s southern border.
The withering of the British Empire did not change the basic face-off in Central Asia: the main
reason for the 1979 Soviet invasion of Afghanistan---bordering to the the south the Soviet
Central Asian republics of Turkmenistan, Uzbekistan, and Tajikistan---was to prevent
Afghanistan from falling into the sphere of American influence that could then spread farther
into Central Asia.
The breakup of the Soviet Union intensified geopolitical tensions related to the region
because of the large gas and oil reserves concentrated in the territory of Turkmenistan.
Potentially an energy producer of global significance, Central Asia is also a crossroads for actual
and possible gas routes to Russia, Europe (through Azerbaijan and Turkey), and China. These
facts on and in the ground make a tough competition for the resources of Central Asia inevitable,
and the region now became a focus for energy policies of a number of nations. Control of export
gas flows from this region has been an important geopolitical goal of Russia since the Central
Asian states got their independence in 1991. Until recently, the resource base of this region was
very important for Gazprom because of the depletion of its own resource base since the late
1990s (discussed in detail in chapters 7 and 8).
using virtual gas imports, Ukraine formally imported gas from Germany but de facto it
redirected Gazprom exports from Europe to Ukraine.
32
The breakup of the Soviet Union did not bring about sudden changes in the way gas was
traded. The patterns of gas distribution inherited from the USSR and linking Central Asia and
Russia and the rest of the FSCs remained operational into the 1990s. Although they became
independent in 1991, the Central Asian gas-producing states of Turkmenistan, Uzbekistan, and
Kazakhstan remained affiliated to the Russian gas network. Turkmenistan alone supplied around
70% of regional gas exports to Russia, Ukraine, and the Caucasian states. Gazprom’s
unconstrained monopsony power and transit monopoly with regard to Central Asia meant that
these countries could not export gas directly to Europe.
Despite their central role in Gazprom’s external trade, the Central Asian states had little
bargaining power. Gazprom usually did not pay cash to them in the 1990s and applied barter
schemes. In exchange for their gas, for which they were underpaid, they were obliged to take
overpriced consumer goods, gas and oil equipment, pipelines, etc., most of which were produced
in the other FSCs.. Lacking underground storage capacities, the Central Asian countries had little
leverage to try to improve their bargaining position and contractual terms: they could not
threaten to temporarily reduce supply to Gazprom. Just once, in the summer of 1996, the
president of Turkmenistan, Saparmurat Niyazov, ordered the cutoff of gas exports to Gazprom in
order to force Ukraine to pay its debt to Turkmenistan (Grib 2009, 195--96). The cutoff caused a
catastrophe in the Turkmen gas network. Turkmenistan lacked underground storage capacities
because it was not supposed to accumulate large storages of gas in the Soviet gas system. All gas
they extracted was automatically transited to Russia. The halt of gas flow led to overaccumulation of gas in Turkmen’s grids and caused an explosion. The accident led to a dramatic
reduction of production capacities that could not be completely restored for several years.25
25. After this accident the exchange of gas between Central Asia and the CIS countries was
handled by intermediary firms affiliated with Gazprom: Itera (1996 to 2002), Eurotransgas
(2003 to 2005), and RosUkrEnergo (2006 to 2009). The Ukrainian intermediary Unique
33
Central Asian suppliers’ asymmetric dependence on Gazprom began to change
dramatically in the mid-2000s. At the end of 2004 Turkmenistan---the most important gas
producer among the Central Asian states---decided to increase the price of its gas and to take
payment in hard currency only instead of in kind, through barter agreements. Several factors
drove Turkmenistan’s change of policy. The first factor was a change in Gazprom’s relative
strength. Soon after the Orange Revolution, Ukraine tried to bypass Gazprom and establish
independent, long-term bilateral links with Turkmenistan. This was in effect a move to compete
with Russia as a purchaser of Central Asian gas. Even though Gazprom managed to maintain
control over Turkmen gas exports through long-term contracts, its monopsony position in the
region was weakened by the emergence of a competing player.
The second factor was a change in the supply and demand for Russian gas. In that period
gas demand in Europe and the FSCs was steadily increasing, while extraction in the main fields
in West Siberia was falling. There was a growing gap between external demand (from Europe)
and indigenous Russian production. To cover this gap, Gazprom had become heavily dependent
on Central Asian gas imports in order to fulfill its obligations in Europe, and it increased the
volume of gas it purchased from the Central Asian states from 18 bcm in 2003 to 66 bcm in
2008.26
The third factor was the increase in world energy prices. Turkmenistan tried to ride this
wave of rising prices and to benefit from Gazprom’s efforts to raise export prices for gas
customers in the FSCs. Uzbekistan and Kazakhstan followed Turkmenistan’s lead in charging
higher prices to Gazprom.
Energy Systems was headed by Yuliya Tymoshenko, who had been strongly involved in the
gas deals with Russia and Central Asia before she entered politics.
26. Russia’s total gas exports in 2000 were 195 bcm, and as of 2008 this figure had changed
little, but the net export fell, from 164 bcm to 131 bcm, because of the increase in imports
from Central Asia (Åslund 2010).
34
The suppliers’ pressure was strong enough to trigger a rapid growth in the contract price.
Gazprom increased its purchasing price for Turkmen gas from $44/tcm at the beginning of 2005
to $100/tcm in the mid-2006 and, finally, at the beginning of 2009, to the level of the European
netback, $300/tcm. Gazprom agreed to pay more for gas in order to realize two strategic goals: to
strengthen control over Central Asian resources by building new pipelines from Central Asia to
Russia and to block any export diversification by Central Asian states. Gazprom was thus
engaged in tough price competition for Central Asian gas. It sought to prevent the entry of
competing buyers that would shift gas flows from this region to alternative export routes, which
would remove the rationale for Russia’s building new pipelines from Central Asia to Russia.
Thus, by charging a higher purchase price, Gazprom intended to eliminate competition of
alternative buyers and to guarantee profitability of its new pipeline projects planned at that time
for expanding its Central Asian imports.
Blocking export diversification by Central Asian states became urgent for Russia because
Russia needed these reserves for its own export trade---yet other countries had initiated efforts to
get access to Central Asian gas reserves. Ever-increasing pressure was coming from China,
India, and Iran to make gas deals with Kazakhstan and Turkmenistan. From the other direction,
the first Russia-Ukraine gas crisis of 2006 was a signal for the EU and the United States to
diversify gas sources and routes to European customers.
The Nabucco pipeline, a gas route to Europe that is planned to run from Central Asia via
the Caucasus and Turkey through southeastern Europe to Vienna---bypassing Russia and the
Ukraine---was a project of key importance to the European Community. Initially (in 2002) five
companies became members of the Nabucco consortium: Austria’s OMV, Hungary’s MOL
Group, Bulgaria’s Bulgargaz, Romania’s Transgaz, and Turkey’s BOTAŞ. The planned capacity
of this project, 31 bcm/year, could have been backed by 8 bcm of gas from the Shah Deniz field
in Azerbaijan, 8 bcm from fields in Iraq, and 15 bcm from Turkmenistan. The projected transCaspian pipeline, from Turkmenistan to Azerbaijan, was supposed to link Nabucco to the main
35
resource base. 27 Not surprisingly, in 2007 European negotiators offered to pay Turkmenistan
three to four times the price Gazprom paid in 2006 (Grib 2009, 201), thus further increasing the
upward pressure on the price of Central Asian gas.
The optimistic mood around Central Asian gas projects was reinforced by the discovery,
in November 2006, of the giant South Yolotan and Osman fields in southeastern Turkmenistan.
The British audit company Caffney, Cline & Associates estimated probable reserves in the South
Yolotan field of 14 Tcm (Smirnov 2009). The official announcement of the volume of proved
reserves of 6 to 7 Tcm in October 2008 put this field in the fourth place in the world size
ranking. Despite uncertainty as to the volume and quality of these and Caspian offshore reserves,
because of possibly unreliable initial data, these announcements gave political and international
business activity around the Central Asian gas projects a strong impetus.
Gazprom responded to the threat of these incursions with plans for two pipeline projects.
The first one was the Caspian-shore gas pipeline of 30-bcm capacity from Turkmenistan through
Kazakhstan to Russia, designed as an alternative to the trans-Caspian pipeline. The project
included developing South Yolotan and offshore Caspian fields and also building a pipeline
connecting South Yolotan to the Caspian Sea coast. The second project involved modernizing
and extending the Central Asia--Center gas network, the main gas route to Russia. Deteriorating
equipment had caused a decrease in network capacity from 56 bcm at the beginning of the 1990s
to 45 bcm in 2007. An increase to 80 bcm was planned. Gazprom intended to implement the
project jointly with Russia, Turkmenistan, Kazakhstan, and Uzbekistan (Grib 2009, 203).28
27. This project is discussed in greater detail in chapter 6.
28. In spring 2007, Vladimir Putin made a five-day “blitzkrieg” tour of the Central Asian states
to promote these projects. On May 12 he met with Turkmen President Gurbanguli
Berdymukhamedov and Kazakhstan's Nursultan Nazarbayevt, in the Turkmen capital,
Ashgabat. The three presidents signed an agreement to build a pipeline along the Caspian
coast to ship Turkmen natural gas to Western markets via Kazakhstan and Russia and to
36
There were some disagreements between Turkmenistan and Uzbekistan regarding the route, but
in January 2009 an agreement was reached to build a pipeline connecting new gas fields in
Turkmenistan and Uzbekistan with Russia via Kazakhstan.
The main thrust of these Gazprom projects (coupled with Russia’s diplomatic efforts)
was to discourage construction of the trans-Caspian pipeline. But this project already faced
serious problems. The main one was the unresolved issue of the exact location of the
international borders on the Caspian seabed. Disagreement on this issue as it related to offshore
oil and gas fields in the Caspian had been the cause of long-standing tensions between
Azerbaijan and Turkmenistan that at one point brought the two countries to the brink of military
conflict (Shumilin 2008, 133). In 2003, Azerbaijan, Kazakhstan, and Russia signed an agreement
to divide the northern and central parts of the sea according to the “middle line” principle.
Turkmenistan declined to join this agreement because of the controversy with Azerbaijan.
Another serious problem was the technical challenge of constructing an underwater pipeline on
the Caspian’s very uneven seabed. Last but not least, the actual cost of the expensive transCaspian project was unclear and the question of just how it was to be financed caused
disagreement between the Nabucco project participants. Gazprom, by contrast, before the world
crisis of 2008--9, was ready to spend huge sums on risky long-term investments, which it
signaled in 2008 by offering contract prices for all Central Asian suppliers much higher than the
other buyers, China and Iran, were paying.
Despite of all natural and artificial advantages, Gazprom has not implemented its the
pipeline projects in this region. The main reasons for this failure were the strong desire of
develop the Central Asia--Center pipeline network. The tour’s political goal was to
demonstrate the alliance between Russia and the Central Asian states. An energy summit of
Poland, Lithuania, Ukraine, Azerbaijan, and Georgia took place in Krakow at the same time
(Grib 2009); Kazakhstan’s President Nazarbayev had been expected to participate in this
summit but he preferred to meet with Putin.
37
Turkmen authorities to diversify outlets and strong competitive pressure exerted by China, which
took a leading role as a strategic investor in foreign energy projects. The China National
Petroleum Corporation (CNPC) has been actively involved in penetrating the region since the
mid-2000s. In December 2006 the CNPC reached an agreement with Turkmenistan to fund and
build the Central Asia--China gas pipeline, with a capacity of 30 bcm and a total length of 7,000
kilometers, via Uzbekistan and Kazakhstan. The project was funded by China and the pipeline
became operational at the beginning of 2010 and delivers 13 bcm annually to China. The CN)C
signed another agreement in July 2010 to provide for another 10 bcm produced by Uzbekistan
and Kazakhstan and delivered to China via the Central Asia--China pipeline. The project’s total
capacity of 40 bcm has been contracted for 30 years ahead and is about the same volume as
Gazprom’s gas import from Turkmenistan before the world financial crisis. Turkmenistan also
received a $3 billion credit line from the China Development Bank to finance exploration and
development of the South Yolotan and Osman fields. CNPC got the license for geological
exploration of South Yolotan in 2006 and since then has been the sole foreign company
operating in this field.
Iran is another player that is outpacing Gazprom in the struggle for access to and control
of the Central Asian resource base. In 1997 Iran built a pipeline of 8-bcm capacity to link the
Korpedzhe gas fields in Turkmenistan, on the eastern shore of the Caspian, to the Iranian
distribution hub at Kurt-Kui. In 2010 a new Iran-built pipeline with first-stage capacity 6 bcm
was opened linking the Turkmen Dauletabad field to the Khangiran gas refinery about 30
kilometers away, in northern Iran. Up until 2010 the Dauletabad field’s production had been
earmarked for Russia only and served as Gazprom’s main resource base in Turkmenistan. The
planned second-stage capacity of this pipeline is an additional 6 bcm (Socor 2009), so the total
capacity of Turkmen export to Iran will soon reach 20 bcm per year. An advantage of Iran as
compared to Russia is its geographical position on the cross-roads between Europe and Asia and
38
its geographical proximity to Turkmenistan, so the pipelines can be much shorter and the cost
commensurately lower.
Gazprom’s reaction to the toughening competitive pressure in Central Asia was abrupt
and unexpected. In the second quarter of 2009 it halted purchases of Turkmen gas and lowered
annual gas import from this country from 45 bcm in 2008 to 10.5 bcm in 2009. In the next two
years, the Russian import fell even lower: to 9.7 bcm in 2010 and 10.1 bcm in 2011. The
decision to cut gas purchases was motivated initially by a 21.7% reduction of gas consumption
by Ukraine, a destination for Turkmen gas, and by the lack of alternative outlets for this gas.
Ukraine’s demand fell partly in the wake of the economic crisis and partly because of Gazprom’s
dramatic price increase. The drastic overaccumulation of redundant gas in Turkmen grids caused
again, as in 1996, an explosion in Turkmen pipelines and brought extraction to a halt in 195
Turkmen wells.
Gazprom’s decision to cut gas imports from Central Asia so radically can be viewed as
both punishment of Turkmenistan for opportunism and capitulation to competitors---China and
Iran. By cutting “the Central Asian knot” in this way, Russia opened the door for China to
develop economic activity in the region. From a geopolitical perspective, the decision to slacken
the reins of energy policy in Central Asia may indicate Russia’s desire to further the formation of
a strategic alliance with China. Cooperation of the two states in Central Asian affairs could
weaken the influence of NATO in this region, which was always a “headache” for Russian
rulers. From an economic point of view, the drop in the volume of Turkmen gas imports shows a
radical revision by Gazprom of its stance to the resource base of Central Asia. This region has
lost the status of a buffer for the Russian gas trade, probably due to the Gazprom’s optimism--which now looks like overoptimism---regarding the rapid development of giant new fields in the
Yamal Peninsula (Hromushin 2010).
{A}2.6 The Modest Results of Gazprom’s Expansion Strategy{/A}
39
Basically, Gazprom’s strategy to take control over gas infrastructure in the near abroad has
failed. In only three national gas companies---Moldova, Armenia, and, in 2011, Belarus---did
Gazprom get control over gas transportation and distribution networks (see table 2.6). Gazprom
has not established control over pipelines in the Baltic states, although it did acquire noncontrolling shares. It has no stakes in the pipelines of Georgia, Azerbaijan and the Central Asian
states. Control over Central Asian reserves through the extension of the pipeline network toward
Russia is now problematic as a result of the collapse of Turkmen imports and the progress of
Central Asian states toward gas export diversification.
Table 2.6
Gazprom’s Equity in FSCs’ National Gas Companies, 2012
Country
Company
Gazprom’s
stake (%)
Ukraine
Ukrtransgaz
0
Belarus
Beltransgaz
100
Moldova
Moldovatransgaz
Armenia
ArmRosGazProm
Latvia
Latvijas Gaze
37
Lithuania
Lietuvos Dujos
37
Estonia
Eesti Gaaz
37
Georgia
Gruztransgazprom
50 + 1 share
100
0
Turkmenistan Turkmentransgaz
0
Uzbekistan
Uztransgaz
0
Kazakhstan
KazRosGaz
0
Source: Authors, based on Gazprom (2012) and Solozobov (2007).
40
The transition to European netback prices was a reasonable strategic choice for Gazprom
per se, especially against the background of the dramatic energy price increase since 2004. The
world financial crisis created severe economic and financial problems for the company, and the
issue of adequate export price setting assumed vital importance for Gazprom. As of 2013 this
process of price adjustment is nearly complete---all the FSCs have accepted European netbacks
with discounts---but this pricing mechanism turned out to be too costly for all parties.
Transformation of the pricing mechanism created problems for Gazprom because the company’s
commercial, strategic, and political goals overlapped.
To avoid the conflicts with customers, the transition to new prices had to be designed and
negotiated within the framework of commercial relations; gas prices could not be used for
exerting strategic or political leverage. Regardless of the pressure exerted on Ukraine, it had no
reason to reject the transition monopoly, which gave it a very important strategic advantage in
the Eurasian gas trade. The disruptions of gas supply to Ukraine and Europe in January 2009 led
to direct losses for Gazprom of $2 billion. Indirect losses were much higher: the gas conflicts
sharply aggravated the issue of European energy security and triggered a feverish search for
ways to diversify the energy supply. Customers’ increasingly negative attitudes to being
dependent on Russian gas supply strengthened the case for pro-competitive regulation in the
European energy markets and led to a partial loss of Gazprom’s market position. The
consequences of the gas conflicts are discussed in greater detail in chapter 4.
{A}References{A}
Adyasov Innokenty (2010): “Will Turkmenistan Keep Sovereignty over Its Resources?”
REGNUM, October 13, 2010.
41
Åslund Anders (2010): “Gazprom: Challenged Giant in Need of Reform.” In Russia after the
Global Economic Crisis, edited by Anders Aslund, Sergei Guriev, and Andrew Kuchins.
Pages 151--68. Washington, DC: Peterson Institute for International Economics.
BP. 2010. Statistical Database 2010. London: BP.
BP. 2010. Statistical Database 2011. London: BP.
BP. 2010. Statistical Database 2012. London: BP.
Ericson, Richard. 2009. “Eurasian Natural Gas Pipelines: The Political Economy of Network
Interdependence.” Eurasian Geography and Economics 50, no. 1: 28--57.
Gazprom. 2010. Gazprom in Figures 2010.
Gazprom. 2011. Gazprom in Figures 2011.
Gazprom. 2012. Gazprom in Figures 2012.
Grib, Natalya. 2009. “Gas Emperor,” Moscow: Kommersant, EKSMO.
Hendeskog, Jacob, and Robert Larsson. 2007. “Russian Leverage on the CIS and the Baltic
States.”Defense Analysis, Swedish Defense Research Agency (FOI).
Hromushin, Ivan. 2010. “Gazprom---Strong Positions in Hard Time” Gazprombank.
Kublik, Andrej. 2011. “PGNiG może już sprowadzać rosyjski gaz z Niemiec” [Poland will buy
Russian gas from Germany]. Gazeta Wyborcza, November 2.
Loseva, Irina. 2011, “Gas wars with Belarus are over.” Utro.Ru, November 22.
Manenok, Tatyana. 2011. “What will be a new gas formula for Belarus?” Our Opinion,
September 14.
Pirani Simon, Jonathan Stern, and Katja Yafimava. 2010. “The April 2010 Russo-Ukrainian Gas
Agreement and its Implications for Europe.” NG 42. Oxford, UK: Oxford Institute for
Energy Studies, June.
Pshennik, Yuriy. 2004. “Gazprom Plays on the Pipe: the Russian Monopolist Is Ready to
Establish Control over All Gas in CIS Countries.” Economicheskaya Gazeta, January 13.
42
Sadegh-Zadeh, Kaweh, Hazel Cameron, and Paul Fieldsend. 2008. “Gazprom on CIS and Baltic
Markets: The End of “Soviet” Price Subsidizing.” In Upstream Insights (online journal).
Moscow: Wood Mackenzie. [[check this source. In Russian?]]
Shumilin, Name TK. 2008. “Energy Strategy of Russia and the USA”, Moscow: Mejdunarodnye
Otnosheniya.
Smeenk, Tom. 2010. “Russian Gas for Europe: Creating Access and Choice.” Groningen,
Netherlands: Riksuniverstiteit Groningen, Clingendael International Energy Programme.
Smirnov, Sergey. 2009. “Gas Turns of Turkmenistan.” Expert-Kazakhstan (online journal), no.
25, June 29.
Solobozov, Yuriy. 2007. “Gazprom in Gas Transmission Grids of CIS Countries.”
Promyshlennye Vedomosti, no. 10, October.
Socor, Vladimir. 2009. “Strategic Implications of the Central Asia-China Gas Pipeline. ” Eurasia
Daily Monitor 6, no. 231 (December 16).
Voronova, Yevgenia. 2011. “Belarus Got a New Discount For gas.” Rosbusinesskonsulting,
August 15.
43