Agility is a precious asset in today’s world, especially in a showdown between opposing parties. Such is the case with Russia’s aspiration for global energy dominance and the European Union’s strategy for energy diversification.

Since the beginning of the year, the speed at which Russia has been striking energy agreements has been dazzling. Within just a single week, even before January was over, Russia had struck two agreements that analysts said were likely to determine its energy ambitions in Europe.

The sudden spurt of Russian activity also showed how vital the need for reform was within the EU and that it should abandon its incumbent and cumbersome decision-making procedure.

The US was no less alarmed by Russia’s increasingly action-backed pledge to become the global energy leader.

In light of the recent developments, Russia seems to have set a new pace in pursuing this pledge. The country, together with its oil and gas giants, first subscribed to this long-term goal in 2005 and now it appears to be entering a new phase, where speed of implementation will be of growing importance. In this new phase swiftness will no longer be seen as a surprise, unlike in the recent energy agreements in the Balkans.

These agreements span the oil, gas and nuclear energy sectors. Russia’s gas giant Gazprom, in particular, seems to be the main beneficiary from all the activity. The evolution of the South Stream gas pipeline project was the most pronounced and it is useful to take a look at its recent developments.

Fast and daring
On January 17-18 in Sofia, Russian president Vladimir Putin signed an agreement on the South Stream gas pipeline project. With minute concessions, which made the deal that Bulgarian politicians thought improbable become possible, Russia bought Bulgaria’s agreement to the project and 50 per cent ownership of the section of the pipeline that will run through Bulgaria.

On January 18, Russia’s gas giant Gazprom and its Italian counterpart ENI, which initiated the South Stream project through a memorandum of understanding in June last year, incorporated the entity South Stream AG. The agreement to establish the company, registered in Switzerland, was signed about five months after the memorandum. South Stream AG will be in charge of market research and a feasibility study of the project. The deadline for the completion of the research and the study is the end of 2008.
On January 25 in Moscow, Russia and Serbia signed an all-encompassing bilateral energy agreement, included in the scope were the South Stream project and the construction of underground gas storage facilities in Serbia.

The agreement, also surprising in its swiftness, occurred eight days before the second round of elections for a new Serbian president. Again speed helped hold off any further political dissension, which there had been rumours of in Serbia since the beginning of the year.

More audacity
To add more emphasis to Russia’s energy challenge, Serbia conceded that Russia could build a new underground gas storage in the country, as Serbia relinquished 51 per cent of its control over its oil and gas company NIS.

In Bulgaria, the energy pile was compiled with Atomexportstroy’s, a Russian construction firm, official appointment to build the second nuclear power plant at Belene as well as with the signing of the trilateral agreement to build the Bourgas-Alexandroupolis oil pipeline.

Russia in Europe
The speed with which Russia has been implementing its goal to achieve energy dominance has raised many questions. One important question is: how far can Russia go in challenging Europe? Tracing Gazprom’s most recent steps, it seems very far, beyond the Balkans into the rest of Europe.

On January 25, through a co-operation agreement with Austria’s OMV, Gazprom bought 50 per cent of the Central-European Gas Hub in Baumgarten, previously fully owned by OMV’s gas division. With 1.5 billion cu m of gas traded a month, the hub ranks among the three largest gas trading platforms in Europe.

In late December, Gazprom and Germany’s power giant E.ON took a step forward in an asset swap deal that will eventually see E.ON owning a share of the south Russian gas condensate field and Gazprom with stakes in electric power stations in Central and Western Europe as well as underground gas storage facilities. The agreement, which expands Gazprom’s inroads into Europe, also sees it start to achieve its attempts to diversify its business into electricity generation and distribution facilities.

Prepared or not
The EU has long prepared a response to the Russian offensive through the energy strategy blueprint unveiled in September last year. However, it is yet to be endorsed because of the EU’s incapacity to gain unanimous agreement, as the current regulations require. This has happened against the backdrop of concerted action from Russia, whose size is comparable to the EU’s and whose concentration of energy assets in state hands, though internationally said to curb market economy principles, helps it be swift and flexible in pursuing national interests.

The EU blueprint, which aimed at creating barriers to third countries purchasing EU assets, came along with a proposal to unbundle generation and distribution assets. This prompted the staunch resistance of Germany and France in their attempt to protect their energy giants, E.ON and Gaz de France, respectively.

Prioritising Nabucco, the gas pipeline project intended to circumvent Russia in a bid to reduce the Russian energy dominance of EU supplies, has brought little good. The project stumbled over disagreements on additional stakeholders and the inability to guarantee gas supplies for the pipeline.

How deep are the wells?
International analysts say Russia’s gas resources are rapidly depleting, to the extent that Gazprom could find itself dependent on imports to honour its gas supply contracts. Hence there are questions as to why Gazprom is talking about the construction of additional gas storage facilities and gas pipeline networks.

For the first time in 2006, Gazprom entered the item “gas deficit” into its 2006 budget. Nevertheless, the web of agreements and participation in tender processes has seen Gazprom heavily involved in looking abroad to compensate for its depleting stocks. Apart from the traditional Central Asian partners such as Uzbekistan, Turkmenistan and Azerbaijan, it has recently turned its attention to Africa’s most gas-rich countries. In December, Gazprom won a contract to research and develop a hydrocarbon field in Libya, whose proven gas reserves are the fifth-largest on the continent.

Also in December last year, international media circulated the news that Russia had been courting Nigeria, also in Africa’s top five, on the joint development of gas fields.

Belated response
The implications of the fast Russian push in the Balkans has disturbed many sides, the US included. An anonymous source quoted by Reuters said Washington intended to use diplomatic channels in Serbia to offset the impact of the January 25 Serbia-Russia agreement.

The agreement, however, is signed and Russia has already put down the challenge. The early January push in the Balkans set a new pace. The challenge will grow ever stronger until the EU finds an appropriate and no less swift way to respond. The ball is in the EU’s court.