Erstellt am: 14.01.2007 Autor: Edward Roby Status: Senior
A Nutcracker for Europe’s energy fantasies
Pyotr Illyich Tchaikovsky’s classic fairy-tale ballet makes a Christmas dream of a gallant Nutcracker-prince come blissfully true for a romantic German girl. With a rather different Russian libretto, President Vladimir Putin managed to spoil whatever private New Year’s fantasies German Chancellor Angela Merkel may have had about a harmonious energy duo with Moscow.
The morning of Jan. 8, the day after the Orthodox Christmas, Russia’s unorthodox energy czar chose to apply his own nutcracker to Europe’s westbound oil supply flowing through a pipeline named “Friendship” (Druzhba). With this partial blockade, 2007 was launched in the dubious tradition already emblematic of this young century: the disruption of energy markets.
The oil crimp was doubly inauspicious for the German chancellor, who at that moment was struggling to referee a dangerous energy row within her own ruling coalition over the future role of atomic power. Internationally, the chair of the G8 had just rotated from Putin to Merkel on New Year’s Day, when Germany’s half-year tenure in the rotating European Union presidency also began amid great expectations. And a Merkel-Putin mini-summit was also set for Jan. 21.
Still stuck on the EU action agenda is a quixotic attempt to sign Russia up for a proposed European “energy charter.” That idea is supposed to give Europe’s importing countries some reciprocal influence over their foreign oil and gas at the source and in transit. The EU-27 buys nearly 37% of its imported oil from Russia, one-third of that from the affected pipeline.
Apart from luckless Poland, Germany was the EU member hit hardest by the abrupt pipeline shutdown. Not only is export-driven Germany the EU’s biggest energy user; the country must also import almost all of its crude oil, 97%. More than one-third of this imported crude comes from Russia, including the 20% share from the temporarily closed Friendship spigot.
Even this understates German economic and political vulnerability, however. Some 36% of Germany’s imported natural gas also comes from Russia. And the spadework is currently being done for a direct Russo-German natural gas pipeline under the Baltic Sea by 2010 – a portentous bilateral project already likened by Poland’s foreign minister to “the Hitler-Stalin pact.” Moreover, the Belgian boss of the European Investment Bank chimed in during this oil “Friendship” week with word that EIB would freeze its financing of the gas pipeline project “until Russia comes to terms with all the project’s opponents,” reported Handelsblatt newspaper.
Under these circumstances, somewhat isolated Berlin had little to gain from a widening political flap with Moscow. So, feeble attempts were made to shoe-horn Russia’s latest geopolitical chess move into the banal context of an ordinary business dispute between the Kremlin and a greedy vassal in Minsk, the sinister mouse-king in this energy ballet. German officials scolded in low key that a blockade was no proper way for the Russians to build their reputation as a reliable EU energy supplier.
Although the Friendship disruption ended amicably with a Minsk-Moscow telephone call within just three days, familiar EU lobbies immediately seized the chance to mobilize their political patrons for yet another campaign on behalf of atomic reactors, windmills and various alternative fuel subsidies. Yet, the larger political signal coming from the Friendship incident was hard to overlook.
While Merkel has been pushing a transatlantic initiative, the blockade message for realists seemed to rhyme with a more accommodating eastern policy initiated by Gerhard Schröder, who now supervises the Baltic pipeline consortium. To remain a powerhouse of industrial output, energy-poor Germany may need to pay closer heed to the larger geopolitical concerns of its main supplier. Dreams of windmills notwithstanding, where else could so much oil and gas come from?
If Russia can be accused of orchestrating a mere business disruption, the contemporary marketing jargon would have to cast this former superpower in the role of a “fast follower” rather than a “strategic innovator.” The new millennium’s innovation laurels go to the one remaining superpower, which deleted an entire country from the OPEC cartel in 2003, less than three years after this blockaded land had defiantly switched its oil-pricing regime from dollars to euros.
International business partners that came up dry in that precedent-setting disruption apparently included a major oil company from Russia, along with others from China, France, Italy, Japan and Canada. They had inked nearly $1.1 trillion worth of oil extraction contracts1) with Iraq, home to 11% of the world’s crude reserves. Unclassified documents from U.S. Vice President Richard Cheney’s otherwise secret energy taskforce deliberations in early 2001 conspicuously included a review of “Foreign Suitors for Iraqi Oilfield Contracts.”2) An international rush for oil exploration contracts had apparently started in 1997 with an emerging international consensus that UN sanctions against Iraq would soon be lifted, meaning that U.S. and British oil companies would then draw short straws.3) The attack on Iraq pre-empted any such hopes.
With dollar-pricing restored, occupied Iraq is now supposed to enact a U.S.-drafted law which throws open its crude reserves, the world’s third largest, to large-scale exploitation by favored Western oil companies under 30-year contracts, British newspaper The Independent reported Jan. 7. But now Iran, the new focus of critical U.S. attention, has just dumped the petrodollar, according to a Dec. 20 report in Le Monde.
Russia has been a model of restraint by this bare-knuckle business standard. Facing military encirclement and systematic resource plunder by predatory oligarchs in league with foreign capital, Putin has gradually reasserted a few basic national priorities, scattering an army of mice. This evolving scenario has featured a mixture of diplomatic moves, legal maneuvering and intermittent pressure on supply choke points to demonstrate who depends upon whom. The Ukraine and Georgia had already been called to order by Moscow with natural gas blockades last year. And the more precarious the situation in the Middle Eastern oil fields now becomes, the stronger resurgent Russia’s position grows as the Eurasian energy provider of last resort.
Internally divided on a host of political and economic issues, the EU can be expected to watch this grand show quietly and from a safe distance. Sharing frontiers with nine other countries, Germany above all must tread lightly as usual. Therefore, the atomic energy debate, a domestic perennial for more than a decade, offered a welcome political diversion.
Some of Merkel’s political allies cited the Friendship oil blockade as proof that Germany needs to extend the prescribed life of old atomic reactors and start building new ones. Perhaps they were thinking of atomic-powered cars or mini-reactors to heat German apartments. If not, the logical connection between the petroleum issue and the electricity that could be generated by more commercial reactors was not quite clear, as the leadership of Merkel’s anti-nuclear SPD coalition partner hastened to point out. Base-load nuclear power plants could hardly conserve much German oil, since less then 3% of the electricity is still generated with that primary fuel.
The CDU chancellor prudently kicked the reactor dispute back to her SPD environmental minister, who is supposed to rule on a utility petition to keep the old plants a bit longer on the grid. There is a solid economic argument 4) for that because these plants have long since been financed, they now produce relatively cheap base-load power and German electricity is becoming very pricey. But the shelf-life of nuclear plants is limited by other considerations. Stainless steel pressure vessels built to contain atomic reactions, for example, tend to be rendered brittle and more vulnerable to hairline fissures by years of continual neutron bombardment, experts say. Subjecting engineering tolerances to economic tests could become a form of Russian roulette.
Perhaps taking its cue from a budding new industry offensive in the United States, where reactor orders dried up for mainly economic reasons by 19785), the EU Commission has called for a nuclear power renaissance6) in Europe. But it has also identified what it regards as the real cause of rising power bills in Germany – a private corporate monopoly on regional power transmission and distribution. To introduce price competition, the EU has recommended a clean separation of this grid infrastructure from the private business of power generation. Germany, of course, is resisting.
The remedy of competition is not exactly new. The other EU countries that liberalized their power generating regimes in the 1990s adopted elaborate precautions to ensure that the public utility grid would not become a private monopoly. Germany’s own Monopoly Commission repeatedly pointed out the danger of private regional grid monopolies a decade ago when the country was preparing to “liberalize” its power industry by discarding public rate regulation without a serious substitute. Yet the grid infrastructure, once built by the public through regulated power rates, was ceded to the generating companies in return for a pledge of self-regulation. The outcome had been predicted. Overshadowed by peripheral issues like nuclear power, the real debate over electricity and primary energy is only now beginning in Germany.
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1. The dollar figure, accompanied by names of some foreign companies, earmarked reserve volumes and names of oil fields comes from the World Energy Outlook 2001 of the International Energy Agency.
2. With a petition under the U.S. Freedom of Information Act, an organization called Judicial Watch caused the U.S. government to release a few of the documents generated by the secret Cheney energy taskforce meetings in early 2001. This included a two-page list of countries and companies, titled “Foreign Suitors for Iraqi Oilfield Contracts,” dated March 2001. Thirty countries were listed, including prominent energy giants Total Fina Elf of France and Lukoil of Russia.
3. Clark, William R. Petrodollar Warfare: Oil, Iraq and the Future of the Dollar, New Society Publishers, Gabriola Island, British Columbia, Canada, 2005. Page 62. This expert also concludes that the only peaceful solution the unfolding energy conflict is a three-way accord among EU, OPEC and the United States on a dual dollar-euro settlement system for internationally traded oil.
4. Only existing nuclear plants, which have long since amortized their initial capital investment, produce cheap power. For example, in the United States, they generate power for fewer than 2 cents a kilowatt-hour, about one-third of the cost of oil and gas generation at current fossil fuel prices.
5. A Florida utility said late last year that it may try to break the decades-long U.S. stalemate on reactor building by ordering a new one at Crystal River. The partial abandonment of U.S. power rate regulation would mean that the highly expensive construction project would have to be financed privately in the capital markets rather than in advance by rate-payers through public utility regulation. In their 1979 Harvard Business School book, Energy Future, from Random House, authors Daniel Yergin and Robert Strobaugh had this to say about the unfavorable economics of nuclear plants: “Well before the March 1979 accident at the Three Mile Island plant …orders by American utilities for atomic-powered generating equipment had all but stopped. Less than half a dozen reactors were purchased between 1975 and 1979. Moreover, since 1975 there have been about 20 cancellations of previous orders and at least twice as many announced deferrals for periods ranging from five to ten years. Abroad the picture is much the same: a rancorous and paralyzing controversy.” Page 109, Nuclear Stalemate.
6. In Germany, as in the United States, such an undertaking would be slowed by the fact that much of the expertise and infrastructure for commercial nuclear power – from applied research to fuel fabrication -- has withered away because of the protracted absence of new reactor orders. This would have to be restored.
