When Energy Pipelines Are Political, Everyone Suffers

(Bloomberg Opinion) -- The placement of energy pipelines has always been shaped by political considerations, often at the expense of commercial ones. But the operation of existing lines is increasingly becoming politicized, too. And that’s going to hurt everyone.

There are many examples of pipeline routes being selected to serve geopolitical ends.

The Baku-Tbilisi-Ceyhan oil pipeline from the Caspian Sea to an export terminal on Turkey’s Mediterranean coast was not the obvious commercial choice to get Azerbaijan’s crude to market, but it was chosen because it met the goals of avoiding Iran (even though it would have been cheaper to build there and gotten better access to Asian markets) and being independent of transit across Russia.

And as I’ve written before, Russia’s construction of the Nord Stream 2 gas pipeline to Germany is the culmination of a 30-year strategy of shedding inherited transit routes across former Soviet republics and allied countries. But the use, or stoppage, of pipelines already built has recently become a more worrying example of their politicization.

As Europe grapples with a looming winter energy crisis, it seems beset on all sides with suppliers and transit countries using pipelines for political ends.

Although President Vladimir Putin denies there are any political motives behind Russia’s failure to deliver more gas to Europe, few, if any, in Europe believe him. And it’s not hard to see why. Russia’s pipeline gas export monopoly Gazprom PJSC says that it has met all the delivery requests from its customers, but prices have skyrocketed because storage levels are low and, in Germany at least, the storage sites that are close to empty are those controlled by Gazprom.

The European gas price has surged again in recent days because of fears that Russia will keep flows down in retaliation for delays in certifying the new Nord Stream 2 pipeline, which would really hit winter supply.

But it’s not only in northeastern Europe that pipeline politics are upending markets. At the other end of the continent, Spain is finding itself caught up in a political dispute between major gas supplier Algeria and transit country Morocco. That’s adding more upward pressure to European energy prices, as Spain joins the rush to secure cargoes of liquefied gas in a market where high-paying Asian customers dominate.

Heightened tensions around Europe’s piped energy supplies made the sudden interruption of Russian oil flows across Belarus into Poland early last week all the more worrying.

The disruption was due to unplanned maintenance on the line in Belarus and flows were restored after a few days. But amid a manufactured migrant crisis on the country’s borders with the European Union, and Belarus President Alexander Lukashenko’s previous threats to cut off energy supplies to Europe, fears were rampant that the stoppage was something more sinister.

It may yet become so. The EU is threatening further sanctions against Belarus, while its eastern neighbor continues to fly in would-be migrants to the EU from crisis-hit countries including Iraq and Syria.

Putin, whose oil and gas flow through the pipelines crossing Belarus, warned that “nothing good” would come from Belarus disrupting energy flows to Europe. He has a lot to lose, too. Russia’s reputation as a reliable supplier of energy to Europe has been badly tarnished in recent months. While disruption to transit flows would strengthen his argument for the Nord Stream pipelines linking Russia directly to Germany, his close links Lukashenko would raise questions of his own complicity in any disruption.

Meanwhile on Europe’s southeastern border, Turkey’s drift away from its NATO allies raises fears that gas supplies to Greece, the Balkan countries and Italy could soon become more precarious too.

Europe is becoming ever more hostage to the politicization of pipelines. The energy transition away from hydrocarbons cannot come fast enough for the continent, as supplies of oil and gas from the North Sea dwindle.

While the immediate risks weigh more heavily on consumers than on suppliers of the region’s energy, in the longer-term those suppliers will suffer, too, as Europe speeds up moves to become more energy self-sufficient in the post-hydrocarbons age.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Julian Lee is an oil strategist for Bloomberg. Previously he worked as a senior analyst at the Centre for Global Energy Studies.

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