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Russia out in the cold


The energy summit in Vilnius, Lithuania, has brought about some key
issues about energy security in Europe. Russia has always played a
key role in the supply of oil and gas to the rest of the continent,
but an agreement reached by five countries, excluding Russia, may
set the scene for other sources of oil. How is Russia going to
react? And what's in it for Poland?

Poland has always relied heavily on sources of oil and gas for its
market. Of course, this is old news, but an agreement between the
presidents of five countries may change the way oil is delivered to
Poland – leaving out the Russian dimension. The presidents of
Poland, Ukraine, Lithuania, Georgia and Azerbaijan met in the
Lithuanian capital of Vilnius to talk business. The result? Poland
may see more of its oil coming from as far afield as Azerbaijan.

The 500km extension of the pipeline, which will connect western
Ukraine with Poland, costs an estimated US$700 million, and will
link the town of Odessa with Brody. From there oil will be pumped
into refineries in the Polish town of P³ock, the HQ for Polish oil
firm PKN Orlen. From there the line will go to the Baltic sea port
of Gdañsk, this time the HQ for Lotos, another major Polish player.
It has been suggested that the line be then extended to Klaipeda in
Lithuania. The ultimate goal is to have Azeri oil come down the line
direct to the Baltic coast, bypassing Russia altogether. Mikhail
Kroutikhin is editor of the Russian Energy Weekly in Moscow explains
how Russia may react to the agreement signed.

"In fact the official idea starting in January was to close down the
German [durable?] pipeline altogether and deliver oil by tanker from
Russian's Primorsk and Ustluga ports on the Baltic Sea to
Lithuania, Poland and Germany."

"I don't think that Russia needs to react at all because right now
this is not a pipeline this is just a vague idea despite the
agreement signed. And the main problem is oil, because there is no
oil to fill the pipes with."

Poland has already begun to see its energy sources come in from as
far away as the Gulf. Kuwaiti crude has already started to make its
way to Poland since last year, and Russia may not have much more to
say on that matter. Yet with oil coming in to Poland from Russia's
neighbours and Moscow being excluded from any transactions, it is
unlikely to be amused. Andrew Kureth, from the Warsaw Business

"I'm sure that Russia will say that it doesn't care very much but
I'm pretty sure that its actions will indicate otherwise. Every time
there has been an oil deal in the region that didn't involve Russia
something very suspicious has happened. The first thing that comes
to mind is when the Mažeikiai refinery in Lithuania was bought by
Orlen and then suddenly, a few weeks later, a main pipeline feeding
that refinery exploded in Russia and supplies to that refinery were
lost, it turned out eventually, for good. Now that refinery has to
import oil by ship making it much less profitable."

Even though Moscow may not state as such, Russia uses its power of
oil to exert political force onto its neighbours. The Ukraine, which
has just had a general election, with results still not public, was
warned by Russian Gazprom two days later that it might cut off its
supplies. The Ukraine is indeed in debt for gas from Russia, but
some sources state that the motivation behind it is, well, about
something more than money. Power.

"Take a look at what happened in the Ukraine recently. As soon as
the `orange' parties won, Gazprom showed up and said that it would
be charging Ukraine more for oil supplies, so it does that in many,
many cases. It's tried to do that to Poland before. It's tried to
raise prices on Poland as well so it simply uses what supplies it
controls, raises prices on them in order to punish its political
partners for actions that it doesn't like."

"Despite the denials of Moscow I think this is certainly the matter
with a mixture of politics, economics and commerce. Russia in fact
is not a very reliable supplier of gas or oil because the companies
that are exporting gas and oil to Europe are all from not only
commercial companies but also some sort of political organisations,
such as Gazprom which is a sort of ruling party. You cannot compete
with a ruling political party and it's very difficult to imagine how
European customers are going to react to Gazprom penetrating their
own corporations and marketing systems considering the political
image of this company."

If work on the pipeline goes ahead as planned next year with it
potentially becoming fully operational in 2011, Europe's energy
sources need not rely on Russia so much as at present. And with
Kazakhstan a possible further potential energy source, the future
looks bright. But how Russia will play the oil game until then
remains to be seen…

Re: Russia out in the cold

""I'm sure that Russia will say that it doesn't care very much but
I'm pretty sure that its actions will indicate otherwise. Every time
there has been an oil deal in the region that didn't involve Russia
something very suspicious has happened. "

An interesting statement......could this sort of thing make Russia more unstable politically than it already is?

Re: Russia out in the cold

Any business plan premised on the good will, honest dealing and cooperation of Russia is doomed to failure as they have no neither perpetual common interests nor perpetual allies upon which they rely.

This pipeline plan is strategically solid.

That said, Poland, and all countries based upon the consent of the governed, have it within their inherent self interest to pursue energy independence. Alternative energy from every form available within one’s own borders is ultimately the sole means of assuring the ability of sovereign government.

Re: Russia out in the cold

I just hope we can avoid the madness of nuclear power, sorry - I meant to say 'expensive' madness ...