Valdai Club

Russia will remain Europe’s major energy supplier, although in a new format.

It may take Russia longer to attain energy superpower status because of falling energy prices, but the country will nevertheless remain a leading energy producer and exporter, said Alexander Rahr, a board member of the Union of Russian Economy in Germany and a Valdai Club expert.

The United States sent its first LNG tanker to Brazil in late February. This is a significant event, considering that the United States did not export gas for the past 40 years. The only exception was Japan, where it sent small amounts of gas from Alaska. The ban was lifted in December 2015, and some market players believe that in five years the United States will become one of the world’s top three gas exporters.

Some experts say that the US’s advance to the global gas market, combined with the EU’s desire to diversify its energy supplies, will stop Russia’s rise to energy superpower status.

Alexander Rahr said in an interview with valdaiclub.com that this is a major challenge to Russia, which will nevertheless remain Europe’s major energy supplier, although in a new format.

“The current market situation is not favorable for Russia, but there are some heartening factors, primarily the issue of price,” Rahr said. “If the United States delivers its gas to Europe at dumping prices, it can only be for political reasons, which will create problems. But if Washington plays by market rules, Russia will retain its positions,” the expert said.

According to Rahr, the energy issue is highly politicized in Europe, as there are forces that would do their utmost to weaken Russia’s standing in the energy market. “Many observers were surprised to learn that the biggest problems in this sphere are not created by Russia’s traditional Western partners, but by new EU and NATO member countries,” the German expert said.

“I can’t understand why countries such as Poland or the Baltic states are prepared to sever all energy relations with Russia contrary to their best interests. Far from benefitting them, this will provoke more conflicts with Russia and will also complicate their ties with Germany and France, which want to have positive relations with Russia and are becoming increasingly annoyed by this policy of the Baltic countries and Poland,” Rahr said.

“I see this as an echo of the Cold War, which will eventually die away. The infrastructure that was created in Russia 40 years ago, renovated 20 years ago and further improved 10 years ago is still there, while building a new network would be extremely expensive,” he added.

“East European countries are stirring a revolution in an attempt to force Europe to live by Brussels’ rules. But nation states such as Germany, France and Italy will not allow anyone to interfere in their legislation and in the commercial operations of their companies in vital spheres such as energy security. So far, the East Europeans’ calls to cut ties with Russia altogether, disarm it and expropriate its gas infrastructure have not materialized, because there are traditional customers in Europe who are interested in cooperating with Russia,” the expert pointed out.

The alternative gas suppliers are Norway and North Africa, but they have a great deal of problems. “Norway will be able to compete with Russia for some time, but it will hardly be able to increase its gas supplies to Europe. As for North African countries, which have their lobbies in the EU, their political stability cannot be guaranteed,” Rahr said.

“Russia is part of Europe, so, instead of looking to rely on countries with unsafe political systems where Islamic fundamentalism might emerge and wars might break out, Europe must understand that Russia is the most reliable supplier,” he stressed.

As for the technology that allowed America to drastically boost natural gas production and exports, it is associated with certain restrictions, says Rahr. “The fracking (hydraulic fracturing) technology is only applicable in the United States and Australia. We remember how five years ago, Poland and Ukraine aspired to become shale gas producers – that did not work. Therefore, those who said it is impossible in Europe without risk to the environment and the people (suffice it to recall the recent earthquake in the Netherlands) are probably right. Anyway, lawmakers and politicians will never risk it,” he says.

According to the expert, liquefied gas does not have any history yet. “First we need to understand whether this gas can at least sell at the same price, or be cheaper than pipeline gas. I think the market will put everything in its place. Look at the map. If gas from Russia can travel to the West via existing pipelines, it will be cheaper and commercially more acceptable to consumers than deliveries from America. We know Western society. God forbid an ecological disaster happens – our current debate will turn in the opposite direction,” he said.

The expert once again drew attention to the fact that, to have additional sources of gas in Qatar, Saudi Arabia, Australia, or America, more infrastructure is needed. “This is a complicated and expensive process, involving LNG conversion back into natural gas, and so on. Who will pay for it? A few years ago, Poland was planning to build terminals and demanded money for it in Europe. I don’t think this will get anywhere. There used to be a lot of talk about building infrastructure to break the dependence on Russia, but in the end, it all stopped at the funding issue,” Rahr said.

“The funds from the state treasury, the European Commission or the Council will never be enough to build such expensive systems, so they will have to be attracted from private investors,” he explained. “Private businesses are not politicized. They do not think in those terms – they simply do what is cheaper, what makes a profit. These companies may destroy the myth that Russia is dangerous, and begin working directly with the suppliers that have proven reliable and choose the products that cost less than others.”

However, it is clear that the world has changed, and there is no reason to expect that things will still be as they were 20 years ago, the expert said. “Therefore, we need to engage in politics more and create a positive narrative for the Russian gas supplied to Europe, because politicians are now mostly planting information through the media. And if we succeed in changing this negative narrative about the dangers posed by Russia, which prevails in the minds of the East European elites, replacing it with a positive attitude, the situation will soon be back to normal,” Rahr concluded.