Red Gas

Russia and the Origins of European Energy Dependence

P. Högselius

• Publisher: Palgrave Macmillan
• Year: 2012
• Print ISBN: 9781137293718, 9781137286147
• eBook ISBN: 9781137286154
• Topic: History
• Subtopic: Eastern European History
• Index: History

This book applies a systems and risk perspective on international energy relations, author Per Högselius investigates how and why governments, businesses, engineers and other actors sought to promote – and oppose– the establishment of an extensive East-West natural gas regime that seemed to overthrow the fundamental logic of the Cold War.

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Introduction

Russia’s Contested “Energy Weapon”

How and why do countries become dependent on each other for something as vital as their energy supply? How do they build and maintain critical levels of trust across political, military, and ideological divides? And how do they cope with uncertainty and risk in these relations?

Europe’s dependence on Russian natural gas has in recent years become a fiercely debated issue in European politics. The actual and potential consequences of far-reaching energy imports from the “big bear” have become a subject of growing concern not only among importing nations, but also at the level of the European Union. The gas trade has come to decisively influence EU-Russia relations and there is nowadays hardly any aspect of these that can be discussed without, directly or indirectly, taking into account natural gas. The recent “gas crises”—notably in 2006 and 2009—in which several EU member states faced acute gas shortages as a consequence of disputes between Russia and Ukraine over the extension of import and transit contracts have, in the eyes of many analysts, proved the reality of Europe’s vulnerability. Moreover, some have interpreted Russia’s gas disputes with Ukraine and several other ex-Soviet republics as part of a wider Russian ambition to regain political and economic influence in its “near abroad.” According to this interpretation, Russian natural gas has become an “energy weapon” analogous to the OPEC’s “oil weapon”, and the argument is that such a weapon might be—and is possibly already being—used not only against Ukraine and other former Soviet republics, but also against Western Europe.¹

Others, challenging this view, emphasize that Russian gas exports, to an overwhelming extent, take the form of undramatic business relations and technical cooperation from which both Russia and the EU profit, and that the frequent disputes with former Soviet republics have centered on economic rather than political issues, typically linked to the problem of nonpayment. Moreover, to the extent that the gas trade is political, it may be argued that this is not an extraordinary thing. Despite the Western ideal of an international economy based on free, depoliticized market relations, close links between politics and economics are in actual practice part and parcel of international business. Energy is one of many fields in which international trade is not a “purely economic” phenomenon. Furthermore, since natural gas emits only half as much carbon dioxide as coal (which it often replaces), Russian gas can be argued to make an important contribution to combating climate change. The main threat, according to this view, is not that Russia, for political reasons, would deliberately disrupt its gas supplies to Europe, but rather that its gas industry might fail to make the necessary investments in pipelines and gas fields and that it, as a result, will not be able to live up to and further expand its export commitments.²

Independent of perspective, the importance of Russian natural gas for Europe’s energy supply is unlikely to decrease in coming decades. This is because of the expected depletion of North Sea and other intra-European gas resources, which are currently considered guarantors of Western Europe’s security of supply and a necessary counterweight to imports from non-European sources. Gas production within the EU peaked in 1996 and has been in a phase of steady decline since around 2004. The International Energy Agency (IEA) expects gas production within the EU to decrease from 196 billion cubic meters (bcm) in 2009 to 89 bcm in 2035. The only factor that could possibly reverse this trend would be a European revolution in unconventional gas production, the probability of which is difficult to assess at the present time. Norwegian gas production will continue to increase from today’s level of around 100 bcm, but not by more than 10–20 bcm, and a production peak will be reached within a decade or two. At the same time, the main scenario predicts that the EU’s demand for natural gas will continue to increase, from 508 bcm in 2009 to a level of around 629 bcm in 2035.³ This anticipated growth is closely related to European energy and climate policies, in which a gradual phase-out of coal for electricity generation plays an important role. Following the 2011 Fukushima disaster in Japan, it appears probable that natural gas, together with renewable energy sources, will replace much of Europe’s nuclear power as well.

Against this background, most analysts now agree that if Europe’s future energy demand is to be met, Russia’s natural gas is direly needed. Other non-European gas suppliers – and, possibly, intra-European shale gas – may alleviate the situation to a certain extent, but even so any decrease in Europe’s demand for Russian gas seems unrealistic. Economic recession may slow demand on the short term, but in the long run imports from the East will most probably have to increase. At the same time, growing competition from China and other countries for Siberia’s gas may change the traditional logic of Russian-European interdependence in the field of natural gas. Nobody knows how this development will influence EU-Russia relations and, more generally, the overall political landscape in Europe.

Soviet Natural Gas and the Hidden Integration of Europe

How and why did Western Europe become such a massive importer of Russian natural gas? Clearly, today’s dependence did not emerge overnight. The crucial formative period of the East-West gas trade can be located in the decade 1965–1975—that is, in the midst of the Cold War. Intense negotiations between the Soviet Union and Italy, Austria, West Germany, Finland, and Sweden gained momentum in 1966–1967, and a number of key pioneering agreements were reached in the period from 1968 to 1970. First deliveries started to Austria as early as 1968 and to West Germany, Italy, and Finland in 1973–1974. France followed suit in 1976. Strikingly, several West European countries and regions were connected with the communist pipeline system of Eastern Europe before linking up with the grids of other EC and NATO member states.

Table 1.1 West European dependence on Russian natural gas as of 2011, by country (bcm, measured at 0 degrees centigrade)

At the time when the Berlin Wall fell and the Soviet Union collapsed, Soviet natural gas had become one of the most important sources of fuel in Western Europe. “Red” gas was taken into use on a large scale by a wide range of industrial enterprises, by power plants, by the municipal sector, and by millions of households. This was made possible through the construction of one of Europe’s most critical and expensive infrastructures, which for its part formed a most remarkable case of East-West relations and of what has been labeled the “hidden integration” of Europe in the Cold War era.⁴ In no other field did Western and Eastern Europe develop such close material relations during this era as in natural gas. Indeed, the gradually deepened gas trade and the construction of ever larger pipelines, generating far-reaching dependencies and vulnerabilities on both sides, ran counter to the fundamental logic of the Cold War. From the perspective of natural gas, the “Iron Curtain” takes on a new meaning and Europe looks different from what we are being told in much of the general historical literature.

Despite this peculiar and paradoxical development, and notwithstanding the central importance of Russian gas in current European and Russian affairs, little attention has been paid to their historical underpinnings. On one hand, the export of Soviet natural gas—and of Soviet oil—is often explicitly mentioned as an interesting phenomenon in the earlier literature on European postwar and Cold War history. On the other, it has, in practice, remained a “black box,” discussed only in passing in connection with political or economic analyses of, for example, German chancellor Willy Brandt’s New Eastern Policy, cooperation between Italy and the Soviet Union in the automotive sector, or in relation to the NATO’s embargo policies concerning West European exports to the communist bloc of large-diameter steel pipes and advanced compressor technology.⁵ In other words, East-West natural gas relations have never been subject to an in-depth historical inquiry in their own right. As a result, we do not know how and why Europe’s dependence on Russian natural gas has actually come about.

Figure 1.1 Soviet/Russian natural gas exports to Western Europe, 1968–2011 (bcm).

Sources: Stern 1980, p. 59; Stern 2005, p. 110; Oil and Gas Journal; BP Statistical Review of World Energy.

The aim of this book is to fill this gap. Red Gas investigates how and why governments, businesses, engineers, and other actors sought to promote—and oppose—the establishment of an extensive East-West natural gas system at odds with Europe’s formal political, military, and ideological divisions. It explains why political leaders and energy companies in several West European countries prioritized the integration of their gas supply systems with those of communist Eastern Europe, rather than first and foremost seeking integration with their Western neighbors. The book reveals how a variety of actors on either side of the Iron Curtain managed—and sometimes failed—to build and maintain sufficient levels of trust across military and ideological divides and how they used natural gas relations for a variety of purposes other than for the access to a high-quality fuel. At the center of the narrative stands the fear of unwanted consequences of energy dependence and the perceived vulnerability of actors to supply interruptions and price shocks, and the opportunities that the gas trade seemed to offer politically, economically, and environmentally—in an age obsessed with its ever-growing thirst for fuel.

Building on primary documentary sources from Russian, Ukrainian, German, and Austrian archives, the book centers empirically on the period from the mid-1960s, when the first gas export agreements were negotiated and the first East-West pipelines built, to the years around 1990, when the Berlin Wall fell, the Soviet Union collapsed, and the Cold War ended. It uncovers the complex formation of energy trade strategies from the side of governments and businesses in both the Soviet Union and the importing Western nations, and the complex process of negotiating the East-West gas contracts. The book unpacks the major conflicts between key players—both across borders and domestically—in their struggle to shape Europe’s energetic future. It also tells the story of how Soviet and West European stakeholders—with mixed success—approached the task of actually creating—materially and institutionally—the new trans-European pipeline infrastructure, and of using it in practice. An underlying argument, of relevance for policymakers and analysts of today, is that we will not be able to understand the dynamic nature of Europe’s current energy dependence, let alone properly deal with it, in the absence of a thorough historical understanding of how today’s situation has come about.

Dependence in the Making: A Systems Perspective

How and why does a large technical system (LTS) such as the East-West gas grid come into being? Earlier studies of LTS⁶ have stressed the importance of scrutinizing the activities of “system-builders” and their evolution over time. System-builders are the actors who, by definition, have the most far-reaching power to shape a system’s evolution—and to kick it off in the first place. System-builders may be technically oriented innovators, but more often they are passionate business leaders or centrally placed governmental actors who have the necessary ability, mandate, and connections to bring about major infrastructural projects, turning diffuse and often controversial visions into material reality. One of their key challenges is to mobilize sufficiently strong actor networks. Having a talent in viewing the system in its totality, spotting the links between its diverse technical, political, and economic components, the successful system-builder identifies “reverse salients” in the form of weak components and links, and turns these—analytically and discursively—into “critical problems” that must be solved for the system to come about and expand along desired lines.⁷

When system-building takes place in a transnational context, however, it is an extremely demanding process to master, due to differences in standards, regulations, political traditions, and business culture in the countries involved.⁸ Crucially, system-builders setting out to cooperate with “the other” have to accept that they cannot to the same degree take control over the system-building process as they may be used to in their national environments. East-West system-building in the Cold War context formed an extreme case of transnationalization, dependent as it was on what I call “system-building coalitions” that cut across the Cold War’s most radical political, ideological, and military divides.

Yet transnational system-building sometimes becomes an even more dynamic process than system-building in a national context. Red Gas shows that effective coalitions of system-builders may turn the apparent problems of cross-border tensions and disparities into opportunities for accelerated development and growth. Natural gas system-builders in East and West spotted what I call “complementary reverse salients,” or problems on either side that “fitted” each other and could be resolved precisely through increased transnational cooperation and integration. In the 1960s, for example, vast volumes of natural gas had been discovered in the Soviet Union, but the growth of the domestic Soviet gas system was retarded by the inability of the domestic steel industry to produce high-quality steel pipe. West European system-builders, for their part, knew how to build pipes, but lacked large domestic gas resources. This asymmetrical situation motivated actors in East and West to work out a countertrade arrangement in which Soviet natural gas was exported to Western Europe in return for West European deliveries of large-diameter steel pipe. Transnational coalitions of system-builders working together on resolving complementary reverse salients constituted the most fundamental driver of Europe’s evolving energy dependence throughout the Cold War period.

Europe’s dependence grew at a steady pace through processes of gradual learning and positive feedback. Initially, there was great suspicion on either side. In such a situation it was of a certain importance that East-West gas system-builders could point to exports of red gas across the Iron Curtain not as a totally new phenomenon, but as a logical follow-up on exports of Soviet oil. Moreover, gas system-builders effectively exploited the opportunities offered by early, inexpensive pilot projects as test cases for the future. Pilot projects and experiences of earlier cooperation helped system-builders assure themselves that they were dealing with a system with which they could communicate and cooperate in a meaningful way. To borrow a concept from social systems theory, this made it easier for “resonance” to be generated. Resonance between Soviet and West European systems in turn made it easier for system-builders to build trust.⁹

For resonance and trust to be retained, the Soviet Union also needed to show that it could provide the gas in the agreed quantity and quality, while the importers needed to demonstrate their ability to receive and pay for the gas. Failure to do either were bound to reduce the prospects for further expansion of the system. As it turned out, the Soviet Union was so obsessed with the need to ensure its Western partners of its reliability as an exporter that the country’s own gas users were left to freeze when sufficient gas was not available.

Having survived its formative phase, transnational system-building became a self-reinforcing process, generating a virtuous circle of positive feedback that inspired actors on either side to gradually scale up their commitments and visions. Ultimately, through its development over nearly half a century, the system became a mature transnational infrastructure with a very high level of what students of large technical systems call “momentum.” A high level of momentum made attempts to alter the system’s direction of development exceedingly difficult.

In some cases, such as in connection with US-led opposition to expansion of the East-West gas trade in the early 1980s, Soviet gas exports became subject to major public and political debates, and demands for radical change—and even abandonment—of the system were voiced. By then, however, ...

Table of contents

• Cover
• Title page
• Copyright
• Contents
• List of Illustrations
• Foreword
• 1 Introduction
• 2 Before Siberia: The Rise of the Soviet Natural Gas Industry
• 3 Toward an Export Strategy
• 4 Austria: The Pioneer
• 5 Bavaria’s Quest for Energy Independence
• 6 From Contract to Flow: The Soviet-Austrian Experience
• 7 Willy Brandt: Natural Gas as Ostpolitik
• 8 Constructing the Export Infrastructure
• 9 Trusting the Enemy: Importing Soviet Gas in Practice
• 10 Scale Up or Phase Out?
• 11 From Soviet to Russian Natural Gas
• 12 Conclusion
• Acknowledgments
• Notes
• Bibliography
• Index