14_April_2015The Economist | Apr 14th 2015  | BUDAPEST | Europe

Hungary and Greece join Turkey in a new route for Russian gas

IT IS remarkable how much bluster counts for in business negotiations, as Alexei Miller, the head of Russian gas giant Gazprom, clearly knows. At an energy event in Berlin on Monday, Mr Miller warned European Union countries who are setting up an EU­-wide energy union that establishing an authority to buy gas for all of Europe at a single price would mean many of them would pay more rather than less. “A common price isn’t the lowest price. It will most obviously be the highest price,” Mr Miller said.

In fact, there is nothing “obvious” at all about Mr Miller’s not­-so­-veiled threat. In general, the larger the customer, the bigger the discount, and a single European buyer for Russia’s gas could expect to negotiate a very decent price. Europe’s anxieties over a potential cutoff of Russian gas have diminished considerably over the past year. If Mr Miller imagines he could convince an all­-European authority to pay as much as the highest price paid by any single European country, he may be inhaling too much of his company’s fumes. At the same time, Mr Miller is correct that some European countries that currently enjoy favourable situations, including Germany, could expect to pay more for gas under a singlebuyer system. Gazprom and the Russian government have been exploiting this argument to tease European countries away from the vision of a strong centralised energy union.

This strategy has had some success, most recently with a little help from Turkey. On April 7th Volkan Bozkir, Turkey’s minister for European Union affairs, met in Budapest with the foreign ministers of Hungary, Greece, Serbia, and Macedonia to discuss energy security. Much of the agenda was taken up with Gazprom’s proposed Turkish Stream pipeline, which would carry natural gas to the Turkish­-Greek border and continue on into Europe. The four European countries’ cooperation with Turkish Stream could represent a pivot away from the energy union and towards Moscow.

Turkish Stream was first announced by Mr Miller in December, shortly after a visit by Vladimir Putin to Bulgaria on which he abruptly cancelled Russia’s earlier South Stream pipeline —leaving its European supporters high and dry. South Stream would have carried gas from Russia directly across the Black Sea to Bulgaria. Brussels’s competition authority demanded the project be restructured: Gazprom would have owned both the pipeline and the gas that flowed through it, in violation of EU rules. By cancelling it altogether Russia lost a good deal of credibility, and it may have difficulty getting its new pipeline proposals taken seriously.

Nevertheless, Viktor Orban, Hungary’s prime minister and one of Mr Putin’s greatest sympathisers in Europe, was quick to signal support for Turkish Stream. When Mr Putin visited Budapest in February, Mr Orban said that anyone who thought Europe could enjoy energy security without Russian fossil fuels was “chasing ghosts”. Alexis Tsipras, Greece’s left-wing prime minister, has been equally positive. On his visit to Moscow last week Mr Tsipras welcomed Mr Putin’s promise that the pipeline would transform Greece into a European energy hub; his chief reservation was to ensure that it not be called “Turkish Stream” in its Greek leg. “Greece and Hungary are the most pro-­Russian countries in the European Union, and Russia is trying to take advantage of that,” says Peter Kreko of Political Capital, a Budapest think-­tank.

Some of these pro­-Moscow overtures are the same sort of bluster Mr Miller likes to wield: Mr Tsipras’s trip was largely a political stunt catering to his voters’ anger against the EU. Yet the energy union has emerged weaker than it might have been. The driving figure behind the union is Donald Tusk, president of the European Council, who in his former post as prime minister of Poland was determined to make Warsaw independent of Russian energy. Mr Tusk launched the idea of creating a single collective buyer for natural gas in a speech in April 2014. But by the time the European Council published its initial statement on the energy union on March 19th of this year, it was less bold. The document calls for countries to set up regional groups to trade energy collectively, but participation will not be mandatory. It calls for more cross­border energy infrastructure, but without specifying whether EU funds will be made available. There is much talk of diversification in energy sources, but few specifics.

The countries that met last week in Budapest similarly emphasised diversification of energy sources, but in their case, rather oddly, they seemed to be talking about getting more energy from Russia. The economic attractions of a Russian deal for small countries heavily reliant on its gas are obvious. For the bigger players, Brussels and Moscow, the issues are as much geopolitical as economic. The EU wants to free itself from the dependency on Russia gas that has handicapped it in dealing with Russian aggression in Ukraine. Russia is in a similar position: Gazprom depends on Ukrainian pipelines to supply gas to its European customers, with their precious euros. Mr Miller hopes that will soon be over; he announced in Berlin that after its current contract runs out in 2019, Gazprom hopes to cease sending gas to Europe through Ukraine and to use Turkish Stream instead. Or at least, it hopes to use the threat of Turkish Stream to try to chisel a better deal.