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EU Fends Off Gazprom, But Still Needs To Deal With Rosatom

Gazprom Pipes

Gazprom, Russia’s flagship energy company and the face of its geopolitical ambitions, is facing grim times. Although the company was able to report an almost five-fold profit increase in 2015, and while it had managed to expand its share of the European and Turkish gas markets in 2013, Gazprom’s influence over the EU’s energy market is dwindling. As the European Commission moves forward in completing the internal energy market, reverse flow pipelines now allow most European states to buy gas at spot prices and undermine Gazprom’s preferred model of expensive, long-term contracts.

Even as Gazprom slowly loses its footing, the Kremlin is aggressively pushing forward with the expansion of another of its state enterprises, the Russian State Atomic Energy Corporation (Rosatom). Pervasive skepticism about the sustainability of nuclear energy following Chernobyl and Fukushima notwithstanding, Rosatom is currently constructing eight reactors in Russia and 34 more abroad. These include the construction of reactors in Southern Turkey at Akkuyu, as well as in Belarus’ Ostrovets. Both projects have attracted vocal criticism, especially as the type of reactor in question remains inadequately tested and the locations are fraught with peril.

The Turkish gambit

In May 2010, Turkey and Russia signed an agreement for four VVER1200 reactors to be built by Rosatom in Akkuyu under a controversial Build-Own-Operate (BOO) model, with construction set to begin in 2016. What this means is that Russia will provide 100 percent of the financing and will pass along to the host state the responsibility of monitoring the project. Essentially, Rosatom faces minimal liabilities as the onus falls on the Turks to oversee the plants.

Akkuyu’s suitability also leaves much to be desired. Not only is the area around it prone to seismic activity - a 5.2 earthquake rocked the area just last year – but Turkey’s Atomic Energy Authority remains affiliated with the prime minister’s office, leaving the country without an independent authority for monitoring nuclear activities. With the Turkish Energy Market Regulatory Authority recently calling for the purge of suspected Gülen supporters, control over regulatory agencies will likely increase, awarding more power to Erdogan’s imperial ambitions to the detriment of sound environmental policies. Related: Saudi Arabia Unmoved By Oil Price Uncertainty

Indeed, since the failed coup, Turkey has mended bilateral relations with Russia, which had been at a low point after the downing of a Russian fighter jet late last year. Ankara is seemingly refocusing on Russian production to meet its energy needs via the newly revived Turkish Stream pipeline and the Akkuyu nuclear reactors. With foreign investment into Turkish markets likely to fall due to unstable political and economic conditions, the shift towards Russia in the hopes of becoming a major energy hub seems inevitable. Moscow is more than eager to invest in Turkish energy projects, meaning Akkuyu and Turkish Stream could succeed as the European Union’s competing energy projects falter. Erdogan may have to enter into a Faustian bargain with Russia: given the international fall-out from the coup, Turkey has no other option than Putin.

Trouble in Belarus

Meanwhile, Rosatom’s Belarusian engagement in Ostrovets since 2012 has been receiving serious flak from Lithuania, Belarus’ western neighbor. The $10 billion project boasts two 1200MW reactors, slated to come online in November 2018 and July 2020. Owing to Ostrovets’ close proximity to Lithuania’s capital Vilnius (less than an hour’s drive), Lithuania has asked Rosatom repeatedly to prove the power plants’ safety in terms of “seismic hazards, emergency preparedness and stress-test plans” without receiving a response.

Furthermore, in 2014, Belarus was found to be in non-compliance with some of its obligations concerning the construction of the Ostrovets site. The construction has also experienced a number of security incidents, including reports that the structural frame of the reactor collapsed. Related: Powering The Internet Of Things

Despite unpersuasive assurances from Minsk, skepticism regarding Rosatom’s construction projects remains strong. In a 2014 report, Greenpeace described Rosatom as a “questionable business partner, plagued by concerns over corruption, the safety and quality control standards of its nuclear reactors, its competence at building and operating nuclear plants, its model for financing projects and concerns over its ability to complete construction on time…” Specifically, the report lamented the “minimal external scrutiny” that allows the company to operate as a state within a state, giving its leadership ample opportunity for corruption and embezzlement of millions of Euros, while construction quality is undermined by lack of adequately trained construction staff and failure to safely manage spent fuel.

Rosatom’s presence in the European Union’s backyard has wider implications as well. It is a well-known fact that Russia’s push for Rosatom expansion is another tool in the Kremlin’s geostrategic grab box, with Moscow using the corporation to bind various governments in long-term cooperation. With this in mind, the Ostrovets site at the EU’s eastern frontier essentially makes Belarus a Trojan Horse for a Russian company. In other words, as Ian Armstrong at Global Risk Insights analyzed, “Russian-built nuclear power plants in foreign countries become more akin to embassies — or even military bases — than simple bilateral infrastructure projects”, as the nuclear contracts establish a “long-term or permanent presence” with “notable influence in countries crucial to regional geopolitics.”

Regarding Turkey and Belarus, it stands to reason that European influence in its periphery will likely decline as a result of the new Russian projects. This makes Russia’s nuclear diplomacy more of a threat to Europe’s overall security than Gazprom ever was. Even so, there has still been no response from Brussels. Despite the urgency of the issue, and despite a probing of the European Commission conducted by Members of the European Parliament over the safety of Ostrovets, neither Commission President Juncker, Environment Commissioner Karmenu Vella or Energy Commissioner Maroš Šef?ovi? have released statements on the matter. While the EU leadership is silent, Russia’s presence grows more powerful.

By Scott Belinksi for Oilprice.com

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