Tag Archives: Gasprom

The ongoing decline in global oil prices is very bad news for Putin’s regime which depends on oil and gas revenues for about 40% of its federal budget.

This “black swan” comes in a flock— it coincides with the global coronavirus pandemic, the introduction of new US sanctions targeting the Russian energy sector; and on the domestic front, exacerbated by an extremely unpopular move by Putin to rewrite the Constitution with the sole goal of remaining in power for life.

We put together a matrix with scenarios for Russia under various energy market assumptions. Below, we have put together a matrix with scenarios for Russia and various energy market assumptions.

This is an excerpt from a Free Russia Foundation study Russian Scenarios 2030, that also includes chapters on:

· Elites’ Cohesion and Coup D’état
· Military Confrontation
· Russia as a Proxy Superpower of China
· Decentralization
· Local Military Conflicts
· Two Positive Scenarios
· The Sanctions Scenario
· State Crony Capitalism
· Russia and China in 2030
· De-escalation
· Succession after Putin’s Unexpected Death

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Today we will talk about different aspects of Nord Stream-2.

About political aspects of the deal, like bypassing transit countries like Ukraine and Belarus and the fact that despite it being a 100 percent Gazprom venture, Nord Stream-2 is registered in Switzerland, which is not an EU country.

About security aspects of the deal, like the Russian navy patrolling in the Baltic Sea to protect their pipelines – in plural because in fact there will be about four of them when they are completed.

About economic aspects of the deal like the loss of three billion dollars in transit fees per year for Ukraine, but also about the enormous maintenance costs of underwater pipelines.

About environmental aspects of the deal like disturbing the seabed which is full of mines, chemical waste and munitions from WW II but also disturbing nature on the surface like bird and marine life.

About land-based alternatives of the deal which are still very much possible and probably a lot cheaper as well.

Will we talk about ethical aspects of the deal as well? About the people at the helm? The former chancellor of Germany who was still chancellor when the deal was in the making in 2005, about the managing director who worked for the secret services in East Germany and the rumors about his past, about the former Prime Minister from Finland who worked as an advisor for Nord Stream and the rumors about his past.

We should probably begin with the history of the Dutch-Russian business relationship.

I, myself, was born in Zaandam, a town 20 km north of Amsterdam. In the late 17th century, it was situated quite conveniently opposite the Golden Age Amsterdam and was well known for its ship building activities. Tsar Peter the Great happened to be very interested in ship building. In Izmailovo, at the time a nice estate of the Tsar’s family to the east of Moscow, with a wooden palace and a large pond, Peter got to know a Dutchman called Carsten Brandt. Carsten Brandt first came to Russia under Tsar Aleksey to help him build small boats, the so-called botiki. Peter asked him to build a sailing boat, and together they sailed on the Izmailovo pond and later on bigger lakes like the Pleshcheyevo lake near Pereslavl Zalesski to the north of Moscow.

In 1697, Peter came to Zaandam, incognito, to learn the craft of ship building from a Dutch carpenter. People recognized him though, and he had to move to Amsterdam where he worked in a shipyard. Today, the monument to Peter the Great on the main square of Zaandam and the small wooden house, where he apparently lived, are among the most popular tourist attractions in my hometown.

In mid – 17th century, there were Dutchmen living in Moscow, in the quarter that lodged all foreigners, the so-called Nemetskaya Sloboda, and since then the Dutch have not stopped to do business with Russia that was exciting and profitable for both Russian Tsars and small and medium-sized enterprises.

In the 18th century for example, the famous Ruslui (“Russia people”), who were traders and manufacturers from a small town of Vriezenveen in the east of the Netherlands, were successful in business in St Petersburg and owned a shop in the Gostiny Dvor on the Nevski Prospekt. Some of them managed to become official purveyors to the tsar’s court, especially with cigars and table linen. They also sold cocoa, coffee, tea, and flowers of course. The Netherlands Reformed Church on Nevski 20 still reminds us of this Dutch page in the history of St. Petersburg.

In the 19th century, the relationship between the United Kingdom of the Netherlands and the Russian Empire became extremely close. Our Kingdom had a Russian-born queen. The daughter of Tsar Pavel, Anna Pavlovna, granddaughter of Catherine the Great, married our William, the heir to the Dutch throne. She lived in a modest palace, nothing like the huge palaces of St. Petersburg.

We have gotten to the 20th century. The Anglo-Dutch company Shell was one of the first ones to enter the oilfields in Azerbaijan, the world’s largest oilfields in the early 20th century. Together with the Nobel Brothers, they built the oil transport infrastructure that still provides the basis for today’s oil transportation in the Caucasus. They controlled 75 percent of the oil production. Baku was the world’s largest and busiest port with a huge fleet of oil tankers. The Baku-Tbilisi-Batumi railway was built as well as the world’s longest oil pipeline of almost 900 km between Baku and Batumi. The Baku oilfields were of extreme strategic importance during the WWII. Nazi Germany got its oil from Russia, especially during the period from 1939 to 1941 when the Nazi military needed an enormous amount of oil. In 1941, Hitler decided to attack his strategic partner, the Soviet Union, and the Nazi army’s first and foremost goal was to reach Baku to ensure a steady oil supply. We all know how this ended. And we also know how it ended for Shell and the Nobel Brothers. They lost all their assets when the Bolsheviks entered Baku in 1920 and nationalized the oil industry.

Then came 1991 and the fall of the Soviet Union. All big western companies were very eager to enter the Russian market and of course Shell was as well. And Shell liked to do it big so why not take huge shares in new projects? Thus, it became involved in the Sakhalin 2 Oil and Gas Project. Today, it is heavily involved in North Stream 2, a 100 percent offshoot of Gazprom, a Russian company with headquarters in Switzerland, doing business with and in the European Union. Shell is not a shareholder but it provides 10 percent of the financing, just like other major EU players.
Let’s make a trip to Sakhalin. Sakhalin, the largest island of the Russian Federation to the north of Japan, was first put on the map by a Dutchman. Martin de Vries sailed in 1643 from Batavia in the Dutch East Indies to the Kuril Islands and Sakhalin to draw a new map of that exciting part of the world. The first Russians arrived in the 18th century, and the Japanese controlled the southern part of the island. In the late 19th century, Sakhalin became notorious as a “prison island.” The most famous man who visited the island was probably the writer Anton Chekhov, who wrote about the misery of the inmates and their families in 1890.

Apart from the Japanese who refused to sign the takeover by the Soviets, no one seemed interested in the island after the war. On Japanese maps the island is still marked as No Man’s Land. In 1983, Sakhalin appeared on the news again when a South Korean airliner was shot down by mistake by Soviet air defense forces. The Soviets first tried to deny that it had happened, and then claimed that this had been a spy mission. The flight data recordings were finally released ten years after the collapse of the Soviet Union. This tragedy that has almost been forgotten was nevertheless one of the tensest moments of the Cold War. Also, this story reminded me a little of MH17.

The development of the Sakhalin-2 Oil and Gas Project began in the late 80s. In 1991, the Russian state, two Texan oil companies, and Japan’s Mitsui founded a consortium. Shell joined one year later and became the majority shareholder with 55%. The Texan companies sold their shares. Everything went well, and a huge project was launched involving a small town for expat workers, an LNG plant, and a lot of infrastructure.

But then Russia had a new president, and things started to change. Gazprom appeared on the horizon and it advanced quickly. It all happened during the period from 2003 to 2005 when the private oil company Yukos tried to merge with Sibneft, and then suddenly everything changed. Major lawsuit threats were followed by the arrest of Khodorkovski. Yukosneftegas was indirectly taken over by Russia’s largest oil company Rosneft.

Abramovich felt obligated to sell Sibneft to Gazprom for 13 billion dollars. It was then that Gazprom and Rosneft conquered the oil and gas industry in Russia.

However, there was still Sakhalin II owned by the Anglo-Dutch company Shell and two minority Japanese shareholders.

A “useful idiot” was quickly found. The Sakhalin-2 project had a negative impact on the environment. An organization called the Sakhalin Environmental Watch brought up all kind of complaints and claims. The first complaints were about the construction of the LNG plant and the disappearance of pedestrian lanes which made it dangerous for school-age children to use the roads. These were followed by the complaints about the noise produced by heavy vehicles. Moreover, the Dutch who were carrying out the drilling were accused of having caused a decline in freshwater fish populations. Also, it turned out that the population of whales was endangered as well.

Normally, major oil companies or governments of oil-rich counties do not bother with such complaints. Moreover, Shell had had its share of accusations in the past of working with the apartheid regime in South Africa in the 70s and corrupt officials in Nigeria as well as polluting the environment. Consequently, Shell might have seen this as the inevitable side-effect associated with taking risks.

However, having been thrown out of Baku in 1920, they did not quite expect to be thrown out of the new modern post-communist Russia as well. Well they were wrong. In 2006, the Russian Ministry of Natural Resources began showing support for Sakhalin environmentalists. What followed was a threat of a lawsuit by Russia’s government environmental protection agency Rosprirodnadzor. The lawsuit sought 50 billion dollars in damages.
The entire Sakhalin -2 project was worth only about 22 billion dollars.
But of course there was a solution. Shell and its Japanese partners could sell half of their shares to a company called …Gazprom. For how much? For 7.5 billion dollars.

Rosneft has also tried to get some money ($1.5 billion) out of the American companies that were involved in the Sakhalin-1 project. Thus, Rosneft accused Exxon Mobil of extracting some crude oil from the concession area under its control. Eventually, the dispute was settled out of court in 2018.
It is also worth mentioning that Sechin plans to build his own LNG plant on Sakhalin in order to keep up with the Yamal plant of Mikhelson/Novatek and that of Gazprom on Sakhalin.

Meanwhile Shell remains a shareholder in Sakhalin-2, with its stake having been cut by half from 55 to 27.5 percent.

What has become of the “useful idiot,” the Sakhalin Environment Watch?
Well it got a taste of its own medicine when in 2015 Leonardo di Caprio’s Wildlife foundation wanted to give it a grant of 159.000 dollars for its activities in wildlife care on Sakhalin.

The Russian government however made it clear that the Sakhalin Environment Watch had to stop its activities and close down its office in Russia or else be labeled as a “foreign agent.” Having chosen to refuse the grant, the organization keeps fighting for the beautiful wildlife of Sakhalin.

This paper is a continuation of publications on the Kremlin’s subversive activity in Europe prepared by Free Russia Foundation. The first paper, The Kremlin’s Gas Games in Europe, published jointly with the Atlantic Council, looked at Gazprom’s overall current tactics in Europe, including its pipeline plans, energy propaganda, and other policies.

Continue reading Corruption Pipeline: The Threat of Nord Stream 2 to EU Security and Democracy

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Continue reading The new old sanctions: why the U.S. Senate’s decision is so dangerous for Russia

Atlantic Council’s Dinu Patriciu’s Eurasia Center and the Free Russia Foundation presents “The Kremlin’s Gas Games in Europe: Implications for Policy Makers,” a new brief by our expert Ilya Zaslavsky.

Continue reading The Kremlin’s Gas Games in Europe: Implications for Policy Makers