NYT - The Pipes Carry Clout With the Oil

New York Times

http://www.nytimes.com/2006/05/14/weekinreview/14mouawad.html

The Pipes Carry Clout With the Oil

By JAD MOUAWAD

AS energy-rich countries feel empowered by high oil prices, they are increasingly using a blunt instrument to make their influence felt. Call it the power of the pipeline.

New, superlong pipelines are planned for South America, the Middle East, Russia and Africa, and oil-producing countries are using them to forge political alliances, punish foes and extract concessions from customers.

"Pipelines mean political leverage," said Frank A. Verrastro, the director of the energy program at the Center for Strategic and International Studies in Washington.

On a recent visit to Lithuania, Vice President Dick Cheney lambasted Russia for using oil and natural gas as "tools of intimidation and blackmail." Later, on a stopover in Kazakhstan, he urged energy-rich Central Asian nations to bypass Russia altogether when considering pipeline routes to the West.

President Vladimir V. Putin himself made energy security a theme this year in talks with other industrialized nations. But on the day it took over the presidency of the Group of Eight, Russia cut off natural gas supplies to Ukraine over a price dispute, freezing out both its independent-minded neighbor as well as the European Union in the dead of winter.

In the end, a compromise was reached and Ukraine agreed to pay more for its gas, until then subsidized by Russia. But Russia's neighbors also learned a shocking new reality: whoever controls the taps also holds the upper hand.

Transnational pipelines have been around for more than a century, but with low prices and supplies aplenty, they had lost much of their strategic significance over time. Supertankers, first built in the early 1950's, allowed producers to ship anywhere around the world, and freed consumers from the whims of a single seller. About two-thirds of the oil trade is now carried by tankers.

But matters have changed in recent years: higher demand has put pressure on energy networks, supplies have had trouble catching up with consumption, and tensions have risen. Today, every drop counts.

"Pipelines play a critical role in an age of increased tightness in energy markets, terrorist threats to energy infrastructure, and political use of energy resources," said Anne Korin, the co-director of the Institute for the Analysis of Global Security, a research center based in Washington.

Consider the case of Iran, which wants to build a natural gas pipeline to India and is even considering extending the route all the way to China. The project, spanning about 1,600 miles at a cost of $7 billion, would provide Iran with a large market for its substantial gas reserves while helping India meet its growing energy needs. The pipeline would also add to Iran's political clout.

There are drawbacks. The pipeline must run through Pakistan's Baluchistan region, a prospect that worries India given the area's history of lawlessness.

And while Pakistan's current leaders welcome the proposed route because they would also benefit from Iranian gas, a pipeline might afford future governments with a vital means of pressuring India. The United States also strongly opposes the plan. "The last thing the United States wants is for India to be in Iran's debt," Ms. Korin said.

None of this has been lost on Hugo Chávez, the president of Venezuela, who persuaded his neighbors to look at a 6,000-mile pipeline linking his country to Brazil and Argentina. He has named it El Gran Gasoducto del Sur, the Great Gas Pipeline of the South. With a potential cost of $23 billion, the proposal makes little economic sense; it would be much cheaper to build liquefaction terminals and ship the gas by tankers.

But Mr. Chávez's plan is not only meant to transport gas; it also carries a political message. The pipeline should be "considered one of the fundamental steps to South America's integration," according to Petróleos de Venezuela, the state oil company.

Russia has been particularly adept at balancing its economic needs and its role as an energy superpower.

When considering an oil pipeline to the Sea of Japan or straight to China, Russian energy officials waited for two years before committing themselves. China was initially favored, but after much dithering, Russia picked the longer and costlier option to its eastern seaport of Nakhodka, instead of the Chinese route to Daqing. The reason: the plan allows oil exports to Japan as well as to other potential markets, including the United States and eventually China as well.

Then there is the matter of what Mr. Cheney called "blackmail."

Last month, President Putin suggested that Russia might redirect future exports to Asia instead of Europe because of what he called "unprincipled competition" blocking the expansion of Gazprom, Russia's biggest energy company, in Europe.

"To the extent that you are concerned that countries like Russia might be using energy as political tools, one of the best ways to protect yourself is to create alternate pathways to move energy to markets," said Steven Pifer, a deputy assistant secretary of state for European and Eurasian affairs from 2001 to 2004.

In the 1990's, that sort of thinking led energy planners in the United States to support construction of a pipeline to carry oil from the vast reserves of Azerbaijan, Kazakhstan and Uzbekistan, which are all landlocked around the Caspian Sea, through Turkey, while avoiding Russia to the north, as well as Iran, which would have provided the shortest route, to the south.

"In all these cases," Ms. Korin said, "you have a big problem with Central Asia, where there is lots of energy but few politically pleasant and unproblematic ways to get the supplies out if you don't want to be overly reliant on Russia or on Iran."

It took nearly a decade to build the $3.9 billion pipeline, which starts in Baku, the capital of Azerbaijan, snakes through Georgia, and ends at the port of Ceyhan, Turkey. Oil will start flowing this summer.

A big drawback for pipelines is that they are relatively easy targets for terrorists. In Iraq, hundreds of bombings have frozen exports from the northern Kirkuk fields. In Colombia, one pipeline, running from the north to the eastern Caribbean port of Coveñas, has been ruptured by so many attacks in the past two decades that it has been nicknamed "the flute."

But such concerns won't stop new projects. Mr. Pifer, who also worked at the National Security Council where he oversaw Russian affairs under President Clinton, recalled that in the 1990's the United States distributed a bumper sticker around Central Asia. It read, "Happiness is multiple pipelines."