The Default Line: THE INSIDE STORY OF PEOPLE, BANKS AND ENTIRE NATIONS ON THE EDGE (52 page)

There is a manufactured bleakness to Novi Urengoy. Here, all aspects of life – accommodation, healthcare, the local TV channel, banking – are run by Gazprom. The old Soviet-style propaganda has been replaced by Gazprom TV, which broadcasts the company’s message into Urengoy’s homes every day. A Gazprom ‘chef’ explains the company’s recipe for success: Urengoy’s gas is filtered, dried and compressed before being pumped into pipelines going west. But why does a gas company need a TV station?

‘Gazprom TV has existed for fifteen years – the leadership of the company has never questioned why we exist,’ Yana Sukhushina, the editor of Gazprom TV Project 24 tells me. ‘We are fulfilling our function to tell as many people as possible what we do and why the company is needed. This is Gazprom town. If the company wasn’t here, the town wouldn’t be here. So there’s no question we need Gazprom TV,’ she says.

There is even a Gazprom matron, who offers the gasworkers hydrotherapy. In Novi Urengoy, everything is driven by the gas giant. It is almost impossible to get beyond the airport without an official invitation. The Gazprom standard has replaced the hammer and sickle. This really is Gazpromgrad.

And what goes for Novi Urengoy goes for Russia. Under President Vladimir Putin’s careful watch, this unified state-owned gas super-monopoly was shaped to drive Russia’s economy. Lucrative assets of private-sector energy companies such as Yukos were seized and sold to Gazprom. The Russian Duma (parliament) voted to pass a law protecting Gazprom’s monopoly from all competition. Dmitry Medvedev, Putin’s deputy PM from 2005 to 2008 and temporary successor as president (2008–12) doubled up as Gazprom’s chairman. In some years, Gazprom has been responsible for over a quarter of all taxes paid in Russia, and for a tenth of Russia’s GDP. Gazprom bought banks, TV stations formerly critical of the Putin regime, and even anchored a successful bid for the 2014 Winter Olympics in the Black Sea city of Sochi, close to the president’s holiday residence. The Sochi games look likely to be the most expensive Games ever. The rise and rise of Gazprom is no accident. The subject of Putin’s doctoral thesis at the St Petersburg Mining Institute was
‘
The Strategic Planning of Regional Resources Under the Formation of Market Relations’. In it, he argued for the creation of an organisation that would champion Russia’s national energy reserves. Two decades on, President Putin regularly expresses his pride in having constructed Gazprom from the chaotic and mainly corrupt privatisations that followed the collapse of the Soviet Union. Gazprom controls a fifth of total world reserves of gas. If Novi Urengoy is Gazpromgrad, then Russia itself is Gazpromland.

So the state socialism of the Soviet era was simply replaced by a new brand of Kremlin-commanded capitalism. At first Putin played his cards well. During the world boom, he used Russia’s gas and oil revenues to pay off almost its entire national debt. Indeed, he also paid off, early, all the lingering bad debts from the Soviet Union. By 2008, Russia’s national debt (the entire stock of accumulated deficits throughout its history) was just 8.5 per cent, a smaller proportion of its economy than the UK’s deficit in just that one year. All of this came from selling Russia’s hydrocarbons to the world. But just trading hydrocarbon was not enough. Gazprom pursued a strategy of trading gas concessions for access to higher-profit businesses further down Europe’s gas-supply chain.

The paradox is that, much as Western governments fear Gazprom’s long-term strategy, Gazprom needs Western capital to reach the deeper-lying gas. Russia has launched a charm offensive to show off the brand-new facilities it has built in the most inhospitable of environments.

Almost pure methane hisses out of the ground at remarkable pressure at the Pestovoy sub-field, north of the Arctic Circle and the most remote of sixteen stations at Urengoy. ‘Here we can do it ourselves,’ Dmitri Nureyev, one of the managers at Pestovoy number 16, told me. ‘We’ve started producing gas and we’ve almost reached our target. But for some of the deep-lying deposits, if we had foreign partners to help with development and production, we’d welcome that.’

For years German industrial strategy has been to reserve their spot of this resource real estate. Russia fuels German industry with a flow of gas that was uninterrupted even during the Cold War. Russia and German companies have been trading Europe’s energy system like schoolboys playing Top Trumps. Chunks of Germany’s internal energy-delivery system have been swapped for access to the hydrocarbon-rich deep deposits near Urengoy. This gas from the Achimov Formation of western Siberia is particularly hard to get at, existing as it does in high-pressure reservoirs in Jurassic rock formations over 3 kilometres underground. After marrying German deep-drilling expertise with Russian knowledge of operating in the permafrost, the German company BASF swapped its entire gas-storage business and also its gas-trading business for access to more Achimov exploration blocks. Thus Gazprom gained ownership of the largest gas-storage facility in western Europe.

In 2005, just before he left office, Chancellor Gerhard Schröder of Germany signed a deal with Gazprom to build the controversial Nord Stream pipeline, which connects Russia directly to Germany underneath the Baltic Sea. With a length of 1,222 kilometres, Nord Stream is the longest undersea pipeline in the world and thus its construction was a major undertaking – but it helped Russia bypass troublesome transit countries such as the Ukraine. Shortly after leaving politics, Mr Schröder became chairman of the same Gazprom pipeline project. Gazprom even sponsored one of his local football teams.

In Estonia, one of Russia’s small Baltic neighbours, Prime Minister Andrus Ansip warns against depending on Russia for one’s energy supplies. His nation, the wealthiest of the ex-Soviet republics, is 100 per cent reliant on Gazprom’s gas. As he shows me around the high-tech Cabinet room, he points briefly to paintings of the numerous Estonian victims of Nazi occupation. But he takes more time in showing me portraits of leading Estonians jailed and killed under the years of Soviet rule. ‘We know that Russia is using its gas as an argument in foreign policy,’ he tells me, ‘[the 2006 Ukraine cut-off] wasn’t a wake-up call for Estonia because we had those conflicts already in 1992’.Since breaking away from the Soviet Union, Estonia has moved closer and closer to the West, eventually joining both the EU and NATO. At the same time, relations with Russia deteriorated, and among the many bones of contention has been the impact of the Nord Stream pipeline on the sensitive environment of the Baltic Sea. For its part, Russia has from time to time tightened the screws on Estonia, for example launching a crippling cyberwar campaign against its small neighbour in April 2007 in retaliation for the relocation of a Soviet war memorial.

The thrust of Putin’s policies, since his accession to the Russian presidency in 2000, shows how energy becomes power. For Russia, the strategy stretches well beyond gas. Gazprom is just one string to Putin’s bow. In 2004 domestic and foreign oil businesses were subsumed into the state-owned company Rosneft, which by 2012 had become the biggest oil company in the world. And it is not just hydrocarbon that Putin is interested in. Russia has also cornered the market for enriched uranium, crucial to the boom in nuclear power that many see on the horizon.

Russia, it would seen, has all the cards. Its confidence in the power bestowed upon it by its energy resources was reflected in comments made to me by Gazprom’s Alexander Medvedev just months after the first cut-off of gas to Ukraine in 2006. ‘If they want to attack the system of long-term contracts or artificially diminish the role of Gazprom, there is a question,’ he said. ‘Exactly how will the objective demand be met? Where are the major sources in the long run? There’s no substitute for Russian, Iranian and Qatari gas in the long term.’

Events were to show, however, that Russia has overplayed its hand. The threatening noises emerging from Moscow were noted and acted upon by Russia’s main energy customers in western Europe. After 2007, Europe diversified its supplies, sucking in more gas from Norwegian pipelines and on ships from Qatar, undermining the fixed prices being charged by Russia. Gazprom’s customers began to hit back, renegotiating $8 billion of price cuts in 2012. Western energy executives who visited the thirty-fifth-floor glass pyramid in Moscow described Gazprom as a ‘wounded Russian bear’ – one that was in ‘a bad way’. As for Gazprom’s ambition to become a trillion-dollar company – well, at the end of 2012 it weighed in at just one-tenth of that, fourteen places off the top spot of global corporations.

But Russia had flexed its muscles: in its own mind, it had regained world attention and respect. Western economies are as addicted to carbon as ever, and the emerging economies of the East are developing the habit. Russia continues to push for co-ordination of global gas suppliers in an embryonic price-and-quota-setting gas cartel modelled on OPEC. Gazprom’s Medvedev once threatened that such a cartel would be more powerful than OPEC itself. The members of the Gas Exporting Countries Forum (GECF), including Russia, Iran and Algeria, together control three-quarters of the world’s reserves of natural gas and are responsible for more than two-fifths of its production. Their efforts are undermined by Qatar pouring its tankers full of gas onto world markets. The GECF’s ambitions have been further thwarted by American exploitation of substantial US reserves of shale gas, which are providing the world’s biggest gas consumer with its own degree of energy independence. In the Gulf of Mexico and on America’s western seaboard, terminals built for liquefied natural gas imports, are now being converted to handle potential gas exports. Manufacturing is being reshored to America, with the promise of cheaper indigenous energy. The US actually overtook Russia as a producer of gas.

But the GECF may take comfort from the fact that OPEC itself did not acquire global reach overnight, being largely ignored for over a decade following its birth in Baghdad in 1960, after efforts from the powerful ‘Seven Sisters’ (the cartel of Western oil companies that dominated the global oil industry from the mid-1940s to the 1970s) to drive down crude oil prices. Gas molecules are, however, less fungible, and so less tradable than barrels of oil.

And what about OPEC itself? Russia periodically flirts with joining – or at least likes to give that impression. A leading Russian oil executive, who did not wish to be named, believes an OPEC that included Russia would control 51 per cent of the crude oil market and ‘define the oil price’. But at Rosneft, the state-owned giant, they say they are still waiting for an offer from OPEC that would compensate for the risks of cutting production. After a crash in world oil prices in 2008, Russia even hinted it might limit oil production to help OPEC. Russia has clearly benefited from OPEC’s decision in 2005 to abandon its policy of keeping oil prices around $25 per barrel, a policy it had maintained for half a decade. In the years after the financial crisis, that price has been volatile, but typically closer to $100 a barrel.

Some say the power and influence of Gazprom and Rosneft shows Russia is becoming a shady petrostate. The Kremlin retorts that supplies of gas have never stopped flowing to western Europe. It’s all just part of the hard bargain the New Russia is driving with the West. Why, the Kremlin argues, should Russia not use its natural resources to usher in a new golden age for the country?

From the Kurdish mountains to deep below Siberia economic currents are flowing that will determine how much extra western European households will pay just to keep warm: in Norway, Qatar, off the Falkland Islands, and in the shale deposits underneath the USA and eastern Europe.

Further east the global energy battle is claiming a different type of Western victim: the fight against climate change.

In the eastern Indian state of West Bengal they call electricity ‘current’ – and that current is flowing to entirely new places, with consequences well beyond India’s poor. Purandar village in the Ganges Delta is the frontier of India’s expanding electricity grid. When I came here in January 2010, just six months after the main power line reached the village, I witnessed another household being connected to the grid for the first time. Palan Halder and his family were joining the ranks of 500 million Indians with access to electricity – but there remain another 500 million who are still without.

In this part of the world, electricity is still enough of a novelty to warrant a Hindu blessing, involving the scattering of petals and religious chanting. For Palan Halder and his family it has been a two-year wait. Now their household will be lit by light bulbs, cooled by a fan, entertained by a television. Palan’s wife will have the chance to earn extra money by stitching saris using an electric sewing machine. His pride, though, is tempered by the thought of the half billion Indians still without power. ‘I don’t like that,’ he says. ‘I want to see that everyone has electricity.’

The pylons continue along the roads into the Sundarbans, a vast wilderness of rivers, creeks and mangrove forest that straddles the border with Bangladesh. Yet even beyond the point where the roads and the pylons stop, on the forested islands of the Ganges Delta, the energy revolution is still visible. Farmer Rabindranath Mondal has shelled out 14,000 rupees (around £200) for a subsidised solar panel. ‘There’s no electricity here,’ he tells me. ‘You can only have solar power here, though it’s very costly. But,’ he proudly adds, ‘we do have a TV set.’ Mondal’s household is just one of 20 million that the Indian government hopes to provide with solar power over the next decade. But it won’t be enough for everybody.

Most people come to the Sundarbans hoping to catch a glimpse of the increasingly rare – and sometimes man-eating – tigers that lurk in this mosaic of forest and water. When I visited, I was hunting for another big beast, a politician and economist called Jairam Ramesh. Ramesh was at the time India’s environment minister, and thus the man at the fault line between the country’s push for economic growth, and the impact that push is having on the environment. A former power minister, he was India’s chief negotiator at the failed climate-change talks in Copenhagen in 2009. ‘We want to be an
affluent
society,’ he told me when I tracked him down, wandering through the Project Tiger reserve. ‘We don’t want to be an
effluent
society, which is what the Western countries are.’ I ask him if half a billion Indians will get access to electricity. ‘Absolutely. Not half a billion. One billion Indians must have access to the modern standards of living – you can’t condemn half a billion Indians to the Stone Age.’ And how exactly will all this electricity be provided? ‘Even with all the nuclear, with all the hydro, with all the solar and all the wind and other wonderful sources of energy that we will have, 50 per cent of the power that we generate will still have to come from coal,’ he asserts, thumping the side of the Tiger watchtower to emphasise each word.