Integration and Dis-Integration and the Natural Gas Market in post-Soviet Countries 1989-2001

Diplomarbeit von Sven Grählert

Abstract:

Integration and Dis-Integration or Dis-Integration and Integration or Dis-Integration and Re-Integration can be quite a word play. The Dis-Integration of the former Soviet Union (FSU) in the early 1990s marks a serious and unprecedented development in modern history. It was a break-up of the Union of Socialist Soviet Republics into fifteen newly independent states. Hereby, twelve states formed the Commonwealth of Independent States (CIS), a structure that was to keep some order over the break-up. Three countries – the Baltics – announced their total independence and declared no will to be part of the CIS. A later Integration or Re-Integration within the CIS is being actively discussed and debated up to now.

Several theories have evolved on the future of the region. Huntington’s thesis predicts the ‘Clash of Civilizations’. He argues that the future battle over world politics will be over religious and cultural factors. Huntington predicts a split-up of the world along religious lines. In turn, Duncan rejects religion to be a factor in the current developments of the CIS. He limits Kuzio’s idea of a division between the CIS into ‘radicals’ and ‘pragmatists’ among the two groups – the ‘Westernizers’ and ‘Slavophiles’.

Duncan concludes that there is generally a shift towards pragmatism in the foreign policies of the member states of the FSU. Disillusionment with the West is widespread. Most important factors that make countries tend towards a Westernist’ or Eurasianist’ course are linked to ethnicity and conflict. The author views the political regime and economic reforms are less important. Other studies focus more on the relationship between Russia and the other CIS countries. Alexandrova’s arguments support the trend towards pragmatism. She adds that Moscow gave up the concept of re-integration, which it was convinced of in the first years of transition. Russia’s foreign policy from Yeltsin to Putin shifted from Multilateralism to Bilateralism. Russian capital, invested in the near-abroad, is seen as a strong instrument to influence other CIS states and force them to Moscow’s security policy.

Another -less recent- study on „Integration and Disintegration” from 1997 by authors of Brown University/U.S. and institutes from five newly independent states gives some outlook over the future ten years until 2006. Base for discussion were four rather extreme and abstract scenarios. Researchers and other experts from the region specialising in politics and security were confronted with the scenarios and asked to discuss and express their views on the future of the CIS. Economics did not play a major role in their debates over the tendencies within the region. In my work I will demonstrate that the energy sector, particularly the natural gas sector, plays an essential role in re-integrative tendencies. Logically, the largest successor of the FSU, the Russian Federation, plays a dominant role.

As part of my work I will review prices for natural gas in the CIS. Applying the theory of Purchasing Power Parity (PPP) enables me to compare prices internationally. Unfortunately, the data limit allows only a rough comparison. However, it supports trends developed in prior sections of the work. A statistical analysis is not used due to the insufficient data set.

The structure of my dissertation is as following: Section 2 summarizes the theoretical framework regarding integration and disintegration, based on findings of the 1997-study by authors of Brown University. In the progress of the dissertation I will illustrate that findings of the latter study are close to reality even today. After explaining the theoretical framework I will outline the hypothesis of my work. At the end of that section I will give an overview of the factors that lead to the disintegration of the Soviet Union. I will then relate the impact on the natural gas sector across the region. It is the outset on which the later work builds on.

In Section 3 I will describe the creation of a new CIS market for natural gas on three levels driven by the Russian Federation. Given the fact that the natural gas industries in the CIS are mostly state regulated, shedding light upon the inter-governmental dimension will explain policies and -most importantly- Russia’s motivation. What strategies has Moscow developed over the years in terms of controlling this sector? A further look at the inter-company dimension will picture the main players –large corporations- that are producing, transporting and distributing natural gas throughout the region. It will support the tendencies about Russia’s role developed in the beginning of the section. That dimension will illustrate the companies’ role as the players on the domestic Russian and foreign ‘near-abroad’ market. The third part of the section will be a basic price analysis, discussing the available data set. Do prices serve to understand evolving market mechanisms and tendencies towards re-integration within the CIS?

Section 4 summarizes the findings of my work. I will put together the ‘pieces’ in Russia’s natural gas ‘puzzle’.

Table of Contents:

1.	INTRODUCTION	7
1.1	Theories	7
1.2	The Natural Gas Sector	8
1.3	Countries Covered	9
1.4	Data	9
1.5	Methodology	10
1.6	Plan	10
2.	ONE THEORY OF INTEGRATION AND DIS-INTEGRATION IN POST-SOVIET COUNTRIES	11
2.1	Expectations of Experts of the Various Countries	12
2.1.1	Georgia	12
2.1.2	Ukraine	12
2.1.3	Belarus	13
2.1.4	Turkmenistan	14
2.1.5	Kazakstan	15
2.1.6	Russia	15
2.2	A Cross-Country Picture	16
2.3	Relevance of the Study Regarding the Natural Gas Market	17
2.4	Dis-Integration of the Soviet Union and the Natural Gas Market	18
3.	RE-INTEGRATION OF THE CIS NATURAL GAS MARKET	21
3.1	Inter-Governmental Dimension	21
3.1.1	Grouping the Countries	21
3.1.2	Main CIS – Natural Gas Export Markets	23
3.1.2.1	Turkmenistan – Iran	23
3.1.2.2	Russia – South-Eastern Europe and Turkey	24
3.1.2.3	Russia – Europe	25
3.1.2.4	Russia – China	28
3.1.3	The Countries as ‘Pieces’ in Russia’s Natural Gas ‘Puzzle’?	30
3.2	The Inter-Company Dimension	31
3.2.1	Brief Portraits of the Players	32
3.2.1.1	Gazprom	32
3.2.1.2	Itera	33
3.2.1.3	The Independent Gas Producers	35
3.2.1.4	The Oil Companies	35
3.2.2	The Players Acting in the Strategic CIS	36
3.2.2.1	In Georgia and Turkmenistan to the South and South-West	36
3.2.2.2	In Turkmenistan and Kazakstan to the South-East and East	38
3.2.2.3	In Ukraine and Belarus for Access to the West	39
3.2.3	Restructuring of the Russian Monopoly	41
3.2.4	Changes with the Reforms	42
3.3	Prices	44
3.3.1	Data	44
3.3.2	Purchasing Power Parity	45
3.3.3	Russia’s Domestic Market	47
3.3.3.1	A Start to Deregulate Prices	48
3.3.3.2	Low versus International Prices?	51
3.3.4	Russia’s Export Market to the Near-Abroad	53
3.3.4.1	Comparison on FSU – Level	53
3.3.4.2	Comparison with Far-Abroad	54
3.3.4.3	Comparison with Russia’s Domestic Market	55
4.	CONCLUSION	58
5.	APPENDIX	61
5.1	Data	61
5.2	Literature	72