Russian energy deal adds to Europe fears

Stern and others say Russia's gas fields are rapidly being exhausted. There is a real question whether Russia will be able to meet its customers' demands starting around 2010, several experts warn.

"Where are we getting our gas from after then?" Stern said. "That's the problem."

The two agreements signed Friday, worth a total of $2.2 billion, call for construction of a major gas pipeline and storage facilities in Serbia and give the Russian gas monopoly, Gazprom, a majority stake in NIS, Serbia's state oil company.

"This agreement has huge strategic importance for Serbia," Serbian President Boris Tadic said. "It will strengthen Serbia's strategic positions in southeastern Europe, since it will serve as a transit point for gas supplies to the EU's southern flank."

The agreement follows a series of other energy deals that buttressed Russia's role as a crucial energy supplier to Europe.

Just last week, Bulgaria agreed to become a major hub for the South Stream project, a proposed 550-mile underwater pipeline from the southern Russian coast to the Black Sea's western shore. It is expected to cost more than $14.6 billion.

The West becomes worried
In December, Turkmenistan signed a deal with Moscow to build a pipeline that would increase shipments of gas to Russia by 700 billion cubic feet annually — more than the volume consumed by Belgium. That deal guarantees Russia a supply of gas to pump through South Stream.

Some in the West have worried about Russia's potential use of energy as a club after it threatened gas cutoffs to win agreements from several nations in recent years to accept big price increases.

Those pricing disputes with former Soviet countries, including Ukraine, Moldova and Georgia, came at times of political tensions.

Anxiety over Russia's huge role in Europe's energy market peaked in January 2006, when Russia cut gas supplies to Ukraine for 30 hours — shutting off 80 percent of Russian gas shipments to Europe in a pricing dispute. Moscow's relations with Ukraine have been tense since late 2004, when voters elected a pro-Western president.

To settle the dispute, Ukraine was forced to double the price it paid for gas. The deal also opened the door for Gazprom to gain a foothold in Ukraine's domestic energy industry, according to a U.S. Congressional Research Service study.

In the case of Moldova, the crisis ended with Gazprom nearly doubling gas prices and increasing its stake in Moldova's government-controlled pipeline company.

In October, Secretary of State Condoleezza Rice said the U.S. respects Russia's interests.

"But no interest is served if Russia uses its great wealth, its oil and gas wealth, as a political weapon, or that if it treats its independent neighbors as part of some old sphere of influence," she said.

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