Blog: The light at the end of a pipeline? (eng)

The EU, Russian gas wars - (with a little help from the US)

The EU is determined in reducing its energy dependence on Russia gas, regardless of the political costs involved. The EU fears it is open to blackmail by Russia, rather than being seen as a source of revenue.  This fear has intensified as a result of the tensions in Ukraine, despite the 40 years of trade between first the Soviet Union & now Russia. Russian gas supplies to Europe could be reduced by using other alternative energy supplies, but at a high cost.  Equally, EU members states are tangled up with their EU environmental rules.  For instance, Germany itself is moving away from using coal, thereby potentially needing more gas supplies, as well as renewable energy sources to make any shortfall.  The key potential winner & loser in this energy gas security tug of war is Russia.  There are drawsbacks to all of the EU proposals for reducing dependence on Russian gas. 

#Russian #gas supplies to #Europe http://t.co/m08p3tQ22r pic.twitter.com/VTvPaIR4yp
— EBB (@EBB_Biodiesel) November 7, 2014

In autumn 2013, the nerve centre of the EU, the European Commission, started an investigation into the South Stream pipeline project, as it was seen to violate the provisions of the European Union’s Third Energy Package.  This EU rule is designed to stop monopolies, as well as  promote competition & diversification between energy suppliers and transit routes.  This would require a separation in ownership as well.

South Stream project

The EU insistence that any new or amended contracts with Gazprom, need to be subject to the provisions of the Third Energy Package, is proving to be a big headache for the Russian supplier.  This opinion seems to be at odds with the comments from Donald Tusk, President of the European Council,  who stated that "Europe should confront Russia’s monopolistic position with a single European body charged with buying its gas"; effectively one monopoly versus another one, at the expense of each EU member state.

The contested element of the Third Energy Package is that half the capacity of the pipeline is required to be made available to independent suppliers.  The snag in all of this the pipeline is mostly financed by Russian money & Gazprom is the sole supplier & owner.  Thus it would need a special EU exemption to ship gas to Europe. Interestingly similar lively debates took place over the construction of the South Stream's twin, the Nord Stream pipeline, in the Baltic.

In March 2014,The European Commission decided not to exclude part of Nord Stream's pipeline, Opal, ( the German section), from the Third Energy Package. The result is that a 50% pipeline capacity has been set to allow other suppliers to use it.  The problem is no-one else has taken up the spare capacity on the pipeline. Additionally, due to the ongoing geopolitical tensions between the EU & Russia over Ukraine, the European Commission has pushed back the application for an exemption, until January 2015.

Of course, none of this would be the geopolitical hot potato that is it is now, if it wasn't for Ukraine, since it is seen to be a high risk for transit of Russian gas, principally due to the "gas wars" of 2006 & 2009, which left the EU in a highly vulnerable political & energy crisis.  
The tensions in Ukraine is driving the EU to take more action against Russian gas supplies. There is also increasing perception in Brussels & Washington that Russian gas is Putin's choke-hold on the EU.   

The construction of South Stream would negate the Ukrainian transit risk, but so would the political leverage of Ukraine as a transit country. Clearly both the US & the EU are aware of this and hence the EU 'spanners' are being put into the works of the South Stream project, quite probably at the behest of the US Administration.  A glimpse into the US administration's mindset was given by the Hungarian Prime Minister, Vitkor Orban, this week, when he said that the US  was putting pressure on the Hungarian government over the South Stream pipeline.  More direct are the words of Matthew Bryza, the former US ambassador to Azerbaijan, who suggested that:" ‘Europe can do without Russian gas; it is Moscow that cannot afford to carry through its threat.’ President Putin recently remarked that the South Stream delays were of a political character. 

Countries involved with the South Stream project are quite unhappy with the EU's decision to suspend construction & have expressed their “commitment” to it.  The Italians, Austrians, Hungarians, Bulgarians & Serbians remain keen supporters of the project. Hungary & Serbia are now at odds with the EU due to their positions on the implementation of South Stream. Even the Italian government is concerned, as it wants to reduce its reliance on gas from  North Africa, (Libya!).  Italy's state secretary for European affairs, Sandro Gozi stated in an interview in July that:“We think South Stream should go ahead, as it would improve the diversification of gas routes to Europe.” He also added that was a need to first alternative solutions in"how to get fuels," before halting the South Stream project. Ironically so was Federica Mogherini before she became EU foreign policy chief.

Ironically, the EU had previously pushed for the creation of the Nabucco pipeline, connecting gas from the Caspian Sea to Europe. However, it did not receive sufficient political support for it to develop. The EU was not deterred by this setback as it is currently supporting another project - the TAP pipeline, again from the Caspian Sea via Turkey to Europe.  This would enable the EU to diversify its gas supplies, away from Russian gas.

The  knee-jerk reaction by the EU to favor the Nabucco or the TAP pipelines may seem to have some substance.  Nevertheless, it is equally short-sighted, since reducing Russian gas supplies would benefit greatly Turkey, as the alternative gas transit state to Europe. This could also have unforeseen consequences for the EU.  

The narrow focus on  Gazprom as a monopoly shows that the EU is fixated on Russia, since this is not the only monopoly that dominates the EU sphere, take for instance Amazon or Microsoft, who have an unequal slice of the pie.  However they come under less scrutiny than Gazprom these days. Is this a case of blinkered thinking on the part of the EU leadership?


The final word

Vaclav Baruska, the Czech Republic's energy security envoy said, "We simply expect either no transit or unpredictable transit this winter."  Prague evidently knows about the past habits of Ukrainian authorities, the level of corruption which could still jeopardise gas transit through Ukraine.

Background Info

GAS INFRASTRUCTURE -Main European routes are:

Nord Stream (Baltic Sea) with a capacity of 55 bcm per year,
Yamal-Europe (Belarus) – 33 bcm per year,
Soyuz (Ukraine) – 80 bcm per year
and Blue Stream (Turkey) – 16 bcm per year,

http://www.energypost.eu/everything-always-wanted-know-russian-gas-supplies-europe/

Notes:

*The European Union’s Third Energy Package is a legislative package for an internal gas and electricity market in the European Union. Its purpose is to further open up gas and electricity markets in the European Union.

*South Stream:  The project started in 2002, with first deliveries due in 2016, and it was  expected to be fully operational in 2018:
 a capacity of  63 billion cubic metres (bcm) a year;
2400 km in length;
15% of European gas supply market

*Matthew Bryza, director of the International Centre for Defence Studies:
 "Russia would also be jeopardising its long-term position as Europe's principal gas supplier, by allowing the US, Australia and Mozambique to gain a foothold in this lucrative market. Moreover, Russia cannot cut off natural gas flows without doing permanent damage to its own natural gas reservoirs. In short, Europe can do without Russian gas; it is Moscow that cannot afford to carry through its threat. European leaders should not argue themselves out of tougher actions to stop Mr Putin's military adventurism in Europe's east."

*The most likely sources of gas via the TAP would be Azerbaijan,Turkmenistan in the Caspian region, Iran, and the Kurdish area of Iraq. 

*Turkey is in fact one of the largest recipients of Russian gas, with an estimated 24.57 billion cubic metres (bcm) in 2013, which only roughly 10% less than the combined total Russian gas supplied for Austria, Hungary, Poland, Czech Rep & Slovakia.

Sources:

http://www.energypost.eu/mr-tusk-planet-live-century/

http://voiceofrussia.com/news/2014_07_01/Budapest-not-to-refuse-from-South-Stream-project-prime-minister-8032/ 

 Oxford Institute for Energy Studies (OIES),

 http://www.oxfordenergy.org/wpcms/wp-content/uploads/2014/10/NG-92.pdf

 http://www.eurotopics.net/en/home/presseschau/archiv/archiv_dossier/DOSSIER149684-Sanctions-against-Russia-divide-the-EU

 http://russia-insider.com/en/business_society/2014/11/12/09-03-49am/google_amazon_and_apple_less_transparent_gazprom