The Energy Union: An unsteady way to loosen Russia’s grip on gas

The Ukrainian crisis has triggered worries over whether or not Europe’s gas supply could be in jeopardy. The proposed Energy Union could be the way of weaning off Europe’s dependency on Russian gas. However, experts argue that it will take years before the union – if even implemented – would become a game-changer.

“We have all grown used to paying high energy bills as if it were a fact of life, to recurrent threats to our energy supply in winter. […] Yet, far from enough has been done to really tackle these issues,”Maroš Šefčovič, the Vice President of the European Commission in charge of the EU’s energy agenda, stated, when he unveiled the new plans for a European Energy Union on February 25.

Speaking of recurrent threats, the announcement coincided with a new gas conflict between the state-owned Russian company Gazprom and its Ukrainian counterpart Naftogas.

On February 24, Gazprom threatened to cut off gas to Ukraine within a couple of days due to a payment dispute. In the last minute, Ukraine paid some of the outstanding debt, probably to buy time before a mediating meeting between the EU, Ukraine and Russia on March 2.

According to Vice President Šefčovič the outcome of the meeting was satisfying: “I am reassured that the supply of gas to the EU markets remains secure.”

The conflict could have affected European countries, as an important pipeline route runs from Russia through Ukraine to European countries. Gazprom stated that there were “serious” risks to gas transit to Europe via Ukraine.

According to Eurogas, a non-profit organisation to represent the interests of the gas industry, 27% of the EU-28 gas supplies came from Russia in 2013.

EU energy too vulnerable

Back in 2009, the European Parliament agreed to move away from their current reliance on Russia and Ukraine, stating that the countries “had forfeited their status as reliable gas suppliers”.

Before the announcement of the Energy Union, Mr Šefčovič said that the EU should diversify its energy sources and reducing its dependency, especially referring to Russian Gazprom.

“I think that Europe has really got tired of each summer having a discussion of how to make it through the next winter. The world’s biggest economy should not have such concerns in the 21st century,” Mr Šefčovič told the Financial Times, before his announcement of the blueprint for the Energy Union.

Facts: How the Energy Union was born

  • The first idea of a new EU treaty to create a common energy policy was first introduced in 2010.
  • Before Donald Tusk became President of the European Council he called for an “Energy
  • Union”, emphasising the fact that the danger of potential gas crisis needed to be taken into account and therefore creating a gas solidarity between EU member states.
  • On February 25, 2015, the European Commission announced its “Framework Strategy for the Energy Union”, which sets the vision for the project, based on three objectives: security of supply, sustainability and competitiveness.
  • Besides energy, the Energy Union will also affect other policy areas such as climate, transport, trade and foreign policy, among others.

In the draft, the European Commission states: “We import 53% of our energy, which makes us the largest energy importer in the world. Many member states – especially those dependent on a single supplier or a single supply route – remain too vulnerable to supply shocks.”

Gazprom is a reliable supplier

When talking about supply shocks, Brussels often blames Russia for using its energy supplies as a political tool.

However, Katja Yafimava, senior research fellow at Oxford Institute for Energy Studies, underlines that Gazprom has always been a reliable supplier, actually providing 40 years of secure exports.

When talking about former gas crisis between Russia and Ukraine, especially the ones in 2006 and 2009, which resulted in reduced supplies to several European countries, they were transit crisis and thereby not supply crisis.

“There has not been a single incident of Gazprom not meeting its contractual obligations vis-à-vis its customers, which paid in full and on time,” she says.

Learned from mistakes

However, Jean-Claude Juncker, Commission President emphasised that “[f]or too long, energy has been exempt from the fundamental freedoms of our Union. Current events show the stakes – as many Europeans fear they may not have the energy needed to heat their homes.”

One way to wean off Europe’s dependency on single suppliers, including the Russian Gazprom, would be to focus on a new Southern Corridor; a new pipeline that would transport gas from the Caspian Sea to Europe via Turkey.

Pipeline
In 2014, the European Energy Security Strategy identified several future infrastructure projects. However, the Trans Adriatic Pipeline (TAP) is one of the most vital routes in the Southern Gas Corridor. At the moment, TAP is only in its implementation phase, but the construction is planned to begin in 2016. Photo: Wikimedia

A previous EU-backed scheme called Nabucco were also meant to have transported gas from the Caspian Sea to Europe, however, after years of discussion the project was cancelled due to lack of investment and no clear guarantees of enough gas filling the pipes. Šefčovič argued that the lessons are learned and that the new Southern Corridor could be up and running by 2019.

According to Marco Siddi, senior research fellow at the Finnish Institute of International Affairs, the new pipeline is different from the Nabucco-project in terms of a smaller capacity and a shorter route, thus making it more adjustable for future investment.

“This is partially a solution. A smaller capacity will mean that the project maybe will be more realistic to built, however, at the same time it won’t have such a big impact on the EU energy security,” Mr Siddi says.

Impossible to reduce dependency

According to Jonathan Stern, chairman of the Natural Gas Research Programme at Oxford Institute for Energy Studies, overall European dependency on Russian gas is actually impossible to reduce.

EU-28 gas imports from Russia as % in 2013

Photo3 - Maria Danmark
Source: Eurogas, Statistical Report 2014

“There is no way to loosen Russia’s grip on gas because there is no alternative supply other than LNG [Liquefied natural gas] which is already starting to flow into Europe. The only truly new aspect of the Energy Union policy on gas is the announcement of an LNG diversification strategy,” he says and adds:

“The Southern Corridor – whatever the Energy Union document may say – cannot deliver any significant volumes of gas to Europe in addition to the 10 billion cubic metres from Shah Deniz 2 [project to deliver Caspian gas resources to markets in Europe] which will start only in 2019.”

Also, even if the Southern Corridor isn’t the alternative, another obstacle is that many EU member states have long-terms contracts with Gazprom.

28 ways to loose momentum

To sum it up, it’s unclear whether any future Energy Union will measure up to what the EU Commission wants.

As Christian Egenhofer, head of the Energy Programme at The Centre for European Policy Studies, wrote in a comment, there is a risk “that the Energy Union remains a bureaucratic attempt of the Commission to repackage a previously sound but increasingly ailing agenda of an internal energy market.”

Several experts have argued that before the Energy Union can actually happen, the national governments have to cede some of their control over energy decisions to the EU. So far, the national governments have guarded this power very dearly.

According to Mr Siddi, the Energy Union is in lack of governance mechanism in order to coordinate, which is crucial to establish a single energy market. As it is today, the EU has 28 different national energy polies.

“The union won’t be easy to implement. Hungary has already complained about the Commission’s request to review energy agreements with third partners – such as Russia – before they are concluded. This was expected, because Putin just visited the Hungarian Prime Minister. But apart from this, other countries – in a more discrete way – will also object to the this,” he says, referring to bigger member states such as Germany and France.

“At this stage there is a political impetus for the Energy Union, however, there is a long time till 2019. The picture could easily change before then.”

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