door Roderick Kefferpütz
The EU-Russia relationship has never been an easy one. This is particularly the case when it comes to their energy relations, which reached a climax this January. What initially seemed like the traditional annual dispute between Russia and Ukraine quickly degenerated into a veritable pan-European gas crisis lasting for several weeks. During this time thousands of households had to come to grips with a particularly bitter winter and European industry was seriously disrupted.
This historic event took place in the context of a new European energy landscape that has emerged over the past decade and which has been marked by an increasing politicization of what should be more-or-less commercial energy relations. Such politicization has pushed the issue of energy security firmly into the foreign and security policy establishment thereby making it more unpredictable as well as dangerous. Most of these developments can be attributed to the main European gas producer, Russia, although the European Union and Ukraine must also be given their due.
With the accession of Vladimir Putin to the Russian presidency at the end of 1999, Russian energy policy underwent a significant transformation. Putin clearly understood that controlling natural resources translates into power at home and abroad. First, because natural resources provide the state with a substantial share of its revenue and second because the rest of Europe is highly dependent on Russian natural gas imports, which in the Kremlin’s judgement could make it more amenable to Russian interests. This line of thinking is particularly prevalent when it comes to the former Soviet states and Warsaw Pact allies.
As such, the Kremlin effectively consolidated control over the natural gas and pipeline business in order to strengthen Russia’s economic and foreign policy. This is clearly spelled out in Russia’s energy strategy, which emphasises the need to strengthen its market position and maximize export possibilities while also using natural gas supplies to secure Russia’s political interests in Europe and its neighbouring countries. At times, it could even be argued that Russia’s energy strategy uses language akin to military strategy as it calls for the state to support Russian companies in the struggle for resources and markets. Under the Kremlin’s logic this also means by extension that Russian companies must support the state in the struggle for political interests and influence.
In this vein, it is obvious that the continual Russian-Ukrainian gas crises are not only commercial in nature. Moscow is adamant to exercise control over the Ukrainian gas sector and its pipeline infrastructure in order to strengthen its energy position in Europe in general and its ability to influence Kiev’s political situation in particular. A clear, transparent, and economically-sound energy sector would have been better equipped to deal with such a challenge. Instead, the politicised Ukrainian energy business has been a profound liability.
The forces surrounding Yushchenko, Yanukovich and Tymoshenko are continuously jockeying for position, in particular in the run-up to the presidential elections. Ukraine’s opaque energy trade/system is no exception; it is a frontline. Rich Ukrainian oligarchs running the murky energy trade matter; even more in a system where business and politics are inextricably linked. They bankroll election campaigns and can, to some extent, make or break presidents. One example is Dmitri Firtash, a financier of Yanukovich’s Party of the Regions, who partly owned RosUkrEnergo, the shadowy Swiss-based intermediary in the Russian-Ukrainian gas trade which has now to some extent finally been cut out of this business in the wake of the gas crisis. As such, for Tymoshenko, a former gas trader herself, cutting out such oligarchs who finance the opposition’s war-chest from the lucrative energy trade can therefore pay political dividends.
The European Union has not fared much better. This became painstakingly clear during the gas crisis. In spite of the numerous communications and papers regularly published by Brussels on energy security, the EU was not only stunned but also significantly unprepared to react to such a sudden supply shock. Fact of the matter is that instead of using its own natural advantages – those of European integration, transparent markets, competition law, and leadership in efficient and environmentally-friendly technologies – to manage Russia’s foreign energy policy, Brussels has instead directly called Russia’s challenge, playing a game of geopolitics in the energy sphere.
It has done so primarily by stressing its external energy dimension. The European Commission has pushed hard to open foreign access to Russia’s upstream oil and gas fields and to compel Russia to ratify the Energy Charter Treaty (ECT) and its transit protocol, which would open foreign access to Russian pipelines. If the Commission would have fully understood the political developments in Russia’s energy sector it would have realised that these endeavours are nothing but lost causes.
Simultaneously, Brussels has advocated a diversification strategy that aims to access non-Russian natural gas supplies in the Caspian Region through the Nabucco pipeline and in sub-Saharan Africa by promoting a trans-Saharan pipeline that would send Nigerian natural gas northwards into the EU. These options, however, do not come without their own problems. It is uncertain, for example, whether the Nabucco pipeline will be filled with sufficient amounts of natural gas since the only possible supplier at this moment is Azerbaijan, which is regularly receiving Russian offers to buy up all of its supplies. Furthermore, it is highly unlikely that these pipelines would be physically more secure since they are attractive targets for terrorists and rebel groups in both regions. In Turkey alone, for example, there were 13 actual or attempted terrorist attacks on oil and gas pipelines between 2000 and 2007, many by PKK and associated groups. In addition, the political situation in both regions remains far from stable and can also threaten energy infrastructure. This is particularly the case for the Caucasus where the August 2008 Russian-Georgian conflict caused Russian bombs to land in the vicinity of several crucial gas and oil pipelines including South Caucasus and Baku-Supsa.
Last but not least, having new pipelines with non-Russian gas supplies does not insulate the European Union from the fact that these new gas suppliers and transit countries could also one day decide to exert political pressure and influence on the EU with their newfound importance inside the European energy matrix.
The above-mentioned policies pursued by the European Union have so far contributed little to the EU’s energy security. Most worryingly, perhaps, the issue of how to deal with Russia and how to ensure energy security has deeply divided the European Union and given way to national egos. While some member-states such as Germany and Italy believe that good bilateral relations with Russia will buy energy security, others consider a diversification away from Russian gas as the sine qua non to a safe energy supply. This lack of unity has in turn reinforced the European Union’s abysmal performance on the external energy front.
Fact of the matter is that if the European Union continuous to play Russia’s politicized energy game it will lose. Russia is by its very nature much better equipped to play a zero-sum energy stand-off than the European Union.
Instead, in order to ensure its future energy security the European Union must first and foremost bring its own house in order. Currently, the EU natural gas market is marked by a high degree of fragmentation with member-states’ diverse energy markets insulated from each other and dominated by a few vertically-integrated companies. The lack of infrastructure interconnections inside the European Union constrains gas supplies and does not allow them to flow freely. Such a structure does not lend itself for energy solidarity in trying times. The pan-European gas crisis served to illustrate this point. Western European member states were, with minor exceptions, unable to provide their Central and Eastern European counterparts with emergency supplies during this cold winter. Neither did the interruption of natural gas affect them as much as their Eastern neighbours. While the Russian Federation is the source of roughly 40 per cent of the EU’s imported gas, this figure looks quite different when viewed from Central and Eastern Europe alone. The Baltic states, Slovakia and Bulgaria, for example, rely almost entirely on Russian imports to meet their gas needs, with all new member states using imports from Russia to cover at least 60 per cent of their gas consumption.
Consequently, in order to be able to provide true energy solidarity, the European Union must leave behind its balkanized energy structure by encouraging a common European gas market through the construction of gas interconnectors and pipelines equipped with a reverse-flow capability. That is to say, pipelines that are able to send supplies both ways not just from East to West as is predominantly the case today. Not only will an integrated EU energy market be able to provide a first good basis for common energy interests but it will also check Russian cut-offs to some extent as lacking supplies in one member-state could in the short-term be relieved by supplies from other member-states.
Second, the European Union must come to realise that its energy security cannot solely be found abroad but also at home. This is particularly the case considering that it is uncertain whether Gazprom will indeed be able to satisfy Europe’s future gas demand. Here, the deployment of renewable energies and energy efficiency in particular play a crucial role. According to Cambridge Energy Research Associates, the EU could by 2030 cut natural gas consumption by 125 billion cubic metres a year (bcm/y) only by using existing technologies to upgrade European households. This not only increases energy security but it simultaneously mitigates climate change, creates jobs, and saves taxpayers money on their gas bills. Particularly in today’s economic crisis such measures are desperately needed.
The same goes for the external dimension. In foreign energy policy, the European Union is still too often plagued by tunnel-vision believing that a new set of diverse pipelines will be the panacea to its energy worries. Of course having new pipelines with new energy suppliers is beneficial but it can aggravate relations with existing suppliers, create new dependencies, and take away efforts from other foreign energy policies such as the strengthening of efficiency and the development of renewables abroad. Not only are the latter two uncontroversial but they have a significant potential in the post-Soviet space and can provide win-win situations. Rather than pushing Russia to open up its upstream oil and gas fields to the EU, which is a very sensitive issue, the Commission could undertake energy efficiency measures in Russia, thereby freeing up natural gas locked in Russia’s inefficient Soviet-style housing stock for export. This could also increase mutual trust and confidence between both actors, which might alleviate the political tensions surrounding the energy relationship.
Natural gas plays a major role for Europe’s future energy security, particularly in the context of climate change. If European countries want to move away from dirty coal and states, such as Germany, continue with their nuclear phase-out then cleaner-burning natural gas will be needed as a bridging technology for the medium-term while renewables are developed. That means, Russian gas will be increasingly important while we will need to increasingly insulate ourselves from the political side-effects this might have.
As such, in order to secure Europe’s future energy situation in the next decade, the European Union must create a robust and integrated gas market at home that is based on renewables and energy efficiency while seeking trust-building measures with the Russian Federation. Contrary to common opinion, EU foreign policy advances and pipeline politics will not be able to solve the energy conundrum by themselves.
Roderick Kefferpütz is responsible for Energy Security and Russian Affairs at the European Union Office of the Heinrich Böll Foundation
De Helling 2009/3
