The 'energy weapon' can be a double-edged sword
The Daily Star (Lebanon) - February 6th 2009
By Jacek Saryusz-Wolski and Charles Tannock
Has the "energy weapon" of the 1970s - the withholding of energy supplies for political ends - returned? Using oil or gas as a political weapon is easier said than done, of course, but this year's renewal of the Russia-Ukraine gas dispute, and the resulting cutoff of supplies to much of the European Union, should concentrate minds on the EU's need to disarm those who would use the energy weapon.
As a long-term strategy, energy embargoes have always proven futile. Saudi Arabia saw its share of world oil exports drop sharply in the 12 years after the 1973-1974 embargo. The huge price rises of the 1970s became unsustainable because they drove governments in Europe and elsewhere to protect their consumers through higher oil taxes, conservation, and expansion of non-OPEC oil production.
Europe cannot afford to let this history make it complacent. In the wake of the repeated Russia-Ukraine dispute, Europe must react with the same decisiveness to diversify its energy supplies that it demonstrated in the 1970s. As with the Middle Eastern countries, only bitter experience will teach Russia that secure energy supplies are in everyone's interest. The Kremlin will learn that lesson only if Europe designs, adopts, and sticks to an energy strategy that lessens its dependence on Russian supplies and builds its own common foreign policy on energy security, as recommended by the European Parliament's 2007 report.
Gas is arguably more vulnerable than oil to unforeseen supply interruptions. Oil is reasonably easy to trade globally in maritime tankers, whereas in most gas markets the fixed pipeline between gas field and gas burner locks producers and consumers in an exclusive embrace. One task facing Europe now is to make that Russian bear hug less exclusive, which will require a coordinated and sustained effort between the EU's member states and their neighbors on the question of external energy security.
That means building new gas pipelines - such as the Nabucco, Trans-Saharan and White Stream projects - that bypass Russia, and perhaps making their completion a condition for any new Russian pipelines, particularly the controversial trans-Baltic Nordstream pipeline and the South Stream pipeline to the Balkans and Italy. Only by tying the fates of these projects to each other will Russia's potential to disrupt them be dissipated.
Another important internal aspect of an EU energy security policy must be a binding pan-European common energy policy that better coordinates national government infrastructure and distribution projects. Major public as well as private investments will be needed to build links between various national pipeline grids.
These two reforms alone would deprive Russia of its ability to play one country off against another, because a concession granted to one national distributor would immediately become available to customers in all the other countries through enforceable supply contracts clauses and transit protocols overseen by the European Commission. This would be analogous to the role the commission plays in promoting the Trans European Networks for road and rail communications.
Across Europe, energy companies are beginning to realize the benefits of such reforms and are becoming less resistant to them than in the past, when many sought to protect their national markets and ignore the rest of Europe.
Because a market in tradable liquefied natural gas (LNG) is emerging - flows to Europe have more than doubled over the past decade and represent about one-quarter of the world's total cross-border gas trade - Europe will need to invest heavily in new LNG terminals as another alternative to Russian gas. Some $100 billion should be invested over the next decade. This will have big implications for Europe's gas industry and create more transparency in global gas pricing, because it is now possible to import gas from distant producers.
Better integration of Europe's electricity grid is also essential to energy security, because this will allow individual countries to trade freely with each other when some have surpluses and others face shortfalls. For example, the Baltic states need links to the Finnish and Polish grids to end their energy isolation.
The EU Commission does seem to be getting this message. It recently authorized spending 5 billion euros for priority energy projects, including 1.75 billion euros for gas and electricity interconnectors, 1.25 billion euros for carbon capture and gas storage, and 250 million euros for Nabucco. Not enough, of course, but it is a good start.
Beyond these policy actions, Europe also needs to speak with one voice when dealing with monopoly suppliers such as Russia - or, in the future, with an Iran that might one day become linked to the planned Caspian pipelines. Such a single voice would not erode individual countries' sovereign right to determine their energy production mix, in other words the balance between conventional renewables and nuclear power, as some Euroskeptics claim; it is simply common sense between countries determined to defend their common security.
Energy security in Europe ultimately depends on recognizing that, due to the linked natures of our energy supply and transmission systems, the EU and our neighbors must depend on each other. Thus a strengthened EU energy solidarity is vital, with every country in Europe helping via binding "solidarity clauses" to guarantee the energy supplies of others in an emergency - whether that emergency is deliberate or accidental. The European Energy Charter, which emphasizes market access and transparency, though laudable, is insufficient in moments of crisis when markets are at their worst.
Europe's leaders have a duty to tell their peoples what needs to be done to ensure a secure energy future. Those who refuse to put tough choices to their publics may have an easier time now, but when catastrophe strikes, they will lose credibility and legitimacy. For Europe's energy future, today is the moment for tough decisions.
Jacek Saryusz-Wolski is chairman of the Foreign Affairs Committee and energy security rapporteur in the European Parliament; Charles Tannock is Conservative foreign affairs spokesman in the European Parliament and vice-chairman of the European Parliament delegation for relations with Ukraine.