In this month’s regional report, Dr. Hooman Peimani analyses Europe and the Mediterranean, with a view to assessing this area’s changing status in the global energy mix. He describes how these regions have lost their pre-eminence in terms of pipeline activity and energy consumed. Turn to page 12 for insight into those EU/Med pipeline projects that still matter, and why.
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This month I read an interesting article about the European energy market and how pan-European flows could greatly benefit regional energy efficiency and independence.1 The article explores the possibility that European nations could co-operate on a common energy policy, with one single internal energy market for gas and electricity – a bit like the recently-agreed banking union in Europe.
This is the situation that the Prime Minister of Poland, Donald Tusk, is currently pushing for on his diplomatic tour of the EU. He imagines European nations working together to negotiate gas supply deals with, say, Gazprom, with cross-border gas and electricity infrastructure encouraging greater competition from supply sources, and a general convergence and settling of prices as the market becomes unified.
Tusk is keen that individual nations do not continue to negotiate separately with Russia. The ‘divide and conquer’ routine has been working well for Gazprom, which negotiates individual contracts with European nations, often in secret.
The idea of a secure, powerful European Energy union is enticing to those concerned about European dependence on Russian gas, not to mention those who see the US becoming increasingly independent during its shale boom: Europe wants some of that energy security!
Even if we assume that the single energy market concept would not break international competition law (something the European Commission doubts), it certainly wouldn’t be an easy sell. Might losing the chance to negotiate under their own terms turn some European countries away from any such policy? Is the energy security to be gained a more rewarding prospect than the benefits of going it alone? Let’s not forget that each country has its own history of making deals with gas providers: some currently buy gas from Gazprom at a reduction of 30% compared to others.
At the time of writing, the European Union is considering stiffer sanctions against Russia, following an escalation of the conflict in Ukraine, and the tragic downing of Malaysia Airlines’ flight MH17. While European Union Energy Commissioner Guenther Oettinger has spoken against imposing sanctions on Russian oil and gas supplies, he has raised the possibility of restricting the sharing of western technologies for extracting and producing hard to reach reserves.
Restricting energy trade with Russia would surely be a last resort for Europe, which still relies heavily on Russian energy sources. One third of Europe’s gas comes from Russia, with half of that flowing through Ukraine. Ukraine is the world’s largest transit country for gas – it is of huge significance in the scheme of things.
Perhaps the solution lies in diversification of supply, greater storage efforts and concurrent national policies to extract gas domestically wherever possible. Prime Minister Tusk, for example, has plenty of shale reserves in the ground in Poland he could concentrate on, rather than his utopian energy market musings. As The Economist2 pointed out earlier this year, “even good interconnection is only a solution for as long as there are gas supplies to feed the interconnectors”.
1. ‘Pipe dream’, by Christian Oliver, Financial Times, 10 July 2014, p9.