The Other Energy Crisis: Europe's Increasing Dependence on Russian Natural Gas
DEVELOPMENTS
Despite the end of the Cold War in the early 1990s, relations between the West and Russia remain critically important to global peace, security, and prosperity today. Sustained and predictable dialogue between the two is essential to ensuring cooperation on a host of global issues, from trade to climate change to conflict resolution. As part of the latest discussions, the European Union (EU) and Russia launched talks in early July 2008 on a new partnership between Brussels and Moscow. A new agreement is especially important now, given recent developments such as the enlargement of the EU, the leadership transition in Moscow, and changed global dynamics which see Russia playing a far more assertive role in world affairs than in the recent past.
A central focus of EU-Russia relations is energy security, given that nearly 30% of the EU’s oil imports and 50% of Europe’s natural gas imports presently come from Russia. These numbers are set to rise rapidly over the coming years. Dependence on Russian natural gas is particularly pronounced for the EU, as the Kremlin has a monopoly on gas pipelines into Europe and continues to prevent the emergence of a common EU stance on energy issues by making lucrative gas deals with individual member states. While Russia is no longer the ideological enemy it was during Soviet times, dependence on Russian energy lessens the influence of Europe (which is aligned with the U.S. on a variety of issues) over a resurgent, and at times antagonistic, Russia.
At the same time, Russia is dependent on its customers in Europe: more than 50% of Russia’s energy exports are traded with the European block, providing a substantial portion of Russian economy. Russia needs the revenues from the European market and the funding and expertise that Europe can provide to its crumbling and inefficient gas industry.
BACKGROUND
Natural gas is an efficient fuel that is used primarily in the West for heating purposes. Over 25% of known global natural gas reserves are on Russian territory, which gives Russia significant leverage over westward supply, especially because Moscow also controls most of the pipelines that connect additional gas fields in Central Asia to Europe. After the anarchic process of privatization in post-Soviet Russia during the Yeltsin period, the government has now taken complete control of the gas industry through the state-owned monopoly, Gazprom (of which Russia’s new President Dmitry Medvedev is chairman). As a result, European dependency on Kremlin controlled gas has been growing over the years, with the inevitable result that supply has metamorphosed from an economic into a political and strategic issue. Disputes between Russia and its Western neighbors in Europe have led to supply disruptions on numerous occasions: Latvia, Lithuania and Ukraine have all experienced gas crises as a result of disputes with Moscow. By one assessment, political considerations played a part in more than half of the disruptions to Russian gas supplies between 1991 and early 2006.
Europe, therefore, is seeking to build additional energy pipelines that do not traverse Russia, such as the Nabucco pipeline, which will carry gas from Turkey to Austria via Bulgaria, Romania and Hungary. However, the Nabucco construction process will take years, will be dependent on gas from other countries with which Europe has difficult political relationships, such as Iran, and due to supply constraints will not provide a direct alternative for Russian gas resources. Moreover, Russia itself is constructing a $15 billion South Stream pipeline to carry gas across the Black Sea to central Europe via the Balkans (to which several European countries have already signed up), and the Nord Stream pipeline in the Baltic, strongly supported by Germany. Gazprom insists further that it should be allowed to invest in downstream European energy distribution networks, stoking European fears of even greater reliance on Russian controlled gas.
ANALYSIS
Progress on this issue requires recognition that there is both mutual distrust and a mutual dependence between the EU and Russia. A coherent European policy towards this issue will only develop through selectivity and prioritization. Not unlike the various strategies the United States is beginning to use to reduce its own dependence on energy from unstable or unfriendly regimes, Europe needs a multifaceted approach to engagement with Russia.
First, the European energy market is presently fragmented along national lines and dominated by a few large firms. Liberalization and integration would improve Europe’s energy security by fostering gas supply diversity, especially in those Eastern European countries that are highly dependent on Russia. It would also allow for the development of a common European policy on natural gas, preventing the plethora of current and often contradictory national policies.
Second, there is little alternative to Russian gas supplies over the short and medium-term. At the same time, lack of Russian funding in the industry will prevent the development of reserves that Europe needs in the long-term. An opening up of the Russian energy sector through the EU Energy Charter (a 1994 agreement not yet ratified by Russia that aims to strengthen the rule of law on energy issues and would allow European countries to invest in the Russian energy sector) would encourage upstream investment in Russian gas infrastructure, thereby improving future supply stability.
Third, alternative delivery options will require further exploration. More attention must also be paid to the security of pipelines and shipping for gas transportation. The North Atlantic Treaty Association (NATO) increasingly sees energy security as a central concern for the alliance, and NATO members are now beginning to think about how to leverage and potentially expand existing cooperation fora and operations to prevent and mitigate energy crises.
Finally, support for good governance, transparency, and economic diversification, through mechanisms such as the EU Neighborhood Policy in the Black Sea region or a ‘modernization alliance’ with Russia, will be essential. Europe must work closely with its allies around the world, including the U.S., to ensure that energy security is maintained through political and economic stability in those countries that produce and transport natural gas.
European leaders will meet their counterparts from the Kremlin again in September to continue discussions on the parameters of the new EU-Russian partnership. In preparation, serious and constructive debate on energy security and natural gas supply considerations must take place within the EU and with European allies such as the U.S. Given ever increasing energy demand, collaborative efforts to develop a sound approach to dealing with Russia over the coming years is essential, not only for European energy security but also as a platform for a renewed and constructive foreign policy from the next administration in the United States.
Mr. Glencorse is a Senior Associate at the Institute for State Effectiveness (ISE), and represented the United Kingdom at the Young Atlanticist Summit, held in conjunction with the NATO Summit in Bucharest, in March 2008.