By Constantinos Hadjistassou
The Russian Federation’s annexation of the Crimea has reawakened the spectre of EU energy security, bringing back memories of the 2006 and 2009 energy rows between Russia and the Ukraine.
The 2009 dispute resulted in the cutting off of natural gas supply to eastern European countries, such as Romania, Bulgaria and Poland. It was the first time that the flow of natural gas from the Soviet pipeline grid to European countries was completely shut down.
The hampered flow of natural gas dealt an irreversible blow to Russia’s credibility; Russia was stigmatized as using gas as a tool for political and economic blackmail.
The move also raised questions as to the uncertainty of gas supply and the fickleness of energy contracts. Certainly the relationship between Russia and Europe is mutual.
On the one hand, Russia to a large degree depends financially on oil and natural gas exports, which account for 70 per cent of its exports and for 50 per cent of the revenues of the federal budget. On the other hand, Russian natural gas imports account for about 30 per cent of the EU’s energy needs.
Although much is made of the EU’s dependence on Russian energy, there is no doubt – and this can be documented – that Russia is financially reliant on the EU.
In this respect Russia understands that it is not in its interest to disrupt its relatively good relations with EU countries, its major trading partners. Otherwise stated, keeping a balance is key to both sides.
It’s also noteworthy that although the EU imports 35 per cent of its oil needs and only 30 per cent of its natural gas needs, the bloc is almost exclusively preoccupied with natural gas.
This can be explained by the fact that supplies of oil (and petroleum by-products) may be secured from alternative sources should Russia halt sales to the EU. Moreover, oil can easily be transported aboard tankers, from oil fields to refineries and then onto points of consumption.
Even more significantly, Saudi Arabia, the largest OPEC oil producer, is a swing producer and is able to step into a supply vacuum and prevent a shortage.
Something along those lines occurred in the price row during the 1979 oil crisis, when oil production was scaled back with the outbreak of the Iraq-Iran war.
By contrast, natural gas is chiefly transported via pipeline, and in the event of reduced flows it is very difficult to make up for shortages.
In the wake of the Russia-Ukraine energy crisis of 2009, the EU placed a great deal of emphasis on beefing up its energy security.
In brief, the EU’s so-called “third energy package” consisted of expanding the links among the European natural gas pipeline network, ensuring two-way flows of natural gas in the pipelines, expanding the connections in the electricity grid, diversification of supply and energy-saving.
On a national level, countries like Poland and Lithuania have gone ahead with building liquefied natural gas-receiving terminals, while other countries such as Latvia have increased their natural gas storage capacity.
The numbers prove, however, that the EU is still a ways off from achieving its stated goal of energy security. By way of example, today Bulgaria imports 89 per cent of its natural gas needs from Russia; Slovakia 83 per cent; Greece 56 per cent; and Estonia 100 per cent.
Given this balance, the EU should reassess its energy policy with regard to natural gas imports, in relation to energy routes, quantities, costs and suppliers.
The United States, its confidence growing as a result of a surge in shale oil and gas production from fracking, is pressing the EU to wean itself off Russian natural gas in order to isolate Russia.
The EU, however, recognizing that its short-term options for replenishing its energy needs are limited, has justifiably opted for a more moderate stance toward Russia.
While the energy crisis between the Ukraine and Russia over price rows and outstanding payments is in full swing, the interruption of natural gas supplies to the Ukraine – and to Europe by extension – remains a clear and present danger.
Under the circumstances, what preventative steps can the EU take to mitigate the risks?
One step could be to continue operating the nuclear power plants which Germany has promised to shut down by 2022. Another would be to use coal for electricity generation, as well as broadening the use of renewable energy sources.
Lifting inter-state restrictions on the transport of electrical power could also cover any extra electricity needs that may arise. Then there are energy-saving measures, such as encouraging people to modify their consumption behaviours, and incentives to limit electricity usage during peak hours.
Releasing strategic natural gas reserves can also plug any holes, as can an increase in imports of liquefied natural gas at receiving terminals. Yet the anticipated drop in global natural gas prices is likely to prove the toughest test of the EU’s resolve in applying the lessons learned in the past.
Constantinos Hadjistassou is a lecturer at the University of Nicosia and a researcher with the KIOS Centre, University of Cyprus.