Geopolitics of EU energy supply

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As one of the world’s largest importers of oil, gas and coal, the EU is a major player on the international energy market – However, it remains a dwarf on the political stage as member states keep the upper hand on foreign policy. With external dependence on imports forecast to grow steadily, the EU has started to integrate energy aspects into relations with third countries. EURACTIV brings an overview of relations with key regions for supply and transit.

Background

Oil and gas reserves are unevenly distributed around the globe, and the largest reserves are situated in politically or economically insecure regions (Middle-East, Russia). North Sea oil and gas fields have already been exploited beyond their peak, leaving Europe dependent on non-EU countries for future supply. 

The Commission Green Paper on security of energy supply (November 2000) drew a sobering picture of the EU's energy situation. If no action is taken, it predicted, the EU's energy dependency will climb from 50% in 2000 to 70% in 2030. The particular situation for the main imported fossil fuels was described as follows:


Oil:

  • 45% of EU oil imports originate from the Middle East;
  • by 2030, 90% of EU oil consumption will have to be covered by imports 


Gas:
 

  • 40% of EU gas imports originate from Russia (30% Algeria, 25% Norway);
  • By 2030, over 60% of EU gas imports are expected to come from Russia with overall external dependency expected to reach 80%.


Coal:

  • By 2030, 66% of EU needs is expected to be covered by imports.


Policy Developments at EU level:

The external aspects of energy policy remain within the competence of EU member states' foreign ministries and a matter of national sovereignty.

However, the Ukraine-Russia gas dispute in January 2006 she a crude light over Europe's dependency on imports and on the shortcomings of keeping 25 separate policies with external energy suppliers (EURACTIV 4/01/06). In addition, the liberalisation of EU gas and electricity markets, combined with the EU's exclusive competence when it comes to commercial relations with third countries, has pushed the issue firmly on top of the political agenda. 

On 8 March 2006, the Commission issued a 'Green Paper' spelling out options to achieve "sustainable, competitive and secure" energy supplies for Europe. One key aspect is to build a common external energy policy to co-ordinate relations with external suppliers such as Russia and OPEC countries (see EURACTIV LinksDossier).

On 10 January 2007, the Commission adopted a Communication on a new energy policy for Europe (EURACTIV 11/01/07), which states that "energy must become a central part of all external EU relations". This was was followed on 8-9 March 2007 by European Council Conclusions featuring a two-year (2007-2009) action plan with recommendations for expanding and strengthening the EU's international energy relations.

A new high-level group, known as the EU Network of Energy Security Correspondents, was established on 10 May 2007 to monitor energy security, particularly with respect to the EU's eastern borders (EURACTIV 10/05/07).

Issues


EU-Russia Energy Dialogue

Launched in October 2000, this bilateral energy dialogue is aimed at securing Europe's access to Russia's huge oil and gas reserves (the country holds one third of world gas reserves). The dialogue is based on the assumption that interdependence between the two regions will grow - the EU for reasons of security of supply, Russia to secure foreign investment and facilitate its own access to EU and world markets (the EU is responsible for over half of Russia's trade turnover). One key aspect in the negotiation is whether the EU will support Russia's bid for accession to the World Trade Organisation (WTO). Issues addressed in the framework of the dialogue include: 

  • Opening Russia's domestic energy market to competition (according to the Centre for European Studies (CEPS) Gazprom controls around 70% of Russian gas production and enjoys a monopoly situation in terms of exports); 
  • improving the business environment, including investments;
  • cooperation on climate change under the Kyoto Protocol;
  • nuclear safety and decommissioning (avoiding another Chernobyl) 

However, a breakthrough on the Energy Dialogue is still pending, and an 18 May EU-Russia summit failed to produce any progress. EU-Russia energy relations remain highly dependent on broader EU-Russia negotiations on the "four spaces" - economic, legal, security, research - on which progress is slow (EURACTIV 11/05/05). Meanwhile, bilateral deals between Russia and separate EU states continue to prevail over a specific EU approach, and disputes between Russia and some of the EU's new Eastern European member states, particularly Poland, have handicapped relations between the two sides (EURACTIV 14/05/07).


EU-OPEC Energy Dialogue

The EU currently imports around 40% of its oil from the Organisation of Petroleum Exporting Countries (OPEC). Concerned about growing global competition for access to scarce oil resources, the EU held its first bilateral meeting with OPEC on 9 June 2005 (EURACTIV 10/06/05). Issues addressed in the dialogue include oil prices, greater data transparency on stocks and investment needs, especially for refineries in consuming countries. The OPEC delegation promised the EU sufficient oil supplies and prices ranging between 35 and 55 dollars a barrel.

Three further EU-OPEC meetings have been held since 2005, the most recent on 30 May in Brussels.


Caspian and Black Sea region

The Baku-Tbilissi-Ceyhan (BTC) oil pipeline was opened on 25 May 2005, connecting the Azerbaijan capital on the Caspian Sea to Turkey's east Mediterranean coast (EURACTIV 27/05/05). The pipeline was mainly built to relieve the West's oil dependency on the unstable Middle East and OPEC producers. 

The pipeline has the potential to turn some of the poor countries of the region (Azerbaijan, Georgia, Kazakhstan and - to a lesser extent - Turkey) into wealthy energy states and change the political balance of power in the region. Russia, which has been bypassed, is one of the biggest losers of the project, both economically and politically. Bilateral trade relations - including the 1995 customs union - as well as the EU's possible enlargement to Turkey form part of the wider geopolitical context of the BTC pipeline. 

A further important pipeline project is the Nabucco, which will span 3400 kilometers and which will bring 31 billion cubic tons of natural gas per year from the eastern end of Turkey across Romania, Bulgaria and Hungary into Austria. Nabucco is geo-politically significant because it will bypass Russia, much like the BTC. The project, scheduled to be completed by 2013, has encountered financing problems and lack of political will in some member states. But these may have been resolved following an expression of interest in co-financing by Germany's RWE and Gaz de France (EURACTIV 17/09/07). 

On 4 December 2006, the Commission and Kazakhstan signed a Memorandum of Understanding that lays the foundation for deeper energy co-operation (EURACTIV 5/12/06). 

On 11 April 2007 the Commission published a Communication on co-operation with the Black Sea region, which could serve as the foundation for a future gas pipeline running from the Ukraine, Georgia and Azerbaijan to the EU, and on 25 April construction of a new pipeline began between the Turkish Black Sea port of Samsun and the Mediterranean port of Ceyhan. 

The Caspian and Black Sea pipeline sectors remains active, with further oil and gas pipeline deals agreed in May and June 2007 (EURACTIV 24/05/07 and 25/06/07). 


Middle East and Persian Gulf countries

The EU has the ambition to become a significant actor in the Middle East peace process and a stabilising agent for the region as a whole. Aside from its dialogue with OPEC, the Commission has put bilateral cooperation agreements in place with the six Gulf States represented in the Gulf Cooperation Council (GCC). A free trade agreement with GCC States was put back on the negotiation table in 2001 after it was abandoned in the early nineties. GCC states hold 45% of the world's oil reserves. All GCC states are part of OPEC except Bahrain and Oman.


Southern Mediterranean (including Turkey, Middle East and North Africa)

Launched in 1995 in Barcelona by foreign affairs ministers, the Euro-Mediterranean Partnership draws together the EU-25 and ten countries in the south Mediterranean (Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Palestinian Authority, Syria, Tunisia and Turkey). Libya has had observer status since 1999. The objective is to gradually set up a Euro-Mediterranean free-trade area by 2010.

Maintaining access to Algeria's gas reserves is of primary importance to the EU if it wants to keep its dependency on energy imports from Russia to a minimum. The Algerian economy is largely dependent on hydrocarbons (oil and gas), which make up 97% of exports, contribute 30% of GDP, and fund 65% of the state budget. The EU takes 62.7% of Algeria's exports and supplies 58% of its imports. On a visit to Algeria on 26 November 2006, Energy Commissioner Andris Piebalgs outlined plans for an EU-Algeria strategic energy partnership based on regulatory convergence of Algerian and EU energy policies; the development of energy infrastructures of common interest and technology co-operation.

In July 2007, the Commission won an end to territorial restrictions and profit-sharing agreements that previously prevented Southern European companies reselling Algerian gas into other EU markets. At the same time, the Commission gave its support to a new pipeline project that is to bring Nigerian gas into the EU through Algeria, starting in 2015 (EURACTIV 11/07/07).


South-East European Energy Community

The treaty establishing the Energy Community of South East Europe (ECSEE) is to be signed in the summer of 2005 with ratification to follow soon after. The ECSEE is a legally binding treaty covering the electricity and natural gas sectors. It is aimed at putting the signatory countries in line with EU energy legislation in order to establish an integrated market. Its members include Austria, Greece, Hungary, Italy and Slovenia on the EU side, and Albania, Bosnia and Herzegovina, Bulgaria, Croatia, the former Yugoslav Republic of Macedonia, Romania, Serbia & Montenegro, Turkey and Kosovo on the other side. The treaty is designed to satisfy the political and economic goal of stabilisation and development of SE Europe.


Baltic Sea Region Energy Cooperation (BASREC)

BASREC was launched in 1999 by Denmark, Estonia, Finland, Germany, Iceland, Latvia, Lithuania, Norway, Poland, Russia, Sweden and the European Commission. Issues discussed include security of energy supply in the context of growing dependency from Russia, gas transit routes in the region, and progress on electricity and gas interconnections. Environment issues on the agenda include energy efficiency, climate change, and renewable energies such as bioenergy.

In July 2005, Russia announced that work to build a 5 billion euro gas pipeline to link St Petersburg to the German town of Greifswald under the Baltic Sea would begin in September (the North-European pipeline project). The Baltic route was preferred to alternative ones under the Amber and Jamal-Europe 2 projects originally foreseen to run through Poland, Lithuania, Latvia and Belarus.


Arctic energy Agenda

A first round table of political and industrial decision-makers from Norway, Russia, the US and the EU took place on 7 July 2005. "The Artic region is believed to be one of the most important remaining petroleum provinces," the participants stated in a declaration after the meeting. The Barents Sea, it was added, "represents an opportunity to become a new European petroleum province". The declaration highlighted the vulnerability of the marine environment as a particular challenge to the development of industrial activities in the Arctic. 


EU-Norway energy dialogue

Norway is the world's third exporter of natural gas and a major supplier of oil and gas to the EU. A meeting between Energy Commissioner Andris Piebalgs and the Norwegian Minister of Petroleum and Energy on 6 July 2005, confirmed both sides interest to cooperate on energy issues. The two sides agreed to strengthen cooperation on energy efficiency, renewable energy, and security of energy supply, including exploration and production activities in the Arctic area. Agreement was reached that the Commission would join an informal forum established by Norway, the UK and Denmark to discuss issues related to the use of CO2 for enhanced oil recovery and storage in the North Sea. EU-Norway meetings will from now on take place on an annual basis.


Africa 

With countries such as Angola and Nigeria now in the league of major global oil suppliers, other countries in the Gulf of Guinea are seeking to emulate their success. EU relations with the region have been centred on development cooperation with the Economic Community of West African States (ECOWAS), in particular on issues such as peace, security and good governance aspects with a strong emphasis on economic and trade integration. Since January 2007, representatives from both sides have been engaged in more intensive discussion on the possibility of creating an Africa-Europe Energy Partnership (EURACTIV 11/01/07).  

Positions

Energy Commissioner Andris Piebalgs has made external energy policy relations one of the six priorities of his mandate. Speaking at the World Energy Council in March 2005, Piebalgs said the EU could support the member states' energy policies, saying "the new neighbourhood policy is particularly apt in the energy field". He said that future EU-Russia cooperation could be extended to include energy efficiency and technology transfer, following Russian ratification of the Kyoto Protocol in 2005 (speech).

Speaking on 10 October 2004, at the Brussels think tank the European Policy Centre (EPC), former energy commissioner Loyola de Palacio emphasised the close relation between geopolitical stability and energy supply security. She noted that affordable oil and gas prices in Europe had so far been secured by sufficient supplies to meet the growing demand. But this would not last forever, she warned. "We need to be realistic about our interdependence with other countries - producers, transit countries and other consuming nations - and develop our policies accordingly," Palacio said. Encouraging openness in energy commerce was a key geopolitical aspect, she said. This would require closer cooperation with supplying partners and policies to encourage geopolitical and economic stability in supplier and transit nations.

The World Wide Fund (WWF) has recently launched a campaign to raise the issue of energy and climate change in EU foreign policies. According to the global conservation organisation, EU foreign policy communities and energy and environment ones currently lack the mutual know-how and dialogue to complement each other. Director of the WWF's EU office, Tony Long says energy talks currently held in the framework of the European Neighbourhood Policy (ENP) are focused chiefly on enhancing EU security of supply, trade and infrastructure aspects but contain no specific objectives on the environment or climate protection. He criticised the ENP for not giving consideration to $60 barrel of oil scenarios and for belonging to "an old mentality and an old Commission". He then called for a new climate and energy dimension to be added to the ENP and for the Parliament to be fully engaged in the policy definition process.

Timeline

  • 17 July 2006: G8 adopts joint statement on global energy security
  • 4 Dec. 2006: Commission tables proposals to include energy aspects in external relations (EURACTIV 20/11/06)
  • 10 Jan. 2007: Commission presents 'energy and climate change package' including a Strategic Energy Review focusing on both external and internal aspects of EU energy policy.
  • 9 March 2007: EU summit adopts action plan on a common energy policy, including in relations with neighbouring countries
  • 17 Dec. 2007: 5th Euro-Mediterranean Ministerial conference agrees six-year Action Plan to create "a common Euro-Mediterranean energy market" (EURACTIV 19/12/07)
  • Nov. 2008: Commission's Second Strategic Energy Review to focus on security of supply, interconnectors and external energy policy.

Further Reading

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