Record oil prices and Gazprom have EU worried again

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Booming oil prices and the warning by Russia’s Gazprom that it might redirect its gas deliveries to the US and Asia have refocused the EU’s political agenda on its energy plight.

The EU woke up to its energy predicament in 2005 after rising oil prices and the sudden threat of oil supply interruptions in the wake of Hurricane Katrina made clear that the EU’s dependency on external energy sources could hit its economic competitiveness. Up to 2005, energy policy had been surprisingly absent in the EU’s self-proclaimed strategy to become the most dynamic knowledge society in the world by 2010. Suddenly EU leaders seemed to have recognised that next to knowledge, primary energy sources such as gas and oil are needed to keep the economy going and to secure jobs.

As a result, the “globalisation summit” organised by the UK’s EU Presidency on October 2006 turned its attention to the absence of a real EU energy policy with EU leaders urging the Commission to work out the basis of a new “common energy policy”. When Russia at the beginning of 2006 temporarily cut gas deliveries to Ukraine, the EU’s energy fever rose several degrees and it looked as if a real EU energy policy was on the horizon. But the Russian threat disappeared, oil prices eased and the urgency for this common policy took some hard blows when a few energy mergers (Suez and Gaz de France) revived national reflexes and killed the “Europeanisation” of the member states’ energy policies. 

The EU Spring Summit endorsed the idea of more cooperation on energy but shied away from demanding a real common energy policy (see EURACTIV 27 March 2006). The Commission launched a Green Paper consultation  in March 2006 on the future energy policy of the Union.

The Commission has reacted cautiously to the Gazprom threat underlining the need to diversify the EU's supply sources and urging the Russian oil giant  to live up to its commitments.

 

Oil prices have risen to a new record of around 74 dollars a barrel as a result of the standoff between Iran and the US over Teheran's nuclear programme, unrest in Nigeria, and the energy appetite of China to sustain its 2-digit economic growth. Although the global economy has been very resistant to the record oil prices up to now, the IMF has warned in its recent World Economic Outlook that energy prices could start to have a negative effect in the long run.

At the same time, the EU was startled by a threat of Gazprom chairman Alexei Miller that it might redirect its gas deliveries to Asia and the United States if EU member states would dare to block Western acquisitions for protectionist reasons. With the high dependence on Russian gas, European economies are very vulnerable as was proven at the beginning of 2006, when Russia stopped gas deliveries to the Ukraine.

While Gazprom supplies over 25% of European gas it clearly has to be respected; however, western oil companies now also own a substantial share of Russia's oil  reserves and in the short-term, up to 2010, Gazprom might lack the infrastructure for massive shifts of gas supply form Europe to Asia. 

  • The EU's oil supply group will meet on 25 April to discuss the current situation as regards high oil prices;
  • Comments to the Commission new Energy Green Paper can be sent until 24 September 2006.

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