Energy: EU Should Toughen Up On Russia
Alan Riley and Frank UmbachThe looming Russian gas deficits demand a readjustment of the European energy policy, argue Alan Riley and Frank Umbach in the current global edition of Internationale Politik. Riley, a fellow at the Centre for European Policy Studies in Brussels, and Umbach, of the German Council on Foreign Relations, point to dramatic shortfalls in Russian gas production and the consequential undermining of Russia’s reputation as a reliable energy partner for the European Union (EU). The main reasons for the Russian gas crisis are the output decline from the vast natural gas fields in the region of Nadym Pur Taz and the unwillingness of the state-owned energy giant Gazprom to make timely investment in developing new fields. The potential European supply gap because of these shortfalls is predicted to range from 97 to 126 billion cubic meters (bcm) in 2010 (Gazprom exports to Europe/CIS in 2004: 191 bcm).
Russia sees two possible solutions to the problem. Firstly, the Russian market could be made more attractive for investors by raising domestic gas prices. Thus, independent gas suppliers would partially close the supply gap. Secondly, the use of natural gas in Russia could be replaced by hydroelectric, coal and nuclear power. This solution is favoured by President Putin.
Europeans have developed various solutions:
- Liberalization of EU’s gas markets and creation of transparent standards that will more effectively counter supply shortages
- Diversification strategy (e.g. increasing gas imports from Algeria and Libya)
- Construction of liquid gas terminals
- Implementation of a common foreign policy on energy issues at EU-level in order to speak “with one voice” to Russia.
- Creation of a framework for granting foreign investors access to Russian plants (EU and Russia could include such an article in their new Partnership and Cooperation Agreement)
- Improvement of energy efficiency
- Expansion of other energy sources (including nuclear energy)
Riley and Umbach see the establishment of a solid set of contractual regulations with Moscow as the most effective solution. Rules of this type would lead to increased capital outlays for modernization of infrastructure, development of new fields and the safeguarding of natural gas flows.
Many representatives of the Russian political elite, however, regard energy and pipeline policy as the most important instrument of Russian foreign policy. This is the main reason why the EU so far has been unsuccessful in persuading Russia to pursue an energy policy more closely oriented to the market.
Russia and the EU must adopt measures to reduce the supply gap. Russia’s national budget and the economic gains it has enjoyed since 1999 are in danger: Gazprom alone accounts for nearly 20% of state tax revenues. Any shortfalls in Russian gas supplies would hit western EU states first and hardest, especially Germany as the largest European investor in Russia. Germany should consider this when promoting the Baltic Sea pipeline, since the pipeline means increased dependence on Russian natural gas.
Internationale Politik, Global Edition, Spring 2007
This summary was prepared by the Atlantic Community editorial team from an article originally published in Internationale Politik.
Related Materials from the Atlantic Community:
- Heiko Borchert and Karina Forster on why EU Energy Security Requires Hard Power
- CSIS on Russian Energy Pressure Fails to Unite Europe
- Ron Asmus on the Importance of the Black Sea Zone
- Richard Morningstar to Europe: Russia’s Not the Only Country with Energy Resources
Prepared by Maximilian Müngersdorff
