The changing landscape for Energy in Europe

Dimitris Sotirchos

Trans Adriatic Gas  Pipeline  Map, Genti77 via        Wikicommons

Trans Adriatic Gas Pipeline Map, Genti77 via Wikicommons

During the last months major changes have been taking place in the sector of energy security strategy in the European continent. While the EU has adopted a framework for its energy strategy until 2030, quickly changing international developments have created a sense of urgency to act. Various factors related to the world economy as well as a shift in strategy from major players have encouraged the EU to act more swiftly to ensure a viable energy supply. While the EU has been repeatedly pushing for an energy union that will shift away from fossil fuels towards green energy, the current state of dependency, especially on Russian energy, requires fast-paced action. The multiple discussions on climate change and the growing prominence of renewable energy within them demonstrate the genuine change in mind-sets. However, the complicated implementation, financial obstacles as well as diverging interests of different Member States remain important. Therefore, the argument is still strong for retaining the focus on a strategy of diversification of suppliers, infrastructure and a unified policy towards fossil fuels.

EU, Russia and the future of Gazprom

The European Union has been seeking for nearly a decade now to diversify the provision of energy in order to reduce the dependency of its Central and Eastern members on Russian gas. The Ukraine conflict and the sanctions imposed on Russia have speeded up this process. The EU has demonstrated it is ready to use to its advantage the fact that Russia is its third trading partner for 2014 in order to make it comply. Sanctions become even more significant in the context of the fall of the rouble and combined with the decrease of oil prices and lesser demand from Europe due to a mild winter have provoked enormous losses for Gazprom, Russia’s energy giant.

The timing of the recent Statement of Objections action, undertaken by EU commissioner for Competition Verstager, and sent to Gazprom for a possible breach of anti-trust laws can lead to unexpected consequences. The fine could go up to 15 billion euros if Gazprom does not comply. As it is argued by Bruegel, on the one hand it might be an opportunity for Gazprom to modernise its commercial strategy in order to comply with market requirements. On the other hand though, this move can be considered as the EU exacerbating the already bitter climate with Russia. However, close ties between Gazprom and the Russian state apparatus, even with President Putin himself, makes it difficult to examine the issue from a solely commercial perspective. As Gazprom is considered by Putin as a major asset in the conduct of politics and not just a regular energy company, if it were to accept the changes required, it would minimise the use of gas supply as political leverage. The main issue here is whether the EU is ready to handle increased tension in an already volatile context in the face of renewed military movement in Ukraine.

Southeast Europe: Pipeline games

In this context, Russia’s surprise announcement in January that it will divert its gas transit from Ukraine to Turkey followed by the cancellation of the South Stream pipeline project due to a row with Bulgaria pushed the possible transit area for Russian gas further to the south. The projected new pipeline to be constructed in 2019 was named “Turkish Stream” or “Hellenic Stream”, depending on which side of the Greek-Turkish border one finds himself. It will be bypassing Bulgaria which is being “punished” by Russia for obeying to the provisions of the European Commission’s Third Energy Package, a series of regulations on the liberalisation of the energy market. At the same time the Trans-Anatolian pipeline (TANAP) begins its construction across Turkey in order to carry Azeri gas towards Europe. Turkey has been consistently placing itself as a “Pivot” state and a crucial transit country, accustomed to conducting a multilateral and sometimes even contradictory foreign policy by balancing between a “Eurasian” and a European Energy Union. Thus, simultaneous talks with supplier countries such as Russia, Iran and Azerbaijan are far from surprising.

The special case of Greece

Greece, which has elected a new government in January, has been facing enormous issues of liquidity together with pressure and isolation coming from its difficult negotiations with the rest of EU Member states for a new bailout programme. This situation is adding a factor of uncertainty concerning the conduct of its foreign policy. Since joining the EU in 1981, despite its leaders’ rhetoric aimed at internal consumption, Greece has always aligned with its European partners on the important issues, albeit with greater or lesser conviction. Greece, being a member of the EU, is now clearly antagonizing the EU’s strategy by agreeing to the construction of a pipeline in direct competition with the projected Trans-Adriatic pipeline (TAP), part of the Southern Gas Corridor (SGC) carrying natural gas from Azerbaijan, a vocal EU partner. There is a clear choice to conduct a multidimensional approach by holding talks with Romania and Bulgaria on the construction of the Vertical Gas corridor connected to EU-favoured TAP and at the same time bilateral talks with Hungary on the possible construction of a Russian-inspired Tesla pipeline which will link it to the future Turkish Stream. This multi-faceted approach is explained by the perspective of an urgent Greek national interest and the dire economic situation of the state. Russia offers a 10% discount for its energy supply and might even offer transit fees in advance, although the benefits are not as straight-forward as presented by the Greek government. Considering the worsening of relations with the EU over bailout talks but also the recent reprimands by the US government for getting closer to Russia, it can be argued that Greece is now considering all available options.

Consequences for the region

This situation makes it harder to exclude Russian political and economic interference in Southeast Europe. Nevertheless if seen from a regional perspective this situation may be creating an opportunity for more integration between countries of the region by creating mutual dependency. Such are new plans for cooperation between Montenegro and Croatia on a new interconnector or the very recent Craiova group. These plans may lead to raising the Balkan Peninsula to the level of Turkey as a regional energy hub.  The argument is that the strategic importance of Southeast Europe will further grow as notified by Amos Hochstein, the US Deputy Assistant Secretary on Energy Diplomacy. A recent evolution concurring to this is the announcement by Maros Sefcovic, the Commissioner for Energy, that by 2019 the EU will be able to receive gas from Turkmenistan which holds the fourth largest natural gas reserves in the world. This is an outcome directly related to the improvement of relations with Iran which is a crucial transit country. Additionally, Italy faces the decrease of imports from Libya, since oil and gas fields have been shutting down due to fighting among militias. In this case the TAP pipeline gains even more geo-strategic importance.

To conclude, the power games between the EU and Russia in the energy sector and a series of developments in the broader region has led Greece and Southeast Europe to acquiring an unexpectedly prominent position. The Balkans was previously a region that would eagerly and without hesitation align itself with the EU on a matter of such importance as reducing energy dependence from Russia. However, in the context of the current economic crisis and shortfalls of its regional policy, the EU is slowly losing its appeal and political clout. This allows for Russia to find room to antagonize the crucially important EU energy projects.

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