April 2013 | Vol. 6 | Issue 2
BLUE FUEL
supplies to reduce the perceived geopolitical vulnerability of new member states. The second aim is to increase Europe’s overall ability to cope with supply disruptions, regardless of underlying causes.
the European partners in Nabucco because the “Nabucco coalition” had no economic foundation.
There are many obstacles, however. Article 194 also clearly states that individual member states have the right to maintain their own energy mixes which has resulted in growing differences between member state energy relations, contributing to the diversity of perceptions on geopolitical risk and dependence on Russia. Moreover, the High Representative of the Union for Foreign Affairs and Security Policy has little experience in energy policy, so the proposal of a single gas buyer or single negotiator is clearly a myth. Such a model would also run counter to the Commission’s market liberalization program.
FINON: Soft-power is always the best choice for the EU. Strict implementation of competition rules and gas market directives has been seen as a possible substitute for a foreign energy policy. Questioning the vertical integration of pipeline systems through unbundling rules may reduce the power of foreign suppliers while the probe against Gazprom could lead to a renegotiation of contracts with its main clients. However, current energy regulations are already weakening not only foreign but also European majors and the denunciation of oil-indexation through an EC probe could impact all long-term contracts in Europe, not only Gazprom’s.
BLUE FUEL: Besides institutional limits, what are the other obstacles to the implementation of this EU foreign energy policy? FINON: European energy companies do not need a European foreign energy policy. The size of most gas, electricity and oil companies means that they are able to negotiate directly with public gas exporting firms, often developing successful long-term relationships. These companies can also promote the development of transit infrastructure and LNG projects such as Nord Stream. Moreover, while European energy companies used to be efficient in negotiating long-term contracts when they were large midstream companies, they have been weakened by EU competition policy. In Germany for instance, the single negotiator has been forced to divest and unbundle. BLUE FUEL: You perceive the Southern corridor policy of the European Commission as a case-study on the limits of this foreign energy policy… FINON: There is indeed no better example of the structural tension between market norms and a voluntary policy, which spectacularly fails and tends to ridicule the European Commission’s voluntarism. The Commission is playing a “Great Geopolitical Game” to promote the diversification of supply through its aggressive Southern Corridor policy. The Nabucco project was designed as a “merchant pipeline” without ex-ante gas contracts between producers and European buyers and under the illusion of automatic gas supplies from Azeri, Turkmen, Iraqi, Iranian sources, etc. Gazprom was indeed in a position to react with its gas or even Turkmen gas and to form alliances with large western companies such as ENI, EDF and Wintershall. Eventually, South Stream attracted nearly all
BLUE FUEL: Is “soft power” the only way to implement EU foreign energy policy?
BLUE FUEL: What would you recommend to the European decision-makers then? FINON: First of all, stop mistaking transit risk for “Russian risk.” Diversification of sources is unlikely to occur through pipelines but the ongoing diversification of transit routes will have a strong impact on transit risk, which is inherently more significant. Moreover, dependence on Russia is already decreasing and will keep decreasing with LNG and possible shale gas developments. To handle possible supply disruptions, the EU should focus on forging interruptible contracts, increasing storage capacity, and promoting the development of interconnector and reverse flow equipment, particularly in Central European and Baltic member states. As far as economic theory is concerned, the contradiction between the liberal, pro-competition approach of the internal market and the voluntary, political approach of the foreign energy policy is unsustainable. The EU must be aware that building a well-functioning internal gas market is less prestigious but more efficient than any foreign energy policy. This does not reduce the political value of solidarity mechanisms built on each member state’s protection mechanisms against shortage crises. Last but not least, EU decision-makers should keep in mind the increasing pressure of Chinese demand. Beijing is able to finance pipelines directed towards Caspian or Central/Eastern Siberian sources and recently succeeded in gaining access to resources in Eastern Turkmenistan. Global energy competition fuelled by increasing integration and globalization will therefore be the most likely next major challenge facing energy markets.
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