Nine months after the Ukrainian-Russian gas dispute, Europe's energy debate remains in flux. Moscow's use of its natural resources as a political weapon has made the old continent rather jittery. But Europe's leaders can't agree on how to reduce their increasing energy dependency on Russia. On Friday they'll meet with President Vladimir Putin to hammer out a policy.
Russia has been particularly willing to flex its energy muscles in its immediate neighborhood. The Kremlin is nervous about the deepening of ties between the European Union and former Soviet republics: Ukraine, Moldova and those in the South Caucasus. By putting the screws to Georgia, Moscow is sending a warning to Tbilisi and telling Europe to stay out of its backyard. The EU imports over half of its natural gas from Russia's state-owned Gazprom. This makes Europe vulnerable to pressure from the Kremlin, while consumers end up paying the monopoly premium.
So what can be done? Completely offsetting Russian gas supplies is impossible. Russia will remain central to European energy security, particularly as the continent's own oil and gas production capabilities are declining. The objective should therefore be to manage better the dependency on Russian gas.
The first priority for the EU this week is to convince Putin to spend more on the exploration and development of Russian gas fields. Gazprom's underinvestment in this sector risks turning Russia into an unreliable gas supplier, not just for political, but technical reasons. Beyond that, Europe should expand its import base, particularly in the gas sector, build more emergency capacity and improve its energy market transparency. In other words, the EU needs better basic energy statistics, such as figures on total spare capacity, grid efficiency and infrastructure capacity. This would allow the EU to assess better what internal market possibilities exist to reduce its dependency on imports.
Another EU priority will be to look at global energy trends and consumption levels. Energy must become part of Europe's common foreign and security policy. Through trade agreements and pressure at the WTO, the EU should push other countries to move toward greater energy efficiency. It's not so much the environment that's at stake here, but Europe's economic and security interests. China's economic boom alone could cause a further sharp rise in oil and gas prices.
European energy price stability is also closely connected to Caspian gas. Part of the reason Europe is so tied to Gazprom is because the transport infrastructure is already in place. Pipeline construction is a huge upfront cost. The private sector will only invest billions in new capacities if a clear market case can be made for it.
Building new Caspian gas pipelines makes no sense if the local market can't supply enough gas. The Caspian market is still largely underdeveloped. What's more, Gazprom is making a strong push to acquire production rights there. Gazprom will likely prefer to use its existing infrastructure to move gas out of the region and to the EU market. For example, the Russian Blue Stream line to Turkey is currently operating at only 20 percent capacity. Gazprom's aggressive acquisition strategy -- most recently in Turkmenistan and Uzbekistan -- is putting the Russian energy giant a step ahead of its EU competition. This is more reason for Europe to redouble its efforts there.
The EU needs to be more active in the South Caucasus to ensure political stability there and future gas supplies. If the EU now turns its back on Georgia and the region as a whole, unresolved regional conflicts could erupt again, and Iran and Russia could fill the power vacuum to expand their influence. This could reverse the recent progress toward political openness and economic growth.
Europe's so-called Neighborhood Policy, relying primarily on technical and development aid, is too flimsy a response to the Russian and the Iranian challenges. Unless Europe engages politically, which means offering the region some kind of a European perspective, it will lose the South Caucasus and all its oil and gas to Iran, Russia, and possibly even fundamentalist Islam. The EU summit in Helsinki should discuss this issue in parallel to the European energy security challenge. The two are linked.
Grgic is the director of the Institute for Strategic Studies in Ljubljana, Slovenia. This comment was published in The Wall Street Journal.
Russia has been particularly willing to flex its energy muscles in its immediate neighborhood. The Kremlin is nervous about the deepening of ties between the European Union and former Soviet republics: Ukraine, Moldova and those in the South Caucasus. By putting the screws to Georgia, Moscow is sending a warning to Tbilisi and telling Europe to stay out of its backyard. The EU imports over half of its natural gas from Russia's state-owned Gazprom. This makes Europe vulnerable to pressure from the Kremlin, while consumers end up paying the monopoly premium.
So what can be done? Completely offsetting Russian gas supplies is impossible. Russia will remain central to European energy security, particularly as the continent's own oil and gas production capabilities are declining. The objective should therefore be to manage better the dependency on Russian gas.
The first priority for the EU this week is to convince Putin to spend more on the exploration and development of Russian gas fields. Gazprom's underinvestment in this sector risks turning Russia into an unreliable gas supplier, not just for political, but technical reasons. Beyond that, Europe should expand its import base, particularly in the gas sector, build more emergency capacity and improve its energy market transparency. In other words, the EU needs better basic energy statistics, such as figures on total spare capacity, grid efficiency and infrastructure capacity. This would allow the EU to assess better what internal market possibilities exist to reduce its dependency on imports.
Another EU priority will be to look at global energy trends and consumption levels. Energy must become part of Europe's common foreign and security policy. Through trade agreements and pressure at the WTO, the EU should push other countries to move toward greater energy efficiency. It's not so much the environment that's at stake here, but Europe's economic and security interests. China's economic boom alone could cause a further sharp rise in oil and gas prices.
European energy price stability is also closely connected to Caspian gas. Part of the reason Europe is so tied to Gazprom is because the transport infrastructure is already in place. Pipeline construction is a huge upfront cost. The private sector will only invest billions in new capacities if a clear market case can be made for it.
Building new Caspian gas pipelines makes no sense if the local market can't supply enough gas. The Caspian market is still largely underdeveloped. What's more, Gazprom is making a strong push to acquire production rights there. Gazprom will likely prefer to use its existing infrastructure to move gas out of the region and to the EU market. For example, the Russian Blue Stream line to Turkey is currently operating at only 20 percent capacity. Gazprom's aggressive acquisition strategy -- most recently in Turkmenistan and Uzbekistan -- is putting the Russian energy giant a step ahead of its EU competition. This is more reason for Europe to redouble its efforts there.
The EU needs to be more active in the South Caucasus to ensure political stability there and future gas supplies. If the EU now turns its back on Georgia and the region as a whole, unresolved regional conflicts could erupt again, and Iran and Russia could fill the power vacuum to expand their influence. This could reverse the recent progress toward political openness and economic growth.
Europe's so-called Neighborhood Policy, relying primarily on technical and development aid, is too flimsy a response to the Russian and the Iranian challenges. Unless Europe engages politically, which means offering the region some kind of a European perspective, it will lose the South Caucasus and all its oil and gas to Iran, Russia, and possibly even fundamentalist Islam. The EU summit in Helsinki should discuss this issue in parallel to the European energy security challenge. The two are linked.
Grgic is the director of the Institute for Strategic Studies in Ljubljana, Slovenia. This comment was published in The Wall Street Journal.
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