Russia tensions revive EU energy quest - analysis

Energy Trade

Mounting tension between Russia and the West has reinvigorated Europe’s quest for new energy sources, with analysts citing the long-stalled Nabucco gas pipeline is perhaps the best of a bad range of options.

When Russian armor entered Georgia last month it came menacingly close to transit routes for Caspian oil and gas, highlighting the frailty of European Union efforts to bypass Moscow. Energy security shot to the top of Brussels’ agenda and its energy chief headed to Africa on the first of many visits to nearby potential suppliers. “Considering the instability of some neighboring regions and transit routes of energy, Europe needs more than ever a common energy policy,” European Commission President Jose Manuel Barroso said this week. EU Energy Commissioner Andris Piebalgs hopes to roll forward plans for gas pipes from as far a field as Nigeria, Egypt and the Caspian Sea, and backs more shipments of liquefied natural gas (LNG).

But analysts say his hands are tied by the EU’s failure to develop a unified strategy on energy, as well as political instability in Africa and the Middle East and now increasing fragility on its eastern borders and in Central Asia. “Why do politicians think we became dependent on Russian oil and gas in the first place?” said Jonathan Stern at Britain’s Oxford Institute for Energy Studies. “It’s not something we would have done if there had been a lot of other stuff lying around.”


The EU relies on Russia for about a quarter of its gas, but has in recent years sought to cut that dependence following disputes between Moscow and transit states such as Ukraine. To limit Moscow’s stranglehold on gas, the West is backing an energy corridor from Central Asia that bypasses Russia by passing through Azerbaijan and Georgia into Turkey. There it would link with the planned $12 billion Nabucco pipeline, which is one day hoped to carry 30 billion cubic meters (bcm) of Caspian or Middle Eastern gas annually to an Austrian hub via Bulgaria, Romania and Hungary.

“Georgia was considered secure, but it’s been extremely fragilized as an energy transit country by this war,” said Susanne Nies at France’s IFRI think tank. “Russia could have destroyed the pipeline, but it didn’t. My feeling is Russia wanted to ‘Finlandize’ Georgia -- leaving it with a certain autonomy, but always having to take Russia into account,” she added.

The EU hopes to pre-empt any future Russian incursion into Georgia by sending in civilian peace monitors, and offering aid to bolster its infrastructure and bind it closer to Europe. But a secure pipeline is useless without the gas to pump through it -- and unlike most pipelines that are built for agreed gas deals, Nabucco has no gas to fill it yet. The EU has reached initial pacts with Turkmenistan and Azerbaijan, but needs European business to invest in the infrastructure to turn that ambition into reality.

Commissioner Piebalgs expects to visit Azerbaijan soon and hopes a contract can be signed this year. But analysts warn Azerbaijan has been cowed by Russia’s actions in Georgia, while Turkmenistan has already clinched deals with Russia and China.


“The EU has started asking -- can we not mimic the more muscular and unified approach of China and Russia,” said Katinka Barysch at London’s Centre for European Reform (CER). “Bilateral agreements have given too much power to Gazprom,” she said of deals between individual EU member states and Russia’s state-owned energy giant. Yet EU states do not see eye-to-eye on the way forward, with the Paris-based International Energy Agency saying this month energy was perhaps “the weakest of (EU) policy areas”. “Member states seem to prefer to deal with suppliers on a bilateral basis, but in the long run this may mean they lose out by not using the full weight of the EU in negotiations,” IEA director Nobuo Tanaka warned.

Given the vulnerability of Nabucco, the EU is also looking south towards Africa and the Middle East. A 4,300 km (2,670 miles) Trans-Saharan Gas Pipeline carrying Nigerian gas north across the Sahara could turn Algeria into a gas hub and secure more energy for Europe, Piebalgs said this week on a trip to Nigeria -- the first by an EU energy chief. But many are concerned at the lawlessness in the Sahara. “It would be like building a pipeline through Afghanistan -- it would be bombed and attacked all the time,” said IFRI’s Nies. “You’d have to militarize the entire pipeline, and a pipeline is 20 to 30 years of engagement,” she said, adding that for now the best transit method for Nigerian gas was LNG ships.

Analysts are equally dismissive of promises of gas from Egypt or Iraq via a planned Arab Gas Pipeline, leaving Algeria as the best near-term prospect, and some citing Iran as a long-term bet despite the row over its nuclear program. For now, they say, the EU will have to press ahead with Nabucco -- perhaps even building it before gas for the route has been secured.

The Czech Republic, due to take over the EU presidency in January, wants to push forward Nabucco. Ministers will meet in Budapest in January to discuss the project, and an EU source expects gas access accords with Bulgaria and Romania soon. While it waits for the project to progress, the EU can simply get used to being closely tied to Russia for its energy, aware that Moscow also needs its markets. “We should be careful not to exaggerate Europe’s dependency,” said Nies. “For Russia, security of demand is not very clear either. We should look at it as an interdependency.” (Reuters)

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