Energy Independence: Is Europe still stuck at the Drawing Board?

Routine is an aspect of university that is simply not in rule book - indeed Putin would probably insist that someone has torn it up again. Yet, with intense weeks of teaching and then a month to drift as I attempt to construct some plausible argument about the ancients or strategy, I cannot help but slip in to an inanimate state of strategic overload. Where is the respite? Clearly, short articles on aspects of the news that interest me (I learnt this method in third year and forgot most of it over the summer) So, to kick it off I consider Russia and its current energy infrastructure.

With the advent of the Ukrainian civil war, Russia's influence was evident and the leaders of Europe would have shown little surprise in the current escalation. Undoubtedly, the European Union is keen to maintain its slow trundle of democratic fervor and vision but the crisis has accentuated more poignant matters for them, namely energy security.

What is energy security?

It is not how much petrol costs, though undeniably it is inexplicably linked. So, if I hear another comment saying 'sanctions on Russia will drive up the price of oil'  then I will direct them to the nearest petrol pump and point at the signs. Petrol prices have gone down.

Rather, energy security is a theory which explains the availability of natural resources to any given state at any given time. Some major states have more resources available to them then smaller states and the need for energy forms an  economic relationship between them. It is this relationship that is vulnerable to political ends.

Russia constitutes the major state in this situation whilst the post-Soviet states are regrettably dependent on the whims of the Kremlin.  The rest of the Europe is affected but to a lesser extent.

How do we break this dependence?

Energy independence from Russia has been a continual aim for European Union but the present crisis has drawn more interest on the matter. In 2009, Gazprom halted its gas exports to Europe in an attempt to raise prices to ensure continued profits. At the time Gazprom's grip appeared unshakable and our national governments sheepishly reinstated partnership talks with Russia that been frozen five months before. We were not happy with the Russian invasion of Georgia but energy came first.

Europe's prioritisation of the economy over almost every other aspect of politics was a lesson Putin would not forget.

In 2009 the EU fought back by promoting the Third Energy basket, which prohibits geographic destination of the molecules sold by Gazprom, promoted liquefied natural gas (LNG), explored new sources of gas, and  considered the role of interconnectors.

Five years later and with a greater demand then ever to break dependency how have these ideas progressed?

• The man who was at the top of the EU, Jerzy Buzek, is rather despondent about the Third Energy Basket as 'single energy producers control over 50% of the markets in as many as 11 member states and in six countries single producers are near monopolists, holding more than 80% of market share'.
• David Buchan, a Senior Research Fellow at the Oxford Institute for Energy Studies, argued that 'The three Baltic states will still be linked to the Russian electricity and gas grid, partly because they cannot agree among themselves where and how to build both a regional nuclear reactor and a regional terminal to receive outside LNG supplies'. The nuclear reactor is still indecisive but Lithuania has received a floating LNG factory aptly named 'Independence'.
• New sources of gas are promised in the completion of TANAP (Trans Anatolian Natural Gas Pipeline Project) in 2015. This would see a  Turkey and Azerbaijan gas pipe break the Russian grip on gas. Concurrently, the United States is reviewing a process to supply LNG to Europe.
• National capacity payments threaten interconnection and suggests that countries do not feel they can rely on their EU partners in the event of a fall in power supply. In reality our systems struggle to be compatible with our partners.

Is LNG the future for the energy market in Europe?

LNG

Taking the recent LNG developments I would argue that the delivery of 'Independence' is very politically astute but lacks the long-term economic advantages promised.

Arguably, the benefits of the LNG project are outlined in this presentation. Prices for LNG have dropped in recent years as Asia has expanded this market and Russia does exploit its position by raising prices of exports to the Baltic states.

Nonetheless:

• The price of oil has dropped recently benefiting consumers around the world but damaging the LNG market. Australia is particularly worried about the effect it will have on their developing economic goldmine. The Financial Review echoes these thoughts.
• The LNG factory would only provide for 75% of the Baltic current states gas demands. As the population increases more work will be needed to make it self-sufficient.
• Gas from Russia is still cheaper. Europe as a whole uses less than one-quarter of the LNG import capacity it currently has.
• It would require 423,076 individual shipments of LNG to match the Nord Stream gas pipe.

Our solution lies in the Caspian Lake or Sea.

The Caspian Sea or Lake? Will this provide the answer to Europe's energy security?

Caspian Sea or Lake?

No that is not a typo, on the 29th September 2014 the Caspian Sea Summit that brought together the rulers of Iran, Russia, Azerbaijan, Kazakhstan and Turkmenistan to the cozy coastal Russian city of Astrakhan to decide whether the Caspian was a sea or a lake.

Historically, Russia and Iran supported the idea of a Caspian lake, ruled under a condominium regime where all states would equally share its resources. If the Caspian were classified as a sea on the other hand, each state would get its own slice of the seabed and exclusive use of whatever lies beneath it. 

The remainder of the states particularly Kazakhstan, as it has the longest coastline, would benefit considerably from this 'sea' status. Surely Putin would never let the 'sea' be recognised but on the 29th September he did just that.

With Turkmenistan and Azerbaijan leaning towards the Europe Union in an effort to exploit the economic situation this appears to be political suicide for the Kremlin.

However, within this Summit meeting all foreign troops were prevented legally from occupying camps in the region therefore guaranteeing Russian control. Putin’s own “Pivot to Asia” was revived with the $400 billion historic deal struck with China over natural gas deliveries which the Caspian states will benefit from as providers. 

The current insurrection of Azerbaijan and Turkmenistan can be managed as China's economy continues to grow whilst pipelines to Europe are economically and strategically fraught with risk. Moscow has ample time to create more powerful levers of influence in their internal politics and convince these states to subsume to China's needs.

What should we do?

It is difficult to say, but whilst we have been distracted by the crisis in Ukraine we have neglected to keep up to date on the grand strategy of Putin. 

Clearly, we need to become more involved in the Caspian Sea or risk loosing the region to Russian hegemony. The TANAP will be the first test in this relationship and BP is cashing in  by the end of the year so if that is a success then we might gain the upper hand.

However, Europe cannot rely on 'might' so the game is on to gain the gas in the Caspian. Russia's started building, Europe is stuck at the drawing board.

Sources used:

EU's internal energy market:Tough decisions and a daunting agenda' found here