By Dean Ensley, Transatlantic Security Analyst
Recently, the European Union completed its first bloc-wide stress test on energy supplies. As Russian natural gas exports to Central and Eastern Europe shrink, the EU needs to move forward on several aspects of its natural gas policy to avoid a repetition of the 2006, 2008 and 2009 gas crises with Russia.
If the EU’s energy security strategy is not more completely implemented, the 28-state bloc risks grave supply shortages this winter due to enduring tensions with Russia over the Ukraine crisis. Faced with shrinking Russian gas imports, the EU recently conducted its first gas stress test, which is a consideration of its gas distribution system as a whole rather those of individual nations. Ideally, this review will enable the EU to better prepare for disruptions in gas supplies during winter months, but it must be followed with swift adherence to its existing energy security strategy released in May.
There is no questioning the impact that gas shortages would have on the quality of life of European citizens and the resulting economic stress as nations try to meet demand. As of 2014, the EU receives about 30% of its total gas imports from Russia and pays around $250 billion in annual energy bills. This is all the more concerning when one recognizes that half of Russian gas exports to Europe, over 86 billion cubic meters in total, passed through Ukraine’s pipelines in 2013. The situation in 2014 has deteriorated because Gazprom, Russia’s state-run energy giant, cut off all gas exports to Ukraine in June over claims that Kiev had not paid its bills. Additionally, Russia has reduced gas exports to Poland by a 45%, and reduced supplies by relatively smaller amounts to Slovakia, Austria, and Hungary. What reason does Russia give for targeting other European nations? Gazprom claims they are “re-exporting” Russian gas to Ukraine when it “isn’t intended for them.”
On May 28th, the European Commission released the EU’s energy security strategy, which outlines several suggested short and long-term measures. Short-term measures include reducing energy demand and switching to alternative fuels, whereas long-term measures include increasing energy efficiency and protecting critical infrastructure. The suggestions are constructive, but will do little in the near future to curb Russia’s leverage. For example, the goal of increasing energy efficiency is defined by reaching the proposed 2030 energy and climate goals. In the intervening period, outlying nations such as Ukraine and even the bloc itself will continue to suffer Russian methods of coercion.
Given Russia’s current strategy, how can Europe further protect itself in the face of such dependence on Russian gas exports? That is where the recent stress test comes to play. According to The New York Times, this test was officially designed “to see how badly [Europe] would fare if flows of Russian natural gas were disrupted.” The test effectively checked whether member countries have improved energy security since the 2009 gas crisis, when Russia disrupted exports through Ukraine. Even though the stress test showed that the EU could withstand the loss of Russian gas flows through Ukraine for one month, it should be followed by at least four steps to more fully implement the EU’s energy security strategy.
First, the EU needs to develop a single gas market. Currently, members in the east and southeast such as Poland, Finland, Romania and the Baltic states would suffer the heaviest impact of gas shortages from Russia. This is partially due to their proximity to Russia, and therefore greater trade density, but also due to the lack of pipeline interconnections. If the EU builds more pipeline interconnectors, which the European Commission estimates will cost $22 billion, there will be enough pipelines such that countries without access to gas can import it from others with sufficient supplies. Therefore if the EU as a whole suffers a gas supply crisis, the burden will be shared as a bloc. This implies Russia would have no middle ground option, and would likely have to cut off several countries in order to effectively cut off one. This increased cost makes it a less attractive option for a nation so dependent on gas exports.
Second, the EU should collectively demand that Russia sell gas to EU members at a uniform price. Russia benefits from its status as Europe’s biggest gas supplier and uses that as leverage to manipulate prices. For example, as Russia recently increased gas prices in Ukraine it decreased gas prices in Lithuania. Beyond internal European price differentials, Russia has even sold Europe gas it bought from Turkmenistan at several times the original price. If the EU is to pursue collective energy security, then it must place unity over parochial interests to prevent Russia from weaponizing gas sales. This would likely change Russia’s behavior dramatically because its options would be reduced to targeting the entire bloc or not using gas exports for political leverage. Given its current trajectory, perhaps Russia is willing to antagonize the entirety of Europe, but it would only feasibly happen when it is left without alternatives or feels intrinsically threatened.
Third, the EU must pursue the accelerated construction of the South Stream pipeline in order to prevent Russia from holding the EU hostage over disagreements with Ukraine. Most major gas pipelines currently pass through Ukraine or Belarus. As of December 5, 2013, the Nord Stream pipeline finished its final 30-day test and it currently transports up to 27.5 billion cubic meters of natural gas directly from Vyborg, Russia to Lubmin, Germany. Similarly, the proposed South Stream would pass through the Black Sea, and directly export gas to Varma, Bulgaria, and onward to Central Europe. While the EU should not abandon Ukraine, it should not be dependent on gas transiting through it. This would allow European leaders a degree of political flexibility if they decide that energy security is more important than Ukrainian security.
Fourth, and most importantly, the EU must diversify its energy sources and increase emergency stockpiles. The European Commission has an initiative to establish a Southern Gas Corridor from the Caspian and Middle Eastern regions to Europe, which would decrease Russian dominance over EU imports. In terms of other forms of transporting gas, the EU currently has over 20 regasification terminals designed to receive liquefied natural gas, with six more under construction. By expanding these operations, there will be new opportunities to import from LNG-exporting countries such as the U.S. or Israel. Finally, coming full circle, the recent stress test confirmed a 30-day buffer of emergency gas supplies. But if Europe is willing to go head-to-head with Russia, it will need a bloc-wide emergency supply, similar to the U.S. Strategic Petroleum Reserve, which should last longer than 30 days.
In summary, the EU is still highly dependent on Russian gas exports. The Ukraine crisis has once again ignited debate, leading to the first-ever EU-wide review of gas supplies. However, the EU must fully implement the aspects of its energy security strategy that center on natural gas. While not limited to the measures suggested here, such collective policy would strengthen European energy security and move it away from the yolk of Russian gas manipulation. With winter only months away, the stress test must serve as the basis for a more robust EU commitment to its own strategy rather than a purely academic exercise.