Europe s Energy Dilemmas The New Security Dimensions Catherine

Europe’s Energy Dilemmas: The New Security Dimensions Catherine M. Kelleher The Watson Institute for International Studies Brown University 49 th Annual ISA Convention San Francisco, CA March 29, 2008 “Bridging Multiple Divides”

Danger of Dependence • Europe’s energy dependency was first revealed in the oil shocks of the 1970 s. • Europe’s dependency on energy imports is again rising. • Unless Europe can make domestic energy more competitive, in the next 20 to 30 years around 70% of the Union’s energy requirements, compared to 50% today, will be met by imported products – most from regions threatened by instability. • Reserves are concentrated in a few countries. Today, roughly half of the EU’s gas consumption comes from only three countries (Russia, Norway, Algeria). 2

EU Dependence on Foreign Energy • EU’s primary energy demand will probably grow 0. 7% per year over the next 20 years. • Oil and gas will continue to be the dominant fuel sources with gas as the largest growth market of any fuel. • EU’s natural gas production will decrease in the future but consumption will double in the next two decades. • Russia currently provides 25% of that imported gas. Its share will rise to over 30% by 2015 and drop to about 27% by 2030. Source: Director-General for Research, Sustainable Energy Systems. “Energy corridors: European Union and Neighboring countries. ” EUR 22581, 2007. http: //bookshop. europa. eu/eubookshop/File. Cache/PUBPDF/KINA 22581 ENC_002. pdf 3

EU Dependence on Foreign Energy • By 2030 EU’s total energy consumption is expected to be 34% oil and 27% gas … a two-thirds jump in imports. • By 2030, the EU will be – 90% - 93% dependent on oil imports – 80% - 84% dependent on gas imports • EU countries currently buy around 40 percent of their natural gas -- primarily for electricity -- from Russia, that is the state-controlled gas monopoly Gazprom. • States in central and eastern Europe are particularly dependent on Russian-supplied gas. Source: European Commission, Directorate-General for Energy and Transport. “Energy for a Changing World. ” 2007. http: //ec. europa. eu/energy/demand/index_en. htm. 4

Europe's share of energy sources in total energy consumption (in %) Source: Commission Staff Working Document. Annex to the Green Paper. A European Strategy for Sustainable, Competitive and Secure Energy. What is at stake - Background document. 2006. http: //ec. europa. eu/energy/green-paper-energy/doc/2006_03_08_gp_working_document_en. pdf 5

OECD Total Energy Consumption by Region and Fuel, Low World Oil Price Case, 1990 -2030, Quadrillion Btu (British thermal unit) Source: European Commission, Directorate-General for Energy and Transport. “EU Energy in Figures. ” http: //ec. europa. eu/dgs/energy_transport/figures/pocketbook/doc/2007_energy_en. xls. 6

2005 Share of Crude Oil Imports into EU-27 Source: European Commission, Directorate-General for Energy and Transport. “EU Energy in Figures. ” http: //ec. europa. eu/dgs/energy_transport/figures/pocketbook/doc/2007_energy_en. xls. 7

2000 and 2005 Crude Oil Imports into the EU-27 (in Mio tonnes) Source: European Commission, Directorate-General for Energy and Transport. “EU Energy in Figures. ” http: //ec. europa. eu/dgs/energy_transport/figures/pocketbook/doc/2007_energy_en. xls. 8

Russian Total Liquids, thousand bbl/d (barrels per day) Source: Energy Information Agency, International Energy Annual. “Russia Energy Data. ” http: //www. eia. doe. gov/emeu/cabs/Russia/images/RF_data. xls. 9

EU Dependence on Russian Gas • Russian energy sector contribution to GDP: approx 25%. • Russian gas exports to the EU-25: 65% of gas exported. • By 2010 about 70% of Russia’s gas supply will come from Gazprom. But, increasingly Gazprom will be selling increasingly expensive gas and oil from Central Asia. 10

2005 Share of Crude Gas Imports into the EU-27, in TJ, terajoules Source: European Commission, Directorate-General for Energy and Transport. “EU Energy in Figures. ” http: //ec. europa. eu/dgs/energy_transport/figures/pocketbook/doc/2007_energy_en. xls. 11

Europe: Addicted to Gazprom Source: Business Week. http: //www. businessweek. com/magazine/content/06_31/b 3995065. htm. 12

Major Recipients of Russian Natural Gas Exports, 2005 Source: Energy Information Energy. http: //www. eia. doe. gov/cabs/Russia/Natural. Gas. html. 13

Forecast of Gas Supply of Europe for EU-25, Balkan States, Switzerland (billion m 3) Source: Nabucco, Markets / Sources for Nabucco, http: //www. nabucco-pipeline. com/company/markets-sources-fornabucco/markets-sources-for-nabucco. html. 14

Total Russia Natural Gas Production, Dry natural gas (Billion Cubic Feet) Source: Energy Information Agency, International Energy Annual. “Russia Energy Data. ” http: //www. eia. doe. gov/emeu/cabs/Russia/images/RF_data. xls. 15

Russia’s Projected Gas Balance, 2010, Bcm (billions cubic meters) 16 Source: Institute of Energy Policy and BP

Gazprom’s oil & gas purchase costs in 20022006, billion USD (money of the day) Source: Vladimir Milov, “Global Energy Security: The Role of Russia and Central Asia” and Gazprom IFRS financial reports 17

New Russian Gas Fields – What is left? Potential of new gas output in the current gas production area, that would be relatively easy to launch in the coming years, bcm/year Launching new gas production at remote green fields will require 5 -7 years, enormous investment and unique technologies currently untested. We are on the edge of severe Russian gas production decline Source: Vladimir Milov, “Global Energy Security: The Role of Russia and Central Asia, ” [presentation by Gazprom’s deputy CEO A. Ananenkov, Moscow, June 14 th, 2007] 18

Russian Actions 2006/2007/2008 • • • Ukraine: January ‘ 06 / Winter ‘ 07/’ 08 Georgia: Present Belarus: Deal 2007 Algeria: Cartel? Putin – Sell to others if Europe not cooperative – Guarantee existing contracts at “market prices (Merkel) 19

Russia: Commercial Motives • Old-style: Money • New-style: « downstream investments » • Pressure from others – Kyrgstan, Turkmenistan: fair share – Poland, Belarus: transit fee • Foreign « exploitation » in Russia: – Sakhalin – Shell – Pressure on TNK/BP 20

South Stream Pipeline 21 Source: Gazprom, http: //www. gazprom. com/eng/articles/article 27150. shtml

Northern European Gas Pipeline Ariel Cohen, Ph. D. , “The North European Gas Pipeline Threatens Europe’s Energy Security, ” October 26, 2006, Backgrounder #1980. http: //www. heritage. org/Research/Europe/images/figure 2_large. gif. [“Germany: Schroeder’s New Gig Causes Trouble at Home, ” Stratfor, March 30, 2006, www. stratfor. com/products/premium/read_article. php? id=264178 (August 3, 2006)] 22

What’s Next? • The EU is especially alarmed by the several disruptions of supplies to Europe, in the pricing rows between Russia, Ukraine, Georgia, and Belarus. • More upsetting have been successful moves by Gazprom to renege on or block foreign partners in new gas fields and emerging oil exploration. • EU so far has failed to develop countervailing policy strategy – on imports, pipelines, distribution, or diversification. 23

Possible Solutions • • • EU Conservation Plan Diversification Special Deals EU Common Policy and Capabilities Globalization ? ? ? 24

EU Conservation Plan • The European Commission in 2006 approved a plan to cut EU energy use by 20% by 2020, a day before European leaders raised their concerns about oil and gas supplies with Russia’s Vladimir Putin. • The energy saving plan will be introduced over six years. The cost of EU energy consumption may be reduced by more than 100 billion euros a year ($150 billion) by 2020 and CO 2 emissions cut by 780 millions tonnes annually. 25

Diversification • New sources in Africa (oil and gas). But, competition with Chinese and Indians. • Reconsideration of nuclear energy. But, popular opposition, especially from Germany. • Return to coal. But, environmental risks and increasing costs. 26

Special Deals • Bilateral. Large nations have a financial advantage. For example, German, Italian, and French deals with the Russians. • Disadvantaged – Small states – CEE states – “legacy” – Poor states 27

EU Common Policy and Capabilities • EU Energy Charter • US interest and help – Baku-Ceyhan • Some initiatives – Naucco pipeline • No agreement on – – Pooling Equitable distribution Future price caps Reserves/storage 28

Great Caspian Oil Pipeline Source: BP, http: //www. bp. com/liveassets/bp_internet/globalbp/STAGING/global_assets/images/locations/caspian/map_pipeline _caspian_594 x 370. gif 29

Nabucco Gas Pipeline Construction will begin in 2010 and the first gas deliveries will arrive in Austria in 2013. Source: Nabucco, http: //www. nabucco-pipeline. com/project-description-pipeline-route/project-desription. html and “Nabucco official: pipeline project on track, ” The Messenger, March 18, 2007, http: //www. messenger. com. ge/issues/1568_march_18_2008/1568_econ_two. html 30

South Stream and Nabucco pipelines Source: David Wood, “Russia’s Gas Power Play, ” Energy Tribune, August 17, 2007, http: //www. energytribune. com/articles. cfm? aid=590 31

Globalize • Nationalized EU policy? • Transatlantic solution? • Global multilateral? 32

And…? ? ?