Friday, August 29, 2008

EU energy reliance on Russia to grow after Georgia

EU energy reliance on Russia to grow after Georgia
Tom Bergin - Analysis
LONDON, 28 Aug—Russia's invasion of Georgia has reinforced Europe's desire to avoid over-reliance on Moscow for energy but EU countries' reluctance to pay for alternatives and uncoordinated policies mean their dependence is likely to grow.

The European Union relies on Russia for around a quarter of its gas and much of its oil while imports are expected to rise as North Sea production falls.

In recent years Moscow has cut off energy supplies to neighbours on a number of occasions, prompting the EU to push for projects that would bypass Russia.

In the past month, this policy has gained new urgency.

"The Georgia conflict appears to reaffirm the Commission's continued policy on strengthening the security of Europe's energy supply, including by means of diversification," EU Commission spokesman Martin Selmayr said.

The EU is pushing the Nabucco pipeline, which seeks to bring Azeri and Central Asian gas to Europe through Turkey, and a trans-Caspian pipeline that would allow Central Asian counties like Turkmenistan to export gas without crossing Russia.

These pipelines have struggled to get off the ground. Now their future looks even more in doubt after Russia's action highlighted the vulnerability of the 850,000 barrels per day Baku-Tbilisi-Ceyhan oil link and the Baku-Tbilisi-Erzerum gas pipeline both crossing Georgia.

"It was unlikely to happen anyway and what has happened in Georgia has made it a whole lot less likely," said Tanya Costello at Eurasia Group, the political risk advisory firm.

Costello said oil companies would now be reluctant to invest in pipelines that crossed Georgia or relied on oil and gas passing through that country. Also, Turkmenistan and Kazakhstan may now fear pursuing non-Russian export routes.

"Russia's actions in Georgia make those Central Asian gas producers even less likely to risk jeopardising their relationship with Moscow for a pro-Western route," she said.

Part of the reason Nabucco and the trans-Caspian pipeline have struggled is because Europe's governments have been reluctant to back the projects with cash or diplomatic pressure in the way that Moscow has promoted such projects of its own.

A spokesman for the UK government said it would press the case for Nabucco, which is also strongly supported by the United States, but added, in an email, that it was "conscious of the underlying principle that the market is best placed to deliver required investment".

Analysts say it is unrealistic for governments to expect companies like Royal Dutch Shell and BP to bear the costs and risks of providing Europe's energy security.

"If you looked at commercial factors alone, the Soviets would never have built the pipeline infrastructure from Siberia to Eastern Europe in the first place and now Europe relies on that pipeline network," Andrew Neff, Energy Analyst at Global Insight said.

In addition to cash, the EU could back projects by taking a more active role in securing energy supplies from countries like Turkmenistan.

"Finding enough supplies is the big problem and it cannot be solved just by the efforts of the companies in the Nabucco consortium," Bulgaria's Economy and Energy Minister Petar Dimitrov told Reuters in an interview earlier this week.

"Russia is holding political talks to buy out the available gas from the Caspian region ... I believe the EU should also hold such political talks," he said.

Another problem in diversifying away from Russia is that big countries like Germany and Italy tend to back projects which secure their own energy supplies rather than working with other EU members on behalf of the whole bloc, analysts and some European politicians say.

Berlin backs the Nordstream gas pipeline which is led by Russian state-controlled gas export monopoly Gazprom and in which Germany's largest utility E.ON and chemicals maker BASF own minority stakes.

Nordstream aims to bring gas from Russia to Germany across the Baltic rather than through Eastern Europe.

Poland and Lithuania have criticised the pipeline, saying it makes them more susceptible to supply cuts from Russia as they alone would be affected.

Previous reductions in Russian oil and gas exports to Germany and Italy, after Moscow cut supplies to Ukraine and Belarus as a result of price disputes, were short-lived.

By contrast, an oil pipeline to Lithuania, which Russia shut down in July 2006, after Vilnius opted for a Polish rather than Russian buyer for its state refinery, has never reopened.

"The way Germany sees this is the best way to reduce insecurity of supply is not to cut Russia out but to cut dependence on potentially troublesome transit countries," Costello said.

Similarly Milan-based oil company Eni, in which the Italian government has a 20 percent stake and whose chief executive is selected by Rome, is a junior partner in Southstream, a Gazprom-backed rival to Nabucco.

Eni has also offered to help Gazprom build a gas pipeline to Europe from Libya, from which Gazprom said in July it had offered to buy all future volumes of oil and gas, much to the discomfort of Brussels.

Katinka Barysch, at the Centre for European Reform, a pro-Europe think-tank, said the inability of European countries to act together was Moscow's gain.

"If they're divided, Russia would be foolish not to take advantage of it," she said. /// Reuters

No comments:

Watch the latest videos on