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Europe's Energy Dilemmas: The New Security Dimensions

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Europe's Energy Dilemmas: The New Security Dimensions

  1. 1. Europe’s Energy Dilemmas: The New Security Dimensions Catherine M. Kelleher The Watson Institute for International Studies Brown University 49th Annual ISA Convention San Francisco, CA March 29, 2008 “ Bridging Multiple Divides”
  2. 2. Danger of Dependence <ul><li>Europe’s energy dependency was first revealed in the oil shocks of the 1970s. </li></ul><ul><li>Europe’s dependency on energy imports is again rising. </li></ul><ul><li>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. </li></ul><ul><li>Reserves are concentrated in a few countries. Today, roughly half of the EU’s gas consumption comes from only three countries (Russia, Norway, Algeria). </li></ul>
  3. 3. EU Dependence on Foreign Energy <ul><li>EU’s primary energy demand will probably grow 0.7% per year over the next 20 years. </li></ul><ul><li>Oil and gas will continue to be the dominant fuel sources with gas as the largest growth market of any fuel. </li></ul><ul><li>EU’s natural gas production will decrease in the future but consumption will double in the next two decades. </li></ul><ul><li>Russia currently provides 25% of that imported gas. Its share will rise to over 30% by 2015 and drop to about 27% by 2030. </li></ul>Source: Director-General for Research, Sustainable Energy Systems. “Energy corridors: European Union and Neighboring countries.” EUR 22581, 2007. http://bookshop.europa.eu/eubookshop/FileCache/PUBPDF/KINA22581ENC/KINA22581ENC_002.pdf
  4. 4. EU Dependence on Foreign Energy <ul><li>By 2030 EU’s total energy consumption is expected to be 34% oil and 27% gas … a two-thirds jump in imports. </li></ul><ul><li>By 2030, the EU will be </li></ul><ul><ul><li>90% - 93% dependent on oil imports </li></ul></ul><ul><ul><li>80% - 84% dependent on gas imports </li></ul></ul><ul><li>EU countries currently buy around 40 percent of their natural gas -- primarily for electricity -- from Russia, that is the state-controlled gas monopoly Gazprom. </li></ul><ul><li>States in central and eastern Europe are particularly dependent on Russian-supplied gas. </li></ul>Source: European Commission, Directorate-General for Energy and Transport. “Energy for a Changing World.” 2007. http://ec.europa.eu/energy/demand/index_en.htm .
  5. 5. 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
  6. 6. 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/2007/2007_energy_en.xls .
  7. 7. 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/2007/2007_energy_en.xls .
  8. 8. 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/2007/2007_energy_en.xls .
  9. 9. 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 .
  10. 10. EU Dependence on Russian Gas <ul><li>Russian energy sector contribution to GDP: approx 25%. </li></ul><ul><li>Russian gas exports to the EU-25: 65% of gas exported. </li></ul><ul><li>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. </li></ul>
  11. 11. 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/2007/2007_energy_en.xls .
  12. 12. Europe: Addicted to Gazprom Source: Business Week. http://www.businessweek.com/magazine/content/06_31/b3995065.htm .
  13. 13. Major Recipients of Russian Natural Gas Exports, 2005 Source: Energy Information Energy. http://www.eia.doe.gov/cabs/Russia/NaturalGas.html .
  14. 14. 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-for-nabucco/markets-sources-for-nabucco.html .
  15. 15. 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 .
  16. 16. Russia’s Projected Gas Balance, 2010, Bcm (billions cubic meters) Source: Institute of Energy Policy and BP
  17. 17. Gazprom’s oil & gas purchase costs in 2002-2006, billion USD (money of the day) Source: Vladimir Milov, “Global Energy Security: The Role of Russia and Central Asia” and Gazprom IFRS financial report s
  18. 18. 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 14th, 2007]
  19. 19. Russian Actions 2006/2007/2008 <ul><li>Ukraine: January ‘06 / Winter ‘07/’08 </li></ul><ul><li>Georgia: Present </li></ul><ul><li>Belarus: Deal 2007 </li></ul><ul><li>Algeria: Cartel? </li></ul><ul><li>Putin </li></ul><ul><ul><li>Sell to others if Europe not cooperative </li></ul></ul><ul><ul><li>Guarantee existing contracts at “market prices (Merkel) </li></ul></ul>
  20. 20. Russia: Commercial Motives <ul><li>Old-style: Money </li></ul><ul><li>New-style: « downstream investments » </li></ul><ul><li>Pressure from others </li></ul><ul><ul><li>Kyrgstan, Turkmenistan: fair share </li></ul></ul><ul><ul><li>Poland, Belarus: transit fee </li></ul></ul><ul><li>Foreign « exploitation » in Russia: </li></ul><ul><ul><li>Sakhalin – Shell </li></ul></ul><ul><ul><li>Pressure on TNK/BP </li></ul></ul>
  21. 21. South Stream Pipeline <ul><li>Source: Gazprom, http://www.gazprom.com/eng/articles/article27150.shtml </li></ul>
  22. 22. 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/figure2_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)]
  23. 23. What’s Next? <ul><li>The EU is especially alarmed by the several disruptions of supplies to Europe, in the pricing rows between Russia, Ukraine, Georgia, and Belarus. </li></ul><ul><li>More upsetting have been successful moves by Gazprom to renege on or block foreign partners in new gas fields and emerging oil exploration. </li></ul><ul><li>EU so far has failed to develop countervailing policy strategy – on imports, pipelines, distribution, or diversification. </li></ul>
  24. 24. Possible Solutions <ul><li>EU Conservation Plan </li></ul><ul><li>Diversification </li></ul><ul><li>Special Deals </li></ul><ul><li>EU Common Policy and Capabilities </li></ul><ul><li>Globalization </li></ul><ul><li>????? </li></ul>
  25. 25. EU Conservation Plan <ul><li>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. </li></ul><ul><li>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 CO2 emissions cut by 780 millions tonnes annually. </li></ul>
  26. 26. Diversification <ul><li>New sources in Africa (oil and gas). But, competition with Chinese and Indians. </li></ul><ul><li>Reconsideration of nuclear energy. But, popular opposition, especially from Germany. </li></ul><ul><li>Return to coal. But, environmental risks and increasing costs. </li></ul>
  27. 27. Special Deals <ul><li>Bilateral. Large nations have a financial advantage. For example, German, Italian, and French deals with the Russians. </li></ul><ul><li>Disadvantaged </li></ul><ul><ul><li>Small states </li></ul></ul><ul><ul><li>CEE states – “legacy” </li></ul></ul><ul><ul><li>Poor states </li></ul></ul>
  28. 28. EU Common Policy and Capabilities <ul><li>EU Energy Charter </li></ul><ul><li>US interest and help – Baku-Ceyhan </li></ul><ul><li>Some initiatives </li></ul><ul><ul><li>Naucco pipeline </li></ul></ul><ul><li>No agreement on </li></ul><ul><ul><li>Pooling </li></ul></ul><ul><ul><li>Equitable distribution </li></ul></ul><ul><ul><li>Future price caps </li></ul></ul><ul><ul><li>Reserves/storage </li></ul></ul>
  29. 29. Great Caspian Oil Pipeline Source: BP, http://www.bp.com/liveassets/bp_internet/globalbp/STAGING/global_assets/images/locations/caspian/map_pipeline_caspian_594x370.gif
  30. 30. 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/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
  31. 31. South Stream and Nabucco pipelines <ul><li>Source: David Wood, “Russia’s Gas Power Play,” Energy Tribune, August 17, 2007, </li></ul><ul><li>http:// www.energytribune.com/articles.cfm?aid =590 </li></ul>
  32. 32. Globalize <ul><li>Nationalized EU policy? </li></ul><ul><li>Transatlantic solution? </li></ul><ul><li>Global multilateral? </li></ul>
  33. 33. And…???

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