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A Transatlantic Approach to European Energy Security

by Elena NikolovaAs the United States copes with the consequences of the BP Deepwater Horizon oil spill in theGulf of Mexico, it is time to reevaluate its energy security strategy for the future. Equallyrelevant, however, is the energy security of its close Atlantic ally: the European Union. TheUnited States and the European Union have been economically and financially interlinked for decades, together accounting for nearly 45% of global GDP.

Since the gas disputes of 2006, theEuropean Union has taken steps toward creating a new and reliable energy security strategy thatwill make its 27 member states less vulnerable to gas and oil supply shocks from partner countries. In order to ensure its own economic security, the United States needs to bolster theseefforts by strengthening energy cooperation with the European Union.

Is Energy Cooperation Necessary?

Substantial transatlantic economic cooperation necessitates the development of anequally robust support relationship for energy supply security. The US and the EU participate inthe largest bilateral trade relationship in the world.

Their interdependent partnership isevidenced by the fact that EU direct investment flows to the US in 2008 amounted to €121.4 billion and US investment flows into the EU accounted for €50.5 billion. Trade in goods andservices in 2009 reached equally high levels.

It is therefore in the United States’ interest toensure a secure supply of energy to Europe since a supply shock in Europe risks creating anunstable economic situation in the US The gas dispute between Ukraine and Russia in January2009 is an example of the volatile atmosphere that can quickly develop and of the effects it cantrigger in the economy. While the dispute caused minor disturbances in most Western countries,many Eastern member states greatly suffered from the shortage of gas. Slovakia and Bulgaria,for instance, rely on Russia for more than 95% of their gas imports. Bulgaria was forced to scaledown production in key plants across the country, while Slovakia declared a state of emergency.

If a similar crisis occurs on a Europe-wide scale, production in all countries would be1 The Streit Council, “Transatlantic Economy,” accessed September 27, 2010http://streitcouncil.org/index.php?page=transatlantic-economy-3.2 European Commission, “Trade Bilateral RelationsCountries: The United States,” accessedSeptember 27, 2010, http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/countries/united-states/.3 Ibid.

jeopardized, and consequently, so would trade and investment between the United States and theEuropean Union.There has not been much discussion on European energy security in the United States, but the recent Eurozone crisis, with its risk of contagion to the United States, exposes the level of linkage between the two economies. If a large-scale gas crisis were to occur, partially shuttingdown not only production in Eastern but also in Western Europe, then the US would bevulnerable to economic instability. Increasing transatlantic cooperation and ensuring Europeanenergy security would, at the very least, help minimize the economic impact that such an eventwould have on the USU.S. Senator Richard Lugar has been a vocal supporter of a transatlantic approach tosolving the EU energy crisis. He argues that if individual European states continue to conclude bilateral agreements with Russia, this sends the signal of a divided Europe and enables Russia to bully some of its European clients. If transatlantic cooperation were strengthened, then Russiawould abstain from such "soft" aggression as it would fear a coordinated transatlantic response.A key tool in creating such a unified stance is the Nabucco pipeline, which would link the eastern border of Turkey and Austria and bypass Russia. In 2008, US special representative to the EUBoyden Gray affirmed the United States’ support for the Nabucco project even though the USwill not directly benefit from the energy supplies. He also expressed the United States’ hope "thatthe [Caspian] region and Europe both benefit and that we, as a trading nation, will also indirectly benefit and we very much want for [Europe] to have a strong independent existence to promoteyour own economies to their fullest potential."

The geopolitical benefits of transatlantic cooperation in this area include the gradualdemocratization and development of Central Asian economies. Azerbaijan, Kazakhstan, andTurkmenistan hold rich reserves of natural gas and will be the future sources of energy for Russiaand the European Union. They are also relatively new countries and have a history of unstabledemocracy. If the United States and Europe do not actively seek engagement with the Caucasusand Central Asian republics, they risk losing influence in the region to Russia and thus hinderingchances of transition to the establishment of democratic rule. US Special Envoy for EurasianEnergy Richard Morningstar has been vocal about these links: in the beginning of 2010, he statedthat by encouraging diversification, “it is clear we further US interests in raising global oil andgas production, in having secure energy supplies to our allies in Europe, and in supportingsovereignty and independence in Central Asia.”

Robust economic relationships would alsoextend US and EU influence in the region. Morningstar has continued to emphasize this asrecently as June 2010 by stating that: “A Southern Corridor would provide commercial benefitfor the countries of the Caucasus and Central Asia and also create a long-term partnership basedon mutual interests with Europe.”

Transatlantic Energy Cooperation So Far

4 “Factbox: 18 Countries Affected by Russia-Ukraine Gas Row,”

Reuters

, January 7, 2009,accessed September 27, 2010,http://uk.reuters.com/article/idUKLA54196720090110.5 Bruce Pannier, “Nabucco Gets A Boost In Baku,”,

Radio Free Europe

, September 10,2008, LexisNexis.6 Mick Snow, “Eurasian energy 'engagement,’”

Oil and Gas Journal

, February 15, 2010,LexisNexis.7 “US Energy Envoy Hails Azeri-Turkish Gas Deal,” BBC Monitoring International Reports,June 2, 2010, LexisNexis..

The January 2009 gas war between Ukraine and Russia only reaffirmed the EU's need for a more diversified energy mix. Its new strategy includes stressing the interdependent relationship between Russia and the EU and engaging Russia in formulating and maintaining stable, productive relations. This is necessary since Russia is the top oil and gas supplier to the EU. TheEU also imports 80% of Russian gas, making it Russia’s most important customer. Despite thesesignificant figures, the EU is also committed to combating climate change through its 20/20/20strategy and is actively pursuing research and development in alternative energy areas. It is ontrack to meet its 2020 goals.

Additionally, the EU is turning toward its North African neighborsthrough the Euro-Mediterranean Partnership (the Southern counterpart to the Eastern Partnership Neighborhood Policy) and establishing solar energy networks through the Sahara desert.

TheEU recognizes the Nabucco gas pipeline project as a key part of its diversification effort - acounterweight to Russia's Nord Stream and South Stream projects - and a way to directly tap intothe rich gas resources of Central Asia.The United States, on the other hand, has experienced setbacks as the Clean Energy billwas first watered-down and later not introduced in the Senate. While individual states areattempting to lessen their dependence on foreign oil, the US as a whole lacks a comprehensiveand centralized climate change policy. But the US has expressed concern over Europe’sincreasing dependence on Russia: members of the 110

Congress have held hearings on thethreats and risks of such dependence.

Sen. Richard Lugar has led a similar effort to promotetransatlantic cooperation in energy security. The US has also affirmed its support for the Nabucco Pipeline, a project that is part of the European energy security strategy and aims todiversify gas resources for Europe's energy needs.Both the US and the EU have recognized the need for and benefits of greater cooperationin energy policy. The EU-US Summits of 2006 and 2007 yielded progress when both sidesagreed to establish an institutional framework for the discussion of transatlantic cooperation onthis issue. This framework includes an annual strategic review of US-EU energy cooperation; aUS-EU High Level Dialogue on Climate Change, Clean Energy and Sustainable Development;and a US-EU Energy CEO Forum.

In November 2009, the two sides established the US-EUEnergy Council consisting of three working groups: Energy Policies, Global Energy Security andGlobal Markets, and Energy Technologies Research Cooperation.

Barriers to Cooperation

8 Leigh Phillips, “EU oOn Track To Meet Renewable Energy Target,”

EU Observer

, March12, 2010.9 “EU Sees Solar Power Imported from Sahara in Five Years,”

EurActiv

, June 23, 2010, EnergySupply section.10

Select Committee on Energy Independence and Global Warming,

110

Congress (2008) (Testimony of Amy Myers Jaffe, Wallace S. Wilson Fellow for Energy Studies,Rice University)

June 11, 2008.11 Congressional Research Service, “The European Union’s Energy Security Challenges,”January 30, 2008.12 European Union Delegation to the United States, “New EU-US Energy Council to BoostTransatlantic Energy Cooperation,” November 4, 2009, accessed September 27, 2010,http://www.eurunion.org/eu/index.php?option=com_content&task=view&id=3539&Itemid=58