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Rival Visions of Transatlantic Energy Security

Rival Visions of Transatlantic Energy Security

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This Brussels Forum Brief looks at the future of global energy management.
This Brussels Forum Brief looks at the future of global energy management.

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Categories:Types, Research
Published by: German Marshall Fund of the United States on Mar 31, 2011
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03/31/2011

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Summary:
The policy debate onenergy security in Europe andthe United States is preoccupiedwith the priority of securing supplies of foreign oil and gasand reducing dependence ontheir imports. This has led to ageostrategic “great game” asrival powers attempt to assert
control over nite supplies.
But recent technologicaldevelopments offer new waysto improve energy security. Theeffectively unlimited resourcesof renewable energy — solar,wind, water, and biomass inNorth Africa, south Asia, andother strategically importantareas — could provide alternativesources of energy to reducecompetition for natural gasand coal (and oil, if this were
accompanied by electrication
of transport). Massive transportof electrons, rather thanhydrocarbon molecules, across21
st
-century supergrids couldachieve the same energysecurity objectives with a host of other possible gains as a bonus,from economic development insensitive regions of the world toreduced risk of climate changeand increased competitivenessof renewable energy. Improvedenergy management in urbanareas, industrial facilities as wellas in the existing generation,distribution, and transportationof electricity have the potentialto contribute to a sustainableenergy system.
Introduction: European EnergySecurity as a Transatlantic Priority
Te last ew years have seen callsor international cooperation tosaeguard against signicant disrup-tions in energy supply on a scaleunseen since the oil crises o the1970s. Policymakers on both sideso the Atlantic worry about relyingon imported energy. In the UnitedStates, every rise in the price o Brent crude quickly translatesinto higher gasoline prices anduels concerns about petrodollarsunding anti-American extremismand political entanglements invulnerable parts o the world.
1
InEurope, meanwhile, long-standingconcerns about over-reliance onnatural gas imported rom Russiawere crystallized by two interrup-tions o Russian gas, in 2006 and2009, which had serious economicrepercussions in Europe and ledto talk in some orums about aRussian energy weapon.
2
Tethreat analysis — over-reliance by industrialized countries or theirenergy on a limited number o external suppliers, accompanied by 
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For example, in a 2009 report by CNA, “Powering America’s Defense: Energy and the Risks to NationalSecurity,” 12 retired generals of the U.S. military as-serted that U.S. dependence on foreign oil “reducesour international leverage, places our troops in dan-gerous global regions, funds nations and individualswho wish us harm, and weakens our economy.”
2
Jeffrey Mankoff, “Eurasian Energy Security,” CouncilSpecial Report No. 43, Council on Foreign Relations,Washington, DC, February 2009
Rival Visions of TransatlanticEnergy Security 
by Thomas Legge
1744 R Street NWWashington, DC 20009T 1 202 683 2650F 1 202 265 1662E ino@gmus.org
increasing nationalization o energy resources and the politicization o energy management by resource-rich countries — is amiliar romthe decade o the oil crises.
3
It evencontains a avor o the Cold War,in that Europe is the main theaterin a great game o geopolitical rivalsattempting to assert control over thestrategic resource o energy. Yet thechallenges today are not the sameas those o the 1970s, and there aremore varied and promising solu-tions than those that ocus solely onincreasing or diversiying the supply o ossil uels.Oil and natural gas both presentsupply-side risks, but they addressquite dierent parts o the economy (oil uels most road transport,and its derivates supply the petro-chemical and other sectors; naturalgas generally provides heat andpower) and require dierent solu-tions. Although the ocus o thispaper is Europe’s dependence onimported energy, especially naturalgas, but European energy security is an issue that preoccupies policy-makers on both sides o the Atlantic.As Katinka Barysch notes, someobservers eel that energy actu-
3
For a discussion on the denitions of energy security,
see Arianna Checchi, Arno Behrens, and ChristianEgenhofer, “Long-term energy security for Europe: A
sector-specic approach,” CEPS Working Document
No. 309, Centre for European Policy Studies, Brussels,January 2009.
March 2011
Paper Series
 
2
ally denes the relationship between the EU and Russia,that Germany, Italy, and other EU countries that importheavily rom Russia (and whose companies have investedinside Russia) are compromised by this dependence andwill be reluctant to criticize Moscow. Tis puts them atodds with new EU member states in Central and EasternEurope, which look to Western Europe and the UnitedStates to put political pressure on Russia to reduce theirvulnerability.
4
U.S. interest in European energy security is illustrated by the appointment o a veteran diplomat,Richard Morningstar, as Special Envoy o the U.S. Secre-tary o State or Eurasian Energy.
Europe’s Energy Predicament
Europe regularly beats its brow over its dependence onenergy imports, especially natural gas. In a 2008 policy paper, the European Commission noted that the EUimported more than 50 percent o its total energy andexpected the share to rise to 70 percent by 2030.
5
Teproblem is not dependence on imports
per se
; turningto a well-unctioning international market or any commodity is normal in a globalized economy. Butnatural gas poses special problems because it is nottraded globally (apart rom limited trade in liqueednatural gas) but is instead dependent on a xed pipe-line inrastructure. In 2008, 61 percent o all the gasconsumed within the European Union was imported,o which 42 percent came rom Russia.
6
DomesticEU production is declining, and the percentage o gas imports is expected to increase to 73 percent. Te
4
Katinka Barysch, introduction to Pipelines, politics and power: The future of EU-Russia energy relations, Center for European Reform, 2008
5
European Commission, “Towards a secure, sustainable and competitive Europeanenergy network,” Green Paper, Brussels, 13 November 2008
6
24 percent came from Norway, 18 percent from Algeria, and the remainder from
other countries including via liqueed natural gas imports. European Commission,
“An EU energy security and solidarity action plan,” COM(2008) 781, Brussels, 13November 2008
dependence problem becomes more acute in Centraland Eastern Europe, where Russia is the sole supplier ormany EU member states, such as Lithuania and Slovakia.Tere are our main concerns with this relationship:1.
Insufcient investment.
Russia may not be investingin domestic production at sucient scale and there-ore may not meet expected demand in the uture.
7
2.
Monopoly power.
Russia, as the dominant supplierto the European Union, has price-setting power overEU consumers.
8
Furthermore, there are concernsabout Gazprom’s market-hegemonic designs as seenin its expansion and investment priorities.
9
3.
Rival markets.
Demand-side competition romIndia, China, and other emerging economiescould diminish any monopsony power that Europecurrently has.
10
China has increasing nancial powerin this regard as well because the Chinese govern-ment is willing and able to invest in the requiredinrastructure.4.
Political control.
Although Russia constantly statesthat it is Europe’s most reliable supplier and indeedsupplied gas to Europe without issue or decadessince exports began in the 1960s, its interruptions o gas to Russia’s “near abroad” in 2006 and 2009 hadmajor economic repercussions in western Europe.Te issue threatens to create tension within Europe,too. Former Soviet Union members or satellite stateslike Poland, the Czech Republic, and the Baltic statesare worried that they are the rst to eel the eects o any supply disruption rom the east, whereas WesternEuropean countries are reluctant to bear the costs o thenecessary storage or other inrastructural changes thatwould hedge against supply risks.
11
Tis concern is at theheart o calls rom these countries or EU “solidarity” in
7
Christian Cleutinx and Jeffery Piper, “The EU-Russia Energy Dialogue,” in
Pipelines,politics and power: The future of EU-Russia energy relations
, Center for EuropeanReform, 2008
8
Daniel Gros, “The money benets of diversication,” in Pipelines, politics and power:
The future of EU-Russia energy relations, Center for European Reform, 2008
9
Roland Götz, “A pipeline race between the EU and Russia?” in Pipelines, politics andpower: The future of EU-Russia energy relations, Center for European Reform, 2008
10
Pavel Baev, “Asia-Pacic and LNG: The lure of new markets,” in Pipelines, politics
and power: The future of EU-Russia energy relations, Center for European Reform,2008
11
Keith C. Smith, “Bringing Energy Security to East Central Europe: Regional Coopera-tion Is the Key,” Center for Strategic & International Studies, April 2010
Natural gas poses specialproblems because it is nottraded globally but is instead
dependent on a xed pipeline
infrastructure.
 
3
the planning, design, and nancing o strategic energy inrastructure.
EU and U.S. Strategies to CounterSecurity Risks of Energy Dependence
EU and U.S. strategies to strengthen energy security havetraditionally relied on supply-side approaches combinedwith a degree o demand-side management. Te sharpestedge o the hard-security approach to the issue is whatcould be termed “pipeline diplomacy,” where eorts todiversiy supply routes have become intertwined in largerissues o geopolitics and regional alliance-building. TeBaku-bilisi-Ceyhan pipeline, which came on-streamin the middle o the last decade, did not just link oldCaspian oil with new European markets; it was a stra-tegic U.S. priority because it strengthened the aspirationso Georgia and Azerbaijan to move away rom Russia’sorbit and inuence. Geopolitical power struggles havealso shaped the web o proposed new pipelines across theEurasian continent. Te most high-prole o these proj-ects is Nabucco, the proposed natural gas pipeline thatwould link consumers in Western Europe to gas elds inAzerbaijan, Iraq, and even Iran in the uture i politicalconditions allow or it, all while bypassing Russia. Unsur-prisingly, Russia has proposed rival pipelines that wouldrender Nabucco unnecessary while supporting Gazprom’sdominance in the European market. Bluestream wouldcarry gas to Western Europe across the bed o the Black Sea, bypassing Ukraine, and the Nord Stream pipeline,which is currently under construction, will link Russiadirectly to Germany across the Baltic Sea.
12
Te UnitedStates has maintained a keen oreign-policy interest inthe outcome o these rival projects. U.S. rhetoric hasshifed away rom the need or Europe to diversiy itssupplies rom Russia — what Morningstar has describedas a “zero-sum game” — to one o greater commercializa-tion in the region and positive engagement with Russia.But the United States still hopes to see a “SouthernEnergy Corridor” that would bring Azeri or evenurkmenistani gas to Europe, with Nabucco being thepreerred option.
13
Tere is, however, a limit to the extent that these pipe-lines can address European energy security. In the rst
12
“The abominable gas man,” The Economist, 14 October 2010
13
Wilson Center, Director’s Forum with Special Envoy for Eurasian EnergyRichard Morningstar, 15 October 2010 (http://www.wilsoncenter.org/index.cfm?fuseaction=events.event_summary&event_id=635494, retrieved on 27 January2011)
place, the nal decision on Nabucco or other pipelinesthat are important to the West will be taken by privateinvestors, not the EU or the United States; in contrast, thegovernments o Russia and, even more so, China havemore liberty to build the required inrastructure evenwhere the rationale is more strategic than economic,because energy companies in those countries are moreeasily directed by the state than those in the more liberal-ized EU (and reer rom cash constraints). Moreover,even i Nabucco is built, to take one example, it wouldonly make a limited impression: the natural gas it wouldcarry would only cover 6-8 percent o Europe’s importdemand, which is also expected to grow between nowand 2020.
14
Te ongoing liberalization and integration o theEuropean gas market will also help improve security.Despite the continued absence o a common EU energy policy, successive EU laws have liberalized Europe’s gasmarket and begun to connect ormerly isolated nationalmarkets.
15
New EU inrastructure rules also requireexisting pipelines to accommodate two-way ows o gasin case o a supply disruption.New technologies that allow the economical recovery o “shale gas” (natural gas in previously inaccessible rock ormations) could urther undermine the case or neweast-west pipelines. Te shale-gas boom is a mainly U.S.phenomenon but it is already helping to improve Euro-pean energy security because it has removed the UnitedStates rom the global market or liquid natural gas. Tepossibility o new supplies o shale gas around the worldwould have major oreign-policy consequences, oeringthe promise o a host o new suppliers away rom the ewcountries that dominate natural gas production today —
14
Roland Götz, “A pipeline race between the EU and Russia?” in Pipelines, politicsand power: The future of EU-Russia energy relations, Center for European Reform,2008
15
“The abominable gas man,” The Economist, 14 October 2010
Efforts to diversify supply routeshave become intertwined inlarger issues of geopolitics andregional alliance-building.

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