Event report - “The vision for the EU’s future energy security: What are the options?”

April 9, 2019

On March 12, 2019 the CEU Center for European Neighborhood Studies (CENS), and the Budapest office of the Friedrich Ebert Foundation (FES) jointly hosted an international conference entitled “The vision for the EU’s future energy security: What are the options?”.

Opening the conference János Molnár (Friedrich Ebert Foundation in Budapest) introduced the Foundation’s activities and set the stage for discussion by asking whether the European Union has an adequate strategic narrative how to tackle the issue of energy security.

Péter Balázs (Director, CEU Center for European Neighborhood Studies) mentioned that at the election campaign to the European Parliament the issue of sovereignty is a key one. This is important since energy security is a centrepiece of the sovereignty debate too and a critical challenge for the EU at the moment. He highlighted that the topics to be addressed by two panels are of outmost importance, these are governance in the Energy Union, and how the pipelines operate and secure the energy supplies.

Michael LaBelle (associate professor, Central European University) chairing the first panel „The EU’s Energy Union: Challenges of governance and Delivering“ provided the context for the debate by specifying that before the creation of the Energy Union in 1990s and early 2000s, the debates revolved around specific issues like merges and acquisitions. Energy security implied investing and upgrading the system. Russia-Ukraine gas dispute from 2009 changed the perception. This is when gas became a very important issue for the EU and its latest eastern member-states. Now the idea of Energy Union is taking on five key areas: security, solidarity and trust; a fully-integrated internal energy market; energy efficiency; climate action - decarbonising the economy; research, innovation and competitiveness. One of the backbones for fostering the Energy Union is Agency for Cooperation of Energy Regulators (ACER). It is lacking the resources and cannot perform what the EP and the Commission expect it to do. He concluded that in 2019 Russian-Ukraine gas dispute is again on the table, in the vein it was in 2009.

In his speech, Christian Egenhofer (Director of the Energy Climate House, Centre for European Policy Studies, Brussels) stressed that the term energy security and security of supplies are not quite the same. There was always a narrative of security of supplies but it was always at the member-states’ discretion, not at the EU level. There is currently a qualitative change of the situation. He opined that energy security has not only geopolitical, but increasingly geo-economic aspect. The Energy Union strived to bring the geopolitical and geo-economic parts together. Energy has been one of the few areas where there has been a measurable success in what has been set out. The concept of the Energy Union is sufficiently ambiguous to be acceptable for everybody, according to him. Prior to the creation of the Energy Union the ideas it stands on were in place, but member states were in charge of security of supply. Then he followed with the history of the evolution of the idea of Energy Union and the institutional interaction behind it. He brought several examples of successful projects delivered by the Energy Union, e.g. on interconnectivity. Egenhofer said that the main achievements of the Energy Union is that it managed to integrate energy, climate and economic and industrial policy agenda into one strategic approach that went into one direction, and not in different as it used to be before.

Elina Brutschin (assistant professor, Webster Vienna Private University) focused on the governance issue in her speech. She outlined the main objectives of the European Energy Union. As stated in report on the State of the Energy Union, EU wants to step up its role as a global leader in the energy transition while providing energy security to all citizens. She interpreted that energy transition is one of the key strategies of the European Commission to tackle energy security. Though this doesn’t necessarily mean that this is always consistent with the member states’ views. She argued that among the main dimensions to be covered through the Energy Union, previously security and internal energy market were the most important, while for future climate action and decarbonising the economy will gain on most prominence. She later dwelt on the Governance Regulation describing how contested it was. The main elements of the Governance Regulation are Integrated National Energy and Climate Plans of the member states, low emissions strategies with a 50 year perspective. She highlighted the first problems arising around the Governance Regulation, such as late submissions of Plans by some of the member states, the differing quality of the plans and with the data available already identified ’ambition gap’ in energy efficiency targets. There is also challenge with the recommendations made by the European Commission to the individual member states: we still know relatively little about which policies are effective in supporting renewable energy transitions. Finally, she spoke about oversight challenge: if the major burden of oversight is within the major national stakeholders, it is to be expected that there will be significant differences across the 27 member states.

Robert Stüwe (research fellow, Center for European Integration Studies, University of Bonn) started by saying that energy security is heavily loaded with sovereignty. European Union (Commission) has given an answer to this strategic challenge and this answer is in the Energy Strategy. Resilience is one of the major goals of the Energy Union, e.g. resilience against external supply shocks as was experienced during the gas crises in 2006, 2009 and to some extent in 2014. This also implies resilience against transit disputes, as was repeatedly seen between Naftogaz (Ukraine) and Gasprom (Russia). The idea of the security of supply is older than the idea of the Energy Union itself, he opined. Addressing the EU‘s reliance on external sources has inevitably caused internal market policies to spill over into foreign policy. Decision on intergovernmental agreements with the third countries represents this.  He spoke about Security of Supply Regulation – its version from 2010 had a major weakness as the prevention and emergency measures have been so far taking place mostly at the national level and regional cooperation was not compulsory. Currently this regulation obligates member state to reduce its high supply standard to be able to provide assistance to the neighbouring country should the need arise. This regulation’s most important element is the binding solidarity mechanism. Also SoS Regulation contains compulsory regional cooperation. It would be not just to accuse the Commission of acquiring the excessive powers. These rules on regional cooperation once again underline that supranational action is able to give back sovereignty to the member states, and not to strip them of it, due to the cross-border nature of the supply risks.  The trade-off is that import diversification can bite with the Union law as the third party access can be granted to politically inconvenient energy partners. We need to be more realistic in relation to the Union methods when it comes to the diversification of external supplies and shielding transit countries from intrusive influence of third countries. The most promising strategy seems to be to expand the scope of the energy aqui and institutional practices to those partners asking for it, he concluded.

At the Panel II the speakers elaborated on the topic „The geopolitics of pipelines: discussing the diversification options“. Chair András Deák (research fellow, Institute of World Economics of the Hungarian Academy of Sciences) asked the panellists the questions: about the relevance of the pipeline geopolitics since the energy security notion has evolved considerably; and about the relevance of politics since there is a widening gap between the political and business perceptions of the gas landscape. He brought the example of a heated debate on gas since Russia is regarded and the reality that Europe needs to import more gas and more gas is delivered by Gasprom.

Gulmira Rzayeva (research associate, Oxford Institute for Energy Studies) talked about the Southern Gas Corridor (SGC) and the markets where Azerbaijani gas is exported. She informed that the SGC is 90 % completed, the Turkish part is 99 % completed and TAP is 90% completed. The remaining part is not completed due to the political issues in Italy. She mentioned Shah Deniz field and other smaller fields under development in Azerbaijan. The peak of gas production is expected between 2021-2027, amounting to more than 50 bcm/y gas by this time with a natural decline later. Turkish market is the most viable market for Azerbaijani gas due to geographic proximity and favourable (higher than in Europe) gas prices in Turkey. Azerbaijan secured its market share there. Concerning the Turkish market, the bad news is that the demand is not growing at the pace predicted. Turkey wanted to replace the dependence on gas (especially on Russian gas after jet crisis with Russia) with domestically produced energy. It doubled the share of renewables to 8 % in just 5 years. And this policy of increasing the renewables in power generation sector will continue. This will bring the tough competition to increase market share in Turkey. In Europe Bulgaria is a good market due to the relatively higher gas prices and the demand here can grow at a fast pace; Italy as well is an attractive market. She stressed that Russia has a dominant position in all three countries and Gasprom is a main player. For Azerbaijan it is a strategic issue to export its 10 bcm/y of gas to Europe though it seems not to be a lot for the whole continent. Azerbaijan wants to be an important partner for the countries where gas will be exported. She disagreed with the statement that SGC can ensure energy security of Europe. It is probably not a game-changer for the whole Europe, but for the three countries where gas will flow, this will be a real game-changer, according to Rzayeva. There are plans to extend SGC’s geography to Western Balkans and in the remote future to Central European markets too. Once the infrastructure is in place, other players can use it as well to export gas to Europe, she concluded.

Slawomir Raszewski (visiting professor, Institute of Political Science and International Relations, Jagiellonian University in Krakow) talked about some significant changes the EU has gone through in its energy politics. There is a relatively well-functioning energy market which was not the case 10-15 years ago. Secondly, the EU has come to realize that the best way to ensure energy security is through energy efficiency. We have gone beyond pipeline politics and we are in the midst of pipelines versus LNG discussions, he claimed. LNG becomes an attractive option for the countries who strive to diversify – it helps them to escape the dilemma of politicization and securitization thanks to the flexibility that LNG brings. Lithuania and Poland decided to pay the energy security premium which implies not so much focusing on the markets but on the security of supply. It is interesting to see Germany announcing its plans to have LNG terminal too. Energy efficiency becomes important also because of the demand coming from the developing markets. Sometimes there is over-dramatization of the energy insecurity of Europe, 

Raszewski added. In reality it is surrounded by gas, not only from Russia, but from Norway, Algeria, Caspian region. Alternatives are required and this is not only about pipeline gas, he claimed. Speaking about 10-years perspective, he mentioned that once secured by infrastructure and well diversified, it can happen that Poland will start to buy more Russian gas. He finalized by asking whether the natural gas is a part of a problem or a solution. In the US it is a part of solution since natural gas is seen as a transit from fossil fuels to renewables, so if this is the case for the EU?

Marco Siddi (senior research fellow, Finnish Institute of International Affairs) started by answering the question whether the pipeline politics is still so important as it was 10 years ago, and his opinion was that that it is not. He brought the examples of diversification that is taking place, LNG that is becoming available as an alternative source, the increasing interconnectivity and the growing share of the renewables. But a discussion about pipeline geopolitics still thrives since this a political debate. SGC compared to the initial Nabucco is a much smaller project with a single supplier (Azerbaijan). EU‘s political support is apparent, it is mentioned in all strategic documents. 10 bcm/y that SGC will bring to Europe is less than 3 % of European consumption. It concerns certain markets but does not affect the competition/prices at a broader EU market. Looking at the map one sees that SGC lies dangerously close to Nahorno Karabakh which is not so frozen conflict as exemplified by the war in 2016 and to South Ossetia over which Russia and Georgia had war in 2008. In Turkey pipeline also goes through troubled area with Kurdish insurgency. Siddi claimed that if the EU starts to play geopolitical card, we can expect response from the countries that are good at playing this card. He brought the examples of Russia and Turkish Stream. SGC required a lot of diplomatic investment by European energy diplomacy and partnership with the country that was often criticized for authoritarian tendencies. So SGC project ends up contradicting the EU‘s proclaimed normative approach to its neighbourhood, according to the speaker.  Finally, the issue of decarbonization – resources are going to the long-term fossil fuel project. We need to ensure that this is not another investment that locks the EU into the fossil-fuel based economy, Siddi stressed.

Andrej Nosko (visiting assistant professor, Faculty of Political Sciences and International Relations of Matej Bel University, Banská Bystrica, Slovakia) made the point that the discussions about new pipelines is in the interests of concrete actors, but not societies. If EU is serious about its energy security - then natural gas should be a transition fuel. He wondered if that is a responsible public policy to invest sources into what is essentially a sunk cost. Existing pipelines continue to play a geopolitical role in Europe, according to the speaker. It is both a curse and an opportunity, e.g. there are opportunities for stabilization of geopolitical environment through pipelines and providing stability to Ukraine. The focus should be on existing pipelines, Nosko maintained, little rationale exists in the market for investing into the new pipelines. Some of the smaller projects are worthy but many of these projects are about rent-seeking and geopolitics. He brought the example of Russian project South Stream that transformed into the Turkish Stream in order to avoid European regulations. Nosko opined that innovation is an important issue and there is a gap in discussions between the incumbent managers and digital start-ups. He concluded that because of innovation there will be a decrease in correlation between the GDP and energy consumption in the future.