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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”. Danger of Dependence.

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europe s energy dilemmas the new security dimensions

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”

danger of dependence
Danger of Dependence
  • Europe’s energy dependency was first revealed in the oil shocks of the 1970s.
  • Europe’s dependency on energy imports is again rising.
  • 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.
  • Reserves are concentrated in a few countries. Today, roughly half of the EU’s gas consumption comes from only three countries (Russia, Norway, Algeria).
eu dependence on foreign energy
EU Dependence on Foreign Energy
  • EU’s primary energy demand will probably grow 0.7% per year over the next 20 years.
  • Oil and gas will continue to be the dominant fuel sources with gas as the largest growth market of any fuel.
  • EU’s natural gas production will decrease in the future but consumption will double in the next two decades.
  • Russia currently provides 25% of that imported gas. Its share will rise to over 30% by 2015 and drop to about 27% by 2030.

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

eu dependence on foreign energy1
EU Dependence on Foreign Energy
  • By 2030 EU’s total energy consumption is expected to be 34% oil and 27% gas … a two-thirds jump in imports.
  • By 2030, the EU will be
    • 90% - 93% dependent on oil imports
    • 80% - 84% dependent on gas imports
  • EU countries currently buy around 40 percent of their natural gas -- primarily for electricity -- from Russia, that is the state-controlled gas monopoly Gazprom.
  • States in central and eastern Europe are particularly dependent on Russian-supplied gas.

Source: European Commission, Directorate-General for Energy and Transport. “Energy for a Changing World.” 2007. http://ec.europa.eu/energy/demand/index_en.htm.

europe s share of energy sources in total energy consumption in
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

slide6
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.

2005 share of crude oil imports into eu 27
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.

2000 and 2005 crude oil imports into the eu 27 in mio tonnes
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.

russian total liquids thousand bbl d barrels per day
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.

eu dependence on russian gas
EU Dependence on Russian Gas
  • Russian energy sector contribution to GDP: approx 25%.
  • Russian gas exports to the EU-25: 65% of gas exported.
  • 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.
2005 share of crude gas imports into the eu 27 in tj terajoules
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.

europe addicted to gazprom
Europe: Addicted to Gazprom

Source: Business Week. http://www.businessweek.com/magazine/content/06_31/b3995065.htm.

major recipients of russian natural gas exports 2005
Major Recipients of Russian Natural Gas Exports, 2005

Source: Energy Information Energy. http://www.eia.doe.gov/cabs/Russia/NaturalGas.html.

forecast of gas supply of europe for eu 25 balkan states switzerland billion m 3
Forecast of Gas Supply of Europe for EU-25, Balkan States, Switzerland (billion m3)

Source: Nabucco, Markets / Sources for Nabucco, http://www.nabucco-pipeline.com/company/markets-sources-for-nabucco/markets-sources-for-nabucco.html.

total russia natural gas production dry natural gas billion cubic feet
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.

russia s projected gas balance 2010 bcm billions cubic meters
Russia’s Projected Gas Balance, 2010, Bcm (billions cubic meters)

Source: Institute of Energy Policy and BP

gazprom s oil gas purchase costs in 2002 2006 billion usd money of the day
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 reports

new russian gas fields what is left
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]

russian actions 2006 2007 2008
Russian Actions 2006/2007/2008
  • Ukraine: January ‘06 / Winter ‘07/’08
  • Georgia: Present
  • Belarus: Deal 2007
  • Algeria: Cartel?
  • Putin
    • Sell to others if Europe not cooperative
    • Guarantee existing contracts at “market prices (Merkel)
russia commercial motives
Russia: Commercial Motives
  • Old-style: Money
  • New-style: « downstream investments »
  • Pressure from others
    • Kyrgstan, Turkmenistan: fair share
    • Poland, Belarus: transit fee
  • Foreign « exploitation » in Russia:
    • Sakhalin – Shell
    • Pressure on TNK/BP
south stream pipeline
South Stream Pipeline

Source: Gazprom, http://www.gazprom.com/eng/articles/article27150.shtml

northern european gas pipeline
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)]

what s next
What’s Next?
  • The EU is especially alarmed by the several disruptions of supplies to Europe, in the pricing rows between Russia, Ukraine, Georgia, and Belarus.
  • More upsetting have been successful moves by Gazprom to renege on or block foreign partners in new gas fields and emerging oil exploration.
  • EU so far has failed to develop countervailing policy strategy – on imports, pipelines, distribution, or diversification.
possible solutions
Possible Solutions
  • EU Conservation Plan
  • Diversification
  • Special Deals
  • EU Common Policy and Capabilities
  • Globalization
  • ?????
eu conservation plan
EU Conservation Plan
  • 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.
  • 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.
diversification
Diversification
  • New sources in Africa (oil and gas). But, competition with Chinese and Indians.
  • Reconsideration of nuclear energy. But, popular opposition, especially from Germany.
  • Return to coal. But, environmental risks and increasing costs.
special deals
Special Deals
  • Bilateral. Large nations have a financial advantage. For example, German, Italian, and French deals with the Russians.
  • Disadvantaged
    • Small states
    • CEE states – “legacy”
    • Poor states
eu common policy and capabilities
EU Common Policy and Capabilities
  • EU Energy Charter
  • US interest and help – Baku-Ceyhan
  • Some initiatives
    • Naucco pipeline
  • No agreement on
    • Pooling
    • Equitable distribution
    • Future price caps
    • Reserves/storage
great caspian oil pipeline
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

nabucco gas pipeline
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

south stream and nabucco pipelines
South Stream and Nabucco pipelines

Source: David Wood, “Russia’s Gas Power Play,” Energy Tribune, August 17, 2007,

http://www.energytribune.com/articles.cfm?aid=590

globalize
Globalize
  • Nationalized EU policy?
  • Transatlantic solution?
  • Global multilateral?