Europe

1
Europes 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
Danger of Dependence

• Europes energy dependency was first revealed in
  the oil shocks of the 1970s.
• Europes 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 Unions 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 EUs gas consumption
  comes from only three countries (Russia, Norway,
  Algeria).

3
EU Dependence on Foreign Energy

• EUs 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.
• EUs 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

4
EU Dependence on Foreign Energy

• By 2030 EUs 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/in
dex_en.htm.
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
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/p
ocketbook/doc/2007/2007_energy_en.xls.
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/p
ocketbook/doc/2007/2007_energy_en.xls.
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/p
ocketbook/doc/2007/2007_energy_en.xls.
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
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 Russias gas supply will
  come from Gazprom. But, increasingly Gazprom will
  be selling increasingly expensive gas and oil
  from Central Asia.

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/p
ocketbook/doc/2007/2007_energy_en.xls.
12
Europe Addicted to Gazprom
Source Business Week. http//www.businessweek.com
/magazine/content/06_31/b3995065.htm.
13
Major Recipients of Russian Natural Gas Exports,
2005
Source Energy Information Energy.
http//www.eia.doe.gov/cabs/Russia/NaturalGas.html
.
14
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-so
urces-for-nabucco/markets-sources-for-nabucco.html
.
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
Russias Projected Gas Balance, 2010, Bcm
(billions cubic meters)
Source Institute of Energy Policy and BP
17
Gazproms 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
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 Gazproms deputy CEO
A.Ananenkov, Moscow, June 14th, 2007
19
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)

20
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

21
South Stream Pipeline

• Source Gazprom, http//www.gazprom.com/eng/articl
  es/article27150.shtml

22
Northern European Gas Pipeline
Ariel Cohen, Ph.D., The North European Gas
Pipeline Threatens Europes Energy Security,
October 26, 2006, Backgrounder 1980.
http//www.heritage.org/Research/Europe/images/fig
ure2_large.gif. Germany Schroeders New Gig
Causes Trouble at Home, Stratfor, March 30,
2006, www.stratfor.com/products/premium/read_artic
le.php?id264178 (August 3, 2006)
23
Whats 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.

24
Possible Solutions

• EU Conservation Plan
• Diversification
• Special Deals
• EU Common Policy and Capabilities
• Globalization
• ?????

25
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 Russias 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.

26
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.

27
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

28
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

29
Great Caspian Oil Pipeline
Source BP, http//www.bp.com/liveassets/bp_intern
et/globalbp/STAGING/global_assets/images/locations
/caspian/map_pipeline_caspian_594x370.gif
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/p
roject/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_mar
ch_18_2008/1568_econ_two.html
31
South Stream and Nabucco pipelines

• Source David Wood, Russias Gas Power Play,
  Energy Tribune, August 17, 2007,
• http//www.energytribune.com/articles.cfm?aid590

32
Globalize

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

33
And???