On February 16, 2016, the European Commission published four proposals to facilitate global energy transition and provide a barrier to any disruption of supplies through an increased energy security. The European Commission proposes the reduction of the energy demand, an increase in the energy production (including renewable one) in Europe, the development of a fully integrated internal market, a diversification of energy suppliers and supply routes.

The package focuses on four aspects and essential objectives and it is part of a broader EU energy strategy.[1] It includes two legislative proposals and two non-legislative documents. The legislative measures suggest the review of the EU Regulation No. 994/2010. This regulation concerns measures to safeguard security of gas supply aiming to increase the transparency of natural gas supply contracts and the institution of an ex-ante assessment of the agreements reached between EU member states and a third country by the European Commission. At the same time the European Commission lays down the idea to better interconnect member states via pipelines and give them access to LNG. In addition to this, it highlights the necessity to intensify energy savings and make a greater use of renewable energies.

In fact, Maroš Šefčovič, the Vice President of the European Commission in charge of Energy Union, said: “The Energy Union Strategy, launched one year ago, promised to provide all Europeans with energy which is secure, sustainable, and competitive. [The] package focuses on the security of our supply, but touches upon all three overarching goals.” Šefčovič was echoed by the EU Commissioner for Energy and Climate Action, Miguel Arias Cañete, who said: “After the gas crises of 2006 and 2009 that left many millions out in the cold, we said: ‘Never again’. But the stress tests of 2014 showed we are still far too vulnerable to major disruption of gas supplies. And the political tensions on our borders are a sharp reminder that this problem will not just go away.”[2]

An alarming scenario

Why are EU Commissioners so worried? As Cañete highlighted in the press release for the launch of the strategy, figures show that the European Union is today too reliant on foreign energy sources so that the measures taken to date are not making a real and effective difference. According to Eurostat,[3] in 2014 the EU was dependent on energy imports for slightly over the half of its consumption (53%). While some countries like Estonia (8.9%) or Denmark (12.8%) depend on foreign energy sources for just a little part of their consumption,[4]  some others like Spain (72.9%), Italy (75.9%) or Lithuania (77.9%) show an alarming energy balance.

Why does the document focus that much on gas? Despite the fact that the EU has a 65.3% rate of dependence on foreign natural gas[5] (less than oil), the European Commission communication puts gas market right in the spotlight, saying it represents the best energy source to complete a transition towards a de-carbonized economy. The European Commission views EU energy security as inherently linked to gas, mainly for political reasons.

The main problem when talking about gas imports is that they mainly come from Russia, whose disputes with transit countries have threatened to disrupt supplies in recent years. Concerns about the security of supply from Moscow increased with the conflict in Ukraine. The Energy Union itself was born when Eastern Europe countries asked for a strategy in order to be integrated within the Western energy market and not to be left alone vis-à-vis Russia. For these countries (only linked to the old Soviet gas infrastructures), an EU energy policy was the only way to lower Russian political leverage, i.e. its position of main (or only one) energy supplier for political purposes.[6]

But today member states are much better equipped to deal with a possible gas crisis: energy systems are much better linked through pipelines and, with the help of a functioning internal energy market, rules for network use have been put in place to increase regional cooperation, avoid cross-border infrastructure congestions, and reverse gas flow options have been created in some regions. In fact, the regional approach is exactly what the EU promoted for example in the Baltic area by the BEMIP (Baltic Energy Market Interconnection Plan).

Disparities among EU regions exist in terms of access to LNG too. The EU is the biggest importer of natural gas in the world.[7] Diversification of supply sources is therefore a paramount both for energy security and for competitiveness. Ensuring that all member states have access to liquid gas markets is a key objective of the Energy Union.

A look into the strategy

Taking a deeper look into the strategy, we see the European Commission’s intention to start managing the gas market by having its say on intergovernmental energy agreements (the so-called IGAs). A classic example could be the one of the South Stream, a project blessed by Russia, five EU Member States (Bulgaria, Hungary, Slovenia, Croatia, and Austria) and Serbia. The project never saw the light of the day because of allegations of non-compliance with the Third Energy Package.[8] Now, the European Commission is claiming its right to make checks before the signing of the agreement between a member state and a third country in order to assess its compatibility with EU rules. Even if not binding, the assessment should anyway be taken into account in order to avoid infringement procedures. But actually, the main goal to be reached within the EU security strategy is the access to a wider LNG market so to diversify the sources of supply.[9] A goal that could be reached by strengthening the use of infrastructures as LNG plants and pipelines, and by resorting to gas storage facilities. Just in November 2015, the report on the State of the Energy Union[10]  assumed that the EU does not need significant additional LNG import capacity, but just better interconnections. That report also identified a series of Projects of Common Interest (PCIs) mainly meant to end the isolation of all member states by linking their infrastructure to those of neighboring member states who have direct or indirect access to LNG import terminals or trading hubs. Storage too is addressed by the document of European Commission, especially in terms of regional cooperation. The strategy, in fact, aims to remove regulatory barriers, which prevent storage from being an instrument of supply flexibility in case of shortage emergencies.[11]

So what in terms of politics?

First of all, the European Commission has been trying for years to connect energy policy, (generally under the national purview), to the single market, (traditionally under the EU umbrella). By doing so, it would expand its own authority. The strategy also confirms two political elements that play a backbone role within the EU energy policy. As internal gas production is decreasing,[12] the EU needs more imported gas than before, so traditional gas suppliers (Russia, Norway, Algeria) and new ones (maybe United States, Canada, Australia, Qatar, and Caspian countries) do not need to be worried. The other element is that the EU really wants to move towards a diversified set of suppliers. In this perspective it is clear and evident that the Nord Stream pipeline doubling represents a ‘U-turn’ in EU policy.[13] The EU, once again, has to untie a knot about its ability to move as a whole, speak with a single voice or it will commit the umpteenth betrayal towards some of its members.

However, what about the Mediterranean Sea? As we repeatedly pointed out, diversification is the keyword. As said in other circumstances,[14] the EU should continue to support the integration of the Euro-Arab Mashreq Gas Market Project (EAMGM), a strategy at the moment put aside because of the political unrest that affects this area. This project aims at boosting regional integration of the gas market so to achieve harmonization of the legislative and regulatory frameworks of Egypt, Iraq, Jordan, Lebanon, Syria, and Turkey with the EU one.

Furthermore, the discovery of new offshore energy fields implies a great chance for EU countries to find a way towards diversification. However, the political situation within these potential interlocutors is so complicated to the point that during the last years it has been more favorable to continue on relying on traditional suppliers.

Notes and references

[1] European Commission. “Energy Strategy.” ec.europa.eu/energy/en/topics/energy-strategy

[2] “Towards Energy Union: The Commission presents sustainable energy security package,” European Commission – Press release, February 16, 2016. europa.eu/rapid/press-release_IP-16-307_en.htm

[3] “The EU was dependent on energy imports for slightly over half of its consumption in 2014,”Eurostat – News release 28, February 4, 2016. ec.europa.eu/eurostat/documents/2995521/7150363/8-04022016-AP-EN.pdf/c92466d9-903e-417c-ad76-4c35678113fd

[4] In fact, energy dependence is the extent to which an economy relies upon imports in order to meet its energy needs.

[5] Eurostat. “Energy dependency rate, EU-28, 2003–13 (% of net imports in gross inland consumption and bunkers, based on tonnes of oil equivalent).” ec.europa.eu/eurostat/statistics-explained/index.php/File:Energy_dependency_rate,_EU-28,_2003%E2%80%9313_(%25_of_net_imports_in_gross_inland_consumption_and_bunkers,_based_on_tonnes_of_oil_equivalent)_YB15.png

[6] Grigas, Agnia. “Legacies, Coercion and Soft Power: Russian Influence in the Baltic States,” Chatham House – Briefing Paper 4, August 2012.

[7] Eurostat. “Energy production and imports.” ec.europa.eu/eurostat/statistics-explained/index.php/Energy_production_and_imports. LNG mainly comes from Qatar, Algeria, and Nigeria.

[8] Oliver, Christian, and Farchy, Jack. “Russia’s South Stream gas pipeline to Europe divides EU,” Financial Times, May 4, 2012. For further info about the Third Energy Package, see: ec.europa.eu/energy/en/topics/markets-and-consumers/market-legislation. Actually part of the construction began at the end of 2012 but the Crimean crisis and its political and economic consequences halted the operations.

[9] In the region of south-east of Europe, central-eastern Europe and the Baltic, many countries do not have access to LNG and/or are heavily dependent on a single gas supplier, and would therefore be hardest hit in a supply crisis. See: europa.eu/rapid/press-release_MEMO-16-310_en.htm

[10] European Commission. “State of the  Energy Union.” ec.europa.eu/priorities/energy-union-and-climate/state-energy-union_en

[11] Storage is particularly useful in case of daily or season fluctuations in demand.

[12] Eurostat. “Energy production, 2003 and 2013 (million tonnes of oil equivalent).” ec.europa.eu/eurostat/statistics-explained/index.php/File:Energy_production,_2003_and_2013_(million_tonnes_of_oil_equivalent)_YB15.png

[13] Teffer, Peter. “Tusk: Nord Stream II doesn’t help,” EUobserver, December 18, 2015. euobserver.com/energy/131605. Łoskot-Strachota, Agata. “The case against Nord Stream 2,” Energypost, November 23, 2015. www.energypost.eu/case-nord-stream-2/. Johnson, Keith. “Europe Doubles Down on Russian gas,” Foreign Policy, September 11, 2015. foreignpolicy.com/2015/09/11/europe-doubles-down-on-russian-gas-nord-stream-gazprom-putin/

[14] Angelone, Francesco. “It’s the energy, stupid! How oil & gas can reshape the Mediterranean,” Mediterranean Affairs, January 29, 2016. mediterraneanaffairs.com/its-the-energy-stupid-how-oil-gas-can-reshape-the-mediterranean/