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Global Energy Security and the Implications for the EU

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  • European Centre for Energy and Resource Security (EUCERS), United Kingdom

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The following article will analyse the global and geopolitical dimensions of the future international energy security and its implications for Europe and the EU-27. In this context, I will discuss to which extent the EU's newly proclaimed “Energy Action Plan” of the EU Spring summit of 2007 and its declared common energy (foreign) policy are a sufficient strategy to cope with the new global and geopolitical challenges. The article concludes the following: (1) The interlinkage between globally designed traditional energy security concepts – that rely just on economic factors and “market-strategies” – and domestic as well as regional political stability demands new thinking with regard to both energy supply security and foreign and security policies. (2) Although after the Russian–Ukrainian gas conflict in January 2006, energy security has forced its way up the European energy and foreign policy agendas, the EU-27 member states have largely failed to forge a coherent European energy security and energy foreign policy strategy after their Spring summit of 2007 because its declared political solidarity has been still lacking. But the 2nd Strategic Energy Review of November 2008 has recommended new initiatives to overcome this lack by promoting concrete infrastructure and other projects for enhancing Europe's supply security and its political solidarity as part of a common energy (foreign) policy. If the EU is able to implement the March 2007 and November 2008 decisions, the EU oil and gas demand will drastically reduce and freeze at current levels. In this case, Putin's energy policies by using Russia's energy resources and pipeline monopolies as a political instrument to enforce its economic and geopolitical interests will be proved as self-defeating in Russia's long-term strategic interests. It will reduce Gazprom's gas exports to a much smaller EU gas market than originally forecasted as the result of a deliberate EU policy of decreasing its overall gas demand and by diversifying its gas imports.
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Global energy security and the implications for the EU
Frank Umbach
Centre for European Security Strategies (CESS), Munich-Berlin, Germany
article info
Article history:
Received 21 February 2008
Accepted 15 January 2009
Available online 6 March 2009
Keywords:
Energy security
Geopolitical challenges
Energy foreign policy
abstract
The following article will analyse the global and geopolitical dimensions of the future international
energy security and its implications for Europe and the EU-27. In this context, I will discuss to which
extent the EU’s newly proclaimed ‘‘Energy Action Plan’’ of the EU Spring summit of 2007 and its
declared common energy (foreign) policy are a sufficient strategy to cope with the new global and
geopolitical challenges. The article concludes the following: (1) The interlinkage between globally
designed traditional energy security concepts that rely just on economic factors and ‘‘market-
strategies’’ and domestic as well as regional political stability demands new thinking with regard to
both energy supply security and foreign and security policies. (2) Although after the Russian–Ukrainian
gas conflict in January 2006, energy security has forced its way up the European energy and foreign
policy agendas, the EU-27 member states have largely failed to forge a coherent European energy
security and energy foreign policy strategy after their Spring summit of 2007 because its declared
political solidarity has been still lacking. But the 2nd Strategic Energy Review of November 2008 has
recommended new initiatives to overcome this lack by promoting concrete infrastructure and other
projects for enhancing Europe’s supply security and its political solidarity as part of a common energy
(foreign) policy. If the EU is able to implement the March 2007 and November 2008 decisions, the EU oil
and gas demand will drastically reduce and freeze at current levels. In this case, Putin’s energy policies
by using Russia’s energy resources and pipelin e monopolies as a political instrument to enforce its
economic and geopolitical interests will be proved as self-defeating in Russia’s long-term strategic
interests. It will reduce Gazprom’s gas exports to a much smaller EU gas market than originally
forecasted as the result of a deliberate EU policy of decreasing its overall gas demand and by diversifying
its gas imports.
& 2009 Elsevier Ltd. All rights reserved.
Although energy companies will be prospecting in more
difficult environments, the major obstacle to the development
of new supplies is not geology but what happens above the
ground: namely, international affairs, politics, decision-making
by governments, and energy investment and new technological
development (Yergins, 2006)
1. Introduction
When on August 2, 2007, two Russian submarines planted a
Russian flag at the bottom of the Arctic Ocean to claim a large
portion of the world’s biggest continental shelf economic zone, it
highlighted the new ‘‘resource nationalism’’ of Russia and its
political ambitions to adopt unilateral strategies and power
politics rather than following approaches of international law
and multilateral political cooperation over an area that might be
at the forefront of future international crisis over exploration
rights linked with unsolved territorial claims. Climate change and
technological innovation have allowed surveys of the Artic Ocean,
which is suspected to have up to 25% of the global oil and gas
reserves as well as non-energy resources. With the retreat of the
Arctic icecap, exploiting undersea Artic resources is now more
feasible than ever before (Sloggett, 2007). Accordingly, unilateral
and geopolitical strategies are on the rise in the Arctic and
Antarctic.
Until 2005/200 6, the EU and its member states’ energy policies
had been increasingly determined by market forces and a
separation of energy questions from political factors and strategic
developments since the first oil crisis in 1973/1974. However,
these trends towards market forces did not destroy the oligopolies
in the national gas and electricity sectors of many EU member
states (including Germany). But ultimately, energy policies have
often been left to the industry in the ‘‘old EU’’, albeit it differs
between the individual EU member states. The business interests
of companies, however, are primarily guided by short-term
economic benefits in an increasingly competitive environment.
At the same time, mid- and long-term national interests of energy
supply security have been neglected by both energy companies
and national governments. In addition, with the privatisation of
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0301-4215/$ - see front matter & 2009 Elsevier Ltd. All rights reserved.
doi:10.1016/j.enpol.2009.01.010
Tel.: +49(0)173/934 9189 (Mobile).
E-mail addresses: umbach@cess-net.eu, FraUmbach@AOL.COM (F. Umbach).
Energy Policy 38 (2010) 1229–1240
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the gas sector and new emerging companies, there has been no
single actor that will assume overall responsibility for the security
of gas supply, mostly transported by politically and technically
inflexible pipeline systems during supply crisis.
Whereas the traditional separation of economics from politics
has made sense for the internal EU market due to the existing
common norms and understanding of the overall importance
of market forces, energy policies determined outside of Europe
are more than ever defined by those strategic and geopolitical
interests of national foreign and security policies (particularly in
Russia, China, OPEC countries, USA and others). But only in the
aftermath of the winter 2005–2006 gas conflict between Russia
and Ukraine, the future security of European energy supplies has
become the focus of a broader debate. Because the Russian
cutbacks in gas deliveries affected Ukraine and EU member states,
the episode has questioned long-standing assumptions under-
lying Germany’s and European energy (foreign) policies:
Oil and gas are exclusively economic goods, not strategic ones.
Accordingly, energy resources are not part of the foreign and
security policy strategy of other countries, and the energy
policies of other countries strictly adhere to the rules of market
economics.
The security of the energy supply is no longer an important
factor and can be left to private utility companies.
Disruptions in regional or global energy supply can be offset by
other oil and gas imports at any time.
Russia under President Putin has steadily strengthened its
market orientation.
Never having used energy exports as a political weapon even
during the cold war, Russia will always prove to be a reliable
energy partner for Europe.
Russia’s need to export its oil and gas to the European market
has led to mutual dependence that precludes the instrumen-
talisation of Russian energy and pipeline policy as a factor of
foreign policy in the age of globalisation (Umbach, 2006a).
For many years, these assumptions made it possible to ignore
that Moscow has indeed used its energy exports and pipeline
monopoly as an instrument of foreign policy to intimidate and
blackmail neighbouring states since the demise of the Soviet
Union. Holding more than 25% of the world’s natural gas and hard
coal reserves and 6% of the world’s oil reserves, Russia has also
considerably increased its strategic position in many of the
successor states to the USSR and in the new EU member states.
It has bought utility companies, pipelines, refineries and infra-
structure through Gazprom and other giant energy corporations,
thus expanding its monopolies (Loskot-Strachota and Pelczynska-
Nalecz, 20 08; Larsson, 2006; Umbach, 2006a, 2003).
In the 1970s and 1980s, the international concern and focus
were directed towards oil and potential costs of supply disruption,
associated with an over-dependence on oil imports. At present,
the rise of new consumers such as China and India, increasing
scarcity of conventional oil and gas reserves, rising exploration,
production, refinery and transportation costs (especially of oil and
gas), the increasing role of state players on oil and gas markets as
well as the new global climate protection policies, leading to ‘‘high
energy politics’’ worldwide, have all challenged and are trans-
forming the traditional global energy security structures. At
present, new concerns about energy security also extend to
natural gas, which is increasingly traded internationally (albeit at
present no global market exists) (IEA, 2004; Victor et al., 2006),
the reliability of electricity supply and sufficient investment in the
entire energy infrastructure. As a result of a developing global gas
market with liquefied natural gas (LNG) and some other factors,
concerns about a future ‘‘Gas OPEC’’, consisting of undemocratic
countries and leading to price regulation and dividing consumer
markets between its members, have increased during the last few
years (Finon, 2007).
For the first time in history, the present crisis of the rising
demand for energy in emerging economies like China and India
coincides with the quintubling of oil prices since 2002/2003 and a
crisis of mounting uncertainties about how long oil and gas
reserves will last and how many resources will really be available
on the future global market. Hence the last global energy price
bonanza and inherent supply crisis are very different from the
past ones, in which political–military conflicts caused only a
temporary supply crisis. As a consequence, an increasing number
of governments feel being forced to protect against failures in the
global or regional energy supply system that can arise from
inherently structural weaknesses in market mechanisms or from
challenges that cannot be handled by the markets alone.
The f ollowing article will analy se the most important global and
geopolitical dimensions of the futur e international energy security
and its implications for Europe and the EU-27. It will focus on
the inherent challenges of the global demand, worldwide trends
of re-nationalisation and a new resource nationalism with the rise
of state-o wned energy enterprises, high concentrat ion of energy
resources, internal conflicts and domestic stability of export
countries, multiple crisis effects, the refinery crisis and the lack
of spare capacity, ‘‘cheap oil’’ as a future source of economic
and political instability , development costs and inv estment needs,
as well as climate change and its interdependencies with energy
security. Against this background, I will discuss to which extent the
EU’s newly proclaimed ‘‘Energy Action Plan (EAP)’’ of the EU Spring
summit of 2007, its evolving common energy (for eign) policy and its
2nd S trat egic Energy Review pac kag e of November 2008 are a
sufficient strat egy to cope with the new global and geopolitical
challenges, including the a ssertiv e energy foreign policies of Russia.
2. Global and geopolitical challenges of international energy
security
Although the world is not confronted with an o ver all shortage of
energy resources (the end of the oil age will last for at least another
40 years), geopolitical factors nonetheless can constra in their timely
availability (Yergins, 2006; Umbach, 2003, 2004). If political factors
such as crisis and conflicts were t o block the development of new
promising oil fields in the Middle East, the r amifications for wor ld
oil markets could be quite severe unless measures can be taken
immediately to diversify to other energy fields.
The global demand for oil and gas, rising instability in many
producer countries, the rise of state-owned energy champions and
the nearing of the ‘‘peak-oil’’ situation or at least the end of ‘‘cheap
oil’’ have begun to change the overall balance of power in the
relationship between energy producer and consumer states in
a way that strengthens the latter. The emergence of a ‘‘sellers’
market’’ on the global level may lead to a profound change in the
nature of competition between producer and consumer states as
well as among consumers themselves. These strategic trends have
been reflected in the high increase of the global average oil and
gas prices until the summer of 2008, which increased up to $147
for a barrel of oil.
These energy prices offer a significant increase of hard
currency in the state budgets for many producer states. The
New York Times columnist Thomas L. Friedman and others have
identified a direct correlation and negative impact of average
crude oil prices on political freedom, democratisation and the
direction of cooperative or confrontational foreign policies.
According to his ‘‘First Law of Petropolitics’’, the higher the
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F. Umbach / Energy Policy 38 (2010) 1229–12401230
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average oil and gas prices on the international market, the lower
the internal political and economic reform willingness of govern-
ments and the more confrontational their foreign and security
policies, leading to ‘‘petro-authoritarianism’’ (Friedman, 2006). It
explains the present policies of those ‘‘petro-ist’’-states such as
Russia, Iran, Venezuela, Nigeria, Sudan and others, which are
highly dependent on oil and gas for their GDP and having either
weak institutions or authoritarian systems. They have started
asserting themselves domestically as well as in their foreign
policy environment by weakening the global democratization
trend ( Ross, 2001). These dysfunctional energy politics could
undermine fundamental Western and European foreign and
security interests worldwide.
2.1. Global energy demand
Against the background above, key global energy develop-
ments during the last years and new energy forecasts till 2030
(seen also Tables 1 and 2) confirm the worrying global energy
trends (IEA, 2007a; EIA, 2007; WEC, 2007a, 2007b) as follows:
Global energy demand will rise by 55% until 2025/2030, at an
average annual rate of 1.8% if the present energy trends
continue (Reference Scenario of the IEA).
Although renewable energies and new technologies (such as
the fuel cell) are also becoming more important, they will
reportedly be unable to contribute much to the global energy
supply until 2025/2030. Even in the optimistic Alternative
Policy Scenario of the IEA, all renewable energy sources
(including hydro) will only account for 17% of the global
energy mix (instead of 13% in the Reference Scenario) in 2030.
However, they might be able to become the second largest
source of electricity after coal in the power sector, accounting
for 43% of incremental electricity generation between 2005
and 2030.
Although renewables are growing between 6.7% and 8.2%
annually, oil will remain the world’s most important energy
source and reach 116 billion cubic meter (bcm) (84 bcm in
2006). Its demand is growing 37% until 2030, albeit its share in
overall global demand will fall from 35% to 32%.
Due to the concentration of the remaining oil and gas reserves
in the Middle East and especially the Persian Gulf, the
collective output of the OPEC countries will rise from 36 millio
barrels per day (mb/d) in 2006 to 46 mb/d in 2015 and 61 mb/d
in 2030. Acordingly, OPEC’s share of the global oil supply will
increase from 42% in 2006 to 52% in 2030. But this expected
and much-needed increase of worlwide oil production de-
pends very critically on sufficient investments, which seems
uncertain at present. According to the IEA, 12.5 mb/d of gross
capacity needs to be increased between 2012 and 2015 to meet
the growth of demand of 4.2 mb/d and to compensate the
decline at existing oil fields of 8.4 mb/d.
Furthermore, the consuming countries’ increasing reliance on
oil and gas imports from a much smaller number of producing
countries and most of them politically unstable heightens
global short-term energy-security risks. It reduces the geo-
graphic supply and import diversity and increases the reliance
on vulnerable (mostly maritime) supply routes as well as the
market dominance of the oil- and gas-producing countries.
In contrast to previous forecasts until 2005, the biggest
increase in global energy demand in absolute terms will come
from coal, rising by 73% between 2005 and 2030. Its share of
total energy demand will climb up from 25% to 28%. Despite
new global efforts for containing the climate change, coal will
remain the second largest energy source and fossil fuel, ahead
of natural gas. Accordingly, natural gas will increase much
slowly than in forecasts until 2005 just from 21% to 22%.
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Table 1
World primary energy demand 1971–2030 in Mtoe (Reference and Alternative
Policy Scenarios).
1980 2000 2005 2015 2030 2005–2030
a
Coal 1786 2292 2892 3988 (3643) 4994 (3700) 2.2% (1.0%)
Oil 3106 3647 4000 4720 (4512) 5585 (4911) 1.3% (0.8%)
Gas 1237 2089 2354 3044 (2938) 3948 (3447) 2.1% (1.5%)
Nuclear 186 675 721 804 (850) 854 (1080) 0.7% (1.6%)
Hydro 147 226 251 327 (352) 416 (465) 2.0% (2.5%)
Biomass and
waste
753 1041 1149 1334 (1359) 1615 (1738) 1.4% (1.7%)
Other
renewables
12 53 61 145 (165) 308 (444) 6.7% (8.2%)
Total 7228 10023 11429 14361 (13818) 17721 (15783) 1.3%
Figures of the Alternative Policy Scenarios for 2015, 2030 and the average annual
growth rate are put in brackets. Source: IEA (2007a).
Table 2
IEA shares of global primary sources 2005–2030: Reference and Alternative Policy Scenarios.
Source: IEA (2007a).
F. Umbach / Energy Policy 38 (2010) 1229–1240 1231
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The reason for this important forecast change can be found in
China’s and India’s energy and coal policies, which already
account for 45% of global coal use, and being responsible for
over four-fifths of the increase to 2030 (Reference Scenario).
Furthermore, higher oil and gas prices have made coal more
competitive, particularly for baseload generation.
Even in the case of a more optimistic scenario (Alternative
Policy Senario of the IEA) with a faster worldwide increase
of energy efficiency and savings (comparable to Africa’s
total energy consumption and a decreased global oil demand
of 14 mb/d equal to the entire current output of the USA,
Canada and Mexico combined), the expansion of renewables
and a slowing of the global increase of coal use, falling in
absolute and percentage terms, the worldwide coal demand
reducing to 23% might be still higher than the climate-friendly
natural gas (22%).
Worldwide natural gas demand will grow by 2.1% per year with
the fastest increase in developing countries and the biggest
regional rise in the Middle East (20% of increase in global
natural gas demand) until 2030. North America will become a
major importer after the EU. In inter-regional gas trade, LNG
will grow for about 84% from 189 bcm in 2005 to 393 bcm in
2015 and 758 bcm in 2030. In this perspective, LNG will
develop into a global market and become fungible like oil.
Therewith, fossil fuels will remain the dominant source of
primary energy. They will cover 84% of the global increase in
energy demand until 2030.
Global electricity use will double. Its share of worldwide
energy consumption will grow from 17% to 22%.
The developing countries’ share in world demand will increase
from 41% today to 47% of the global energy market in 2015 and
to more than 50% in 2030. It is explained also by the fact that
83% of the world’s population live in non-industrialised
countries, which will double their current energy consump-
tion. China and India alone account for 45% of the overall 74%
of the increase in global primary energy use. Consequently, the
OECD’s share is expected to fall from 48% nowadays to 43% in
2015 and to just 38% in 2030.
According to the IEA, some US$ 22 trillion of global investment
in supply infrastructure is needed to cope with the global
energy demand and to secure the stability of international
energy security. However, the realization of that investment is
seen as very challenging and uncertain.
2.2. Worldwide trends of re-nationalisation and a new resource
nationalism
Moreover, the recent trends of re-nationalisation of energy
policies and concomitant resource nationalism are not only
threatening the future sustainability of global energy markets
and the WTO order but also jeopardizing future global invest-
ments, energy efficiency and planned production levels (Leverett
and Noel, 2006). State-owned energy companies now control far
more oil and gas reserves (up to 85%) than do the traditional
private energy companies, once known as the ‘‘Seven Sisters’’.
These ‘‘Seven Sisters’’ (today only six are existing after the
mergers and acquisitions: ExxonMobil, Chevron, BP, Royal Dutch
Shell, Conoco Philips, Total
1
) had access to 85% of the world’s oil
and gas reserves in the 1960s. Meanwhile, National Oil Companies
(NOCs) represent the top 10 reserve holders worldwide, whereas
Western international oil companies (IOCs) control less than 10%
of the global oil and gas resources. OPEC member Saudi Aramco,
for instance, holds 20 times the oil reserves of ExxonMobil as the
biggest privately owned supermajor. The new ‘‘Seven Sisters’’ are
now Saudi Aramco, Russia’s Gazprom, CNPC of China, NIOC of Iran,
PDVSA of Venezuela, Petrobas from Brazil and Petronas from
Malaysia (Hoyos, 2007).
NOCs also dominate the global oil and gas production. It
is expected that NOCs will control even a greater proportion
of future oil supplies until 2030 as oil and gas production in OECD
countries continue to decline (James A. Baker III Institute, 2007).
Under these circumstances, IOCs will find it even harder in
the future to build business with resource-holding governments.
Moreover, an increasing number of aggressive international
acquisitions of NOCs have underlined their new ambitions outside
their own borders. Many of these state-owned companies such as
in Russia and Venezuela are not following merely the policies of
market forces, but newfound pricing power for political forces
such as foreign policy objectives in a new global energy
environment of a ‘‘sellers’ market’’.
Saudi Arabia, Russia, Iraq and Iran, which together hold 50%
of world conventional oil reserves, are all reluctant to accept FDI,
which would be necessary to develop oil production in a way as
would be required by market rules and international projections
of global oil consumption till 2030. As a result, the timely
development of the much-needed resources for the global energy
demand under the control of the NOCs is more uncertain than any
time before, given the constraints imposed by domestic political
factors and geopolitical interests (Accenture, 2006). But it reflects
a new global business environment in which the cash-flush NOCs
are able to outspend their rivals of IOCs when paying for licences,
and accept lower returns on capital, because their investments are
driven by their governments’ strategic interests to secure energy
supply and long-term geopolitical aspirations rather than by a
need to keep shareholders’ happy with short-term profits (Boxell
and Morrison, 2004). They have fundamentally changed the ‘‘rules
of the games’’ of worldwide competition in the energy and
resource sectors. Sceptical observers already see the end of the era
of the vertically integrated supermajors, which are unable to
adapt to the new global business environment.
In the view of the IOCs, NOCs are no longer just partners
or customers, but increasingly commercial competitors since the
end of the 1990s. Given the often very different priorities of NOCs
compared with IOCs, understanding the people, organizations,
culture, their commercial and political roles, decision-making
processes and strategic interests, including the governments
behind the NOCs, are pre-conditions for future businesses, highly
tailored strategies as well as protecting the interests of the
Western privately held energy enterprises and governments. This
conclusion, however, is important not only for the Western IOCs
but also for Western governments and the EU if they want to
protect their economic, geopolitical and other strategic interests
regionally and globally.
Moreover, declining advantages in technical expertise, com-
bined with tough negotiations and competition, the Western
privately owned energy companies appear to be relegated from an
operator to mere oil and gas service providers (like Schlumberger
or Halliburton) for the assistance in the exploration projects
of cash-flush NOCs such as Total’s recent deal with Gazprom over
the huge Shtokman gas field (Kumaria, 2007; Milov, 2008, 11f.).
2
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1
Originally, the (Anglo–Saxon) Seven Sisters were the four ARAMCO partners
Jersey (Exxon), Socony-Vacuum (Mobil), Standard of California (Chevron) and
Texaco and the three Gulf, Royal Dutch/Shell and British Petroleum, tied together
in Kuwait. An eighth sister, the French national champion CFP, was both a member
in the Iranian consortium with the Seven Sisters, and the Iraq Petroleum Company,
together with Jersey, Socony, British Petroleum and Royal Dutch/Shell, but not seen
as an Anglo–Saxon one.
2
Total received a 25% stake in special vehicle that owns the infrastructure of
the Sktokman operation, and will receive 25% of the profits according to the
F. Umbach / Energy Policy 38 (2010) 1229–12401232
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The new age of ‘‘petropolitics’’ reflects increasing asymmetric
relationships between NOCs and IOCs, in which IOCs are ‘‘price
takers, not price setters’’ (Vaitheeswaran, 2007; Milov, 2008,
p. 17). Gazprom in particular has been able to play one Western
IOC against other ones. As a result, the IOCs’ previously united
front towards the new power politics of NOCs (like Gazprom
to block any change of the rules of the games) has crumbled
such as in giving in to NOCs to renegotiate existing contracts
with IOCs. Due to Russia’s present perceptions of ‘‘unfair’’
concessions during the early 1990s when it was ‘‘weak’’, even
Western supermajors like Shell and BP have lost the majority
control of significant hydrocarbon reserves in Russia since 2006.
But while Moscow may benefit from its assertive policies in
the short-term, it may cause self-inflicted consequences in the
mid- and long-term such as failing Western investments in its
exploration sector or a reduced energy demand in consumer
countries (i.e. EU), on which Russia’s state budget is still so much
dependent.
As a consequence of the re-nationalization processes and the
transformation of the power balance between energy producer
and consumer states as well as between NOCs and IOCs, the global
supply–demand gap may rather widen. The upstream oil sector
was also, in the last decades, far from an open and competitive
environment. But lacking transparency of their resources and
production capabilities, NOCs tend often to overstate their
resources and minimize their production problems (Simmons,
2005; Cordesman, 2004). During the last few years, doubts have
grown regarding the political willingness and ability of NOCs to
increase their oil production to cope with the rising worldwide
demand (IEA, 2007a, b).
Moreover, political factors of ‘‘state-orchestrated strategies’’
are determining more than ever the access to oil fields in Africa,
the Caspian Basin and the Middle East. The changing energy
landscape has already created new political linkages, partnerships
and strategic alliances inside and outside of the OPEC such as
between Venezuela, Iran, Russia, China and India. In such
a political environment, political solutions for regional conflicts
will be very difficult to find as the present conflict of Iran’s
nuclear ambitions has highlighted during the last years (Umbach,
2006b).
2.3. High concentration of energy resources
The Middle East alone has 62% of all globally proved oil
reserves and more than 45% of all proven natural gas reserves
(IEA, 2007a, 81ff.; BP, 2008, p. 6). But given the fact that until
2030, the world energy demand will rise by more than 50%, the
Persian Gulf must expand its oil production by again almost 80%
in this timeframe (CSIS, 2000, vol. 1). But this is only achievable if
sufficient foreign investment is possible, if Iran and Iraq are free of
sanctions and the entire region remains politically stable! In the
next decades, the major growth in oil and gas supplies thus will
have to come from fewer and politically more unstable countries
than today, which will increase the already-existing energy
security concerns.
2.4. Internal conflicts and domestic stability of export countries
By 2020, 50% of the estimated total global oil demand will be
produced by countries that pose a high risk of internal instability
(and a crisis is seen as highly likely until then, particularly by at
least 10 of the 14 top oil-exporting countries CSIS, 2000, vol. 1)
and close to 40% of the world’s oil supply is produced in countries
that had in 1999 not signed or ratified the main UN human rights
conventions or were subject to major criticism by the U.S. State
Department and human rights organizations (CSIS, 2000, vol. 3). Of
the seven countries that once the U.S. had designated as sponsors
of terrorism and ‘‘rogue states’’, five (Libya, Iran, Iraq, Syria and
Sudan) are energy producers, three (Libya, Iran and Iraq) are major
producers to top the world oil market and two (Iran and Iraq)
together possess close to 20% of the global proved oil reserves.
Furthermore, access to oil revenues enables authoritarian
regimes to avoid public accountability regimes and has often
hampered rather than fasten the transition to more pluralistic and
democratic societies in the world. The new oil- and gas-rich
producer states are threatening their wealth and political stability
themselves if they do not use their revenues wisely for sustainable
development of their countries and societies in order to avoid a
widening internal inequality, which may even lead to civil wars.
Effects of a ‘‘resource curse’’ and ‘‘Dutch diseases’’ have already
been identified in many producer states. As a consequence of a
failing diversification of their economies, 34 countries rely on oil
and gas resources for at least 30% of their export revenues
(Burro
ws and Treverton, 2007).
Furthermore, terrorist attacks on oil and gas pipelines or crude
thefts of oil have increased worldwide, albeit they hitherto had
only local impact (Blanche, 2002). Attacking oil and LNG tankers
on the sea is no longer a movie fiction: in November 2000 the USS
Cole warship had been attacked by terrorists that killed 19 US
servicemen; in October 2002, the French-owned supertanker
Limburg faced suicide bombers in a small speedboat, killing three
crew members. Terrorists attacks on oil and other energy
infrastructure are today at the heart of an economic jihad (Stracke,
2007). Thus security of transporting energy sources has become
another important security challenge to cope with.
2.5. Multiple crisis, global refinery constraints and lack of spare
capacity
In times of crisis and conflict, additional capacity to pump oil
and deliver natural gas is more limited than ever. A particular
challenge for the stability of global energy security is multiple
crises as we have witnessed in 2002–2003 when Venezuela’s oil
production declined from almost 3 mb/d to some 400,000 b/d in
early 2003 due to country-wide strikes to bring down Hugo
Chavez’s presidency. It pushed oil prices above US$30 per barrel.
In the following years, the November 3, 2002 earthquake in
Alaska, the unrest in oil-provinces in Nigeria, export disruptions in
Colombia as the result of guerrilla attacks on oil facilities and
pipelines, terrorist attacks on a French oil tanker, a failed Al-Qaeda
plot to sabotage oil facilities in Saudi Arabia as well as continued
instability in the Middle East (Iraq-war) and Indonesia all
contributed to a growing sense of insecurity of sufficient oil
supplies and the inherent risks of relying too heavily specifically
on Middle Eastern oil supplies (IISS, 2003). In 2007, Nigerian oil
production declined to about 750,000 b/d, while Russia cut oil
deliveries to Belarus and civil as well as ethnic unrest in Iraq
continued to disrupt a higher oil production (IEA, 2007a, b).
Between 1986 and 2005, the global spare oil production
capacity (‘‘the energy equivalent of nuclear weapons’’ Morse and
Richard, 2002) decreased from about 15% to just 2–3% of the
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(footnote continued)
production-sharing agreement. But Total had to pay Gazprom $800 million to get
the deal with Gazprom, which was able to gain access to most sophisticated deep-
water extraction and has liquefaction technology. Furthermore, the Shtokman
Development Company (SDC), co-owned by Gazprom and its foreign partners, will
neither be the owner of the produced gas nor the extent of control that Gazprom
would be willing to share in return for the expected contribution of its European
partners (Kumaria, 2007; Milov, 2008, 11f.).
F. Umbach / Energy Policy 38 (2010) 1229–1240 1233
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global demand (Maugeri, 2006). In 2003, the previously available
spare oil production capacity up to 7.3 mb/d had already dropped
to between 0.7 and 1.2 mb/d. While Saudi Arabia and United Arab
Emirates were able to boost their production (by 400,000 mb/d),
Venezuela, Indonesia, Nigeria and other leading oil producers
either no longer had any appreciable reserve capacities or had
their own domestic political crises and production stoppages
to deal with. The International Monitory Fund (IMF) warned the
OPEC countries to increase their spare production capacity to
5 mb/d in order to ensure the future stability of world economy
(Economist, 2005). During the last few years, OPEC’s supply
capacity has operated at 99% of its total crude oil productive
capacity, compared with 90% in 2001 and a mere 80% in 1990
(Barnes and Myers Jaffe, 2006; Harks, 2007). But only Saudi Arabia
seems currently willing to increase its spare production capacity.
At the same time, the global refinery capacities are limited for
coping with a variety of crude oil qualities, especially the lowest
quality, and convert the different grades of crude oil into refined
products, such as gasoline and diesel. In Asia, the unsophisticated
refineries can also not cope sufficiently with medium and heavy
oil. The United States is now the only market in the world that
faces even a net deficit in refining capacity (20% of domestic
demand). It is the result of inadequate investment in exploration
during the last few decades and the overproduction in the 1980s
and the 1990s (Maugeri, 2006). Without these refinery systems,
even excess supplies of crude oil will not satisfy the global
demand. With sufficient investment, the global refinery problems
will last at least for another 5–6 years.
2.6. Development costs and investment needs
The IEA has estimated that worldwide investment in the
energy sector will come to US$22 trillion by 2030. In Asia, even
conservative estimates of the investment, required to achieve
average economic growth of only 3.5% in the region by 2020, go up
to as high as US$4.4 trillion for Asia’s oil infrastructure alone. For
the development of new oil and natural gas fields in the six
member states of the Gulf Cooperation Council, approximately
US$300 billion is required. According to US Department of Energy,
Saudi Arabia as the world’s largest oil producer and exporter
needs t o increase its crude oil production from the present 11 mb/d
up to 23.5 mb/d by 2025 (Barnes and Myers Jaffe, 2006). But at
present, it can increase its production in the mid-term perspective
only to 15 mb/d.
2.7. ‘‘Cheap oil’’ as a source of economic and political instability
Given the high dependence of many oil-producing countries
on its oil revenues, a dramatic decline in global energy consump-
tion as a result of an economic recession (like an economic–
financial crisis in China) and accompanied by a higher decline of
international oil prices could trigger domestic or even regional
instability in many of the world’s major energy-exporting
countries (Myers Jaffe and Manning, 2000). In 1998 during the
Asian financial crisis with its worldwide impacts, several oil-
exporting countries faced a decline of 50% in their national
incomes within a year, which caused severe political and
economic repercussions. At the end, governments changed in
Algeria, Brunei, Indonesia, Nigeria and Venezuela as those losses
exacerbated other national problems. With oil prices up to US$147
per barrel until recently, the global effects of falling oil prices on
the social–political stability of many producer and exporter states,
compared with the Asian crisis during 1997–1999, could be much
harder and more dramatic for their domestic stability.
While the present worldwide financial crisis reduces the global
energy demand and may ease a number of those challenges and
problems linked with high energy prices, it may also decrease
further much-needed investments in all types of energy infra-
structure and energy efficiency measures for future global energy
stability. Likewise, state funding and private risk capital for the
worldwide expansion of renewables as well as for innovative
energy research and development programs in order to mitigate
global climate change are at risk for being reduced, which may
slow down the transformation to a global non-fossil energy
future.
2.8. Climate change and its interdependencies with energy security
In contrast to energy security and its vulnerabilities, climate
change is more a recent concern, but closely linked with energy
policies and energy security. Thus energy supply disruptions are
also the result of extreme weather conditions or accidents. In
August and September 2005, the hurricanes Katrina and Rita shut
down 27% of US oil production and 21% of US refining capacity in
the Gulf of Mexico (Yergins, 2006) with worldwide implications
for global oil prices, energy policies, climate change, strategic oil
stocks and perceptions of supply security. Policy-makers need to
address these twin challenges of energy security and climate
change to ensure the security of our global energy system and
to reduce greenhouse gas emissions as part of an overall strategy
of a sustainable energy security concept (IEA, 2007b
).
As
long as fossil fuels continue to dominate the global fuel mix,
energy-related greenhouse gas emissions and increased reliance
on imports of oil, gas and coal from politically unstable countries
will increase concerns about climate change as well as energy
security. Having no adequate and secure supplies of energy at
affordable prices is being perceived as a major threat as soaring
energy prices and consumption cause irreversible environmental
damage for societies. If the energy prices stay high, the big losers
will be in particular the poor countries because they will be hit
economically, socially and politically much harder in comparison
with the OECD countries. It may curtail their economic develop-
ment prospects and lead to social–political unrest, state failure,
new terrorist havens or large-scale migration (Burrows and
Treverton, 20 07).
3. The EU’s ‘‘Energy Action Plan’’: a sufficient concept for coping
with the new global and geopolitical challenges to energy
security?
While most European energy experts view the overall
European energy supply security beyond 2030 as more optimistic
due to the expansion of renewable energy sources (being able
to replace increasingly fossil fuels), new innovative technology
breakthroughs, energy-efficiency improvements and a wider
available global energy mix of resources, the mid-term challenges
till 2030 are considered much more uncertain (see also Table 3).
After just 1 year of the Russian–Ukrainian gas conflict in
January 2006, the European Council under the German Presidency
has agreed in March 2007 on the worldwide most ambitious
integrated climate and energy policy with an ‘Energy Action Plan’
for the years 2007–2009. The EAP favours a liberalized internal
market for gas and electricity, enhanced measures for security of
supply, defined a common approach to an external energy policy
with a global dimension and put energy efficiency as well as
energy conservation into the centre of its strategy (European
Council, 2007). The EU’s declared energy policy seeks to maintain
a careful balance between all three parameters: security of supply,
competitiveness and environmental sustainability.
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With the world’s most comprehensive action plan on climate
protection and energy supply, the EU-27 were able to agree on
17 individual measures and three 20% targets at the March
summit of 2007:
Energy efficiency should be increased by 20% across the EU.
The goals of the Kyoto protocol should exceed and carbon
emission should be reduced by 20% by 2020 compared to 1990
(if other industrialized countries such as the USA, India and
China commit themselves to similar policies, the EU would be
willing to reduce emissions by 30%).
Additionally, a 20% share of the energy mix should be
generated from renewable energy sources.
Disagreements existed concerning the ambitious climate policy
targets, such as the increase in the share of renewable energies
in the overall EU energy consumption by 2020 and whether
nuclear energy can be considered as a carbon-free energy source.
Controversies especially erupted around the question to what
extent nuclear energy could be used to reach this target.
At present, nuclear energy does play a vital role in the
sustainable production of electricity. In 2006 it produced 29%
of electricity in Europe compared with 15% from renewables
(European Commission, 2008b). For baseload supply, it is
currently the only industrially mature energy source with
negligible greenhouse gas emissions, which can be expanded.
The Green Paper of 2000 already warned that the EU would not
meet its obligations under the Kyoto protocol without nuclear
energy. Annually, it avoids some 300 m tonne of carbon dioxide
emissions equivalent to half the amount produced by all the cars
in the EU (European Commission, 2001).
In this light, more and more EU member states have begun to
re-think the nuclear option as the EU Commission, the IEA, the
World Energy Council (WEC) and numerous international energy
experts have recommended for years. Even Germany’s unilateral
withdrawal from the use of nuclear power is increasingly disputed
domestically. Besides Russia and Ukraine as non-EU member
states, Finland, France, Great Britain and many new Central
European members of the EU have already indicated that they do
not want to renounce the nuclear power option. Construction of
new nuclear power plants is being declared or at least seriously
considered (like in Great Britain, Italy, France, Finland, Lithuania,
Romania and Bulgaria) or lifetimes of the nuclear reactors have
already been extended (like in Sweden). For economic, environ-
mental, technological and political reasons, the nuclear power
option is also undergoing a renaissance in the United States,
Russia and particularly in Asia.
Since the EU’s March Summit and the G8 summit of 2007,
Germany has isolated itself with regard to the use of civilian
nuclear power and failed to assert on the European level. Yet the
Spring European Council’s agreement was clearly a compromise
and a common European response on the future of nuclear energy
is still missing. Furthermore, the largely unresolved political
problem of nuclear waste and the high infrastructure costs may
constrain some of the too optimistic forecasts for nuclear power in
Europe.
Furthermore, after years of discrediting coal, the Commission
has also been viewing coal as an important future energy source
since 2005, which can contribute to enhancing the security of
supply in the EU. It decided to support the technical progress in
terms of the actual clean burning process of coal (European
Commission, 2005) such as Carbon Capture and Storage (CCS)
projects.
In November 2008, the new European Commission’s ‘‘2nd
Strategic Energy Review’’ and its new ‘‘EU Energy Security
and Solidarity Action Plan’’ (European Commission, 2008a)
3
have
identified major weaknesses and problems that need to be
overcome on the way to a real common energy (foreign) policy
and by enhancing the energy supply security of its 27 member
states. It has proposed five key areas for joint cooperation and
projects in the forthcoming years: (1) infrastructure needs and the
diversification of energy supplies; (2) external energy relations;
(3) oil and gas stocks and crisis response mechanisms; (4) energy
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Table 3
Total primary energy demand of the EU 2005–2030 (Reference and Alternative Policy Scenarios).
Source: IEA (2007a, b).
3
See also the relevant web-site http://ec.europa.eu/energy/strategies/2008/
2008_11_ser2_en.htm and its related documents.
F. Umbach / Energy Policy 38 (2010) 1229–1240 1235
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efficiency and (5) making the best use of the EU’s indigenous
energy resources.
But the implementation of the painful decisions of the Spring
summit in the field of climate protection is still in the offing.
Firstly, it remains questionable whether the self-proclaimed
leadership role of the EU on climate matters will be honoured and
followed by the US, China, India and other transition countries.
Although these global concerns of climate change and its impacts
have been increasingly recognized, including China and India,
their present willingness to compromise their traditional eco-
nomic policies and threaten their economic growth is still very
limited. During the last few years, they have allied with the Bush
Administration rather than with the EU.
Secondly, the present and future development of the EAP and
the integrated climate policies are also hampered by the fact that
hitherto only few members have implemented attractive strate-
gies for renewable energy sources. Hence even for the EU, it may
not be able to live up to its obligations of the Kyoto Protocol,
which envisions to cut greenhouse gas emissions by 8% between
2008 and 2012 from the 1990 levels (Die Welt, 2008). While
Germany will fulfil its Kyoto-obligations, recently it has opposed
together with Italy and Poland the Commission’s proposals on the
auctioning of permits for carbon emissions. Whereas the Commis-
sion wants companies in many countries to pay for the permits,
Germany has insisted that most permits be given out free for
energy-intensive industries. Although Merkel’s government her-
self brokered the EU’s ambitious climate change package in 2007,
now it may weaken its own policies and political credibility.
Thirdly, with the increasing critical global debate on the first
generation of biofuels as a replacement for petrol and diesel
supply for the transport sector, the 10% binding minimum target
for the share of biofuels in overall EU transport petrol and diesel
consumption by 2020 has already been threatened and, therewith,
the overall objectives of its policies for mitigating climate change.
But if the EU is able to implement and achieve its March 2007
aims by 2020, the EU would be using 13% less energy than today,
which is equivalent to a saving of more than 100 billion Euro and a
reduction in CO
2
emissions of about 780 million tonne/year
(European Commission, 2007a, p. 13).
3.1. Europe’s energy supply security
Since November 200 0, the European Commission has warned
in its first ‘Green Paper’ that in the next 20–30 years, up to 70% of
the Union’s energy demand (presently 50%) will have to be
imported. With regard to oil, EU’s dependence could reach even
90% for oil, 70% for gas and 10 0% for coal.
In 2006, the EU-27’s total primary energy supply was
generated by oil (37%), gas (24%), solid fuels (18%), nuclear energy
(14%) and renewables (7%). The future new capacity will be
predominantly generated still by fossil resources with a rising
percentage of gas, while the number of oil and solid-fuel power
stations will continue to decline (European Commission, 2008b).
The expansion of natural gas as an environmental clean energy
source is widely seen as the the most problematic factor in the
next two decades for the EU member states (Keppler, 2007; Helm,
2007; Stern, 2006). Europe is already today the largest natural gas
import market and will continue to be the world’s champion of
gas importers till 2030. But today, almost half of the EU’s gas
consumption is being imported from only three countries: Russia
(23%), Norway (14%) and Algeria (10%). The new EU members and
former allies of the Soviet Union are, in particular, still very much
dependent on gas imports from Russia (see Table 4).
Given the current trends, gas imports would increase to 80%
over the next 25 years. In 2030, Europe will have to import
488 bcm (North America: 159 bcm and China/India just 85 bcm
IEA, 2006a). The share of gas in total primary demand could rise
from 23% at present to 32% in 2030. But a growing share of EU gas
imports will be shipped as LNG, which would offer a better crisis
stability for gas imports.
But meanwhile, the EU’s great hopes of a real strategic energy
partnership with Moscow are gone. While it views such a
partnership rather as a long-term vision, it has become increas-
ingly uncertain whether Moscow will be able to increase its gas
exports beyond 180–200 bcm after 2020 due to an emerging
domestic gas crisis (Milov, 2008; Riley and Umbach, 2007;
Umbach, 2007; Paillard, 20 07; IEA, 2006b; Fredholm, 2006; Milov
et al., 2006; Stern, 2006, 2005). The potential gas crisis has been
acknowledged by President Putin himself in September 2006 who
has developed an alternative plan by expanding nuclear power
and coal consumption for its domestic market to fulfil Russia’s gas
export obligations, as well as by representatives of Russia’s
economic and resource ministries (Umbach, 2008a, 2007a). In
other words, the EU is forced to diversify its gas imports anyway.
At first glance, the EU seems to be in a very favoured position:
unlike any other region of the world, the EU is geographically
surrounded by many gas-exporting countries. Eighty percent of
the global gas reserves are within a range of 4500 km; most of
those reserves can be connected to the EU by pipelines. However,
most of those gas export countries are considered as politically
unstable. With these energy supply challenges confronted, the EU
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Table 4
European natural gas imports from Russia in 2005 (in %).
Source: EU, IEA, Eurostat (2005).
F. Umbach / Energy Policy 38 (2010) 1229–12401236
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has recognized that it needs an active and coherent energy foreign
policy at the regional and global levels.
3.2. The EU’s new external policies
The EU cannot achieve its energy and climate change
objectives on its own. But the enlarged European Union borders
the main oil- and gas-producing areas such as Russia, Caspian Sea
and North Africa, and with decreasing distance also the Middle
East and the Persian Gulf. Given the close relation between
geopolitical stability and energy supply security, the rising
dependence of the EU on energy imports and the growing
interdependence between producer, transit and consumer states,
the Commission has recognized the need for closer cooperation
with supplying partners. It seeks to encourage geopolitical and
economic stability in supplier as well as transit countries and
predictability in the producer–consumer relationships. Conse-
quently, the EU has become more pro-active in order to widen and
deepen its energy dialogues with neighbouring countries and
regions.
Between January 2004 and the Russian–Ukrainian gas crisis in
January 2006, the EU already extended its cooperation not only
with Russia but also with Norway, Algeria and even with the OPEC
and the Gulf-Co-operation Council. The EU has also started to
integrate energy aspects into its Common Foreign and Security
Policy (CFSP) and relations with third countries.
On October 25, 2005, the EU signed an energy treaty with
South Eastern Europe, which fastened full integration into the EU
Single Energy Market. This first example of a sectoral enlargement
of the EU has far-reaching political, economic and social
consequences, including the development of a stable and efficient
energy supply and the geopolitical importance of securing
different supply routes for energy in Europe. Furthermore, the
Commission has intensified relations with other major producer
and consumer countries, such as in the Caspian Basin, the
Mediterranean region, Norway, Ukraine and even beyond (such
as US, Latin America, India, China and Japan) in order to diversify
the EU’s future oil and gas supply networks (European Commis-
sion, 2006).
These energy dialogues underline the need for a coherent and
coordinated external policy for energy in Europe. In June 2006, the
Commission and the High Representative for the CFSP, Javier
Solana, have called for an active external energy policy conducted
in a spirit of close political solidarity by the EU member states. On
October 12, 2006, the Commission adopted another concept paper
and action plan (European Commission, 2006) for the Informal
European Council in Lahti, Finland, on October 20, 2006.
4
Despite its progress on the way to adopt a common energy
(foreign) policy as part of the EAP of 2007, the EU is now
confronted with two major challenges in the months and years
ahead. Firstly, the public debate about the results of the Spring
summit widely concentrated on the ‘‘historic agreement on
climate change’’. This rather narrow focus, however, has jeopar-
dized the balance within the energy triangle between security of
supply, competitiveness and sustainability.
Secondly, EU heads of states and governments have failed to
agree upon a common strategy towards Russia, the bloc’s most
important energy supplier. Since the EU’s March summit, the lack
of coherence of the bloc’s external energy policy has enabled
Russia to continue successfully with the ‘‘bilateralisation’’ of
energy partnerships with Austria, Italy, Hungary, Greece and
Bulgaria (Umbach, 2007). Russia’s policies are certainly also the
result of the EU’s emerging common energy policies and the
declared goal of establishing liberalized energy markets. In the
case of a successful EU implementation, it will threaten Russia’s
monopoly policies, market shares in the EU and long-term
contractual prices in particular in the European gas market
(Locatelli, 2008). Given the long-standing traditions of national
energy policies of EU member states, the past lack of a credible
common EU policy and the still existing mistrust in it for the
short-term future, many EU member states, including Germany,
have still favoured bilateral relations and special relationships. But
ultimately, their preference for bilateral relations often takes place
at the expense of the other members of the EU and undermines
the credibility of both a much-needed common energy policy and
its Common Foreign and Security Policy. In this light, Russia has
been still successful by adopting its traditional politics of ‘‘Divide
and Rule!’’ and to play off individual European states and their
‘‘national energy champions’’ against each other. However, with
its assertive policies, Russia might only benefit in the short-term,
but undermining its long-term strategic interests on the EU gas
market.
3.3. EU’s diversification of gas imports and its reduced gas demand:
Russia’s self-defeating policies in perspective
Given the March summit results and agreed targets, new
studies predict a much lower gas import of the EU till 2030
(Hirschl et al., 2007; Goetz, 2007). In 2005, the EU’s combined gas
production with Norway amounted to nearly 300 bcm, which will
decrease to 200–250 bcm till 2030. Between 2005 and 2006, the
IEA had already reduced its forecasts of the EU’s rising total gas
imports in 2030 from 530 to 488 bcm (298 bcm in 2005 by EU-27).
That import volume forecast of 488 bcm had been still used till
November 2008 even by the IEA and the European Commission in
spite of the March decisions, changing energy conditions with
regard to nuclear power as well as coal consumption in Europe
and deliberate supply strategies to reduce the EU’s gas depen-
dence on Russia (Umbach, 2008b, 2007).
In order to strengthen its energy supply security, the EU thus
has proceeded with a number of pipeline (see Table 5 up to more
than 80 bcm if the Nabucco pipeline is built) and LNG projects to
import non-Russian natural gas sources in addition to the planned
Nord-Stream-pipeline (with a capacity of 2 27.5 bcm ¼ 55 bcm).
The announced LNG projects would represent an additional
import capacity of about 100 bcm/year after 2010 (European
Commission, 2007b). Furthermore, with increased production in
Norway, the EU will benefit from its rising exports from 84 bcm to
125–140 bcm annually. Altogether, the EU could have available
more than 200 bcm of non-Russian gas in 2020.
Russia’s monopolistic strategy with its blurring mix of
geopolitical and commercial interests has been most visible in
its efforts to undermine a common European policy towards
Central Asia. Moscow has tried in particular to torpedo the
Nabucco-gas pipeline project from Central Asia via Turkey and
South Eastern Europe to Austria with a rival pipeline (‘‘South
Stream-pipeline’’), albeit it will cost at least twice as much as the
Nabucco land-pipeline. It has also sought to strengthen its gas
pipeline monopoly not only from Central Asia (Turkmenistan,
Kazakhstan, Azerbaidshan) but also from all other real and
potential gas suppliers to the EU member states (such as Iran,
Qatar and North-African states) by offering to buy all their gas for
exports to Europe. These strategies could have far-reaching
impacts on the EU’s liberalization of its energy (particular gas)
markets and its CFSP. But hitherto, Russia has only got some
support from the Libyan President, but even not from the Libyan
industry (Umbach, 2008b).
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4
See for the EU’s ‘‘external energy policy’’ also its web-site http://
ec.europa.eu/external_relations/energy/index.htm.
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Despite its continued engagement policy of ‘‘Verflechtung’’
(building interlinkages) with Russia, Germany has also strength-
ened its diversification of gas imports. Even those companies like
E.on Ruhrgas or VNG, which have traditionally close strategic ties
with Gazprom, will import much more gas from Norway and LNG
from African and Arab sources in the future.
The recent Russian–Georgian war in August 2008 and the
European Commission’s ‘‘2nd Strategic Energy Review’’ with its
new ‘‘EU Energy Security and Solidarity Action Plan’’ of November
2008 (European Commission, 2008a, b) have highlighted the
improved but still insufficient political solidarity between its
27 member states in speaking with one voice towards external
energy partners. But by building new transnational gas and
electricity interconnections inside the EU 27 as part of enhancing
energy supply security and the creation of common energy
markets, these processes will ultimately lead to more common
energy (foreign) policies in the future.
Furthermore, the implementation of the EU’s decisions of the
March 2007 and the November 2008 package may freeze the EU’s
oil and gas imports by 2020 at current levels (for gas on around
300 bcm or even less, see Table 6). In this case, the EU member
states and its gas companies need to take care not to contract too
much gas with long-term contracts and in particular with Russia’s
‘‘pay and take’’ clauses, which prevent the selling of Russia’s
imported gas to third parties, or they need to renegotiate those
contracts with more flexibility enshrined. Furthermore, not all
discussed pipeline plans will be realistic any longer. Consequently,
pipeline competitions such as between Nabucco and the South
Stream project may rather increase.
Hence what the EU needs most of all in the coming years is to
have the common political will to implement all the decisions
they have agreed upon which ultimately boils down to the issue
of political credibility in both its economic energy and its
Common Foreign and Security Policies.
4. Concluding remarks and perspectives
As a consequence of globalization, the once sharp dividing line
between foreign, domestic and economic policies is increasingly
blurring. Economic factors and global economic stability will
become much more dependent on domestic and regional political
stability. In the age of globalization, any policies that ignore
detailed analyses of various domestic and regional stability factors
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Table 5
Main Greenfield pipeline projects.
Project Supplier From To Capacity (bcm) Investment (Mh) Foreseen start-up
Medgaz Algeria Hassi R’Mel Spain 8–10 1300 End 2008
Galsi Algeria Hassi R’Mel Italy 8–10 1200 2009–2010
ITG-IGI Caspian Greece Italy 8–10 950 (IGI) 2011
Langeled Norway Ormen Lange UK 22–24 1000 2006–2007
Nabucco Caspian Turkish border Austria 25–30 4600 2010
Total additional non-Russian gas supply capacity via pipelines to Europe: 71–84 bcm
Source: European Commission (2007b, p. 24).
Table 6
2nd Strategic Energy Review (November 2008): EU-energy demand Main Scenarios for 2020.
2005 2020
EU-27 (Mtoe) Baseline projection: oil price
$61/barrel
Baseline projection: oil price
$100/barrel
New Energy policy projection: oil
price $61/barrel
New Energy policy projection: oil price
$100/barrel
Primary energy
demand
1811 1968 1903 1712 1672
Oil 666 702 648 608 567
Gas 445 505 443 399 345
Solids 320 342 340 216 253
Renewables 123 197 221 270 274
Nuclear 257 221 249 218 233
EU-energy
production
896 725 774 733 763
Oil 133 53 53 53 52
Gas 188 115 113 107 100
Solids 196 142 146 108 129
Renewables 122 193 213 247 250
Nuclear 257 221 249 218 233
Net imports 975 1301 1184 1033 962
Oil 590 707 651 610 569
Gas Mtoe (bcm) 257
(298)
390 (452) 330 (383) 291 (337) 245 (284)
Solids 127 200 194 108 124
Final electricity
demand
238 303 302 257 260
Source: European Commission (2008a, b, Annex 1, 19 f.).
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could be proved as extremely shortsighted and being paid with
high financial, economic and political costs in the mid- and long-
term future by governments and energy companies alike. The
interlinkage between globally designed traditional energy secur-
ity concepts that rely just on economic factors and ‘‘market-
strategies’’ and domestic as well as regional political stability
demands new thinking with regard to both energy supply security
and foreign and security policies. As a new study of energy policy
scenarios to 2050 of the World Energy Council concludes, the best
strategy for achieving the three criteria of accessible, available
and acceptable (‘‘3 A’s’’) energy in all regions in the developed and
developing world is no longer a pure market-driven approach
with minimal government involvement. Instead it is favouring a
strategy that demands a careful planning in a highly cooperative
effort of the government side and private industry as well as
exercising great control and discipline with a strong government
involvement. The latter needs to seek close cooperation and deep
integration of the public and private sectors, both domestically
and internationally (WEC, 2007b).
Although after the Russian–Ukrainian gas conflict in January
2006, energy security has forced its way up the European energy
and foreign policy agendas, the EU-27 member states have largely
failed to forge a coherent European energy security strategy
after their Spring summit of 20 07 because its declared political
solidarity has been still lacking until the spring of 2008. Though
EU member states have increasingly recognized the need to
envisage a clear response to the growing risks of oil and gas
dependency over time, they basically have followed narrow-
minded national interests by supporting their ‘‘national energy
champions’’ at the expense of other EU member states and the
EU’s declared ‘‘Energy Action Plan’’ even after the agreed March
decisions of 2007.
With regard to the rise of NOCs, the re-nationalization
processes and resource nationalism around the globe, the
individual EU member states and their national ‘‘energy cham-
pions’’ have only little leverage because of the high concentration
of the remaining oil and gas resources in the politically unstable
Middle East, where state-owned companies control the resources.
The rise of NOCs and a new resource nationalism in world affairs
are a drift away from efficient and competitive markets. This
development is accentuated by the concentration of oil and gas
resources in fewer and mostly politically unstable countries and
fewer giant companies as a result of the wave of mergers and
acquisitions.
Given the rise of state-owned oil and gas companies to control
the remaining fossil-fuel resources and worldwide production,
the EU in collaboration with the U.S. as part of a new
transatlantic energy security agenda needs to protect itself
from the geopolitical and strategic implications of collective
action by an (informal) alliance of exporters, especially state-
owned energy enterprises. However, this changing international
power balances at the expense of consumer states do not lead to
the conclusion that the West should create its own state-owned
oil and gas enterprises because it would further aggravate and not
decrease innate problems of global energy security and stability.
After all, privately held energy corporations are more efficient and
productive organizations than any government-held entities.
While thus the creation of state-owned energy companies is
not a solution for European and global energy security and
stability, Western governments need to take a more active role.
They should promote bilateral and multilateral trade treaties in an
effort to increase competition, efficiency and sustainability
through aid programs as well as assistance and training on
transparency (James Baker Institute, 2007, p. 17).
Furthermore, the EU should not only offer new technologies for
renewable energy sources (like wind energy) and improve energy
efficiency in its global energy partnership programs, but also
support explicitly multilateral approaches and concrete coopera-
tion models (such as the Treaty of the European Energy Charter
with its Transit-Protocol, the Joint Oil Date Initiative (JODI), the
Extractive Industries Transparency Initiative/(EITI), the Interna-
tional Energy Forum (IEF) and the World Bank’s Global Gas Flaring
Reduction Programme).
If energy insecurity is rising and the world’s energy demand
cannot always be met because of the insufficiencies of the global
energy systems, dysfunctional energy policies, insufficient invest-
ments or failing political stability in oil- and gas-producing
countries, economic and political crises in countries and regions
outside of Europe will have increasingly negative effects on
Europe’s future economic and political stability. The only political
answer of the EU is to speak with one voice in its energy foreign
policy, diversifying the national energy mixes and imports as well
as enhancing energy efficiency and conservation as much as
possible.
In this context, Kremlin’s instrumentalisation of its energy
resources and dependencies of Eurasian states on its pipeline
systems have become an economic and foreign policy challenge
alike. Shell’s and BP’s ceding of majority control of very significant
hydrocarbon resources to the Russian state and its state-owned
energy company of Gazprom signal four lessons: (1) the Kremlin
will have majority control over any significant energy project, (2)
the Russian government has the political will for that objective to
use all means, whether political, regulatory ones or legal pressure,
and (3) has been successful with its gradualist policy steps,
irrespective of their mid- and long-term implications, and (4) its
recent success towards the EU may invite the Kremlin to even
more aggressive policies.
In this light, a more active EU’s energy foreign policy will either
further
complicate EU-Russia’s relations, or, given the EU’s
consideration of Russia’s energy and security interests, put into
question the EU’s Central Asia and diversification strategy of oil
and gas imports from the Caspian region. However, the EU cannot
forego diversifying its imports of natural gas from the Caspian
region because (1) Kremlin is exploiting energy dependencies as
means of its foreign policy, and (2) in the light of the EU’s wider
energy foreign and security interests, it has no alternative than to
extend and to deepen its relations with Central Asia and the
Caspian region.
Widely overlooked, the EU has proceeded with a number of
pipeline and LNG projects to import non-Russian natural gas
sources. Together with rising gas imports from Norway, these new
projects could have a combined capacity of more than 200 bcm if
they are all implemented. These alternatives will give the EU more
leverage and bargaining power vis-a
`
-vis Moscow.
Furthermore, if the EU is able to implement its March 2007
decisions and its 2nd Strategic Energy Review Package of
November 2008, it will drastically decrease its gas import demand
by 2020 at the current levels or even lower (around 300 bcm) in
contrast to previously forecasts (490 bcm). In this case, Putin’s
energy policies by using Russia’s energy resources and pipeline
monopolies as an assertive political instrument to enforce its
economic and geopolitical interests will be proved as self-
defeating in Russia’s long-term strategic interests. In contrast to
previous forecasts, it will reduce Gazprom’s gas exports to a much
smaller EU gas market as the result of a deliberate EU policy of
decreasing its overall gas demand and by diversifying its gas
imports.
But without the Nabucco pipeline and a diversification of gas
imports in the EU’s new member states, a common and liberalized
energy and gas market could hardly have been realized in Central
and South Eastern Europe. It may create a fragmented energy
market with an Eastern part of the EU that remains highly
ARTICLE IN PRESS
F. Umbach / Energy Policy 38 (2010) 1229–1240 1239
Author's personal copy
dependent on Russia’s energy supplies and its goodwill, whereas a
Western EU has highly diversified its energy and particularly gas
imports. Such a development would have grave consequences not
only for a liberalized common gas market but also for the EU’s
future energy (foreign) policy, the future development of the CFSP
and the strategic foreign policy orientations of its member states.
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... Fosil yakıtların küresel enerji tüketimi üzerindeki ağırlığı devam ettiği sürece, enerji kaynakları bakımından istikrarsız ülkelere olan ithalat bağımlılığının ve enerji kaynaklı sera gazı salınımının artarak devam edeceği ve bu bağlamda enerji güvenliği ve iklim değişikliği konularının dünya gündemindeki önemini koruyacağı tahmin edilmektedir (Umbach, 2010(Umbach, : 1234. Dünya enerji tüketim yapısına bakıldığında enerji gereksiniminin çoğunlukla fosil yakıtlardan karşılandığı ve enerji tüketim yapısı bu şekilde devam ettiği takdirde fosil enerji rezervlerinin tükenme tehlikesi ile karşı karşıya olduğu görülmektedir (Park vd., 2014: 106). ...
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Prices of crude oil are high these days not because oil reserves are waning--in fact, they are plentiful--but because inadequate refining capacity has limited the quantity of crude available on the world market. And high prices come with an upside: they could convince the oil industry to invest in new capacity.
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The institutions and policies that were set up after the 1973 Arab oil embargo can no longer meet the needs of energy consumers or producers. The definition of energy security needs to be expanded to cope with the challenges of a globalized world.