ECONOMY

Threat of energy cold war

The latest spat between the European Union and Russia and, by extension, between the US and Russia, over the control of natural gas supplies, is a logical consequence of deteriorating geopolitical stability, the result mainly of the US effort toward global hegemony after the collapse of the USSR. An effort which began in 1991 with the first Gulf war, under the first President Bush, and which, for various reasons, did not continue between 1992-2002, with the result that Russia – which was facing bankruptcy in the early 1990s – became stronger and China emerged as a major trade power in the meantime. The rather calm 1991-2001 period, at least in terms of hostilities and terrorist attacks, lay the groundwork for rapid global economic growth, especially in the US, Europe and Southeast Asia. As a result, global oil consumption has risen 20 percent since 1994 and is expected to rise 1.6 percent annually over the next few years. The new period of geopolitical instability which begun with the second Gulf war and the occupation of Iraq by US forces in March 2003 was the chief cause of the rally in global oil prices, which have risen 200 percent in the past three years. A result of this oil crisis was the increased interest in natural gas, which most countries and energy firms are touting as an oil substitute because of the clear benefits to the environment, its competitive price and the significant global reserves. Thus, the issue of controlling the reserves and in general the flow of gas is as strategically important as in the case of oil. Indeed, in the case of gas, whose transport is usually done through pipelines, the relationship between producer and consumer becomes especially close through long-term contracts, limits the possibility of alternative procurement and leads to consumer dependency. Growing awareness of gas’s crucial role as a strategic fuel has coincided with the current oil crisis and Russia’s emergence as one of the main providers of energy at the global level: Besides possessing the world’s largest natural gas reserves, Russia has also become the largest crude oil exporter, alongside Saudi Arabia. Its position as energy provider will be strengthened further by the development of huge new oil and gas reserves. In this situation, President Vladimir Putin’s government wants to be the one to be setting the rules of the game in a wide area. This became apparent with its move, early in the year, to shut off gas exports to Ukraine and Moldova and its initiative to help build, and assert complete control over, oil and gas pipelines toward both the west and east. The coincidence of Russia’s holding the annual G8 leadership meeting came at the right moment for it to promote its new strategy. Following its entry into the World Trade Organization (WTO), Russia is fast abandoning its subsidies to the energy sector, both in the internal market and in its exports. It is now operating in a competitive market and is imposing a renegotiation of contract terms with all consumers. In wanting to maximize its revenue, Russia is also doing what the WTO, the World Bank and other organizations have called on it to do. This is enough to create a big disturbance in the global energy sector. This new strategy also disturbs the new unipolar world being promoted by the US – hence the war of words over the supply of gas to Europe and the Kremlin’s threats to shift the supply eastward (to China) in the future, as if that was the simplest thing in the world. Integrating networks Given these developments, energy supply security has become a top priority for the European Union. Trying to come up with a coherent policy to face up to possible cuts in energy supplies from Russia, the European Commission published a Green Paper (March 2006) outlining a common European energy policy. The main tenets of this policy are: a) Sustainability through the development of renewable energy sources, alternative fuels and conventional fuels with reduced emissions; b) Promoting competitiveness in all energy markets and encouraging investment in «clean energy»; c) Ensuring the security of energy supplies through a cut in demand, differentiation of supply sources and increasing domestic energy production, both from conventional and other fuels. The oldest among us have seen this scenario being touted at least three times over the last 25 years. The goal of creating a common European energy policy which would ensure energy security is as ambitious as it is unattainable, just like a common European foreign policy. Finding common positions on energy, especially on supply security and price control, comes up against national priorities and goals. A common European energy policy sounds like a good idea and certainly necessary in view of a deteriorating global situation and the effort to find new energy resources. But it will probably take two or three more shocks, such as the Russia-Ukraine crisis or even more, to goad the EU member states into abandoning their national priorities and try to tackle the problem in a concerted fashion. The Russia-Ukraine crisis also hurt other countries such as Italy and its industry, which saw severe supply disruptions in January and February, while the scarcity of natural gas from the North Sea (for technical reasons), combined with the inability to supply the UK through Europe, led to far higher natural gas prices in the UK. The Commission proposes accelerating deregulation and boosting competition, which should inevitably lead to the total integration of European networks. According to the Green Paper, this will reduce Europe’s dependency and will contribute to the creation of a single, integrated market with 450 million consumers. This will require the completion of many connecting pipelines, worth several billion euros. But it will also greatly enhance Europe’s bargaining power against its suppliers. (1) Costis Stambolis contributed this article to the Greek edition of Kathimerini. Amid deepening energy crisis, Greece remains without a long-term policy Greece is again without a long-term policy on the security of its energy supplies amid an international crisis. Trapped in the developing issues of energy management, the government has wasted two years during which it could have weaned itself from imported oil. So far the government has only made a few fragmented moves. The commitment for more extensive use of natural gas, the promotion of renewable energy sources without the adjustment of the regulatory framework and the introduction of new regulations for the liberalization of the electricity and natural gas markets (without the creation of new choosing clients and with the market manipulated by PPC) neither make up an energy strategy nor contribute in securing energy supplies. The inability to effectively promote the country’s international energy connections further contributes to the insecurity, despite any positive moves on regional level. Also disappointing is the lack of initiative for the development of new storage space for gas and oil, the creation of LNG terminals and the downgrading of the role of Greek maritime shipping in carrying oil and natural gas. Greece is well-known for being particularly dependent on oil imports. In order to cover its needs it imports 100 percent of the oil and natural gas quantities required, which cover 68 percent of the energy balance. Compared to other European countries, Greece is the most oil-dependent country in terms of energy resources. The dependency appears to be worsening every day. Despite the clear risk of a breakdown in Greece’s supply if a war erupts in the Middle East or elsewhere, the government is inexplicably relaxed, having invested all its hopes in the normal commercial operation of the market. In times of crisis, agreements are often abandoned and each country fends for itself. This is particularly evident in the energy sector, where each country will safeguard its own energy supply. The government seems to have based its planning exclusively on the reliability of its traditional suppliers in the north, south and east. Yet the world order looks like it is about to reshape itself and today’s certainties will be replaced by tomorrow’s uncertainties.