EU looking north to diversify its energy sources

11 February 2011, Norden

As tensions are flaring up in EU’s southern neighbourhood and the dealings with eastern petro-states are politically embarassing, the 27-strong bloc is looking for inspiration in the Scandinavian energy market and considering a north-south gas corridor.

One safe prediction about the EU says that it only evolves during crises. It took two major cut offs by Russia in the middle of the coldest winter of 2006 and 2009 to realise that gas import dependance on one single supplier – especially among EU’s eastern members – is dangerous and short-sighted. With the political turmoil unfolding in north African and middle eastern countries in the past few months, the EU is also growing increasingly wary of its southern energy supplying neighbours.

The logical consequence is to look up north, not only in terms of fossil ressources in the Arctic and North Sea, but also in terms of how the Scandinavian countries have managed to connect their electricity grids and make a maximum use of renewable energy sources.

“It’s essential to underline that one fifth of the world’s untapped hydrocarbons are in the Arctic region,” EU parliament chief Jerzy Buzek told AnalysNorden. “If Iceland is to become a member of the EU, we will also get increased access to that region,” he stressed.

Mr Buzek also referred to the “North-South energy corridor”, the most recent EU initiative aimed at “linking up networks all the way from the Baltic to the Adriatic and Black Seas”, promoted by the so-called
Visegrad+ group of states in the bloc’s east: Poland, Hungary, the
Czech Republic, Slovakia, Romania and Bulgaria.

The idea, although not new, is now being explored by the EU commission and may be endorsed by all member states by the end of the year.

Among the projects mentioned are planned Liquefied Natural Gas (LNG) terminals in the Baltic Sea (Poland), the Black Sea (Romania) and the Adriatic (Croatia), as well as NETS, a Hungarian project to unite Central and South Eastern Europe’s natural gas transmission networks by creating a common gas transmission system operator.

“The North -South corridor is very important because it is about inter-connecting regions and countries,” says Michael Gahler, a German MEP who drafted a special report on EU policies in the High North.

Co-operation with the coastal countries of the Arctic Sea and a careful exploitation of those resources may decrease EU’s dependence on countries in the south and east where “political instability” is recurrent.

Mr Gahler noted that the Baltic countries are currently “totally dependent on Russia” and not connected to the Scandinavian energy grid.

“If we want to avoid energy cut-offs and lower the likelihood of external blackmailing, it should be a priority to get interconnectivity in gas and oil so no partner remains isolated,” Mr Gahler told this publication.

“The energy ring around the Baltic Sea has to be closed and include all states,” he said.

But he also noted that the main problem all these ideas and projects come down to is that of financing. “Everybody knows and agrees about pipelines, smart grids and connections, but what is contested is who should bear the costs – private companies or the state?”

Both Mr Buzek and Mr Gahler are strong advocates of a “mixed system”, where public and private money is used to fund even those projects which may not be fully commercially viable, but which are important for the security of supplies.

Member states, especially net contributors to the EU budget, are however less enthusiastic about distributing taxpayer’s money to some remote energy links outside their constituencies.

The issue is likely to hot up in the coming months, as EU institutions and member states are starting negotiations on the size of the next multi-annual community budget – mostly funded out of national coffers, now strained by the economic crisis.

A sort of “sneak preview” of how EU money can be used on “strategic energy projects” took place in 2009, when member states haggled to the very last minute on how much each should get out of a four billion euro envelope.

According to Bankwatch, an EU energy policy watchdog, the selection and politicisation of such projects can prove counter-productive.

“The money was definitely not used for what could have made a difference. Instead of going for energy efficiency measures, the big chunk of the funding went for gas pipelines like Nabucco – which are still on paper – and for carbon capture and storage technologies, used as an excuse to build more coal plants,” says Piotr Trzaskowski, the group’s energy co-ordinator.

A source of inspiration for EU decision makers should be the Nordic region, Mr Trzaskowski argues, where “you can complement wind energy from Denmark with hydro-energy from Norway.”

“Thus could be an example of how things may work on an EU level as well,” he said.

Instead of focusing on energy efficiency measures – badly needed in the wasteful ex-Soviet industries and housing complexes in EU’s newest member states, leaders are still “making a lot of promises” about new corridors and pipelines which tend to stay on paper and never become reality.

With politicians mesmerised by the media attention given to ribbon-cutting ceremonies surrounding “big pipeline projects,” it was likely that Nabucco, a project first drawn up nine years ago and aiming to bring Caspian gas to central Europe, is not going to be killed anytime soon, he said.

“The events in northern Africa clearly show that relying on energy supplies from countries that are undemocratic poses a huge moral
dilemma: How much do we pay to support these kind of regimes?” Mr Trzaskowski asked. Dealing with Turkmenistan, one of the most repressive and closed regimes in the world, just for the sake of getting some gas for Nabucco, is to the Polish expert a highly perilous game, from an ethical point of view.

To Mr Buzek and the European Parliament as a whole, compromising on human rights and democracy is “unacceptable”, even if it was to secure heating during the winter. But Mr Buzek’s intransigence in respect to petro-dictators is not replicated by his counterpart at the European Commission, who in December 2010 agreed to receive Uzbek strongman Islam Karimov and have a chat about energy supplies.

In a bid to avoid bilateral deals that undermine the greater interest of the region or EU as a whole, member states from 2012 on will have to report “on all their new and existing bilateral energy agreements”
with foreign countries – an information which will be made available to other EU states.

Foreign policy will also be more moulded on energy interests in the future, EU leaders decided on 4 February, tasking foreign policy chief Catherine Ashton “to take fully account of the energy security dimension in her work.” It remains to be seen, however, how these recommendations will actually translate into real policies, especially when linking foreign affairs to oil and gas deals. As one joke puts it, when one foreign leader tries to call the EU, an automated voice mail says: “For the Austrian position, press 1. For the Belgian, 2…”