Clarity
is needed from Ukraine. Ukraine is part of the EU's energy problem: not only
thanks to the Druzhba pipeline but because, with a GDP one-quarter that of
Belgium, Ukraine is the sixth largest consumer of gas in the world.
James SHERR, Fellow, Conflict Studies Research Centre
Defence Academy of the United Kingdom [1]
Mirror-Weekly on the web, No 9 (638)
Will energy security be the death knell of Euro-scepticism? Or will it be the
death knell of the EU? There might not be a third option.
In the days when security was mainly guaranteed by armed forces, those who championed
the supremacy of the nation state could be confident that when collective
security was threatened, Europe could rely upon NATO.
But today, when in the words of Russia's official energy strategy, it is energy
which 'to a large extent determines [a] country's place in geopolitics', then
NATO, in the words of its Riga Summit Declaration, can at most 'add value' to
what only the EU can do.
But will the EU do it? Will it persuade Gazprom, Transneft and the Kremlin that
they are dealing not with 27 'little platoons', but an integrated and toughly
regulated internal market?
Will it enforce its longstanding principles of market liberalisation, transparency
and competitiveness not only in defiance of Russia's energy giants, but the
'national energy champions' of some of its own member states?
Will it apply its oldest principle, solidarity, in support of members facing asset
grabs, ultimata and supply cut-offs-and governments exposed to bribery and
blackmail? Or will it fail to display the quality that Ernest Renan defined as
essential to a nation: 'the sentiment of shared sacrifice'?
Without this sentiment, how can the EU 'move beyond' the nation state or even
remain a repository of trust for new members and a pole of attraction?
Therefore, today's Euro-sceptic does not fear the power of the EU, but its fragmentation
and impotence. Yet he can finally draw some comfort.
On 11 January of this year, the European Commission published a 22-pg document
entitled 'An Energy Policy for Europe'. Its language is unusually forthright
and its recommendations unusually bold.
Mindful not only of rising EU energy demand, but of 'external vulnerability'-'the
progressive concentration of hydrocarbon reserves in a few hands', the
'discrimination and abuse' of monopoly and the overwhelming dependence of several
member states on 'a single supplier'-its unmistakeable conclusion is that 'this
situation cannot continue'.
'A common voice' in energy policy (which already exists in trade) has become 'crucial
to geopolitical security', and energy must now 'become a central part of all
external EU relations'.
This week, the European Council (heads of government) will meet to consider the
Commission's 'communication'. Needless to say, it is most unlikely that they
will endorse its most radical recommendation: the 'unbundling' of large,
vertically-integrated national energy companies which, like mini-Gazproms,
control energy networks, production and sales in their own countries.
Eleven EU members have already made the transition from 'managed markets' to
competitive markets, with significant energy efficiencies and price savings for
consumers. Yet for the time being, several others will refuse to follow suit. That
is unremarkable.
What is remarkable is that the European Council seems set to adopt most of the
Commission's remaining recommendations, including:
[1] supporting projects that promote 'diversity with regard to source, supplier,
transport route and transport method';
[2] expanding nuclear power (which already satisfies one-third of EU aggregate
electricity demand) as well as new sources of energy and new energy saving
measures;
[3] strengthening the regulatory framework 'based on the highest common denominator'
of best practice;
[4] adopting a Priority Interconnection Plan, including construction of a Power-Link
between Germany, Poland and Lithuania and the Nabucco pipeline, bringing gas
from the Caspian to Central Europe.
If implemented, these measures will have far-reaching consequences in themselves.
They will bring the EU into partnership with the United States, Azerbaijan,
Georgia and other countries seeking to develop transport routes independent of
Russia.
They will address the most acute energy security problem faced by Lithuania and
several other new member states: energy isolation, brought about by the eastward
orientation of pipeline infrastructure and the absence of electricity
connections to the rest of the EU. And whilst the Commission's call to break up
national energy giants will not be accepted, the trend is against them.
They already are on the defensive politically and are coming under increasing
legal pressure, because EU Directorate for Competition is enforcing Community
legislation, and even the strongest are being reminded that the rules are the
rules.
For Ukrainians to focus on the exceptions to these rules is to miss the point
of the story. The European Union has begun to establish an integrated energy
market and a liberalised one. But can it succeed in the face of determined
opposition from Russia?
THE RUSSIA COMPLEX
The Russia complex
is, as ever, a combination of overweening confidence and congenital insecurity.
From the vantage point of Kyiv, Vilnius and Warsaw, Russia under Putin has
acquired money, power and the determination to use both.
But from the vantage point of Beijing, Tokyo, Seoul and even Almaty, Russia is
a country characterised by stark demographic imbalances, decaying infrastructure,
dysfunctional governance and chronic underinvestment. It is this combination of
ambition and vulnerability which makes partnership with Russia so difficult.
Where energy is concerned, this difficulty is felt in four respects:
(1) DIVERGENT ECONOMIC CULTURES.
As Ukrainians well know, Russia under Putin has experienced a considerable
re-nationalisation of economic power with a strong security service component. Like
the defence sector in Soviet times, the energy sector is now seen by many as the
engine of growth and modernisation.
Although leading Russian experts have exposed the deficiencies of this model, it
has brought short-term prosperity and the appearance of international success.
This appearance of success makes it exceedingly difficult for the EU to speak
to Russia with authority, let alone persuade it that its approach needs
adjustment.
To Russia's energy mastodons, 'markets' exist wherever money-commodity relations
exist, however unbalanced, inequitable or monopolistic they are.
But to the European Commission, monopoly is the antithesis of markets, which,
in principle, mean choice for buyer and seller.
To Alexei Miller, CEO [predsedatel' pravleniya] of Gazprom, energy security is
guaranteed by a strong vertical of integration and control: 'the regulation
from a single centre of regimes of extraction, transport, underground storage
and sales'.
From the Commission's perspective, it is guaranteed by an impartial and effective
regulatory framework and by 'diversity with regard to source, supplier,
transport route and transport method'.
(2) THE EMERGING GAS DEFICIT.
The Russian fuel and energy complex has become an increasingly important prop
for the authority of a state congenitally distrustful of decentralisation,
alarmed by demographic trends and conscious not only of China's power, but the
emerging aspirations of resource rich Central Asian states.
It is this which largely explains the Kremlin's arduous efforts to limit the presence,
bargaining power and 'centrifugal influences' of independent energy actors,
whether foreign or domestic (e.g. the former YUKOS).
Yet without major restructuring and market liberalisation, Russia will not meet
projected energy demand at home or abroad.
Production at three of Gazprom's four major fields is already declining. Even
to maintain current levels of production, the International Energy Agency
calculates that 200 bcm [bn cubic metres] per annum will need to be produced in
new fields by 2015: a project which qualified experts believe demands $11 bn
p.a. in investment. But such investment is not taking place. In the oil sector,
the picture is no more encouraging.
(3) AN AGGRESSIVE RATHER THAN PRODUCTIVE
PATTERN OF INVESTMENT. Gazprom's current investment strategy
appears to be focused on compensating for Russia's emerging gas deficit rather than
remedying it.
Whilst under-investing in new fields and refurbishment of internal infrastructure,
it has displayed a marked appetite for export infrastructure, downstream (i.e.
foreign) acquisitions and non-gas projects, whilst conducting what Mikhail
Gonchar calls an 'active hunt' for energy resources in other parts of the
world.
In alliance with the Kremlin, it also seems determined to use every means at its
disposal to derail new energy projects that exclude Russia, such as Nabucco and
the South Caspian Gas Pipeline. Yet when pressed to say where the gas from
Russia's own pet projects will come from, there are no reassuring answers.
Whatever the motive behind this behaviour, it would be perilous for the EU to
reward it. By doing so, it will surrender its primary means of escape from
Russia's already palpable energy crunch.
It will make itself increasingly hostage to Russia's energy deficit and whatever
steps the Kremlin takes, or fails to take, to address it.
(4) GEO-ECONOMICS IN THE 'NEAR ABROAD'.
The 'legacy' issues of inter-elite ties, similar bureaucratic and business
cultures, as well as the multiplicity of economic linkages and dependencies
means that energy will continue to provide Russia with opportunities for
geopolitical tradeoffs and inducements to limit the sovereignty and
samostoyatel'nost' [capacity to exercise independence] of neighbours.
Why should such opportunities not be utilised in future as they have been used
in the past? Yet today there is a more worrying question.
Given the profitability of the EU market, the needs of the Russian economy and
the Kremlin's fear of popular discontent, then upon whom will the scissors
first close as Russia's resource constraints mount?
The answer is inescapable: energy dependent neighbours. Ukrainians have no reason
to doubt this answer. Yet it appears that many once again deny it, preferring
to believe that 'fraternal relations' will protect the country from the
consequences of Russia's mistakes and Ukraine's own weakness.
UKRAINE:
A PIVOT OF ENERGY SECURITY?
Ukraine matters,
and the EU knows it. It was, after all, the January 2006 gas cut-off that
prompted the EU to reconsider the mantra that 'Russia is a stable and reliable
supplier of energy'. But the EU does not know what to do about Ukraine except
wait.
This is because it equates dvoevlastie [divided power] with paralysis, rather
than ferment. In this it is mistaken. But apart from Yulia Tymoshenko, many of
those best placed to point out this mistake are unconvincing communicators.
Clarity is needed from Ukraine. This is because Ukraine is part of the EU's energy
problem: not only thanks to the Druzhba pipeline but because, with a GDP
one-quarter that of Belgium, Ukraine is the sixth largest consumer of gas in
the world.
New efficiencies and new investment demand an energy economy constructed on the
basis of rules rather than deals. If Ukrainians who share this vision do not
make themselves known in Brussels, then Ukraine's 'European course' will bear
no resemblance to the EU's European course.
Clarity is also needed, indeed candour, to counter the danger that the EU, armed
with more scepticism than knowledge, will make decisions that impact unfavourably
on Ukraine. In other words, Ukraine needs to demonstrate that it can be part of
the solution.
The first step in this direction has already been taken: the law on gas pipelines
passed by the Rada and signed into law by the President on 6 February. But the
6 February model needs to be more broadly applied:
[1] against the proposed Bohorodchany-Uzhhorod gas pipeline, which would make
the EU and Ukraine even more dependent on Russian gas and undercut part of the
market rational for Nabucco;
[2] against the moves afoot to transfer stakes in obloenergos [oblast' level distribution
companies] to Gazprom: yet a further step to circumvent the 6 February law;
[3] against plans (some well advanced) to grant access to Black Sea gas deposits
on the basis of inter-governmental understandings with Russia rather than open
market tender;
[4] against the final assault on Naftohaz Ukrainiy and the transfer of vital revenue
from an entity which can be audited and monitored to another entity, UkrGazEnergo,
which cannot.
Outside parliament, the other founders of the 6 February model need to become
more cohesive and visible. Since absorbing the implications of the RusUkrEnergo
saga and his own responsibility for it, President Yushchenko's instincts about
energy security have been unerring.
His group of officials in the Secretariat and the National Security and Defence
Council includes individuals of outstanding calibre.
But has the group become a team? Are European capitals aware of its existence? Are
they generating a body of ideas and alternative policies that can be put to use
once it becomes clear, even to the government itself, that the present course
leads to surrender and penury?
Moreover, it is presidential institutions, not parliament, who must take the lead
in responding to the three seismic shifts that have taken place in the geopolitics
of energy since the end of last year.
[1] The first of these is the decision by Azerbaijan to defy Russia, assist Georgia
and proceed with projects (including the Kars-Tbilisi-Baku railway) that
promise to provide effective energy connections between the Caspian, the South
Caucasus, the Black Sea region and Europe. This change of course has brought
GUAM back from the dead.
[2] The second shift is the quiet but unmistakable realisation in Kazakhstan that
the EU formula of 'diversity with regard to source, supplier, transport route
and transport method' now serves its own interests and is coming within its
means.
[3] The third is President Lukashenka's brutal realisation that his policies have
left Belarus with no energy security at all. For the first time since 1994 the
possibility of direct energy connections between the Baltic and Black seas is
now open.
The questions before Ukraine is so inescapable that even the government understands
it: is Ukraine to be a cavity in this matrix or part of the glue that holds it
together?
Is the EU prepared to be part of the glue that holds it together? Despite the
Commission's report, that is still in doubt, because too many dogmas, habits of
mind and narrowly construed national interests stand in the way.
Clarity is therefore needed from the EU as well. It must ask itself what it wants
in Ukraine, the South Caucasus and the Caspian, and it must ask itself what it
will contribute in order to get it.
Only then will it be able to reformulate the old question with new authority:
where is Ukraine going and with whom?
Material provided by Action Ukraine Report
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