Dependent territory

tauringhuang.

Aug 21st 2008
From The Economist print edition

The war in Georgia puts energy security back on Europe’s agenda


OFFICIALLY, the European Union is no more worried about the closure of two oil pipelines running through Georgia than are the world’s oil traders, who have so far shrugged off the news. After all, less than 3% of Europe’s oil imports come from Azerbaijan via Georgia, according to the European Commission, and none of its gas. The commission plans to do no more than “monitor the situation closely”.

Yet the Eurocrats, complains one European diplomat, are not looking at recent events in the Caucasus “with their energy spectacles on”. Some of his colleagues certainly suspect that a principal Russian motive for invading Georgia was to highlight its vulnerability as a transit route for oil and gas. European countries have long dreamt of securing access to gas from Kazakhstan and Turkmenistan through a pipeline that crosses Georgia. That route would bypass Russia, which controls all the existing pipelines between Central Asia and the EU, and so leave less of Europe’s gas supply at Russia’s mercy. At the very least, the war in Georgia has highlighted the region’s instability, and thus the difficulty of this plan.

Russia is easily the biggest supplier of oil and gas to the EU. It provided 38% of gas imports and 33% of oil imports last year. Some European countries—especially former Soviet republics and satellites—rely on Russia for virtually all their energy. The EU’s dependence will only grow, as its own production declines, along with that of its second-biggest supplier, Norway. By 2030, predicts the International Energy Agency, a watchdog for big energy consumers, Europe’s gas imports will have doubled—with much of the extra supply coming from Russia.

Russia has demonstrated its willingness to use oil and gas for political purposes on several occasions. In early 2006 it cut off the gas to Ukraine, which in turn siphoned off some supplies intended for countries such as Hungary and Italy. Russia has also cut off supplies of oil to Lithuania and gas to Belarus and Georgia. More recently, it cut by half the amount of oil it sends to the Czech Republic through the “Friendship” pipeline, in what many have interpreted as punishment for the Czechs’ willingness to host a radar base for America’s planned missile defences.

Despite much high-minded talk, Europe has responded to these events with indecision and division. Big energy firms in France, Germany and Italy, to name but three, have rushed to sign long-term contracts with Gazprom, Russia’s state-controlled gas giant, so as to secure their own supplies. There is also unseemly competition to sign up to Gazprom’s various pipeline schemes, while plans for alternatives that circumvent Russia languish.

Iran and Iraq both have gas to spare, but the EU is reluctant to do business with the first, because of its nuclear ambitions, and unable to do business with the second, because of its instability. It does not help that pipelines from either place, or from the Caspian, would have to cross Turkey, with whom Europe’s relations are getting frostier and Russia’s are getting warmer.

The commission would like to reduce individual countries’ vulnerability to supply interruptions by getting them to build more links between Europe’s largely separate national gas grids. To overcome the big gas companies’ reluctance to invest in pipelines that would expose them to more competition, the commission has suggested forcing them to sell their distribution networks. European governments hammered out a compromise, whereby firms could continue to own the network and sell the gas, as long as the two businesses are separately run. But the European Parliament has rejected this plan, leaving “unbundling” in limbo.

There is also talk of increasing imports of liquefied gas from farther afield. But the cost of building the necessary infrastructure has risen dramatically, and many proposed plants have run into planning problems. European governments might dust off such ideas again after the war in Georgia. In recent pow-wows, some observers have detected somewhat greater unity and resolve over Russia than before. There is also the comforting thought that the Soviet Union never cut supplies of gas to Europe throughout the cold war. Russia, after all, is almost as much at the mercy of the pipelines as the EU, in that it cannot easily send its gas anywhere else.