European Energy Security and Enlargement: Hand in Hand

By Jeremy Weiss, a guest contributor. He holds a Ph.D in Political Science from Boston University.

The European Union experienced a setback on November 22nd when Ukraine declared it would not follow through on its promised appearance at a conference in Lithuania where it had planned to sign an Association Agreement with Brussels. This adds to the EU’s frustration from September, when Armenia turned away from a similar agreement.


Russia previously sought to influence Ukraine’s foreign policy by disrupting deliveries of natural gas in 2009 and 2006. With these memories still fresh, Russia again used trade restrictions to pressure Ukrainian President Viktor Yanukovich into rebuffing the EU, confronting his administration with a difficult choice. On one hand, the EU offers far greater economic opportunities than Russia’s nascent Eurasian Economic Union. The European economy is six times larger, and its consumers are more than three times richer than their CIS counterparts. On the other hand, Russian economic pressure cost Ukraine $6.5 billion this year – about 2% of Ukraine’s 2012 GDP. Although some Russian sanctions targeted consumer goods, contributing to a “chocolate war,” energy supplies remain central. Ukraine has endured a five year recession, and relies on discounted gas prices from Russian energy giant Gazprom to avoid more serious economic problems while it seeks aid from the IMF.


European leaders voiced their displeasure in remarks suggesting the EU is beginning to view Russia in a more antagonistic light. European Commission President Jose Manuel Barroso accused Russia of limiting Ukraine’s sovereignty, in language evoking memories of the Cold War. Herman Van Rompuy, the European Council President, also linked Russian policy with the past, saying Russia’s actions were “incompatible with how international relations should function on our continent in the 21st Century.” Van Rompuy sought to display resolve against the Kremlin, promising: “We will not give in to external pressure, not the least from Russia.”


For the EU to attain its goal of incorporating more post-Communist states, it must address the matter of energy security and diversification with policy innovation and public fanfare to match its long-term and highly publicized attempts at political integration. As events in Ukraine and Moldova demonstrate, smooth expansion is unlikely without changes to Europe’s energy mix. Reduced reliance on Russia for natural gas will enable Europe to stand more strongly behind Eastern European countries, perhaps enabling the EU to offer greater economic support to Ukraine should it accept President Yanukovich’s request for additional aid. An EU that is not vulnerable to Russian manipulation of energy markets would prove an even more attractive trading partner and ally to prospective members, and would be able to provide additional incentives to withstand Russian interference. Energy diversification and EU enlargement are two sides of the same coin.


Although Europe is making headway toward its 2007 goal of reducing projected energy demand by 20% by 2020 – by, among other steps, creating “smart grids” and reducing barriers to energy transit within the EU – Russia continues to exert strong influence in the European energy market. In 2006 and 2009, Russia’s threats against Ukraine generated concern in Western Europe as much of Europe’s pipeline infrastructure passes through Ukraine. This remains problematic, as Gazprom controls 26% of the European gas market, a market share which it predicts will grow to as much as 32% by 2025. The EU imports 54% of its energy, making it the world’s largest energy importer. Lithuania imports over 81% of its energy. Economic powerhouse Germany imports 61% of its energy needs, even as it has become a leader in developing renewable energy. However, reliance on renewables has resulted in high electricity costs that may hamper Germany’s economy.


Fortunately, supplies of traditional fuel may help resolve Europe’s energy dilemma. Hydraulic fracturing, or “fracking,” to extract gas from shale offers promise, but achieving greater energy independence through this avenue will require a concerted effort linking regulatory policy, investment promotion, and the implementation of new technology in untried terrain. Beyond environmental risks, securing investment may prove difficult; Shell and Chevron have expanded operations, including in Ukraine, but other companies have abandoned the market. While some optimism remains, a 2012 Commission report on the future of European gas production is less sanguine about fracking. It cites differences in European regulatory and legal frameworks, including those related to mineral rights ownership and drilling rules that may make European shale gas development less successful than similar undertakings in America. This, combined with relatively low estimates of European shale gas reserves, prompted the conclusion that “[s]hale gas production will not make Europe self-sufficient in natural gas.” Even so, shale gas production could reduce Europe’s need for Russian imports as its demand for energy continues to grow.


Though fracking can offset demand increases, shale gas cannot ensure European energy independence. Diversifying sources of energy imports and exploring traditional sources of gas offer more promising avenues that Brussels should explore immediately. Some sources are available inside Europe. In 2012, Norway surpassed Russia as the largest exporter of natural gas to the European Union. Ireland, which currently imports 88% of its oil and gas, has discovered gas off the Irish coast. In addition, the Trans Adriatic Pipeline is moving to fruition in Turkey, and could begin transporting energy from the Caspian basin to Europe in 2019. Israel will also begin exporting gas from two new offshore fields, which is important for Europe in light of proposals to build a pipeline between Israel and Turkey. This could permit the re-export of Israeli gas through the Trans Adriatic Pipeline. Cyprus, which is also exploring potentially large offshore gas fields and seeking cooperation with Israel in developing the two countries’ gas resources, is also a promising energy source.


Another potential source is the U.S., as recently approved export permits may make the United States a net gas exporter by 2020. European states are already engaged in the American gas market, and pipelines in development across Slovakia and between Poland and Lithuania could increase the availability of American gas to Eastern Europe if import terminals are built on European shores. Even if, as the EC report suggests, American gas does not reduce European energy prices, America could be a source that further diversifies Europe’s energy mix.


Thus, while Europe’s extensive reliance on energy imports makes self-sufficiency an unlikely goal, there remain several options to reduce dependence on Russia. Because Russian pressure contributed to Kiev’s rejection of improved trade with Europe despite the huge advantages it offers Ukraine, minimizing dependence on Russia must become a cornerstone of EU expansion policy. While the EU’s eagerness to integrate more former Soviet states is well known, its leaders should become more emphatic that they are seeking energy sources beyond Russia’s grasp. This will strengthen Europe’s appeal to potential members by suggesting that it will become even more stable and prosperous in the future, thanks to a broader array of energy sources. Furthermore, while energy diversification will empower European diplomacy over the long-term, highlighting a policy of efforts to find new sources of energy can also provide Brussels immediate leverage. Should Moscow realize that Gazprom’s projected increases in European market share are unlikely to materialize, it may seek better relations with Europe now. Finally, boosting imports from the United States should generate excitement when compared to the alternative of continued dependence on Russian energy sources and Russian-dominated delivery routes.


Because existing predictions for the development these new energy sources already extend years into the future, European energy diversification will not be a silver bullet that alleviates Europe’s difficulties with Russia and the post-Soviet space immediately. Reducing European reliance on Russian energy will involve a series of long-term policy considerations, from continuing to reduce the demand for energy, to working with non-member states in the Mediterranean and possibly overhauling EU drilling regulations. However, the European Union has proven its willingness to undertake such commitments through the eastern expansion program itself. Already more than twenty years after the collapse of the USSR, Europe is continuing its worthy project of bringing the former communist world into the EU. It is time to match that legacy with a new long-term energy policy that will help complete EU expansion.


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