In its efforts to increase European energy security and create a common European energy market – and ultimately an Energy Union worth its label – the European Commission preeminently emphasizes the diversification of supply routes. For this reason it has criticised the Nord Stream 2 project of Gazprom and a number of European companies. But while diversification certainly remains one of the basic principles of energy security, it is only one of three fundamental energy security laws, writes Friedbert Pflüger, Director of the European Centre for Energy and Resource Security (EUCERS), King’s College London. Two other important principles are interdependence of supplier and buyer and fair competition. Nord Stream 2 reinforces these principles and should therefore be allowed to go ahead.
Vice-President of the European Commission, Mr. Maroš Šefčovič, criticised the European companies Shell, Eon, OMV and Gazprom for their intention to double the capacity of the Nord Stream gas pipeline between Russian and Germany by building two further strands. He pointed out that these companies should first consider whether such a project contravenes the EU’s strategy for the diversification of supply. In an interview, Šefčovič declared that the deal raises a “host” of questions, the most important being, “How is it in compliance with our strategy for diversification of supply?”
As Europe’s domestic natural gas production will drop significantly over the next years, we will remain dependent on Russian gas for the foreseeable future
Šefčovič has quickly made a name for himself as EU commissioner responsible for Energy Union. It is not surprising that he should speak out on this issue. However, one should note that energy security involves more than diversification of supply.
Indeed, diversification is the first fundamental law of energy security. Therefore, it is in fact the role of the EU to create – with a mix of private and public financing – the necessary infrastructure to source natural gas from various regions to Europe: from Russia, Norway, Algeria, Qatar, hopefully soon through the Trans Adriatic Pipeline (TAP) from Azerbaijan and with LNG tankers from the United states. At some point in the future gas may even come from Northern Iraq, the Eastern Mediterranean or Iran.The more import options there are, the higher the security of supply and the lower the prices for households and industry become. Therefore, it is right when the EU pushes for the construction of new pipelines and interconnectors – such as the North-South Corridor from Poland and Lithuania to Central and Southern Europe – expands reverse flow capabilities and ensures compliance with EU energy regulations (the Third Energy Package). Commissioner Oettinger had already set the right course in this regard and it has been consistently pursued by the Commission ever since.
But this is neither an exclusive approach nor does the strengthening of ties between long-standing partners – as is the case with Nord Stream – represent a challenge of this principle.
This is because there is a second fundamental law of energy security: interdependency of supplier and consumer. As Europe’s domestic natural gas production will drop significantly over the next years, we will remain dependent on Russian gas for the foreseeable future. Other import options are either uncertain, insignificant or would be available too late in order to successfully challenge the position of Russian gas in Europe.
The only way to reach a sustainable form of energy security is discussing our natural gas supply not in a geostrategic but a market-oriented context
But Russia also remains dependent on sales to Europe. This interdependency has been a positive experience for Western Europe – Russia has always been a powerful supplier but never a monopolist on the gas market. When Central and Eastern Europeans will expand their import options over the coming years – primarily through LNG from the United States – calmness should return to that region as well. If Gazprom ceases to be regarded as a monopolist that dictates prices in the absence of real competition, the fears surrounding it will vanish.
Free and fair competition
Then, we will be able to focus on the third fundamental law of energy security: a free market and fair competition. This is the EU’s real goal – not to keep certain suppliers away from Europe. And this goal is not threatened by the expansion of Nord Stream.
EU policy should be limited to creating these necessary infrastructural preconditions and setting the right incentives. The only way to reach a sustainable form of energy security is discussing our natural gas supply not in a geostrategic but a market-oriented context: Who is the most inexpensive and reliable supplier? Will the Americans manage to snatch away with LNG any significant market share from Russian pipeline gas? Will US companies be able to offer long-term contracts under eight dollars per MMBtu? Will the prospect of such contracts alone coerce Gazprom into reducing prices? When will Caspian, North-Iraqi, Israeli or Iranian gas push onto European markets and at what price? Is Gazprom getting competition in Russia through Novatek, the largest private gas producer? Novatek is currently constructing the largest LNG terminal in Russia on the Yamal Peninsula.
The third and forth Nord Stream strands are not funded by EU taxpayer’s money. There are no subsidies or public purchase guarantees. The participating companies are bearing the entrepreneurial risk. Therefore, the Nord Stream expansion is neither a European policy issue nor is it a nefarious or illegal decision but one of private businesses. This means the EU should not get involved in it but continue to pursue its role of creating a framework for free and fair competition in all of Europe. Only then will energy security be effectively served.
Prof. Dr. Friedbert Pflüger is Director of the European Centre for Energy and Resource Security (EUCERS) at King‘s College London and former German Deputy Minister of Defence.