Europe’s Energy Dilemmas:
The New Security Dimensions
Catherine M. Kelleher
The Watson Institute for International Studies
Brown University
49th Annual
ISA Convention
San Francisco, CA
March 29, 2008
“Bridging Multiple Divides”
Danger of Dependence
• Europe’s energy dependency was first revealed in
the oil shocks of the 1970s.
• Europe’s dependency on energy imports is again
rising.
• Unless Europe can make domestic energy more
competitive, in the next 20 to 30 years around 70% of
the Union’s energy requirements, compared to 50%
today, will be met by imported products – most from
regions threatened by instability.
• Reserves are concentrated in a few countries. Today,
roughly half of the EU’s gas consumption comes from
only three countries (Russia, Norway, Algeria).
2
EU Dependence on Foreign Energy
• EU’s primary energy demand will probably grow 0.7%
per year over the next 20 years.
• Oil and gas will continue to be the dominant fuel
sources with gas as the largest growth market of any
fuel.
• EU’s natural gas production will decrease in the
future but consumption will double in the next two
decades.
• Russia currently provides 25% of that imported gas.
Its share will rise to over 30% by 2015 and drop to
about 27% by 2030.
Source: Director-General for Research, Sustainable Energy Systems. “Energy corridors: European Union and
Neighboring countries.” EUR 22581, 2007.
http://bookshop.europa.eu/eubookshop/FileCache/PUBPDF/KINA22581ENC/KINA22581ENC_002.pdf
3
EU Dependence on Foreign Energy
• By 2030 EU’s total energy consumption is expected
to be 34% oil and 27% gas … a two-thirds jump in
imports.
• By 2030, the EU will be
– 90% - 93% dependent on oil imports
– 80% - 84% dependent on gas imports
• EU countries currently buy around 40 percent of their
natural gas -- primarily for electricity -- from Russia,
that is the state-controlled gas monopoly Gazprom.
• States in central and eastern Europe are particularly
dependent on Russian-supplied gas.
Source: European Commission, Directorate-General for Energy and Transport. “Energy for a Changing World.” 2007.
http://ec.europa.eu/energy/demand/index_en.htm.
4
Europe's share of energy sources in
total energy consumption (in %)
45
40
35
30
Oil
25
Solid fuels
20
Gas
15
Nuclear
10
Renewables
5
0
1990
2000
2010
2020
2030
Source: Commission Staff Working Document. Annex to the Green Paper. A European Strategy for Sustainable,
Competitive and Secure Energy. What is at stake - Background document. 2006.
http://ec.europa.eu/energy/green-paper-energy/doc/2006_03_08_gp_working_document_en.pdf
5
OECD Total Energy Consumption by Region and Fuel, Low
World Oil Price Case, 1990-2030, Quadrillion Btu (British
thermal unit)
OECD Europe
200.0
150.0
100.0
70
80
81
85
88
88
92
90
50.0
0.0
1990
2003
2004
2010
2015
2020
2025
2030
Source: European Commission, Directorate-General for Energy and Transport. “EU Energy in Figures.”
http://ec.europa.eu/dgs/energy_transport/figures/pocketbook/doc/2007/2007_energy_en.xls.
6
2005 Share of Crude Oil Imports
into EU-27
Other Origin
18%
Algeria
4%
Russia
29%
Kazahkhstan
4%
Other, Middle
East
5% Iran
6%
Libya
8% Saudi Arabia
10%
Norway
16%
Source: European Commission, Directorate-General for Energy and Transport. “EU Energy in Figures.”
http://ec.europa.eu/dgs/energy_transport/figures/pocketbook/doc/2007/2007_energy_en.xls.
7
2000 and 2005 Crude Oil Imports into the
EU-27 (in Mio tonnes)
137.1
117.5
54.7
M
n
rig
in
sta
kh
ah
er
O
2000
O
th
er
,
26.4 21.4 22.8
Ka
z
idd
le
Ea
s
t
Ir a
n
Li
by
Sa
u
di
Ar
a
a
9.9
th
30.0
O
35.5 35.4
ria
45.5 50.6
Al
ge
65.1 60.7
bi
a
wa
y
No
r
Ru
s
sia
188.0
200.0
180.0
160.0
140.0 117.7
114.9
120.0
97.5
100.0
80.0
60.0
40.0
20.0
0.0
Source: European Commission, Directorate-General for Energy and Transport. “EU Energy in Figures.”
http://ec.europa.eu/dgs/energy_transport/figures/pocketbook/doc/2007/2007_energy_en.xls.
2005
8
Russian Total Liquids, thousand bbl/d (barrels
per day)
12,000
10,000
8,000
Production
EXPORTS
6,000
Consumption
4,000
2,000
0
1992
1997
2002
Source: Energy Information Agency, International Energy Annual. “Russia Energy Data.”
http://www.eia.doe.gov/emeu/cabs/Russia/images/RF_data.xls.
2007F
9
EU Dependence on Russian Gas
• Russian energy sector contribution to GDP:
approx 25%.
• Russian gas exports to the EU-25: 65% of
gas exported.
• By 2010 about 70% of Russia’s gas supply
will come from Gazprom. But, increasingly
Gazprom will be selling increasingly
expensive gas and oil from Central Asia.
10
2005 Share of Crude Gas Imports
into the EU-27, in TJ, terajoules
Egypt
2%
Libya
2%
Qatar
2%
Oman
1%
Other Origin
0%
Nigeria
4%
Algeria
21%
Russia
44%
Norway
24%
Source: European Commission, Directorate-General for Energy and Transport. “EU Energy in Figures.”
http://ec.europa.eu/dgs/energy_transport/figures/pocketbook/doc/2007/2007_energy_en.xls.
11
Europe: Addicted to Gazprom
Source: Business Week. http://www.businessweek.com/magazine/content/06_31/b3995065.htm.
12
Major Recipients of Russian Natural Gas Exports, 2005
Rank
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Country
Germany
Italy
Turkey
France
Hungary
Czech Republic
Austria
Poland
Slovakia
Finland
Romania
Fmr Yugoslavia
Bulgaria
Greece
Switzerland
Imports
(bcf/year)
1,291
824
630
406
294
252
246
226
226
148
#N/A
134
#N/A
85
13
Pct of Domestic
NG Consumption
43%
30%
65%
26%
62%
84%
70%
47%
108%
105%
#N/A
57%
#N/A
96%
12%
Sales to Baltic & CIS States, 2005*
Ukraine
2,113
79%
Belarus
710
100%
Baltic States
205
100%
Azerbaijan
120
36%
Georgia
46
100%
*Includes some re-exports of Central Asian gas.
Source: EIA, BP (2006), CIS and E. European Energy Databook, 2006.
Cedigaz 2006.
Source: Energy Information Energy. http://www.eia.doe.gov/cabs/Russia/NaturalGas.html.
13
Forecast of Gas Supply of Europe for EU-25, Balkan States, Switzerland (billion m3)
2005
250
211
200
150
126
100
78
56
31
50
42%
16%
25%
11%
6%
Indigenous
Production
Im port Norway
Im port GUS
Im port Algeria
Im port Others
0
2030
250
200
221
217
163
150
115
100
100
50
20%
12%
27%
14%
27%
Indigenous
Production
Im port Norway
Im port GUS
Im port Algeria
Im port Others
0
Source: Nabucco, Markets / Sources for Nabucco, http://www.nabucco-pipeline.com/company/markets-sources-fornabucco/markets-sources-for-nabucco.html.
14
Total Russia Natural Gas Production, Dry
natural gas (Billion Cubic Feet)
23500
23000
22500
22000
21500
21000
20500
20000
1990
1992
1994
1996
1998
2000
2002
Source: Energy Information Agency, International Energy Annual. “Russia Energy Data.”
http://www.eia.doe.gov/emeu/cabs/Russia/images/RF_data.xls.
2004
2006
2008
15
Russia’s Projected Gas Balance, 2010, Bcm
(billions cubic meters)
16
Source: Institute of Energy Policy and BP
Gazprom’s oil & gas purchase costs in 20022006, billion USD (money of the day)
20
10.3
10
2.3
0.3
0.8
2002
2003
3.1
0
2004
2005
Source: Vladimir Milov, “Global Energy Security: The Role of Russia and Central Asia” and Gazprom IFRS
financial reports
2006
17
New Russian Gas Fields – What is left?
Potential of new gas output in the current gas production area, that
would be relatively easy to launch in the coming years, bcm/year
Kharvutinskoye
30.0
Achimov strata of
Urengoy field
16.2
Neocomian strata of
Zapolyarnoye field
15.0
West Pestsovaya
area of Urengoy field
2.0
Nydinskaya area of
Medvezhe field
2.0
Gubkinskoye field
(Northern cap)
2.0
Yareyskaya area of
Yamsovey field
0.5
Launching new gas
production at remote green
fields will require 5-7 years,
enormous investment and
unique technologies
currently untested. We are
on the edge of severe
Russian gas production
decline
Source: Vladimir Milov, “Global Energy Security: The Role of Russia and Central Asia,” [presentation by
Gazprom’s deputy CEO A.Ananenkov, Moscow, June 14th, 2007]
18
Russian Actions 2006/2007/2008
•
•
•
•
•
Ukraine: January ‘06 / Winter ‘07/’08
Georgia: Present
Belarus: Deal 2007
Algeria: Cartel?
Putin
– Sell to others if Europe not cooperative
– Guarantee existing contracts at “market
prices (Merkel)
19
Russia: Commercial Motives
• Old-style: Money
• New-style: « downstream investments »
• Pressure from others
– Kyrgstan, Turkmenistan: fair share
– Poland, Belarus: transit fee
• Foreign « exploitation » in Russia:
– Sakhalin – Shell
– Pressure on TNK/BP
20
South Stream Pipeline
21
Source: Gazprom, http://www.gazprom.com/eng/articles/article27150.shtml
Northern European Gas Pipeline
Ariel Cohen, Ph.D., “The North European Gas Pipeline Threatens Europe’s Energy Security,” October 26, 2006,
Backgrounder #1980. http://www.heritage.org/Research/Europe/images/figure2_large.gif.
[“Germany: Schroeder’s New Gig Causes Trouble at Home,” Stratfor, March 30, 2006,
www.stratfor.com/products/premium/read_article.php?id=264178 (August 3, 2006)]
22
What’s Next?
• The EU is especially alarmed by the several
disruptions of supplies to Europe, in the
pricing rows between Russia, Ukraine,
Georgia, and Belarus.
• More upsetting have been successful moves
by Gazprom to renege on or block foreign
partners in new gas fields and emerging oil
exploration.
• EU so far has failed to develop countervailing
policy strategy – on imports, pipelines,
distribution, or diversification.
23
Possible Solutions
•
•
•
•
•
•
EU Conservation Plan
Diversification
Special Deals
EU Common Policy and Capabilities
Globalization
?????
24
EU Conservation Plan
• The European Commission in 2006 approved a
plan to cut EU energy use by 20% by 2020, a
day before European leaders raised their
concerns about oil and gas supplies with
Russia’s Vladimir Putin.
• The energy saving plan will be introduced over
six years. The cost of EU energy consumption
may be reduced by more than 100 billion euros a
year ($150 billion) by 2020 and CO2 emissions
cut by 780 millions tonnes annually.
25
Diversification
• New sources in Africa (oil and gas). But,
competition with Chinese and Indians.
• Reconsideration of nuclear energy. But,
popular opposition, especially from
Germany.
• Return to coal. But, environmental risks
and increasing costs.
26
Special Deals
• Bilateral. Large nations have a financial
advantage. For example, German,
Italian, and French deals with the
Russians.
• Disadvantaged
– Small states
– CEE states – “legacy”
– Poor states
27
EU Common Policy and
Capabilities
• EU Energy Charter
• US interest and help – Baku-Ceyhan
• Some initiatives
– Naucco pipeline
• No agreement on
–
–
–
–
Pooling
Equitable distribution
Future price caps
Reserves/storage
28
Great Caspian Oil Pipeline
Source: BP,
http://www.bp.com/liveassets/bp_internet/globalbp/STAGING/global_assets/images/locations/caspian/map_pipeline
_caspian_594x370.gif
29
Nabucco Gas Pipeline
Construction will begin in 2010 and the first gas deliveries
will arrive in Austria in 2013.
Source: Nabucco, http://www.nabucco-pipeline.com/project/project-description-pipeline-route/project-desription.html
and “Nabucco official: pipeline project on track, ” The Messenger, March 18, 2007,
http://www.messenger.com.ge/issues/1568_march_18_2008/1568_econ_two.html
30
South Stream and Nabucco pipelines
Source: David Wood, “Russia’s Gas Power Play,” Energy Tribune, August 17, 2007,
http://www.energytribune.com/articles.cfm?aid=590
31
Globalize
• Nationalized EU policy?
• Transatlantic solution?
• Global multilateral?
32
And…???