EU Energy Policy II

Well the new EU energy plan has been released (and here, and you can also find the actual Commission statement here). The final product is pretty much as the leaks suggested.

As was indicated yesterday, Russia related concerns are central. The FT comments:

Russia supplies a quarter of Europe’s gas needs and the Union’s dependence on the country for energy was illustrated in January when a dispute between Moscow and Kiev disrupted gas deliveries to the EU.

All of this was I think anticipated on this blog back in January when the Gazprom/Ukraine dispute first really broke into the public arena. What wasn’t anticipated was this, and especially the gas related dimension of the Suez/Gaz de France merger.

The major changes taking shape in Europe’s energy sector at present undercut the arguments of those who have long been predicting a gradual break-up of monopolies and the disappearance of the industry’s biggest players. The planned merger of Suez and Gaz de France to counter an offensive by Enel and Veolia and the fight between Gas Natural and E.On for the hand of Endesa make it abundantly clear that concentration remains very much a watchword in the branch and that even powerful old public monopolies like Electricite de France could be forced into marriages with others in future.

None of the reasons trotted out to justify the merger between Suez and Gaz de France, to cite but that operation, dwelled on the future role of Russia in Europe’s energy landscape. True, the Russians aren’t directly involved in any of the operations underway in Western Europe. On further examination, however, Gazprom’s moves in recent months could be seen as justification for the consolidation.

The future Suez/Gaz de France grouping will become the leading buyer and the top supplier of gas in Europe. As such, it will rank as one of Gazprom’s prime customers in the world. That, however, isn’t necessarily good news for Gazprom. In its dealings with such a powerful client the Russian monopoly won’t be able to exert as much pressure upon it as upon a smaller entity, let alone bully it.


Also not anticipated was the recent bout of Eastern European diplomacy which we have witnessed from Vladimir Putin:

Moscow is step-by-step advancing a plan for consolidating its position on the European energy market. Hungary has a more prominent place than the Czech Republic in this plan; hence the visible difference in the content of the two visits. Russia intends to substantially reducing gas transit through Ukraine, and while the Baltic pipeline is one part of the plan, the second line of the “Blue Stream” pipeline to Turkey is another. The first two years of exploitation of this pipeline were quite disappointing, but now Gazprom wants to extend this “corridor” towards the market in Italy and to acquire all the distribution networks (Gazeta.ru, March 2). Hungary then becomes a hub where the flows of gas are channeled into several pipelines……..

There were none of these goodwill gestures in Prague, since the Czech Republic does not have a high value for Gazprom. The atmosphere, accordingly, was not that cloudless and there were more “unpleasant” questions for Putin at that press conference.

The conclusions drawn by Eurasia Daily Monitor correspondent Pavel K. Baev are indeed interesting:

A larger conclusion stemming from Putin’s argument is that the liberalization of the European gas market strongly pushed by the EU Commission is obviously a bad idea (from his point of view, EH). Gazprom is busy building ties with giants like E.ON or Gaz de France and does not want any competition that could break the clearly artificial link between the prices of oil and of natural gas. This vision of tightly controlled and essentially monopolized “energy security” has its supporters in Europe, and Putin is trying to recruit new “agents of influence.” Havel is certainly a hopeless idealist, but his words remind that the European values of human rights and economic freedoms are deeply interlinked – and significantly differ from the values of Mr. Putin.

All of this also helps put some perspective on the cries of ‘foul’ coming from Italy and former Commission president Romano Prodi, since Italy is looking to improve its own position given that the current division of the cake doesn’t seem to guarantee them continuity of adequate supply.

Javier Solana has a timely piece in the FT today, and while he argues eloquently (and correctly in my view) for the importance of an EU wide energy approach, he somehow fails to get into some of the finer details that the above issues really raise. On Russia he says this:

The role of politics is to balance different considerations – for instance, energy versus non-proliferation or human rights concerns. Moreover, politics is essential for fostering trust and confidence on which so much depends in energy matters. In turn, confidence is built through dialogue and common projects, such as co-operation on developing new pipelines, protecting facilities against terrorist attacks or using satellites to monitor the security of supply.

All of which is undoubtedly true, but it ducks the big question: can we really be very confident that we are going to be able to trust Russia, or that the pressing human rights questions (or here, or here) are going to get better and not worse? At the end of the day could Solana be accused of being just the kind of ‘hopeless idealist’ that Baev suggests Vaclav Havel is?

One last side detail. Solana is not without his critics even inside the EU itself. The Polish president Lech Kaczynski has just argued that it is too early for the creation of an EU foreign minister post, which is his response to “calls from Paris for a strengthened role for EU foreign policy chief Javier Solana“. In fact I would argue quite the contrary. What the energy issue shows is that we need a Javier Solana more than ever, it’s just that I would like a more realist version, one that was more explicit in facing up to the hard challenges for all of us that undoubtedly lie ahead.

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About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".