Source: The German Times

There’s nothing like a crisis to concentrate the minds. This is exactly what happened during this year’s Energy Security Summit in Berlin, held by the Munich Security Conference and the daily Frankfurter Allgemeine Zeitung. The debates were dominated by the crisis in Ukraine and particularly how Russia continues to use its vast energy resources as a political tool in its relations with Kiev and also countries belonging to the European Union.

So when Günther Oettinger, the European Union’s energy commissioner, and Frank-Walter Steinmeier, Germany’s foreign minister delivered their speeches, it just so happened that Russia and Ukraine were locked in yet another dispute over how much Kiev should pay for its Russian gas.

Until April, Ukraine had been paying $268 per thousand cubic meters, Oettinger told the summit participants. Since then it was supposed to pay $485 per thousands cubic meters. “Neither price was a market price,” Oettinger added. It was clear what he was implying: Russia was using its energy as a political instrument to put pressure on Ukraine’s interim government that is struggling to exert its authority over the country. Transparency of the price played no role.

These disputes between Russia and Ukraine are not new. They started nearly a decade ago soon after Ukraine’s pro-democracy Orange Revolution. That unnerved Vladimir Putin, the Russian president. Gazprom, Russia’s giant state-owned energy company, then used higher prices to exert some kind of influence over Ukraine’s new leadership.

Initially, it had little impact on reining in the pro-democracy movement. But it certainly affected European consumers because Ukraine is a transit country for Russian gas exports to Europe. It transports about half of that gas to Russia’s lucrative Western markets. Since 2005, bitter disputes between Russia and Ukraine have led to shortages for some European countries.

After each dispute between Russia and Ukraine, those member states that are dependent on Russian gas, such as Poland and the Baltic states, began to demand that the EU develop an energy security policy.

Indeed, since 2005, their message has been consistent: Europe, which imports nearly 40 percent of its gas from Russia, needs to diversify its sources so as to break its dependence on Russian gas. The longer this dependence continues the more Russia will be able to blackmail those EU countries that cannot import gas from other sources. Gazprom can arbitrarily set the price.

Russia’s use of its energy resources as a political instrument is now being challenged.

During the Energy Security Summit, Oettinger said the Commission was looking at ways to create an energy union so that Russia could not exploit those member states that are completely dependent on Russian gas.

One idea is to establish an energy union as Donald Tusk, Poland’s prime minister recently proposed. This would entail the EU agreeing the same price for Russian gas for all its members. “We want a uniform gas price in the European common market,” Oettinger said during recent talks with Tusk in Warsaw. In practice this would mean a single market with guaranteed supplies and infrastructure that would assure the bloc is not overly reliant on any one country for its energy.

Yet during the Energy Security Summit, the idea of that kind of energy union did not gain much traction. Instead, Oettinger and Steinmeier homed in on the idea of how to make Europe’s energy more secure. As Oettinger outlined in his dinner speech in Berlin, this entailed integrated markets, more storage facilities, increasing gas reserves and diversifying gas imports via the Southern Corridor that would bring gas to Europe from the Caspian Sea region.

These additional gas supplies are paltry compared to how much Europe imports from Russia. Diversification would really take off if Europe increased its imports from Algeria and from Iran, if there were a deal over Iran’s nuclear program. In the meantime, those European countries that want to weaken, if not break their dependence on Russian gas are looking to shale gas, US energy imports and Liquefied Natural Gas (LNG), as their saviors.

Steinmeier offered a sobering reality check when it came to Europe’s ability to reduce its imports of Russian gas. “When it comes to solving the crisis [of energy security], shale gas won’t help us much,” he said.

For one thing, there is no European consensus over pursuing ‘fracking.’ This is a process that involves extensive or hydraulic fracturing so as to extract natural gas from shale rock layers deep within the earth. France opposes the idea, as does Germany. Several Eastern European countries and Ukraine, however support fracking because they believe it could reduce their dependence on Russia. Steinmeier, however, was more interested in focusing on the EU completing the energy union. “We need an internal market,” he said.

The EU is slowly developing that internal market. Interconnectors between countries are being built. The Commission has made huge inroads into ‘unbungling’ the giant energy companies. This means that no one company can generate, produce, transmit or distribute energy on its own. It is all about completion and giving the consumer choice.

Above all the EU’s “Third Energy Package” is taking hold. This package is designed to break down national barriers to gas and power trading, improve security of supply and force traditional incumbent national monopolies to face cross-border competition with the aim of improving choice and services for consumers. That is all good news.

But as Oettinger and Steinmeier made clear during their speeches, that doesn’t give Europe what it really needs: energy security. To achieve that, Europe must reduce its dependence on Russia. And that means finding non-Russian gas.

This article was originally published on The German Times.