Tuesday, 10 February 2009By Prof. Dr. Ercument TEZCAN, USAK Senior Lecturer
Natural gas, and in a wider context the energy issue, comes to the scene ironically in the coldest days of winter, and seems to occupy the EU agenda lately. Actually, this is not the first energy crisis that Europe has dealt with. The process began with Russia's closure of the valves, which it has done several times. European countries, which faced the first oil shock in 1973, have preferred to find a solution to the problem on their own instead of increasing cooperation among them. For example, France has determined a strategy which is composed of producing national electricity from nuclear energy, increasing consciousness in energy consumption, and diversifying its foreign energy supply. At present in France, 75% of the energy consumption is provided from nuclear energy. Similarly in Austria, 75% of the electricity production is ensured from hydroelectric power plants.
It is envisaged that the European Union's energy dependency will continue to increase until 2020, due to the simultaneous increase in energy consumption. To be accurate, the current energy dependency of approximately 50% will probably be around 70% by 2030. In the same context, the current energy need of 10 billions tons of oil will increase up to 18 billions tons of oil by 2030. Similarly, experts express that fossil fuels (oil, coal, and natural gas) will account for 85% of energy consumption by 2030.
This substantial increase in energy need will further strengthen the cooperation between energy rich and energy dependent countries, and research on renewable energy will further be advanced. In this comment, we will try to address different dimensions of the issue.
I. The Legal Dimension of the Issue
While the energy issue is addressed within the context of European Coal and Steal Community and Euratom, there is not a direct reference to the issue in the Treaty establishing the European Economic Community. In the later periods, although it was incorporated into the objectives of the EEC, this attempt couldn't lead to the formation of a comprehensive energy policy. Member states' distrust of each other and their attempt to solve the problem on their own also have played important roles on this end.
As a result, the Community institutions -especially the Commission- adopted a contradictory approach by handling the issue in relation to the internal market. At this point, Article 308 of the EC Treaty has been invoked from time to time. Accordingly, some progress has been made through Communications or Green Papers. The Lisbon Treaty sets out the powers of the new Union and specifically counts the field of energy amongst the shared competence with member states. However, since the Lisbon Treaty has not entered into force yet, it is obvious that it would not be possible to progress on the issue in the short-run. Parallel to this, it will probably take more time for the member states to abandon their old habits. Besides, it would be unrealistic to expect the member states to terminate previous bilateral agreements without obtaining sufficient safeguards.
II. Gas Politics and the Current Situation
As previously mentioned, the European countries are anxious due to the possibility of Russia closing the valve. Albeit, some experts find these concerns needless and state that a possible cessation of gas flow does not mean the end of the world. Claude Mandil, the former chairman of the International Energy Agency is one of these people. He believes that these concerns are needless since Russian gas constitutes only 25% of the total energy consumption in Europe. The percentage of natural gas as primary energy consumption in Europe is merely 25%. Thus, the gas received from Russia corresponds to only 7% of total energy consumption. Moreover, in this context, there are serious differences among member states. For example, the Russian gas represents 0% of the gas consumption in Spain and Portugal. On the other hand, this ratio is 100% in the Baltic countries and Slovakia. Thus, these percentages, inter alia, play crucial role on the lack of solidarity among member states.
On the other hand, it is stated that the major handicap of energy is not linked to the natural gas; on the contrary, the other energy resources, especially electricity, make the problem deeper. Member states do not undertake the necessary investments regarding production or cross-border transformation. Also, there is lack of investments in the field of diesel.
In addition, disturbances experienced so far in the energy sector have had mostly national origins. For example, windstorms in the US in 2005 led to several problems in the petroleum refineries. Similarly, due to the closure generating stations in Japan as a result of bad governance, the country experienced serious disturbances in energy. Also in Spain and Greece, drought in 2006 caused problems in hydroelectric power plants.
Lastly, experts state that Europe's current energy sector is not as bad as previously thought.
Although the above assessments may be considered true, the European Union faces two challenges about the natural gas issue: On the one hand, there occurred a substantial increase in the European Union's gas supplies coming from Russia; on the other hand, the European economies have become more dependent on natural gas. To overcome these challenges, the EU should diversify energy resources and energy supply routes in addition to conducting research on renewable energy and energy efficiency. Probable solutions in this context focus on liquefied gas and a new gas pipeline originating from the Middle East and Caspian Sea. These two options constitute one of the priorities of the EU on the energy issue.
The relation between the liberalization of gas market and the security of energy supply is one of the most controversial issues. In this regard, France has argued that since the security of energy supply and the completion of internal market are totally different issues, the Union has to make a choice among these.
French experts also give their opinion in the same direction. For example, according to Didier Bourguignon, the relationship between the liberalization and the security of supply is more complicated. The current application of the liberalization does not provide any guarantees for supply in practice. To ensure this warranty, the formation of the liquefied gas internal market has to be completed and necessary links between this competitive market and the others should be maintained. Moreover, to be realistic, the formation of an internal gas market is a long term objective and it will take many years to be accomplished. On the other hand, special attention must be paid to the separation of production and distribution activities. In the case of downsizing European firms, it would no longer be possible for them to compete with huge firms, like Gazprom.
In a more general perspective, the following precautions come to the fore to deal with the energy crisis: First, the Council Directive on the security of the energy supply (2004/67/EC) should be reviewed. Second, a natural gas storage capacity for emergencies should be improved. However, the costs of storage and its share among the member states are pending issues on the EU agenda. Besides, transition routes between Central and Eastern Europe and also between Baltic countries-West Europe should be advanced. Regarding the diversification of supply routes, projects such as the South Stream gas pipeline which crosses from Turkey, Greece, and Italy should be promoted as well as the Nabucco project. In case of an improvement of political relations, cooperation with Iran and Uzbekistan will also gain importance in the long run.
III. Priorities of the Czech Presidency and Recent Developments on the Subject
Integration of the internal energy market, enhancement of energy efficiency, better use of energy resources and diversification of both resources and routes take place among priorities of the Czech Presidency. In this context, two following points come to the fore: 1- focusing on the energy infrastructural investments; 2- signing treaties with third countries in order to diversify energy supplies.
The Czech Republic, which attaches high importance to the energy issue, is planning to convene a summit in March, concerning the south energy corridor, gathering EU-Caspian countries and Turkey.
A close solidarity is necessary among the member states in case of crisis situations. In such cases, other countries should diminish their energy consumptions and support the other ailing country by means of newly established transmission lines.
At this point, there are both good and bad answers in response to the energy-related problems. Individual endeavors to find a solution to the problem and securing full energy independence may be counted as bad responses. Actually, they are almost impossible in practice. Besides, individually developed strategic energy stocks and singling out energy imports as the sole reason for the turmoil constitute the other bad answers. On the other hand, decrease in the demand of energy, promotion of the energy savings, and investment in the energy sector may be counted as good responses.
Another striking issue regarding energy is environmental concerns. Considering the accelerating global warming, the amount of carbon dioxide release has to be brought under control. It is envisaged that the current 25 billion tons of carbon dioxide release will increase to 65 billion tons by 2050. The experts express that this amount should be around 12-13 billion tons under normal circumstances, which refers to the 20% decrease of the gas release at that time. However, it is hard to say that there is a consensus among European countries on this issue. The period after the expiration of the Kyoto Protocol in 2012 remains ambiguous.
Petroleum is also among the controversial issues. Currently, the world's total consumption of oil per day is around 86-87 million barrels. By 2030, this amount is expected to rise to 115-120 million barrels, although to increase the production of oil above 100 millions barrel per day seems impossible. For these reasons, a serious oil crisis is anticipated by 2030.
To sum up, we need to search for the missing middle regarding the energy issue. On the one hand, producing disaster scenarios about the energy issue is groundless and needless; on the other hand, denying the existence of the problem is nothing more than turning a back to reality.
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Tuesday, 10 February 2009
By Prof. Dr. Ercument Tezcan, JTW Columnist
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