Energy Security and Natural Gas Markets in Europe

Lessons from the EU and the United States

Tim Boersma

• Publisher: Routledge
• Year: 2015
• Print ISBN: 9781138574915
• eBook ISBN: 9781317636632
• Edition: 1
• Topic: Business
• Subtopic: Energy Industry
• Index: Business

Moving beyond most conventional thinking about energy security in Europe which revolves around stability of supplies and the reliability of suppliers, this book presents the history of European policy-making regarding energy resources, including recent controversies about shale gas and fracking. Using the United States as a benchmark, the author tests the hypothesis that EU energy security is at risk primarily because of a lack of market integration and cooperation between member states. This lack of integration still prohibits natural gas to flow freely throughout the continent, which makes parts of Europe vulnerable in case of supply disruptions.

The book demonstrates that the EU gas market has been developing at different speeds, leaving the Northwest of the continent reasonably well integrated, with sufficient trade and liquidity and different supplies, whereas other parts are less developed. In these parts of Europe there is a structural lack of investments in infrastructure, interconnectors, reverse flow options and storage facilities. Thus, even though substantial progress has been made in parts of the EU, single source dependency often prevails, leaving the relevant member states vulnerable to market power abuse. Detailed comparisons are made of the situations in the Netherlands and Poland, and of energy policy in the USA. The book dismantles some of the existing assumptions about the concept of energy security, and touches upon the level of rhetoric that features in most energy security and policy debates in Europe.

I Framework of analysis

2 How to analyze European Union energy security

DOI: 10.4324/9781315758596-2

Introduction

This chapter introduces the framework for analysis that is used in this book. The first section gives an overview of energy security studies, a long-debated and often-disputed concept. This section demonstrates that most academic contributions that deal with energy security focus on energy markets (i.e. diversification of supplies, unreliable suppliers and transit risks). Other components of the energy system, such as infrastructure and regulatory authorities, are relatively under exposed. That mismatch is further explored in the third chapter of this book, which presents an analysis of the status quo of EU energy policy and explores the current decision-making and implementation structures within the EU.

The second and third section of this chapter elucidate on the theories that are applied on the case studies in the third part of this book. Successively these sections give a brief overview of neo-functionalism as one of the main streams in European integration theory and its links to energy security studies. This section also touches upon work from new institutional economics scholars, which is linked to this line of international relations (IR) studies. Subsequently this chapter outlines the concept of multilevel governance (MLG), which applies several components of neo-functionalist thinking. Although the merits of MLG as a theory have been fiercely debated, the conceptual framework provides a useful scheme to analyze the different case studies in the third part of this book.

Energy security studies

The debate on energy security has not passed unnoticed, but so far the only thing that stands out from the results is a lack of consensus about pretty much all aspects of energy security. As Chester (2010) concluded, energy security is a “wicked problem.” First, two concepts are distinguished, namely energy security and security of supply. Some authors even use these terms interchangeably (Van der Linde et al. 2004; Kruyt et al. 2009). The remark of Kruyt et al. that these concepts are “synonyms” seems questionable, if only for the latter focuses on supply. Energy security on the other hand, at first glance seems to be open for more interpretations (e.g. necessary investments in infrastructure, technological development, regulatory challenges and stable demand). In the available literature there is a preference for the concept labeled energy security (when counting the number of references that is). Therefore, for the sake of clarity this book uses that concept as well. When referring to authors that have labeled the concept “security of supply” (e.g. Helm 2002; Chevalier 2006; Correljé and Van der Linde 2006), here the term energy security is used in order to avoid disorder.

The interest in energy security has been renewed following disruptions in Russian gas deliveries to the EU, and an increasing (perceived) pressure on global resources following the growth of in particular China and India. This has resulted in an outgrowth of interpretations of the concept of energy security, proposals for frameworks, conceptual considerations and admonitions and crisscross usage. At the beginning of this section it is appropriate to recap that proven global gas reserves and legitimate expectations about unconventional gas resources make that at current rate of consumption over 130 years of gas supplies are “likely” (Bothe and Lochner 2008: 22).¹ The IEA estimates that worldwide recoverable conventional gas reserves are around 400 trillion cubic meters, similar to global unconventional gas reserves. This number would at current rates of consumption be sufficient for 250 years of consumption.² In short, there is plenty of natural gas.

There is a wide variety of conceptual considerations about energy security in the literature. Clawson (1998) questioned the meaningfulness of the concept itself. Ciutâ (2010) expressed concerns about the compatibility of energy and security, for potentially coupling the two can result in a panoptic view. In other words, “energy security means the security of everything: resources, production plants, transportation networks, distribution outlets and even consumption patterns; everywhere: oilfields, pipelines, power plants, gas stations, homes; against everything: resource depletion, global warming, terrorism, ‘them’ and ourselves” (ibid.).

Scholars like Klare (2001) see energy resources as a cause or an instrument of conflict. However, empirical data on this causality between conflict and energy is generally scarce. Attempts to study terrorist attacks on energy infrastructures indicated that these attacks are “comparatively few” and that the “low percentage of attacks relative to other target types indicate that [energy infrastructures] are not a primary object of terrorist groups” (Toft et al. 2010). These findings nuanced a pledge that NATO must “play an increasing role in energy security” and “can provide an added value…in the area of physical protection of energy infrastructure…” (Tagarinski and Avizius, in Stec and Baraj 2009: 28). Considering the research by Toft et al., this allocation of new tasks to NATO has at least a gleam of self-interest to it. Next to these concerns about the necessity to involve NATO in energy security, it is also worth considering the sheer reality of that mandate. With ten thousands of kilometers of pipelines, storage facilities, LNG routes, and production facilities, that seems overambitious.

Ciutâ (2010) referred to the usage of energy resources as a means of pressure, for instance in case of political conflict. An example of this is the gas supply disruption following the conflict between Ukraine and Gazprom in 2009 over payments in arrears, or at least “a big part of the problem was Naftogaz's failure to clear debts for gas delivered” (Pirani et al. 2009: 15). Smith Stegen (2011) concluded that these supply cut-offs must be attributed to economic causes and that over the course of history Russia more often than not failed to achieve political concessions using its energy resources as a “political weapon.” Regardless, this dispute between Ukraine and Russia had far going consequences for citizens in countries like Bulgaria, urging the EU and national policy makers to propose additional regulation.³ Högselius (2012) concluded that economic considerations have always been more important than political considerations in Russian–European energy relations. However, this does not mean that the “energy weapon” does not exist. He argued that its concept requires a broader view, which moves beyond supply disruptions, to include issues such as dumping natural gas on European markets, divide and rule strategies in which certain customers are favored over others, and so on (ibid.: 7).

Other scholars are more skeptical about supposed links between energy resources and conflict. Goldthau (2008) straightforwardly stated that energy weapons are “fiction,” and that resources theoretically can be used as a political weapon only when all producers collectively decide to block supplies. According to him, the real challenges are in the lack of investments in Russia, to secure sufficient supplies for the longer term (see also Bothe and Lochner 2008; Söderbergh et al. 2010). While this can be true when upstream investments are concerned, investments in infrastructure (midstream), in particular to diversify supply routes to the EU (think of Nord Stream and former South Stream) are always perceived with suspicion and regularly lead to accusations of “geopolitical aggression (by Russia) against CIS countries and new Member States” (see Stern 2009).

An anecdote that supports the position of energy weapons being a fiction dates from the first oil crisis, when allegedly the Soviet Union – as one of the main oil producers – was requested by the OPEC members to cease its oil supplies to the states under embargo. One would have expected that ideological motives at that time would be decisive for the Soviets to make a decision to punish their capitalist counterparts across the Atlantic. However, with sky-rocketing oil prices on the world market they decided to do the opposite, namely to increase their sales to among others the US and the Netherlands (Goldman 2008). Of course also from this perspective the question is legitimate whether these examples exemplify a trend or are merely incidents.

Having said all this, there has been an ongoing debate about different natural gas tariffs that Gazprom charges its customers throughout the EU. Many analysts argue that these are politically motivated (e.g. Smith 2006). The reality, however, is that European member states that suffer from higher tariffs for natural gas are the ones that do not have access to alternative natural gas supplies. Stern (in Henderson and Pirani 2014: 97) makes a convincing argument that Gazprom's pricing schemes appear to be designed as t...

Table of contents

• Cover
• Half Title Page
• Title Page
• Copyright Page
• Table of Contents
• Acknowledgements
• Summary for policy makers
• PART I Framework of analysis
• PART II Energy policy in the European Union
• PART III Case studies
• PART IV Conclusions
• Index