Energy as the New Security Factor & the “Big Three”

In a session entitled “Power of Resources – Energy as the New Security Factor" at the 25th Economic Forum in Krynica, Poland, Prof. Adnan Vatansever, Senior Lecturer, King's College London, provided a broad view on the nexus between energy and security, and spoke about what he said are the three countries that will be most important to the EU's energy security in the future: Russia as the main supplier, Turkey as an important transit country, and the US as an increasingly important energy player.

Recognizing that Europe is not well endowed with oil and gas, Prof. Vatansever said this is often considered a vulnerability. “But in international trade it matters how big you are as a buyer. If you look at the 28 countries of the European Union altogether you can see that as an importer it's much more important any other place in the world, including the US, a very significant player in the international flow of oil and gas.”

He offered that in 2014 the EU imported 15% more oil and gas than India and China combined; in 2040, he added, the IEA predicts that the EU will be importing about 40% more than than China and India together. “It shows how important the EU will remain regarding the international flow of energy,” he remarked. “In that context, I think initiatives such as creating a unified energy market – the Energy Union – are really crucial.”

Regarding Russia remaining a main supplier, Prof. Vatansever said: “A lot of Europe's energy security discussions are based on this vulnerability based on dependence on Russian gas, especially. A lot of this focus has been displaced – on the potential for physical disruptions, such as the Kremlin deciding to cut the gas supply.”

That, he said, is a low possibility with reputations at stake and serious consequences for Russia as well. According to him, the real vulnerabilities are how Russia prices the gas it sells (not based on transparency) to Europe and Russia's pipeline diplomacy.

He observed of price, “You still see substantial differences from one country to another in Europe. For instance, Hungary's getting a lot better deal than its neighbors – this is something that can't be explained by market principles, and it's pretty much a known fact that Moscow is basically rewarding countries with cheaper gas that are following pro Moscow foreign policy, and sometimes punishing others who are not following that policy.

“The European Union can do a lot by ensuring that every player in this huge market should play according to the same rules, according to market principles,” he continued.

In the past 15 years, observed Prof. Vatansever, Europe-Russia gas relations has been about new pipeline projects: Nord Stream, South Stream, Turk Stream.

He commented: “This has been another tool that has been helpful for Moscow to establish clout among certain member states in the EU, and has been, to an extent, hampering the creation of a united energy policy. You see very different voices from various EU members, partly because of the prospects of a major pipeline crossing their territory, creating a different incentive for them on whether to follow EU-wide policy or a different one.”

There may not even be a need for new pipeline routes to Europe in the next 5-10 years, he explained, as more than half of capacity exists and based on current demand projections.

In connection with transit country Turkey, Prof. Vatansever said Europe is already receiving increasing volumes of natural gas from the Caspian region, with more discoveries and resources that could go to Turkey and help Europe diversify it's gas imports: from the Eastern Mediterranean, Iraq, Iran in the future.

“The big question that the EU is not asking is, can Turkey play that highly significant role as a transit country of increasing importance and help diversify Europe?”

The answer, he said, depends on how things develop in Turkey. “If the current trend of becoming an increasingly autocratic regime is maintained, I don't see how this is going to happen. One may easily imagine that there may be increasing tensions between the EU and Turkey,” he explained, adding his belief that the country will eventually achieve secular democracy.

Prof. Vatansever gave his observations on another crucial country for Europe's natural gas supply.

“The US is a country that is not connected to the European markets. In different ways it has been supporting different policies of diversification of pipelines, but for the first time it is on a trajectory of emerging as an exporter of natural gas to Europe,” he observed. “This is quite significant for the future of Europe's energy security.”

Europe, he explained, has huge excess LNG capacity and can take LNG from various parts of the world. “Most of this capacity is just not at a place that would enhance diversification – in Spain, France, UK it does not really help in terms of reducing dependence on Russian gas.”

The solution, he said, is in progress, like in Lithuania and Poland, both of which have made great progress. “My only suggestion is that Central & Eastern Europe may need a lot more LNG capacity for the future in order to be more secure,” concluded Prof. Adnan Vatansever.

The Baltic states are a role model for energy security and diversification, opined Ando Leppiman, Deputy Secretary General for Energy and Construction, Ministry of Economic Affairs and Communication, Estonia, who said his country wanted to end what he termed an “isolated state from the rest of the European energy systems.”

“We have to create the market and have to create the connections, but what we are lacking at the moment at the European Union level is that we are making ourselves too dependent on external supplies – this is really what we have tried to diminish in the Baltic states,” he said, adding that it is important to look forward in the context of the Energy Union.

He added that Estonia is really looking forward to the interconnections that EU countries enjoy, although he admitted that the country was in a good state in terms of electricity connections.

“By 2020, we're going to have interconnection on gas between Estonia and Poland and Estonia and Lithuania; we are working quite hard to get another gas interconnection between Estonia and Finland to create physical possibilities for gas trade within Europe, the Baltic states, and even further north to Finland,” he reported.

Asked whether Europe's greater solidarity regarding energy security is in fact real, or whether countries have to face energy security threats on their own, Member of the Polish Parliament Piotr Naimski focused on the low cost of generating electric power from coal, a resource which he said Poland needs to take advantage of most effectively in a way that is the least adverse to the environment.

He offered, “This does not mean that we would like to give up coal for the sake of other energy resources – imports.”

For resources that Poland does not possess, Mr. Naimski pointed out that diversification of sources of supply is very important, as well as how they are supplied, but this fact was not apparent to European politicians 15 years or so ago.

Regarding natural gas, he said: “We are close to the practical resolution of this problem: completion of the LNG terminal in Świnoujście will enable us to have gas supplied at commercial prices and not at the prices dictated by other states.

“At the same time, completion of this terminal will result in its becoming a gas hub operating in this part of Europe.”

Energy security, he added, is a domain of the European Union member states whose governments are responsible for it. “This means that each government needs tools to ensure and implement the requirements of energy security.”

Regarding the proposal of the EU's Energy Union, Mr. Naimski said it contains elements that can facilitate energy supply during crisis situations.

“The whole program of interconnectors for gas supply and energy supply are the tools for crisis situations. However, what is lacking is a mechanism for responding to crises, because governments need to be able to communicate quickly at the highest level when they face a crisis – unfortunately, there is not such a mechanism in operation yet.”

While the mechanism may be emerging, he observed that there's no political will or organization that could set it in motion.

Meanwhile, he noted that decarbonization of the European is the prevailing trend, “but of course this is in collision with the strategy of energy security and energy plans in Poland.”

Poland, he explained, is special in the European Union, because most of the country's energy came from coal, meaning that its EU partners should understand the specifics of the situation.

Another member of the Polish parliament, who had granted some of the first shale gas concessions in Europe, Mr. Mariusz Jędrysek, Member, Parliament, Poland was asked about Poland's shale gas perspective in the wake of drilling results that had not met expectations, could their be a revival of shale gas exploration in Poland and could it change Europe's energy security?

Resources, he offered, are only part of the equation. He said: “When deciding on resources one forgets about risks: geological risk is huge. When one is considering resources you're thinking about billions of euros immediately, so the task of the country and the EU is to limit the non geologic risks; the non geological risks in Poland are much higher than the geological risks.

“Only political decisions can fix the situation,” he opined. “The problem in Europe, as well as in Poland, is that there is too much politics in the system and not enough decision makers – not enough specialists. This is a crucial reason why, despite having huge deposits, we're losing everything – this is the reality.”

Reflecting on France's energy security, Mr. Jean Eudes Moncomble, General Secretary, Conseil Francais de l'energie, France, recalled times when his country had shortages of electricity and petrol, the latter occurring due to workers' strikes. “So if we're thinking about geopolitics it is not the only dimension of energy security.”

He also mentioned what he termed the risk that should be linked with the development of renewables, which he conceded would be a very important part of the energy mix in the future, but their development in places like Germany had a strong effect. He offered, “At some times in the year we have negative prices for electricity – it's very funny for an economist, but not good for investors.”

This meant there is a need, according to Mr. Moncomble, for a new way to view energy security.

-Drew Leifheit