1. Europe’s Energy Dilemmas: The New Security Dimensions Catherine M. Kelleher The Watson Institute for International Studies Brown University 49th Annual ISA Convention San Francisco, CA March 29, 2008 “Bridging Multiple Divides”

2. 2 Danger of Dependence Europe’s energy dependency was first revealed in the oil shocks of the 1970s. Europe’s dependency on energy imports is again rising. Unless Europe can make domestic energy more competitive, in the next 20 to 30 years around 70% of the Union’s energy requirements, compared to 50% today, will be met by imported products – most from regions threatened by instability. Reserves are concentrated in a few countries. Today, roughly half of the EU’s gas consumption comes from only three countries (Russia, Norway, Algeria).

3. 3 EU Dependence on Foreign Energy EU’s primary energy demand will probably grow 0.7% per year over the next 20 years. Oil and gas will continue to be the dominant fuel sources with gas as the largest growth market of any fuel. EU’s natural gas production will decrease in the future but consumption will double in the next two decades. Russia currently provides 25% of that imported gas. Its share will rise to over 30% by 2015 and drop to about 27% by 2030. Source: Director-General for Research, Sustainable Energy Systems. “Energy corridors: European Union and Neighboring countries.” EUR 22581, 2007. http://bookshop.europa.eu/eubookshop/FileCache/PUBPDF/KINA22581ENC/KINA22581ENC_002.pdf http://bookshop.europa.eu/eubookshop/FileCache/PUBPDF/KINA22581ENC/KINA22581ENC_002.pdf

4. 4 EU Dependence on Foreign Energy By 2030 EU’s total energy consumption is expected to be 34% oil and 27% gas … a two-thirds jump in imports. By 2030, the EU will be –90% - 93% dependent on oil imports –80% - 84% dependent on gas imports EU countries currently buy around 40 percent of their natural gas -- primarily for electricity -- from Russia, that is the state-controlled gas monopoly Gazprom. States in central and eastern Europe are particularly dependent on Russian-supplied gas. Source: European Commission, Directorate-General for Energy and Transport. “Energy for a Changing World.” 2007. http://ec.europa.eu/energy/demand/index_en.htm. http://ec.europa.eu/energy/demand/index_en.htm

5. 5 Source: Commission Staff Working Document. Annex to the Green Paper. A European Strategy for Sustainable, Competitive and Secure Energy. What is at stake - Background document. 2006. http://ec.europa.eu/energy/green-paper-energy/doc/2006_03_08_gp_working_document_en.pdf http://ec.europa.eu/energy/green-paper-energy/doc/2006_03_08_gp_working_document_en.pdf Europe's share of energy sources in total energy consumption (in %)

6. 6 OECD Total Energy Consumption by Region and Fuel, Low World Oil Price Case, 1990-2030, Quadrillion Btu (British thermal unit) Source: European Commission, Directorate-General for Energy and Transport. “EU Energy in Figures.” http://ec.europa.eu/dgs/energy_transport/figures/pocketbook/doc/2007/2007_energy_en.xls. http://ec.europa.eu/dgs/energy_transport/figures/pocketbook/doc/2007/2007_energy_en.xls

7. 7 Source: European Commission, Directorate-General for Energy and Transport. “EU Energy in Figures.” http://ec.europa.eu/dgs/energy_transport/figures/pocketbook/doc/2007/2007_energy_en.xls. http://ec.europa.eu/dgs/energy_transport/figures/pocketbook/doc/2007/2007_energy_en.xls 2005 Share of Crude Oil Imports into EU-27

8. 8 Source: European Commission, Directorate-General for Energy and Transport. “EU Energy in Figures.” http://ec.europa.eu/dgs/energy_transport/figures/pocketbook/doc/2007/2007_energy_en.xls. http://ec.europa.eu/dgs/energy_transport/figures/pocketbook/doc/2007/2007_energy_en.xls 2000 and 2005 Crude Oil Imports into the EU-27 (in Mio tonnes)

9. 9 Russian Total Liquids, thousand bbl/d (barrels per day) Source: Energy Information Agency, International Energy Annual. “Russia Energy Data.” http://www.eia.doe.gov/emeu/cabs/Russia/images/RF_data.xls. http://www.eia.doe.gov/emeu/cabs/Russia/images/RF_data.xls

10. 10 EU Dependence on Russian Gas Russian energy sector contribution to GDP: approx 25%. Russian gas exports to the EU-25: 65% of gas exported. By 2010 about 70% of Russia’s gas supply will come from Gazprom. But, increasingly Gazprom will be selling increasingly expensive gas and oil from Central Asia.

11. 11 Source: European Commission, Directorate-General for Energy and Transport. “EU Energy in Figures.” http://ec.europa.eu/dgs/energy_transport/figures/pocketbook/doc/2007/2007_energy_en.xls. http://ec.europa.eu/dgs/energy_transport/figures/pocketbook/doc/2007/2007_energy_en.xls 2005 Share of Crude Gas Imports into the EU-27, in TJ, terajoules

12. 12 Europe: Addicted to Gazprom Source: Business Week. http://www.businessweek.com/magazine/content/06_31/b3995065.htm.http://www.businessweek.com/magazine/content/06_31/b3995065.htm

13. 13 Source: Energy Information Energy. http://www.eia.doe.gov/cabs/Russia/NaturalGas.html.http://www.eia.doe.gov/cabs/Russia/NaturalGas.html Major Recipients of Russian Natural Gas Exports, 2005

14. 14 Forecast of Gas Supply of Europe for EU-25, Balkan States, Switzerland (billion m 3 ) Source: Nabucco, Markets / Sources for Nabucco, http://www.nabucco-pipeline.com/company/markets-sources-for- nabucco/markets-sources-for-nabucco.html.http://www.nabucco-pipeline.com/company/markets-sources-for- nabucco/markets-sources-for-nabucco.html

15. 15 Source: Energy Information Agency, International Energy Annual. “Russia Energy Data.” http://www.eia.doe.gov/emeu/cabs/Russia/images/RF_data.xls. http://www.eia.doe.gov/emeu/cabs/Russia/images/RF_data.xls Total Russia Natural Gas Production, Dry natural gas (Billion Cubic Feet)

16. 16 Russia’s Projected Gas Balance, 2010, Bcm (billions cubic meters) Source: Institute of Energy Policy and BP

17. 17 Source: Vladimir Milov, “Global Energy Security: The Role of Russia and Central Asia” and Gazprom IFRS financial reports Gazprom’s oil & gas purchase costs in 2002- 2006, billion USD (money of the day)

18. 18 Potential of new gas output in the current gas production area, that would be relatively easy to launch in the coming years, bcm/year Launching new gas production at remote green fields will require 5-7 years, enormous investment and unique technologies currently untested. We are on the edge of severe Russian gas production decline New Russian Gas Fields – What is left? Source: Vladimir Milov, “Global Energy Security: The Role of Russia and Central Asia,” [presentation by Gazprom’s deputy CEO A.Ananenkov, Moscow, June 14th, 2007]

19. 19 Russian Actions 2006/2007/2008 Ukraine: January ‘06 / Winter ‘07/’08 Georgia: Present Belarus: Deal 2007 Algeria: Cartel? Putin –Sell to others if Europe not cooperative –Guarantee existing contracts at “market prices (Merkel)

20. 20 Russia: Commercial Motives Old-style: Money New-style: « downstream investments » Pressure from others –Kyrgstan, Turkmenistan: fair share –Poland, Belarus: transit fee Foreign « exploitation » in Russia: –Sakhalin – Shell –Pressure on TNK/BP

21. 21 South Stream Pipeline Source: Gazprom, http://www.gazprom.com/eng/articles/article27150.shtmlhttp://www.gazprom.com/eng/articles/article27150.shtml

22. 22 Northern European Gas Pipeline Ariel Cohen, Ph.D., “The North European Gas Pipeline Threatens Europe’s Energy Security,” October 26, 2006, Backgrounder #1980. http://www.heritage.org/Research/Europe/images/figure2_large.gif.http://www.heritage.org/Research/Europe/images/figure2_large.gif [“Germany: Schroeder’s New Gig Causes Trouble at Home,” Stratfor, March 30, 2006, www.stratfor.com/products/premium/read_article.php?id=264178 (August 3, 2006)]

23. 23 What’s Next? The EU is especially alarmed by the several disruptions of supplies to Europe, in the pricing rows between Russia, Ukraine, Georgia, and Belarus. More upsetting have been successful moves by Gazprom to renege on or block foreign partners in new gas fields and emerging oil exploration. EU so far has failed to develop countervailing policy strategy – on imports, pipelines, distribution, or diversification.

24. 24 Possible Solutions EU Conservation Plan Diversification Special Deals EU Common Policy and Capabilities Globalization ?????

25. 25 EU Conservation Plan The European Commission in 2006 approved a plan to cut EU energy use by 20% by 2020, a day before European leaders raised their concerns about oil and gas supplies with Russia’s Vladimir Putin. The energy saving plan will be introduced over six years. The cost of EU energy consumption may be reduced by more than 100 billion euros a year ($150 billion) by 2020 and CO2 emissions cut by 780 millions tonnes annually.

26. 26 Diversification New sources in Africa (oil and gas). But, competition with Chinese and Indians. Reconsideration of nuclear energy. But, popular opposition, especially from Germany. Return to coal. But, environmental risks and increasing costs.

27. 27 Special Deals Bilateral. Large nations have a financial advantage. For example, German, Italian, and French deals with the Russians. Disadvantaged –Small states –CEE states – “legacy” –Poor states

28. 28 EU Common Policy and Capabilities EU Energy Charter US interest and help – Baku-Ceyhan Some initiatives –Naucco pipeline No agreement on –Pooling –Equitable distribution –Future price caps –Reserves/storage

29. 29 Great Caspian Oil Pipeline Source: BP, http://www.bp.com/liveassets/bp_internet/globalbp/STAGING/global_assets/images/locations/caspian/map_pipeline _caspian_594x370.gif http://www.bp.com/liveassets/bp_internet/globalbp/STAGING/global_assets/images/locations/caspian/map_pipeline _caspian_594x370.gif

30. 30 Nabucco Gas Pipeline Construction will begin in 2010 and the first gas deliveries will arrive in Austria in 2013. Source: Nabucco, http://www.nabucco-pipeline.com/project/project-description-pipeline-route/project-desription.html and “Nabucco official: pipeline project on track, ” The Messenger, March 18, 2007, http://www.messenger.com.ge/issues/1568_march_18_2008/1568_econ_two.html

31. 31 South Stream and Nabucco pipelines Source: David Wood, “Russia’s Gas Power Play,” Energy Tribune, August 17, 2007, http://www.energytribune.com/articles.cfm?aid=590

32. 32 Globalize Nationalized EU policy? Transatlantic solution? Global multilateral?

33. And…???