Escalation of the Global “Gas War”. Part VI

 

There is speculation that the entire project of the EEU is actually directed at creating a preferential environment in Europe for American shale gas and for American petroleum corporations, as well as for the construction of American nuclear power plants and for shipments of American nuclear fuel

 

The European “Gas Knot”

Even before the Ukrainian Maidan, there was significant disagreement in Europe regarding the role that Russian gas can and ought to play in the EU countries’ energy supply.

The countries of “Old Europe”: Germany, France, Spain, Italy, as well as the proprietors of the main natural gas resources of the North Sea and its shores (Norway, the UK, and the Netherlands), were generally satisfied with the existing status quo. As existing contracts expired, they were, of course, ready to relentlessly seek more lucrative conditions for the supply of gas, in terms of pricing and otherwise, from Gazprom, but they were not looking for any revolutions in system of gas relations with Russia.

Meanwhile, the eastern “Young Europeans”, owing to their profound dependence on Russian gas, and to their overt political supervision by the USA, had been screaming about “Gazprom’s gas dictatorship” louder and louder.

However, “The Maidan Revolution” in Ukraine has revealed the risks involved in the transit of Russian gas to Europe. It also led a part of the “Old Europeans” to ponder over the predictability of the future of Russian-European gas relations.

It was at that moment that former Polish prime minister Donald Tusk announced that it is necessary to create a new organization in Europe under the name of “European Energy Union” (EEU)

European Energy Union: Goals and prospects

Tusk, having introduced his idea to create the EEU in April of 2014, proposed giving the EEU leadership the authority to negotiate energy supply contracts on behalf of the EU, as well as to organize centralized import purchasing of these resources.

Old European” countries, who already had powerful, world-class energy corporations, international energy trading experience, and long-term (up to 20-30 years) import contracts, immediately called Tusk’s project “yet another stillborn paper endeavor. This was due in part to the fact that the project seriously restricted the “energy sovereignty” of leading EU countries; furthermore, it much too frankly contradicted the principles of “free trade,” which, according to the norms of the World Trade Organization, were immune from any national or supranational restrictions.

However, the May 2014 signing of the high-level contract between Gazprom and China to supply gas through the “Power of Siberia” pipeline, as well as Russian promises of yet another contract with China for the “Altai” pipeline, led the “Old Europeans” to consider the potential pitfalls for European energy supply. This is in part because the prospective Russian “Altai” pipeline would supply gas to China from the same Western Siberian gas fields that currently act as the principal source of the gas flow to Europe. By September-October 2014, the European Commission (EC) had already started discussing a milder version of a future EEU.

This discussion intensified by November 2014, after elections to the European Parliament and to the EC. Maroš Šefčovič, a Slovak diplomat, became the new European Commissioner for Energy. He viewed the creation of the EEU to be his main assignment, and even his calling.

In the new project, the EEU is not the “CEO”, but as if “just a coordinator” of European energy policy. However, this proposed coordination is rather strict.

It is notable, that EEU framework strategy, released on February 25, 2015, lists the USA, Azerbaijan, Turkmenistan, Algeria, and even Iran as potential EU energy partners, but not Russia. It is no less notable, that the strategy only addresses the regulation of gas and nuclear energy (sectors in which the EU has conflicts with Russia). Coal and oil are not discussed in the EEU framework strategy.

Then what is being discussed?

First of all, the strategy demands that EU countries report their corporations’ foreign energy contracts to the European Commission not after the fact, following their signing and their approval by international agreement, but during the earliest preparatory stages of these contracts and agreements.

Secondly, the strategy gives the EC the right to participate in the negotiation of future contracts, as well as to include certain “standard clauses” (which have yet to be defined) into these agreements.

Thirdly, the EC intends to change European legislation to mandate energy companies to publish all major clauses of contracts being negotiated. This includes such data (which are traditionally considered to be commercially confidential, and vital to successful competition in the marketplace) as shipment volumes and conditions, prices and their methods of calculation, contract validity periods, and contract restrictions. European Commissioner Šefčovič stresses that European gas and nuclear contracts must be entirely transparent.

In other words, Šefčovič included such conditions of energy policy “coordination” for EU countries in the new EEU project, that would subsequently give the EC nearly total control over this sphere of policy. This includes the ability to practically control the entire system of major European corporations’ foreign commercial contracts.

Naturally, these corporations started using their own “mechanisms of influence,” such as through the European and international press. They explained, that Šefčovič‘s proposal violates the basic market principles of free trade, free enterprise, and fair competition, and that it practically proposes such regulatory mechanisms for the energy sector, that are commonly seen in authoritarian regimes.

Moreover, European political leaders started asking European Commissioner Šefčovič some inconvenient questions, such as whether the European Commission is ready to guarantee alternative gas shipments to EU countries in the event that it decides to prematurely terminate the existing contracts with Gazprom.

Speculations also appeared in the European press, that the whole EEU proposal, including Šefčovič unnamed future “standard contract clauses”, is apparently aimed at adapting EU legislation to the future global agreement with the US, the Transatlantic Trade and Investment Partnership; and that Šefčovič goal (or assignment) is to create a preferential environment in Europe for American shale gas and for American petroleum corporations, as well as for the construction of American nuclear power plants and for shipments of American nuclear fuel…

As a result, the proposal for the EEU, which Šefčovič planned to have adopted for implementation by 2016-2017, grinded to a halt.

On March 21, during the EU summit, the principle decision to create the EEU was adopted. But, the conclusion only talks about “providing a coherent approach” for the energy policies of member countries. Germany, the Netherlands, and Finland decisively opposed granting the EEU the right to block deals, as well as any attempts at violating the confidentiality of the conditions of these deals.

That being said, Šefčovič significantly curbed his ambitions to introduce the EEU even before the European Summit. He stated that the EEU’s main normative documents should be prepared by 2019, and that the EEU will begin working to its full extent only by 2030, when the existing gas contracts between European corporations and Russia will expire. And by that time, Europe’s dependence on Russian gas imports (currently about 30%) should be minimized”.

An important question: how exactly will this dependence be minimized? And , minimized to what extent?

The realities of European gas supply:
Today and the future

What gas does Europe currently consume?

Its own gas reserves are woefully insufficient. They consist mostly of the Norwegian Statoil (21% of demand) and the Netherlands’ GasTerra (15% of demand).

The largest supplier of imported gas for many years has been the Russian Gazprom (around 30% of demand). Three other significant import suppliers are the Algerian Sonatrach (7%) and the Qatari QatarGas and RasGas (about 5% combined). The rest is obtained piecemeal, mostly from EU countries’ own gas production, and from the international liquefied natural gas (LNG) market.

In other words, Russia is (for now!) Europe’s largest natural gas supplier. But, that is not the most important point. What’s important is that quite a few European countries depend on Russian gas to a vital degree,” as stated by the European Commission.

For example, Lithuania, Estonia, Latvia, and Finland depend on Russian gas by nearly 100%; Bulgaria, Slovakia, and Hungary by more than 80%; Austria, Slovenia, Poland, and Greece by almost 60%; Germany by 37%, Italy by 28%, and France by 15%. Now, Ukraine has added itself to the picture, and the Europeans have to save it from freezing and industrial shutdown using that same Russian gas, except now with Europe selling it to Ukraine by reverse flow.

What alternatives to Russian gas shipments does the European Energy Commission plan to use in order to free itself from the dictate of Gazprom?

Back during the spring of 2014, the Energy Commission, following suit with the American Energy Information Agency (EIA), called for European countries to step up their efforts to explore for shale gas and to begin its production. Supposedly, trillions of cubic meters of shale gas had been found in Europe; in Germany, France, Poland, Romania, Bulgaria, Slovakia, Lithuania, Ukraine, etc.

However, it was soon found that Germany and France have strict bans on shale gas. Because, on one hand, it is relatively scarce; and furthermore, densely populated countries just don’t have any locations where shale gas can be produced without critical ecological risks to the water supply.

It also turned out that the Eastern European countries listed by the EIA, including Ukraine, had nothing on the order of hundreds of billions of cubic meters of shale gas, suitable for commercial development. The last to be “ratted out” were Poland and Ukraine in the beginning of 2015, where the American and British corporations involved in exploration admitted, that they did not find any potentially profitable shale gas reserves there; and consequently, they would be terminating their contracts.

Next, in the summer of 2014, the Energy Commission called for Norway, the UK, and the Netherlands to increase their natural gas production from the North Sea shelf and continental gas fields.

However, by autumn of 2014, the companies involved in North Sea gas production reported that nearly all of the shelf gas fields are in the stage of “declining production”, and that they lack the ability to significantly increase supply for the European market.

At the end of February 2015, the Netherlands declared that the gas province surrounding the giant Groningen gas field turned out to be in a high risk tectonic zone. Specifically, earthquakes have been occurring progressively more often in this gas-producing region. For now, these are not high Richter scale catastrophes. But, for the Netherlands, a huge part of whose territory is below sea level and protected from flooding only by man-made dams, the risk is too high. Therefore, the Netherlands are now beginning to discuss reducing production and the possibility of increasing imports of Russian gas.

In other words, it has become exhaustively clear, that Europe has no serious reserves of its own of any “additional” gas. And then, the European Commission, via the very same Šefčovič, announced that it will place priority on accelerating the creation of the so-called “Southern gas corridor” for gas shipments to Europe from Azerbaijan, Turkmenistan, and potentially Iran.

To be continued.

 

Source (for copy): http://eu.eot.su/?p=7843

 

This is the translation of the sixth article (first published in “Essence of Time” newspaper issue 120 on March 25, 2015) by Yury Byaly of a series on the new round of global economic warfare. The ultimate goal of this war, of which gas wars is a part, is the weakening and dissolution of Russia. But disruption of Russian supply of gas will lead to lack of gas and rise of prices and some European economies might just not handle this. Since all of the global economy is intertwined, those who started this war want to make not just Russia, but many other countries become weaker in the end.

 

We encourage republishing of our translations and articles, but ONLY with mentioning the original article page at eu.eot.su (link above).
 
 
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