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Ros Donald

Ros Donald

05.03.2014 | 9:30am
PolicyExpert views: Ukraine, Russia and Europe’s energy security
POLICY | March 5. 2014. 9:30
Expert views: Ukraine, Russia and Europe’s energy security

Have we been here before? Russia is flexing its muscles in Ukraine, its large and strategically important neighbour, sparking wide-ranging concerns within Europe from Russian expansionism to energy security. We ask experts what history can tell us about Russia’s position in global energy politics.

Energy has been a key element in Russia’s relationships with Europe and its former Soviet neighbours like Ukraine, interwoven into cooperation – and tensions – for decades. Russia has cut off gas supplies to the Ukraine and neighbouring countries twice in recent years, once in 2006 and again in 2008  as a result of price disputes.

And this winter’s protests, that led to the eventual ousting of Viktor Yanukovich, Ukraine’s Russia-friendly president, were sparked by an agreement with Russia that reduced Ukraine’s dealings with Europe in return for – among other things – a 30 per cent reduction in the price the country pays Russia’s gas company, Gazprom.

Gas and oil prices have already risen amid fears that the Ukraine crisis could harm energy supplies. Europe still gets around 30 per cent of its gas from Russia –  about 80 per cent of which reaches the bloc via the pipelines that go through Ukraine.

Commentators such as the Financial Times’s Nick Butler suggest Russia’s actions expose its vulnerability: its dependence on oil and gas revenue, which has grown over president Vladimir Putin’s tenure. Michael Klare, professor of peace and world security studies at Hampshire College, says the incursion is more complicated, however:

“A lot of elites in Ukraine and Russia benefited from the cozy ties between Gazprom and Ukrainian gas companies and are reluctant to see an EU-imposed order that would threaten their wealth and privileges.”

He says the crisis will lead to strengthened calls to move Europe away from dependence on Russian gas to other suppliers.

The crisis already has Europeans revisiting their best options for maintaining a secure supply of energy. Some commentators are praising renewables’ ability to keep the lights on even while fossil fuel supplies look uncertain. Others make the case for exploiting domestic fossil fuel sources like shale gas.

But countries should also look at how they can collectively improve their resilience to price shocks if Russian gas supply is set to continue to be volatile, says Dr. Harald Heubaum, Lecturer in Global Energy and Climate Policy at the School of Oriental and African Studies.

“In 2009, as a result of the last major supply crisis involving Russia and the Ukraine, the EU began to develop a new energy security strategy. Individual member states are still dependent on Russian gas, some of them heavily. But 2014 could go down as the year in which the EU finally got serious in its attempts to diversify away from Russian gas. This would mean heavy investment in domestic renewables, shale gas and expanding relations with other suppliers through the Southern Corridor or even with the US, which is considering exporting some of its shale gas.”

Heubaum adds:

“The US’s shale gas boom is a huge threat to Putin. We tend to forget that Europe isn’t just dependent on Russian gas – Russia is heavily dependent on the consumers of its gas and oil. There are similarities to the situation at the end of the Soviet Union when a drop in oil prices in the 1980s led to a significant loss in Soviet revenue.

“If Europe pursued a stronger common energy policy, further reducing dependence on Russian gas, it would eventually be able to display a more muscular attitude toward Russia. But at the moment, it doesn’t seem to realise it holds most of the cards. The 2006 and 2009 crises haven’t resulted in a significant pushback, and countries like Germany and Italy have continued to break rank, negotiating bilateral deals with Russia. 2014 could be a big chance for Europe – but only if it realises it.”

To understand the Ukraine crisis, it’s also important to unpack Russia’s internal dynamic. Dr Caroline Kuzemko, a research fellow at Exeter University tells Carbon Brief:

“We forget in the West how differently Russians understand these events. Russians do not want Europe to dictate their energy policy. For 10 economically devastating years after the fall of the Soviet Union, Europe told Russia how to conduct its energy policy. Many still blame Europe and see it as an aggressor in situations like the Ukraine crisis. The battle of ideas between Russia and the West has been going on for centuries.”

In addition to understanding Russia’s motivations, Europeans must also look at how viable Russia is as a future energy trading partner, Kuzemko says.

“What is more important than the current Russia-Ukraine story is what Russia is doing with its asset base.  Russian oil and gas companies, like many IOCs, have produced at a high rate from many of their assets – thereby running these assets down more quickly than, for example, the Norwegian or Saudi Arabia policy of resource management which balances returns now with future security.  The UK, like Russia, produced very quickly from North Sea assets hence they too have run down very quickly. Thinking about things like that will be important if Europe wants to rely on Russia in future for energy supplies.”

What’s more, Russia is starting to rethink its relationship with Europe altogether:

“Russian companies need to make long-term decisions about where their markets are going to be. They need security of demand just as much as, say, Europe needs security of supply – so the obvious move for them is to produce more infrastructure (as they are doing) that allows them to export eastwards rather than towards the West.”

Doing so would reduce Russia’s dependence on distribution through Ukraine – as well as on European trade.

The Ukraine crisis serves as a focal point for European concern over dependence on Russia for energy. It’s tempting, however, to assume that Europe will continue to import Russian gas well into the next century as demand for gas increases. Research suggests even a shale gas boom will not halt Europe’s appetite for Russian gas. Despite efforts on both sides to reduce their dependence on each other, energy interdependence with Russia may be a difficult goal for Europe to achieve.

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