Europe needs to have control of gas supply

Europe needs to have control of gas supply
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First Published: Thu, Jan 15 2009. 01 19 AM IST

Updated: Thu, Jan 15 2009. 01 19 AM IST
It is a freezing winter. Temperatures have dropped right across Europe. Even Madrid’s Barajas Airport was plunged into chaos by snowfall, the first flakes the Spanish capital has had for four years.
In the midst of that, Russian energy company OAO Gazprom is playing politics with the continent’s gas supplies.
For the past week, a dispute with Ukraine over the shipment of gas through its pipelines has threatened energy shortages in Europe. The European Union managed to negotiate a compromise that got the power flowing again yesterday. Even so, Russia’s ability to turn the power on and off has been demonstrated again.
Europe needs to think hard about how it responds to Russia’s energy imperialism. In the 1940s, it formed the North Atlantic Treaty Organization (Nato), a military alliance designed to create a united front against the threat of Soviet communism.
Today, Europe needs an oil-and-gas equivalent to develop a coordinated response to the threat of having its power supplies cut off.
“The Europeans will (hopefully) focus on what they can do together to increase their energy security: build a functioning internal gas market, invest more in gas storage and focus on alternative sources of gas,” Katinka Barysch, the deputy director of the Centre for European Reform in London, said in an analysis of the latest energy dispute.
There is little mistaking the way that Russia is using its vast energy resources to reassert its power on the world stage. Gazprom stopped transit flows through Ukraine on 7 January after accusing the country of diverting gas, intended for other buyers, for its own use. Ukraine rejects the charge.
Ukrainian pipelines
About 80% of Gazprom’s European customers receive their supplies through pipelines that cross Ukraine. The Russian exporter provides a quarter of all Europe’s gas, and said its supplies to Europe were cut by about 60%. To cope with the shortfall, countries such as Bulgaria, Hungary and Slovakia placed curbs on gas use.
It isn’t the first time supplies have been turned off. In 2006, Russia switched off all gas supplies through Ukraine for three days. The latest spat may have been resolved. But it is another demonstration that Europe has become dangerously dependent on Russian energy.
There is little mystery about what Russia is up to. With energy prices plummeting in a global slump, its economy is in deep trouble. The stock market has plunged, and so has the rouble. Russia relies on energy prices to keep afloat. It needs to get the market moving again.
Control of supply
One way to do that, as any monopolist will tell you, is to get control of supply. There have already been discussions about forming a gas equivalent of the Organization of the Petroleum Exporting Countries (Opec), which attempts to guide oil prices.
And, in the oil market, Russia is cooperating with Opec. When Opec, which doesn’t include Russia as a member, curbed production last year to stabilize prices, Russia agreed to cut its oil exports as well.
Along with food, securing energy supplies is one of the most basic tasks of any government. So how should Europe respond? By forming a cartel of buyers. An energy equivalent of Nato would have four main tasks.
First, it should decide what percentage of oil and gas is safe to import from Russia. The best way of keeping a market in good shape is to have plenty of different suppliers competing for the business. Russia has so much energy close to Europe, it will always be a leading supplier. Yet Russia shouldn’t be the only one. The country’s energy suppliers need to be reminded that the customer is king: If the producer thinks he’s the boss, the customers should go elsewhere.
Swap routes
Next, supply routes should be built between different European countries. Then if the gas to one country gets switched off, it could be routed through another one. Russia can control what happens to the gas only up to its own borders. If they can swap supplies, the European countries have more flexibility.
Three, there should be stockpiles of alternative-energy supplies. Liquefied petroleum gas, for example, is an obvious choice. If every country kept some LPG, it would make shutdowns in the supply far easier to live with.
Lastly, Europe must invest even more in alternative energy sources. Wind and wave power have been sold as good for the environment. But they also create a diversity of supply. That makes two great reasons for building a lot more windmills.
Naturally, Europe needs Russia’s energy. And Russia needs Western European money. Yet, Europe can find other energy sources. Over time, it can certainly build them. It is hard for Russia to find other customers for its oil and gas.
History shows that when Europe is united against Russia, it can solve problems peacefully. It worked in the Cold War, even if it did take 40 years. And it can work in the gas wars as well.
Bloomberg
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First Published: Thu, Jan 15 2009. 01 19 AM IST