Russian gas 4: national interests undermine EU energy security (conclusion)

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Leonhardt van Efferink (October 2010)

Introduction

Russia is the largest supplier of gas to the European Union (EU). Its decision to cut off gas deliveries to Ukraine temporarily reduced Russian gas inflows in several EU countries in 2006 and 2009. The inflows had become smaller because Ukraine tapped Russian gas that was supposed to be re-exported to EU countries. The Russian-Ukrainian gas dispute added fresh impetus to the debate on the dependence of the EU on Russia’s gas.

This article in four parts attempts to shed light on Russia’s position on the EU gas market. This last part summarises the first three parts and wraps up the article. The first part gives a brief overview of gas demand in the EU, followed by a discussion of Russia’s gas production. The next part continues with Russia's gas strategy and the role of Gazprom in that respect. The third part focuses on the two pipeline projects Nord Stream and South Stream.

This map of the U.S. Energy Information Administration shows the gas (and oil) pipelines of Russia:

Russian Oil and Natural Gas at a Glance

Summary

Although Russia’s share in EU gas imports has recently diminished considerably, the country has been actively engaged in consolidating its position on the EU gas market. First, Russia has recently been effectively countering the EU’s attempts to diversify its gas sources. The country has positioned itself well to purchase a large part of the future gas production of Central Asian countries. Contrary to this development, Gazprom’s activities in some other gas producing countries will likely have a small impact on Russia’s position vis-à-vis the EU for the time being. Second, Russia plans to build two new pipelines, Nord Stream and South Stream, to reduce its dependency on Belarus and Ukraine. Both countries currently function as transit route for all its exports to the EU. For the EU as a whole, this simply means continued dependence on Russian gas. Nevertheless, the projects have raised fears in Central and Eastern European (EU) countries that Russia would become more inclined to cut off gas flows to this region for political reasons. Third, Gazprom is gradually becoming more active in downstream activities in the EU such as gas storage, transmission and sales. Its majority share in the Nord Stream and South Stream pipelines and its acquisition of half of the shares in a large Austrian gas transmission centre underline Gazprom’s increasingly powerful position on the EU gas market. In this respect, the position of EU companies in Russia pales in comparison, as they are denied controlling stakes in upstream gas projects.

Conclusion

Looking ahead, an insufficient Russian gas production or a financial crisis at Gazprom, making the company sell some of its foreign assets, could (temporarily) weaken Russia’s position on the EU gas market. If these events do not occur, then Russia seems poised to consolidate this position the coming decade. This is the consequence of the EU’s inability to create one internal EU gas market. This inability stems from a lack of political willingness and constraints related to the difficulty of transporting and storing gas. National governments of the larger and powerful EU states still consider energy security a national interest, not be delegated to a supranational body. The EU gas market seems likely to remain fragmented, providing Gazprom the opportunity to continue implementing its strategy on national gas markets. Smaller EU countries with a strong dependence on Russian gas will especially lack any real bargaining power vis-à-vis Gazprom.

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