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The functioning of today’s economies is primarily dependent on the access of cheap energy. However, the distribution of energy stocks around the world is uneven, a fact that leads to significant vulnerabilities. Other undesirable factors like political instability in some significant energy producing nations, energy supplies manipulation, competition, accidents, and vandalism of supply infrastructure, natural disasters, and acts of terrorism, among others compound this problem. Currently, energy security occupies a central position on EU’s political agenda, considering that it imports approximately 50% of its energy. The energy policy is the responsibility each of the EU’s 27 member states. However, this policy-making and implementation faces many threats that must be eliminated or mitigated in order to sustain and improve the Euro zone economy.
In their 2007 summit, EU members planned to boost coordination in securing and diversifying energy supplies, increased use and development of renewable energy resources in the EU while reducing energy consumption and demand. The internal driving factors behind the EU’s need to assess and strengthen their energy policies are energy rising prices, falling energy production in the EU, and the disintegrated energy market. This initiative gets further motivation by the projection that world demand for energy will rise by about 50%, with gas, oil and coal accounting for 83% of this growth in demand. This brings out the all pertinent fact that demand for energy will grow at a faster rate than its supply. The EU, therefore, faces a myriad of current and future challenges in its bid to revamp its energy security.
Despite its efforts aimed at developing and using alternative energy, EU still contends with the challenge of overreliance on oil and gas. It imports most of its gas and oil energy from turbulent neighborhoods, including Russia. This dependency on oil and gas energy will rise, and research projections show that, by 2030, the EU will have to import 80% and 90% of its gas and oil requirements respectively. This problem can be confronted through diversifying the energy mix, transport routes and suppliers. Oil production will grow in OPEC countries and Russia/central Asia. The largest gas reserves are in Russia as well as Middle East. The EU depend solely on Russia for gas energy, linking Russia’s and EU’s long-term energy interests. The pipelines that supply gas to the EU zone are bilateral, and the gas market remains regional, which introduces the problem of less flexibility than oil energy. Liquefied natural gas will play a leading role in the future because its costs of transportation are lower.
The challenge of energy nationalism is rising, and it affects EU’s as well as other countries, energy issues. States like Russia, Bolivia, and other leading world producers of gas and oil dominate energy companies, forcing them to behave according to their politics in total disregard of market logistics. International energy companies would like to have a certain level of autonomy when working in such countries, but they cannot. Research shows that approximately 80% and 75% of world’s oil and gas reserves are off-limits for IOC (Noreng, 2006). The European commission provided information that Russia exported 29% of natural gas and 26% of oil to EU member states in 2004. Gas demand and consumption will rise dramatically than that of oil, and experts forecast that Europe might depend on Russia for not less than 40% of natural gas by the year 2020. Russia’s proximity to Europe and resources make Euro-Russia alliance a necessity. However, Russia’s apparent enthusiasm in using its energy wealth in order to attain controversial foreign policy goals presents a tremendous threat to the EU member states’ energy supplies. For example, it has endorsed, but not yet ratified, the energy charter treaty that allows it to avoid compliance as well as undermine any EU’s attempt at devising a common energy policy. Russia wants to use its energy stock as an effective tool to reassert its influence and power in global political affairs. It uses its highly developed energy infrastructure to deliver oil and gas bought from other central Asia countries (notably Turkmenistan, Kazakhstan and Uzbekistan) to the EU states. It has also turned down EU’s offer to invest in its energy industry and expand oil and gas production. The two principal Russian energy giants are Gazprom and Rosneft, which maintain remarkably close ties with the Kremlin. They have a lot of government support and influence, which saw the Kremlin warn EU member states from blocking Gazprom’s bid to buy or invest in their energy sector.
The rapid growth of countries like China and India and rising populations coupled with economic modernization in Africa, Latin America and the Middle East adds significantly to global energy demand. As such, EU member states have to compete for the existing and alternative energy sources. Energy experts project that EU’s leading challenge in 20 years will be its ability to diversify their sources and methods of transit of energy imports. The EU member states must, therefore, seek to establish radical external energy policies and strengthened government ties, especially with the central Asian countries in order to open up additional energy sources options. Such policies will effectively reduce EU’s dependence on Russia. Europeans acknowledge that they can never fully terminate energy dependence, and that is why they seek better management of their dependence instead of achieving explicit energy independence. Some EU member states are skeptical about Russia’s reliability on energy provision and call on other member states to work as a team in preventing Russia from exploiting them politically. However, other member states pursue long-term bilateral contracts with energy companies from Russia, which are state-owned and this increases their energy and political dependence on Russia.
Most EU countries are landlocked and, therefore, most of their gas and oil deliremarkably is via pipelines. The Soviet era infrastructure was such that nearly all crude oil from the Caspian region had to pass through Russia to the EU region. Transportation of Natural gas is via pipelines traveling West or North of Russia’s through Gazprom’s monopolized pipelines. This phenomenon gave Russia the market power to set, in part, the price at which it would pay for gas or oil, set transit fees on energy from the Caspian region transported via its pipelines, and at times determine the volume transported, if any. All these measures will ultimately affect the amount of oil and gas that reaches European markets and the time taken. Europe needs to change the North-South energy flow to an East-west axis in order to rejuvenate and execute its energy strategy. At present, three huge pipeline projects work at reducing Europe’s dependence on Russia (they are CPC, BTC and SCGP). In addition to this, the existing oil pipeline running from Baku to Supsa (Georgia) needs upgrading.
The European Union faces the threat of most member states’ reluctance to integrate national gas markets into a single market. Although most member states have liberalized their markets, the markets for national energy remain under state control. The EU commission and some member states hold that integrating and liberalizing energy markets will ultimately increase energy security by diversifying supply sources, and building network connectivity and European union-wide interdependence.
Energy security is at the top of EU’s economic and political agenda due to its importance and the wide range of threats that face it. Most countries around the world are experiencing robust economic and growth thereby leading to an increased global demand and consumption of energy (Umbach, 2010). The EU member states have to compete with these countries for the available energy sources, especially from Russia. EU’s dependence on Russian energy has profound political effects, with Russia using this resource power to influence the economic and political policies of EU member states. Russia uses its energy companies to spread and propagate its economic and political agendas, while at the same time regulating their production capacity to further its monopoly. Consequently, the EU could reduce its dependence on Russian energy and increase energy stock by forming close ties with other oil and gas rich countries of central Asia. More threats will also be mitigated if EU’s member states liberalize and integrate their energy markets.