Thursday

28th Mar 2024

How energy gatecrashed the EU agenda

The EU entered a new "energy era" on 1 January when Gazprom directors at 16 Nametkina street, Moscow, turned off the tap to transit state Ukraine, but the roots of the EU's energy problem lie in the world's dwindling supply of oil.

"What was the effect? The effect was that we are bloody scared it could happen again," an EU diplomat told EUobserver at the height of the January crisis.

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  • Gazprom: the EU woke up to its energy problems on 1 January 2006 (Photo: Gazprom)

Moscow's move saw gas deliveries to some EU states drop by 40 percent with supplies continuing to dip by 5 percent to 20 percent since then, while the fragile Russia-Ukraine gas deal comes up for renegotiation in June.

Less than 100 days after the crisis, EU leaders are meeting in Brussels on 23 March to debate a future common energy policy that could lead to historic changes in the way the bloc handles external relations and the single market.

The UK, Finland, France and the Baltic states have broken the taboo on boosting nuclear power, with plans firming up to build new oil and gas pipelines to Russia, the Caspian Sea basin, North Africa and Norway.

Energy is dominating public debate to an extent hardly seen since the oil crisis of 1973, with French and Spanish protectionism of national energy giants hitting raw nerves.

"Even culture ministers have energy issues on the agendas for their meetings," a Slovak diplomat joked in March.

Oil era to end in 2030

Russia is the EU's "most important" energy partner according to the European Commission’s recent green paper, with Moscow controlling 27 percent of EU oil consumption and 25 percent of gas.

But EU energy issues must be seen in context of the global deadline for the end of the oil era, with the commission saying "there is enough oil to cover the expected consumption over the next 20-25 years" while energy giant BP predicts oil will run out in 2045.

EU imports of oil and gas are set to rise from 50 percent to 70 percent by 2030 on present trends, while global energy consumption will mushroom 100 percent with China and India leading growth.

Over 60 percent of the world's economy runs on oil and gas, and global competition in the run up to 2030 is set to intensify.

Energy commissioner Andris Piebalgs recently predicted "very bad scenarios" while US energy guru Jeremy Rifkin warned "we are going to be in trouble like never before in human history" unless consumption patterns change.

With world gas prices tied to spiking oil prices, the EU is already paying €250 billion a year for oil and €100 billion for gas with serious implications for industrial competitiveness.

Oil prices hovered at around $20 a barrel in the 1980s and 1990s but have settled at $60 a barrel in the past three years with experts saying the $100 mark will soon be passed in the run up to the 2030 deadline.

With the prospect of war in Iran over nuclear power, Mr Piebalgs and Mr Rifkin's remarks echo gravely in the energy debate.

Iran's nuclear reactors address the fact that the country's oil and gas will run out "in 30 to 40 years' time" Iran's EU envoy, Mohammed Rezayat, told EUobserver. "Then we would have to come to the EU and other countries and beg for energy."

Wake up call

The EU started out as an energy community under the coal and steel and Euratom treaties of the 1950s.

It has established a complex network of bilateral agreements with foreign suppliers as well as signing off thousands of pages of legislation on energy efficiency and energy market liberalisation in the past five decades.

But some analysts, such as former Polish foreign minister Bronislaw Geremek and former Swedish prime minister Carl Bildt are surprised that Europe has waited until the 1 January alarm call before really waking up on energy.

"I think we've been living in a fool's paradise, a paradise where energy policy was off the agenda," Mr Bildt said in January.

Hurricane Katrina exposed tension in the oil markets in August 2005 while problems with the EU electricity grid hit the headlines in August 2003, with falling trees leading to massive blackouts in the UK, Denmark, Sweden and Italy.

But with the EU energy ministers' meeting on 14 March dominated by worries over loss of sovereignty on energy policy and with the French and Spanish fencing off their energy markets in March, the EU energy community of 2006 has a tough job ahead.

Gazprom warns EU on Russian gas supplies

Russian state gas monopoly Gazprom has warned EU member states against blocking its ambitions to expand in Europe, threatening it could shift gas supplies to North America or China.

"Swiftly dial back" interest rates, ECB told

Italian central banker Piero Cipollone in his first monetary policy speech since joining the ECB's board in November, said that the bank should be ready to "swiftly dial back our restrictive monetary policy stance."

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