EU and Russia: The pipeline race delusion

It is considered an established fact that the European Union's import demand is constantly rising and that Europe is becoming ever more vulnerable to blackmail attempts by gas-producing countries, particularly Russia.

These days, the debate is focused on the recent opening of the Nord Stream pipeline, which for the first time brings Russian gas directly to Western Europe, circumventing transit countries like Belarus, Poland and Ukraine.

By March 2012, all eyes will be on Azerbaijan and its upcoming decision to sell Caspian gas to the EU-backed Nabucco pipeline consortium, bypassing Russia for the first time.

But there is an almost irrational propensity to equate energy security with foreign policy and it leads to misplaced priorities. Instead of reacting to Russia with nervousness and even outright fear, Europeans should instead focus on what they can do themselves at home. The EU can achieve more for its gas supply security by expanding its internal energy market than it could by building any new import pipeline.

There is no doubt that European politics requires compelling symbols. Major pipeline projects serve as emblems of EU external energy policy. Their paths can be traced clearly on maps: complicated and often extremely prolonged international negotiations take place before they can ever be realized.

A European flagship project like Nabucco is perceived as part of a geopolitical power struggle. Here, a group of producer, transit, and consumer countries have joined together to create a gas bridge through Turkey into the Caspian region, past competitors and potential antagonists, and always in anxious anticipation of interference from Russia or betrayals from within their own European ranks.

Within this narrative, one of the main threats to Nabucco appears to be the Russian South Stream pipeline, which would cross some of the same countries in southeast Europe and is also set to involve gas importing companies from the EU. This apparent pipeline race forms the core of what is indeed an exciting story that now spans many years, but one that is virtually irreconcilable with the facts of energy economics.

Pipeline politics are, more than anything else, a politics of public proclamations. Only a small portion of the projects discussed ultimately reach the construction phase. Many of the pipelines that appeared lucrative in the planning stages are now being examined more critically.

And in contrast to the drastic predictions made by energy companies, European gas consumption has not risen in recent years.

If Europeans put actually their ambitious climate policy goals into practice, then in the medium to long term, natural gas anxiety and, eventually natural gas itself in Europe will become a thing of the past.

The start of construction on Nabucco and South Stream has been postponed repeatedly in recent years. The two projects did not, however, block each other.

Nabucco still lacks reliable supply contracts. And at the same time smaller European pipeline projects like ITGI and Tap, which are also interested in gas supplies from Azerbaijan, are causing problems for the project.

The South Stream pipeline, which de facto does not serve to supply additional Russian natural gas but only to circumvent Ukraine, is lacking in sound economic justification.

Meanwhile, the fact that very little substantive progress is being made with both Nabucco and South Stream is being concealed by numerous treaties, conferences, and participation agreements that are constantly giving the public cause for wild speculation.

In the symbolic race to build huge pipelines, the partially state-owned Gazprom is proceeding in a particularly clever manner with the support of the Kremlin and western PR agencies. Its communication is aimed at sowing serious doubts about the feasibility of Nabucco - and so about the potential success of European attempts at supply diversification as a whole.

At the same time, its strategy is designed to foster an image of Russia as a powerful energy giant. The nervous European public is getting the message that Gazprom can easily thwart every success of the Nabucco consortium. For instance, when the planned capacity of South Stream was suddenly increased to twice that of Nabucco.

Inconsequential agreements by Russia with Turkey and Azerbaijan create uncertainties about their support for Nabucco.

The European energy security debate overestimates both Russian pipelines and major import pipelines like Nabucco. A supplier that has been covering no more than 25 percent of EU gas demand cannot realistically be in a position to dictate terms to Europe.

But the undeniable fact that problems keep arising with Russia cannot be attributed to deficiencies in EU foreign energy policy. The main reason is, instead, the segregation of the energy markets of the 27 EU member states.

Even during the last gas crisis between Russia and the Ukraine in January 2009, there was always enough gas available in Europe. Gas flow was disrupted only in southeast Europe, due to lacking pipelines interconnections between this region and Western Europe. We have seen the same thing with the recent winter-weather-related Gazprom shortages.

In a functioning European internal energy market, households and businesses would be significantly better protected against the risk of supply interruptions than they currently are. As long as reserve capacities were available somewhere within the substantially larger overall market, they could be supplied even in crisis situations.

If the internal market also had a common system of gas crisis prevention stipulating that member states not only keep a minimum reserve but also supply their European partners in times of crisis, it would be impossible for gas producers to put pressure on individual EU countries through gas supply stoppages.

The creation of a flexible European internal gas market would achieve more supply security for the EU than any new import pipeline could. Realizing this vision lies solely in the hands of the Europeans. Europe needs less oratory on external energy policy and a bolder approach in regulating its own gas market.

The writer is an analyst at the German Institute for International and Security Affairs, an independent think tank which works for the Bundestag and the German government