25 May 2017
The New Politics of Energy: Supply, Demand - and, of course, Power

By Michael Edmund
Summer 2015


Human perversity, then, makes divisions of that which by nature is one and simple, and in attempting to obtain part of something which has no parts, succeeds in getting neither the part- which is nothing- nor the whole, which they are not interested in.
- Anicius Manlius Severinus Boethius, The Consolation of Philosophy

But it will only work if Europe dares to propose an Energy Union with teeth. We need to invest substantially in energy efficiency, renewables and infrastructure the coming years. If we make the right choices now Europe will have cheap, clean and secure energy in abundance. This requires concrete actions in five areas.

SUPPLY AND DEMAND; PRODUCTION AND CONSUMPTION

EUSEW rightly celebrates Europe's sustainable energy achievements, its technologies and its people: recent figures indicate that the continent has already achieved one of the 2020 climate and energy goals it set itself, that of deriving 20% of its energy from renewable sources. Perhaps even more impressively, production of renewable energy grew by no less than 81% between 2002 and 2012. However, when Eurostat informs us that 22.3% of total primary energy production in 2012 was renewable, it is perhaps salutary to infer that 77.7% was not. Having remained relatively constant for five years, energy consumption decreased sharply (by 5.8%) in 2009, and rebounded almost as sharply (by 3.8%) in 2010, followed by further small decreases in 2011 and 2012. Notwithstanding the impact of the 2020 goals, this pattern has largely been attributed to the effects of the financial and economic crisis, rather than any fundamental or structural shift in the pattern of European energy consumption. Oil therefore continues to be our most important energy source, while gas remains the second most important. Meanwhile, our dependency on energy imports in 2012 stood at over 53%. Indeed, for the last decade, net imports of energy have been greater than primary production: put simply, our industry and our lifestyle continue to require a great deal of energy; and we import more than we produce for ourselves. This is perhaps not an ideal state of affairs.

But before we rush to judgement, it is hardly a revelation that 500 million people inhabiting a technologically advanced continent should require considerable quantities of energy. And neither is it particularly surprising that there are energy-producing countries elsewhere that are eager to satisfy this demand. In an era of large-scale exploitation of oil, the acronym OPEC has become almost synonymous with the word wealth, which in part explains Russia's more recent efforts to develop its own considerable reserves. From a European perspective, it is interesting to examine gas in a little more detail: gas features heavily in the 2020 package because burning it for electricity produces less CO2 than does the burning of coal. According to Gazprom's figures, Europe imported 161.5 billion cubic feet (Bcf) of gas from Russia in 2013, with the vast majority (127.1 Bcf) going into the more industrialised countries (Austria, Denmark, Finland, France, Germany, Greece, Italy, Netherlands, Switzerland, Turkey and the UK). And Russia has benefited accordingly: the topforeignstocks website notes that oil and gas products accounted for two-thirds of the value of all Russian exports in 2013, and about 50% of the Russian Federal budget revenues in 2014. Beyond Europe, of course, the Shale Gas Revolution has transformed the US energy scene, while Turkmenistan, Azerbaijan and now Uzbekistan are eyeing the European market. Although dwarfed by those of Russia, Turkmenistan's proven natural gas reserves as of December 2012 stood at 353.1Trillion cubic feet (Tcf). The country, however, faces significant challenges in developing these reserves, of which the largest is in the Amu Darya basin in south-east of the country: almost as far from Europe as it is possible to be. The other main issue relates to insufficient pipeline infrastructure or foreign investment. Meanwhile, Azerbaijan's Shah Deniz reserves under the Caspian Sea, though smaller (estimated between 50-100 Billion cubic metres) are much closer to Europe.

BIG MARKET, HIGH STAKES: AND SO TO THE POLITICS

Having seen Latvia, Lithuania and Estonia join the EU, Moscow has naturally sought to consolidate its sphere of influence, perhaps with particular concern over access to the warm water port at Sevastopol in the Crimea. It is perhaps no surprise that energy has become a new battleground, and co-incidentally a weapon; and that Ukraine has become the focus of much of the activity. Its current Head of State President Poroshenko declared in a recent interview with the BBC his desire that Ukraine become part of the EU; and it is perhaps not an oversimplification that some parts of Ukraine share his aspiration while others prefer to look toward the Kremlin. President Putin had used the prospect of cheap gas to encourage Porshenko's predecessor President Yanukovych to resist Europe's overtures, but when Yanukovych was overthrown, Gazprom raised its price by 44%, and Ukraine has run up a huge debt. Indeed, it is probably no exaggeration to say that Ukraine's finances seem somewhat precarious. Meanwhile, Russia's apparent willingness to use gas as an economic weapon exposed the lack of a European plan to withstand a shortage of energy in general, and gas in particular, and added renewed impetus to Brussels' 2020 climate and energy objectives. One of these, that of increasing the share of energy consumption from renewables by 20% by 2020, seems immediately logical from this new perspective. Arguably, its importance is now even greater.

EUSEW is an example of what is possible when people combine their efforts in pursuit of an objective. Let us hope that Ukraine does not become an example of what could happen when people pursue separate objectives: we should not forget that, like the Baltic States, Turkmenistan, Azerbaijan and Ukraine were also once part of the USSR. Meanwhile, OPEC is flexing its muscles again - albeit much more subtly than it did in the 1970s - and is apparently keen to forestall growth in market share by either Russia or America. Each issue now makes its own contribution to a perfect storm of territorial influence, natural resources, money, energy security and climate change. Resolving it will require huge investment and an acceptance that all parties have much to gain from co-operation - and much to lose by forsaking it. This complex and many layered situation offers an explanation for the European need to seek a more diverse energy supply (diplomatic code for "reduced dependency on Russia"), which has put Ashgabat and Baku firmly in the spotlight. And Kiev firmly in the crosshairs.