Friday, April 11, 2014

Russia's Ukraine policy's unintended consequence: Europe's energy independence

Whatever the outcome, the Crimea  and Ukraine crises have made western Europe painfully  aware that they had become so dependent on Russian gas and oil , they were unable to react forcefully. Russia had become the master of their foreign policy souls. A western European backlash, to seek more energy independence, would  mean unintended long term  consequences  for Russia.
Our family has been dismayed at the return of  tense relations with Russia. Post Communism so many of our east European friends have enjoyed the warming of relations, the freedom to immigrate or travel, and a much improved standard of living.  However, we also have been close hand observers of  Europe’s recent and ever increasing dependence on Russian gas and oil. One third of Western Europe’s  energy comes from Russia and other countries once in the Soviet sphere of influence depend 100% on Russian oil and gas.
  Much of our family is related by marriage and blood to Austrians and Croatians and over the past 40 years we have made nearly annual trips to that part of the world.  We have observed  Croatia’s  increasing dependence  on Russian energy.  In Croatia, my sister in law’s apartment is   heated by its gas. (around 30% of Croatia’s natural gas is Russian).  On their   Dalmatian coast, Russia’s  Gazprom has recently bought  service stations to fuel the tourist trade.
 On a  trip through Romania three years ago, we crossed the  Ploiesti oil fields,  site of  World War II air battles.    Rusting oil refineries and storage tanks dotted the fields and a large pipeline carrying Russian oil   bordered   it.  “ But why?””, I asked our guide,  remembering  Romania was once a famous oil producer. “ It is cheaper to get it from Russia”, he replied.
That viewpoint is changing, however. Romania is 25 to 35% dependent on Gazprom gas, but it has 15 years worth of gas reserves itself, which it will  soon begin tapping . Their energy prices will rise, but they have already planned to take advantage of lower consumption to gain more energy independence.
SETimes  ( shed more light on the dilemma facing  Europe using oil and gas policy  to bridle Russian ambitions.   Boycotting  Russian oil and gas could backfire on them.   Gazprom is the sole provider of their energy for Poland, Hungary, Slovakia, Bulgaria, Finland, and the Baltic states. Albania, Bosnia and Herzegovina, Kosovo, Macedonia, Moldova, Montenegro and Serbia also are strongly dependent on Russian gas.
 Petro policy can also backfire on the Russians. 53% of Russia’s annual gas export pipelines cross the Ukraine. Control of the Ukraine is critical to them.. But any loss of Western  markets could  seriously damage the Russian economy  fed heavily  by petro income and diminish  Putin’s domestic support..

In June the EU will present a plan for reduction of  energy dependence on Russia, including developing more renewables and  their own shale gas, increase imports of  liquified natural gas from Qatar and the US,  improving pipeline infrastructure within the EU and reviving  eastern European gas fields.    While the plans will take time to realize, just the threat of implementation being formalized now  should give Russia some serious second thoughts as they ponder the  long term unintended consequences of their  recent policies.

A version of this was published in the today...print and on line.

Russia’s unintended Ukrainian fallout |

Russia’s unintended Ukrainian fallout |  My column published April 18, 2014

Note: April 16, 2014;  FiscalTimes thinks that unlike in the past, Europe  this time will actually take action to establish an EU energy policy and that they can call Putin's buff because they have large reserves of gas after a mild winter.

From SETimes April 16

Kremlin threatens gas supplies to Southeast Europe

Several nations receive Russian gas via Ukraine. In other business news: Albania's credit rating sees improvement and Turkey's military spending surpasses Canada.
The EU says Russia should not politicise its contractual shipments of gas. [AFP]
In a letter to several Southeast European nations, Russia's President Vladimir Putin threatened to shut off gas supplies to Ukraine. The letter, which is intended to increase pressure on Kiev as Kremlin-backed troops stir insurgency in eastern Ukraine, warned of action unless Ukraine starts repaying its debt and unless the EU agrees to joint talks with Russia on the country's economic future. The European Commission responded in a statement and said it expects suppliers to stick to their commitments. The letter was sent to 18 European heads of states that depend on Russian gas transit via Ukraine, includingBulgariaCroatiaGreeceRomaniaBosnia and Herzegovina (BiH), MacedoniaMoldova,Serbia and Turkey.

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