February 10, 2015
The Energy Union is still very much like a yeti. Though no one has seen it yet, it is already feared. But this is to be expected considering that the concept was born out of concern for security in the face of the escalating military conflict in eastern Ukraine. Poland was first to suggest a solution, putting common gas purchasing on the table. In the case of natural gas, Poland and New Member States, as the countries from the region are still described, are very much exposed to the risk of the supplies from Russia being interrupted. Urgent action is required to mitigate this risk, and it is needed now. Older Member States are in a much better position in terms of gas supplies, as their extensive infrastructure for accepting (LNG terminals) and transmitting (pipelines and interconnectors) gas allows them to source gas from many suppliers other than Russia. For the countries which rely on the progressive construction of the European gas market for their energy security, purchasing gas from Russia under a common scheme would be a step back. But who says Poland is against building a uniform European gas market? In fact, it is just the opposite. When I set out to discuss Russian sanctions last year in late April, I argued that gas supplies can be diversified most effectively by creating a single European gas market. Matters to be addressed first include the expansion of existing gas infrastructure, particularly in New Member States, the introduction of standardised contracts, the establishment of a futures market to secure adequate commercial gas reserves, and the removal of limitations on oil and gas exploration. The single European gas market, linked to the American one through pricing arbitrage, should be the cornerstone of the Energy Union, as this would effectively guarantee energy security across the EU in a manner similar to the global oil market today. This solution could break the monopoly of Russian gas, just as the OPEC cartel’s hold on oil trading was loosened with the emergence of the global oil market.
For now, however, new Member States have limited access to the market given their lack of transmission infrastructure and interconnectors. Changing this situation requires considerable investment and the results will only be visible after several years. The LNG terminal in Świnoujście, which will soon come on line, may prove instrumental in improving the security of gas supplies to New Member States, as plans are in motion to connect the facility to the proposed Baltic Pipeline, which will run through southern Poland, the Czech Republic, Slovakia, and Hungary, up to the planned Adria LNG terminal in Croatia. The North–South gas corridor will comprise a number of two-way inter‑system gas connections and domestic gas pipelines, which either already exist or are at varying stages of completion. In October 2013, the European Commission marked the investment as a ‘Project of Common Interest.
The single gas market, which is still only a blueprint in this part of Europe, fails to address the problem that EU newcomers are facing today as a result of the rapidly deteriorating relations with Russia. Poland’s proposal, the way I understand it, is aiming to create effective solutions which will enable us and other countries in the region to survive the period of integration with the European gas market. Joint gas purchasing is one of the solutions which can bring immediate security improvement in this part of Europe. If this solution cannot be implemented in practice, a different strategy, one which will be instantly effective, should be used in its place. Energy solidarity is the first step, because without it some countries will make their own desperate efforts to ensure energy security, which would obviously adversely affect the vital process of European integration.
In the interest of all Member States, energy security is at the very heart of the Energy Union, however. Maintaining energy security requires ongoing efforts, which may differ depending on the time horizon in question. In economics, the points dividing the time horizon into short, medium and long term do not reflect time periods on the calendar, but represent lengths of time necessary to change a rigid system which has been shaped by earlier decisions into a flexible system unfettered by any previous determinations. When dealing with a production process over a short term, we can look for solutions among installed capacities. Over a medium term, existing production capacities may by enhanced using available technologies. Over a long term, possible choices also include technologies which are yet to be ‘produced’. Applied to the notion of energy security, this definition of a time horizon reveals the priorities of Poland and New Member States, and of such countries as Germany. The first group of countries seeks to reduce the risk of gas supply interruptions immediately – using existing infrastructure and assets (networks, interconnectors, and producing gas fields), while the second group does not fear any short-term threats to its energy security, giving priority to medium-term (building a gas market) and long-term (creating a low-carbon economy) initiatives. The Centre for Eastern Studies (Ośrodek Studiów Wschodnich) reports that ‘according to a non-paper published on January 19th, detailing Germany’s unofficial stance on the Energy Union, Berlin declares support for the project in a form which is consistent with the targets of the country’s energy policy… Germany believes that the Energy Union should be an initiative which will lead to a gradual standardisation of the Member States’ energy policies, and that its key objective should be to create favourable conditions for investment in low-carbon technologies, including in particular projects promoting renewable energy sources and energy efficiency, which would ensure that the European industry remains competitive in the future.’
When the proposed design of the Energy Union is presented, which will happen soon – in late February or early March, we will take a look to see how well it serves energy security, which every Member State strives to achieve by taking appropriate steps depending on the time horizon concerned. The different points of view will transform into a concerted effort to create a secure Europe. Then the scary yeti will slowly fade away.