DEPARTMENT OF BALKAN, SLAVIC AND ORIENTAL STUDIES

MASTER’S DEGREE IN

POLITICS AND ECONOMICS OF CONTEMPORARY EASTERN AND SOUTH EASTERN EUROPE

Instructors :

How much important is South Eastern Europe for Western Energy Security?

Thessaloniki, May 2013

Postgraduate Student: Chatzipoulidis Nikolaos

Contents

Glossary Abstract 1. Introduction

2. Local and Global actors

3. The role and the importance of South Eastern Europe

for Western energy security

3.1 Why South Eastern Europe is so important ?

3.2 Confronting Russian dependency through Counter

energy regional projects

4. Conclusions

References

Glossary

EC: European CommissionEU: European UnionIGI: Greece-Italy InterconnectorNATO : North Atlantic Treaty OrganizationSEE : South Eastern EuropeUSA: United States of America

Abstract

One of the most important goals, that EU and SEE states have to fulfill, is to achieve energy security by ensuring the undisrupted energy supply, by overcoming obstacles and threats that may arise in a world that appeared to be far more complex than before the demise of Communism. South Eastern Europe, although is no longer serving as border between Communism and Democracy, has a geopolitical unique place in a world that changes rapidly and both new and old local and global actors become apparent. EU can confront Russian dependency through regional energy projects. In order energy security to be enhanced, the region, probably by EU funding, must design and fulfill alternative routes and new energy arteries.

Key Words: Energy Security, Energy dependency, South Eastern Europe, European Union, alternative routes of energy

1. Introduction

One of the main goals of an Energy system, either it is Supranational or at the level of state, is to achieve energy security (Giamouridis & Paleoyannis, 2011). But what actually means energy security and what are the preconditions in order one system to be considered as secured ? Although it had been proved difficult to define what actually means the term energy security, or in other words, security of supply, what remains undisputable is its vital importance in the modern world (Winzer, 2011). Energy security isn’t only a fear, that can be met in the past with the Second World War, starting when the Superpowers tried to control natural recourses (Mihajlović – Milanović, 2008). It is also a current world’s fear and this can be proved if we consider the fact that the first topic on the G-8 agenda that assembled in St. Petersburg in July 2006 was energy security (Yergin, 2006). The definition can not be one and only as from the beginning we will proceed with a categorization of the systems into two different groups. The first category refers to a group consisted by energy-importing Countries and Regions, such as European states or EU as a whole, including the Region of Southeastern Europe.The second group is consisted by export –oriented countries, a smaller group, of course, due to the scarcity of resources (Yergin, 2006). The first and most important goal, that the import oriented countries have to address, is to meet the demand without disruptions in supply which may probably cause serious problems that, at the end, may lead even to humanitarian crisis with devastating results (Giamouridis & Paleoyannis, 2011).There is also another aim of lesser importance than the first but still with the possibility to cause serious problems, if it is not fulfilled and its importance is neglected.The goal is a system, such as EU and consequently its sub-systems, to achieve the diversification, both of natural recourses and of their suppliers. To put it in plain

English, the goal is to narrow down the level of dependency from one single supplier and a specific type of fuels (Bozhilova, 2006). The second group of countries are the “lucky” ones for having the capability to export natural resources as fossil fuels (gas or oil) from their territory to other neighboring regions.Their target is to amend the demand and also to secure their exports by building infrastructures to connect with their clients (pipelines) and overall to control the energy channels in order their products to reach their destinations without disruptions (Yergin, 2006).The object of this paper is to assess the role and the importance of South Eastern Europe as a sub-system which lies between European Union (an Energy-importing system) and Russia but also other major regional energy exporters such as Turkmenistan, Kazakhstan.In order to come up with a conclusion about South Eastern Europe’s role, it is urgent to examine the region under the prism of these bipolar relations, taking into account other significant global and local actors.

2. Local and Global actors

United States and European Union together represent the biggest energy market of the world consuming, around 40 % world's energy supply. EU imports around half of its energy, a share that is expected get bigger and reach almost 2/3 of its energy needs. Almost the half of the share comes from a single supplier which is Russia and that consequently raise some serious issues (Belkin & Moreli, 2007).SEE region is very important for local actors as much as for global actors such as USA, EU , Russia , NATO , Turkey. The geostrategic position of SEE is unique, as it functioning like an energy transit and additionally as lesser importance demander, but with fast increasing demand rate (Grosaru, 2012).Europe after the collapse of Communism had to face, and still faces, two challenges. The first of them is the monopoly of energy supply and the second, the monopoly of transit routes, with the pipelines which provide a respectful amount of energy passing through Ukraine (Mihajlović – Milanović,2008). That became more apparent when Ukrainian – Russian disputes led to the two gas crises, the first in 2006 and the second in 2009, with Ukraine shutting off the pipeline responsible for the provision of 25 % energy needs for the EU. Although the crisis lasted only few weeks, it made apparent that EU has to work hard in order to succeed diversity on 3 different sectors (Bahgat, 2006; Giamouridis & Paleoyannis, 2011).Europe had to face the declination of its energy reserves and, from the other hand, had to find a way to address the constantly rising energy demand (Bahgat, 2006). What type of challenges EU and SEE confronts and what kind of policies should European Union apply, in order to find solutions, are the matters we are about to dealt with. The first challenge, that EU and SEE have to answer, is the monopoly on supply and, as it is evident by the tables below, both regions face the same problem: to be completely depended by Russia (Belkin & Moreli, 2007; (Mihajlović – Milanović,2008).

Table 1: Gas share in the energy mix of each country in the region and relation between gas imported from Russia compared to the total consumption, in percentages

Source: Mihajlović – Milanović,2008.

Table 2 : Imported Gas and Gas from Russia

Source: International Energy Agency; Eurostat; British Petroleum (Belkin & Moreli, 2007).

The second area of interest is the diversification of energy mix, that initiation boosted further when the European Commission issued a green paper devising a European strategy in relation to this matter (Bahgat, 2006). One of the major problems is the remoteness of the region from proven reserves of fossil fuels with the exception of coal that it can be met in several places in Europe but due to the fact that Europe want to apply a more “green” energy program the coal is not highly regard as an alternative fuel. This situation becomes even worse considering the fact that the fossil fuels account for 80% of the energy consumed in the EU (Bozhilova, 2009; Belkin & Moreli, 2007).

Figure 1 : EU Energy Consumption

Source: European Commission DG TREN, Eurostat; Commission Staff WorkingDocument SEC(2007)12 (Belkin & Moreli, 2007).

The third challenge, that European Union had to overpass, is the Ukrainian transit monopoly obstacle, by the creation of new energy routs with SEE countries to be more than possible candidates (..). Diversification of the transit routes will provide security to European Union. Countries such as Romania and Bulgaria, which are members of the EU, could be “safer” partners than Ukraine. Other positive effects that will come up by the diversion of energy routes, connecting EU with possible new partners around the Caspian sea, would be the reduction of transit costs and the decrease of distances.Infrastructure projects would have a positive impact in SEE region, having as a consequence the amelioration of social conditions by putting the broader area on the energy map. The new role of SEE will generate other strategic opportunities for the region that until now remained hidden (Bozhilova, 2009).The European commission, a year after the first energy crisis, tried to address all these matters. In 2006, as it is already stated, commission issued the, so called, Green Paper which among other proposes the creation of a common external policy regarding energy issues, the promotion of indigenous energy supply with the development of Alternate Forms of Energy, curtailing the undisputed dominance of fossil fuels. Last, but not least, in order this issue to be addressed effectively, European States should act as one and not as independent actors and provide energy security by the creation of an internal energy market with interconnections and storage spaces (Belkin & Moreli, 2007).Another actor is Turkey, as EU has to decide if the Union are willing to be dependent on Russia as a key supplier or of Turkey as a regulator of the European energy balance, as an intermediary country, with upgrading it in terms of geopolitical gravity.

3. The role and the importance of South Eastern Europe for Western energy security

Historically, SEE region had been the meeting point of civilizations, the border between religions and empires.After the demise of communism and the end of cold war the Balkans and the region in general became once again the center of warfare between states and groups, with guerilla groups to proceed to genocides and ethnic cleansing. Except that, the dual transition, from Communism to Democracy and from a Central – planned economy into a market economy that had to face these newly dependent states, aggravated the whole situation. The region generated in the past many threats for the regional and international security system (Grosaru, 2012).South Eastern Europe has the potentials to consist the main energy transit point between export oriented countries, rich in resources, and EU (Giamouridis & Paleoyannis, 2011).In order that goal to be fulfilled, it is obligatory democracy, peace and stability to be well established. In addition to that, many SEE countries had succeed or applied to be part of European Union, a vector that promotes all the aforementioned goals (Belkin & Moreli, 2007).

3.1. Why South Eastern Europe is so important ?

The region has great strategic value, due to the following characteristics of geopolitical and geostrategic importance. First of all, it is a crossroad between Balkan Peninsula , Caucasus and minor Asia. It can, also, be characterized as an energy hub, especially for oil deriving from Middle east and Caspian countries, directed towards the prosperous North European Countries. This broader area consists also a NATO border with the South. In this security precarious region, EU – NATO appeared to have common goals (Grosaru, 2012).Western Europe and its regional sub-system South Eastern Europe could easily be determined as the chessboard between Western powers and Russia. Both poles of power are bargaining with these states, aiming to strengthen their presence in the region by striking deals and taking advantage of new opportunities. One of the most ambitious plan for EU, sponsored by U.S, is the creation of Nabucco and other trans-Caspia pipelines, in order EU and the region to import gas from Turkmenistan, with the ultimate goal to transport the gas towards the "heart of Europe" and thus significantly reduce the energy dependence of countries, mainly in Central and Eastern Europe, from Russia.Russia on the other hand, promotes high-speed construction of the South Stream pipeline that will transport natural gas via the Black Sea and the Balkans to Central Europe. Bulgaria, Hungary and Italy, involved in the construction of the pipeline, while Austria has shown keen interest, ensuring its own energy security as export-oriented country (Marketos, 2009). Nabucco is already affected by backstage Russian political moves. A good example of this successful Russian policy is that Gazprom, the main Russian gas company, aside from dealing with EU as a whole, is striking deals bilateral with European and East European companies alone, integrated them in her projects and by making them

shareholders ensures their obedience strengthening Russia’s position in the Region (Tsereteli, 2008).Another goal, for the corporation, is to became the only transit system for Central Asian gas, in an effort to fulfill two different goals, first to secure its monopolistic position in the European markets and second to have a say to the other non-Russian sources of energy and deals through partnerships or even direct purchase of competitor companies (Belkin & Moreli, 2007; Tsereteli, 2008).Energy nationalism of some EU states functions as a serious barrier, in Commissions effort, for an intra-EU cooperation and as a significant booster in the Russian effort to be the only supplier in the region promoting its already successful energy-politic strategy( Belkin & Moreli, 2007).Nord Stream is an indicative case, with Germany ratifying a special agreement with Moscow avoiding the participation of Poland and Baltic countries in the project as the under construction pipeline passes underground, from the bottom of the Baltic Sea.

Map 1 : Nord Stream pipeline

Source: The Economist, 22/05/2008

In the same line are moving Blue – Stream and South stream projects, convenient for some of EU states as they move away from commission position in order to address narrow national interests. The aim of these potential new Russian interest energy routes is to bypass EU member states like Poland and Lithuania or non member states especially in the region that is under discussion such as Ukraine, that adopt a critical attitude towards Russia’s energy expansionism (Ratner et. al., 2013).

Map 2 : South Stream & Blue Stream.

Source : The Economist, 13/04/2008

Except that, counter Russia energy projects, as Nabucco although have as goal to challenge the existing energy status quo, is doubtful for their success, as they respond to small energy markets and logically raise concerns about their paid off rate (Mihajlović – Milanović, 2008).

3.2. Confronting Russian dependency through Counter energy regional projects.

The aspect, that it should be stressed further, is that, as it was evident on the previous tables, SEE states are more exposed than EU average states. Bulgaria is relied 100 % to Russian gas, while on the other hand Germany or France are relied not above 40 %. Consequently, that means that Bulgaria has a very small space for political maneuvers, when it comes to energy issues.Gazprom is the spearhead of Russian energy policy usually interlinked with Russian Foreign policy as it is common practice to sell energy at low prices and expecting political benefits, especially to countries that even now perceived as Russia's “backyard”. Energy politics is the Russian Trojan horse. This became apparent with the orange revolution and the gas crisis which succeeded her in Ukraine (Grošelj, 2009).These specific Russian policies were severely criticized by the former US president George W. Bush . US intensions in accordance with EU are the establishment of a different energy route called southern corridor route in order Caspian, Central Asian, and Middle Eastern resources to reach European markets (Ratner et. al., 2013). Many plans were designed, as for example AGRI an Azerbaijan-Georgia-Romania-Interconnection project in 2010, for the transportation of gas by pipelines, with other countries to have declare their interest in order to be part of this project like Hungary, but on the contrary little progress had been made since then.Such a project, we must confess, constitutes a competitor to the Nabucco pipeline, White Stream, South Stream, Trans Adriatic Pipeline, and Interconnector Turkey–Greece–Italy projects (Ratner et. al., 2013). The character and the role of SEE in the broader security system is runny and often depends on developments happening outside, upgrading or downgrading the importance of the specific sub-energy system. Political developments, as government changes, may have negative impact to projects that had been ratified by former governments, a common phenomenon not only in the region. Also, minor importance regional crisis, with bad handlings, can even lead to war. An indicative case was the war in Georgia .Political instability and the indirect and direct effects to the global and local security system : “Arab spring”, the Syrian Civil war or the war against terrorism and Islamic fundamentalism consist only some of the several threats that jeopardize regional security (Ratner et. al., 2013).During the last years the demand for natural gas in SEE has changed and the demand center shifted from Bulgaria to Greece, which is the bigger demander in the region. For this reason IGI, which is Greece-Italy Interconnector, becomes an extremely important case. (Giamouridis & Paleoyannis, 2011).

Figure 2: Demand for Natural gas in the SEE region between 1995 and 2009 (bcm/y)

Source: US Energy Information Administration, International Energy Statistics, Accessed March 2011, www.eia.doe.gov , (Giamouridis & Paleoyannis, 2011).

As the chairman of the Public Gas Corporation of Greece stated, this specific project with its offshoots will give a chance, for the whole SEE, in crisis to have the opportunity to be supplied with a reverse flow through Italy (Badalova, 2012).While the implementation remains highly questionable, it might consist a possible solution in order the Region to address a probable energy insufficiency due to a new crisis between Russia and Ukraine. In order energy security to be enhanced the region probably by EU funding must design and fulfill alternative routes outside of the existing ones a new energy artery, pipeline gas, from Africa to Europe, for example through a submarine links Libya to Crete but also others that will drive energy coming from different supplier towards SEE and EU.

Map 3 : Possible energy routes towards the region of SEE

Source: Kipouros, Ch. (2007). Pipelines, Producers and Promoters in Eurasia. "Investor's World", August 25.

4. Conclusions

The European energy security is threatened, but the problem could be dealt with serious planning and quick reactions. Europe as whole must deploy a common strategy and South Eastern region should be a vital part of such a strategy, with projects like Nabucco, South – Stream or Blue stream and their interconnections with others. The geostrategic importance of the region would be upgraded. In order that goal to be complete, the answer is more Europeanization in countries that considered as the periphery of EU, which now come to the forefront and are considered again the bone of contention between Russia and Western Powers. That’s the reason according to which this paper stress the need for further integration and convergence to EU and Western standards, in order Western security to avoid the whole SEE region, and some countries outside it, once again to be considered as Russia’s backyard, fully depended by Russia’s energy. Οtherwise, without energy alternative suppliers and with poor infrastructure to subdue to Russian pressures, Moscow will regulate once again political developments. Therefore the power of Europe should be a combination of supply from North Africa, Russia, the Caspian Sea and Persian Gulf. The European Union should seek greater diversification of sources and supply pipelines of natural gas and oil.

References

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