The principal threats to EU energy security

If one would want to define the energy security, he or she should address the question what does “security” means in general? Is it a response to a concrete threat? Or is a strategy to avoid a potential threat?

In the mainstream of International Relations theory, the Realist approach has been traditionally focused on the definition of international security. In light of a Realist conception presented by Waltz (1979), states are acting according to their structural power within international relations (structural realism/nonrealism). The rise for power features the inter-state relations, including those of the access to natural resources. Security of energy supply achieved a particular importance in the aftermath of the oil shocks in 1970s caused by the Arab oil embargo.

Security can be defined as defensive (a response to a potential threat) or offensive (a strategy to a concrete threat). Waltz’s meaning of security is mainly defensive, in the sense that it arises from the anarchical structure of the society. On the other hand, energy security is offensive.

Energy security is a very broad concept (Grevi, 2006). Different threats emerge depending on whether energy security is regarded over short-term (including disruptions) or long-term (growing dependency on imports). Strong arguments for analyzing separately the security implications of oil and gas markets originate with their transportation capabilities, the structure of their markets and the challenges that might occur from the declining reserve base, the growing environmental concerns, new economic frameworks, or competition from alternative energy sources. Crude oil can be easily transported worldwide by large tankers and thus the oil market is global, whereas the natural gas trade lays upon far less mobile gas pipelines, hence there is no such thing as global gas markets or global gas prices.

Energy security can be described as “the uninterrupted physical availability at price which is affordable, while respecting environmental concerns”. Energy security has many aspects: long-term energy security is mainly linked to timely investments to supply energy in line with economic developments and environmental needs. On the other hand, short-term energy security id the ability of the energy system to react promptly to sudden changes in supply and demand.

Another way to look at energy security is to study the different sources (coal, oil, gas, and renewable), intermediate means (electricity, refineries) and transportation modes (grids, pipelines, ships). All of these have risks of supply interruptions or failures, challenging the security of undisturbed energy supply.

(International Energy Agency, Energy security)

Challenges of Oil and Gas Industry into the 21st Century

Global primary energy demand is about to soar. Despite efforts to increase the share of renewable in the overall energy mix, fossil fuels remain the most important sources of energy supply in the foreseeable future (Goldthau, 2007). In light of this, there are counter pressures that should hold back demand.

Oil’s share of future world energy requirements is likely to decline but consumption of oil will increase because the biggest future problems lie in transport where there is, as yet, no suitable alternative to oil. Each year an additional 84 million people are added to the world’s population. Even though China, India and Indonesia are significantly lower users of energy than North America, they are still facing a surging population and significant economic growth. Thus, world energy is clearly set to increase dramatically.

Noreng (2002) claims that oil prices and volumes are mutually independent entities, at least in the short-term. However, in the long-run, oil prices, oil demand, trade and supplies link in a coherent way. Only a significant increase in the oil price leads to an increase in the per barrel value on which companies would make investments and vast sums may then be spent on exploring new geographical frontiers, as occurred when OPEC hiked in the 1970s. In the 1970s and early 1980s such exploration eventually led to a drop in oil price, but new frontiers are getting increasingly difficult to find and this is important in terms of assessing supply prospects over the next 25 years. Under the long-term scenario in which new reserves are difficult to find and a demand surge is predicted then supply pressures are inevitable. Without new reserves, just a jump in demand will lead to a supply crisis.

The status of gas within the energy sector has changed considerably in recent years. Having long been considered merely a by-product of oil, gas is now emerging as a fuel of choice in a number of industries across Europe and across the world. There are a number of reasons for the recent surge of the gas industry. Contributing factors range from the realization that natural gas reserves are likely to last several decades longer than crude oil reserves, to increasing environmental concerns over pollution levels caused by the various energy sources. Natural gas has so far been exploited less than oil (largely because of difficulties in transportation), gas production is predicted to increase much more sharply than oil, with developed countries accounting for much of this increase.

Besides the competition from gas another pressure that should hold back demand is the increased awareness of the impact of fossil fuels on the environment, which is driving the quest for suitable alternatives.

European Union Energy Security Market

The question of energy security requires to be framed in the wider picture of geopolitical tensions and instability affecting many energy-abundant regions, primarily the Middle East and Russia, as well as South Caucasus (Armenia, Azerbaijan, Georgia), Central Asia, Western Africa and South America.

European concern regarding the security of its energy supply was first instigated by the 1973 Arab oil embargo, which highlighted three main issues. First, it exposed a need for increased policy collaboration among European countries and between Europe and the energy producing world. Second, the introduction of institutional mechanism for better coordination in case of future supply disruptions was essential. Third, consensus emerged that Europe should prepare strategies to prevent itself from becoming the victim of possible attempts by the exporting nations to use energy as a political or economic weapon (Yergin, 2006).

The 1974 creation of the International Energy Agency (IEA) – which has become Europe’s main instrument for monitoring world energy markets – was one response to the embargo.

Threats to the European Union Energy Security Market

The EU becomes increasingly dependent on oil and gas imports from unstable and insecure regions. “Europe’s energy imports come primarily from Russia and Middle East where approximately 70 per cent of global oil and gas supplies originate” (Belkin, 2008).

Concerning the oil, most of the production increase will occur in OPEC countries, Russia and Central Asia. The efforts to diversify energy sources and minimize reliance on OPEC stimulate exploration efforts in non-OPEC countries. The best recipe to confront dependency is the diversification of the energy mix, suppliers and transport routes. The best protection against sudden oil disruptions resides in strategic stocks.

Turning to gas, the largest reserves lie in the Middle East and in Russia. It was stressed that the latter will remain the EU main individual gas provider. It was also noted that LNG (liquefied natural gas) would play an important role in the future of gas supplies.

High oil prices might pose a major economic problem in the EU. On the positive side, it was also noted that high prices represent a powerful incentive to invest in alternative sources of energy and technological advances. It is highlighted that high prices entailed three major consequences:

price variations added to the volatility of financial markets, which might in turn negatively affect savings and pension funds.

high prices have a much more severe effect on poor importing countries.

windfall energy revenues reduce incentives for economic reform and diversification in producer countries.

The “resource curse” (Auty, 1993) – the negative economic, social and political consequences of windfall energy revenues. “Easy rents” from the energy industry prevents a balanced economic growth in resource-rich countries. Energy money made a lot of countries less secure, which affected EU’s interests.

Environmental pressures will become so great in the EU that oil and gas prices will rise significantly and governments will create economic conditions for the energy supply that encourage the development of alternative fuels (nuclear power, solar panels, hydroelectricity, wind energy). However, except in special circumstances, such fuels are still unable to compete in free energy markets. Alternative fuels, although often more environmentally friendly, are generally more expensive and less effective than oil.

Conclusion

To sum up, I believe that diversification of the energy mix, suppliers and transport routes is a standard strategy in minimizing the risks from overreliance on a particular state or group of states.

The bulk of the world’s energy resources, located in Russia, the Caspian Sea region, the Middle East and North Africa, are all well within geographic reach of the European Union.

To increase energy security, the European Union should strive to diminish dependence on oil and gas from the Middle East and Russia, and further diversify its supply by intensifying energy from the Caspian Sea and North Africa and by pursuing alternative energy sources, including nuclear power.