A theoretical approach on the European energy security

A theoretical approach on the European energy security

Introduction

The European Union has its roots in energy, given that the ECSC and EURATOM treaties were two of the three first texts on which the European alliance was founded. The European Union is almost 50% dependent on imports for its energy consumption and it will be 70% in about 15 years. A large part of its oil and gas imports will come increasingly from Russia. However, the last crises over oil and gas deliveries from Russia to Ukraine have again triggered virulent criticism about Russian energy strategies and its abilities at being a safe supplier. This paper describes how these conflicts have in fact an impact on European energy policies, which are now a mixing of panic, bilateral alliances and distrust. In fact, Europe should worry less about the exercise of a geopolitical strategy and more about Russias ability at reforming itself and being the right supplier for Europe's 21st century.

Security of energy supply is a cornerstone of European energy policy. It receives specific mention both in the Constitution Treaty and in the Lisbon Treaty. Of course, energy and energy-generated revenues are vital for Russia as well. It is a common understanding that Russia and the EU are extremely interdependent in terms of energy. On the one hand, Russia is the strategic energy supplier to the EU as a whole; for some member states Russian supplies represent the only source of the external energy flows. On the other hand, the revenues generated from the west-bound supplies of oil and gas represent a significant share of the overall export income and of the budget of Russian Federation.

Taking the interdependency as a point of departure the present paper answers the following questions: What are the differences and the similarities in the European and the Russian approaches towards security of energy supply? Is their understanding of energy security so different? What are the current legal instruments guiding interaction in this sphere? What are the actual trends that could give some indication of how the situation may develop in the future? While the concepts of security of energy supplies or of energy security are theoretical in nature, the ways the concepts are understood and the legal framework for them directly influences the way they are applied in practice.

Many energy security issues in Europe take a strong east-west slant for geographic reasons: Russia is close to Europe; it possesses huge oil and gas reserves; and it is a natural energy supplier for the European Union. Economic and political interdependence between Russia and Europe is obvious over the long term, though it may seem less so in the short term, given Russias reactions to recent energy projects in the region.

The political documents of the EU contain a vast variety of measures aimed at securing stable and affordable energy supplies to the Union.

The most significant are:

measures and agreements aimed at creation of the single European energy space;

interaction and cooperation with the largest consumer states, inter alia within the framework of the development policy;

improvement of the access of the European companies to global energy resources;

improvement of the investment conditions in the international projects;

use of the financial instruments to increase the security of supplies;

elaboration and promotion of an energy efficiency agreement.

At present, the legal basis for cooperation in the energy sector in general, are the following international instruments: Agreement on Partnership and Cooperation (PCA)[1] Energy Charter Treaty (ECT) and political agreements within the framework of EU-Russia Energy Dialogue. Each of the said mechanisms has its own strong and weak points.

The Partnership and Cooperation Agreement (PCA) with Russia was the first one entered into by the European Community. Other PCAs with the former Soviet Republics followed this one. The objectives of this Agreement and of the Partnership established thereby are to provide an overall framework for political dialogue between the parties, for the gradual integration of Russia and wider Europe and to create the necessary conditions for the future establishment of a free trade area between the European Community and Russia creating the conditions for bringing about freedom in the establishment of companies, of cross-border trade in services and of capital movements. The trade regime provided for by the PCA is based on GATT provisions. The Parties to the PCA grant to one another most favoured- nation treatment. The Agreement prohibits quantitative restrictions and excessive (discriminatory) taxation of imported goods. The principle of the freedom of transit is deemed as one of the conditions essential for the achievement of the purposes of the Agreement. Each Party is expected to provide for freedom of transit through its territory of goods originating in the customs territory or destined for the customs territory of the other party.

With respect to freedom of transit it is necessary to bear in mind the exceptions from that principle contained in the article 19 of the PCA. These exceptions provide that the Agreement shall not preclude prohibitions or restrictions on imports, exports or goods in transit justified on grounds of public morality, public policy or public security and also on grounds of protection of natural resources. The representatives of the European Union have repeatedly expressed concern over the obstacles for the natural gas transit from Middle Asia through the Russian Unified System of Gas Supply to the European market. However, these concerns have never been taken to formal dispute resolution under the rules of international law. It would suggest that the exception for the purposes of protection of natural resources may serve as a valid legal basis for the limitation of freedom of transit. In my opinion in such a situation the requirements of the last passage of the PCA Article 19 stating that the limitations in question shall not constitute a means of arbitrary discrimination or a disguised restriction on trade between the Parties would not be violated. It is therefore clear that the rules of the PCA cannot guaranty the security of energy supply to European Union by means of diversification of supply and transportation from Middle Asia countries that do not have common frontier with the EU.

Article 65 of the PCA, specifically dedicated to energy, refers to cooperation in such areas as formulation of energy policy, improvement in management and regulation of the energy sector, introduction of institutional, legal and fiscal conditions necessary to encourage increased energy trade and investment, promotion of energy saving and modernization of energy infrastructure including interconnection of gas supply and electricity networks. Cooperation in the area of improvement of the quality and security of energy supply in an economic and environmentally sound manner is stated as the main priority. It is worth noting that Article 65 of the PCA with Russia does not make reference to the diversification of supplies which is a common feature of the Agreements on Partnership and Cooperation with other ex-Soviet republics. The provisions of the Article 65 thereby implicitly confirm the role of Russian Federation as the key energy supplier for the European Union. A main condition is contained in Article 105 of the PCA which relates to the application of the Energy Charter Treaty and Protocols thereto in matters covered by the PCA. In case of Russia it is especially important to note that the provisions of the ECT substitute the respective norms of the PCA only upon entry into force of the ECT on the territory of Russian Federation, i.e. upon it ratification by Russian Federation

At present the relations between Russia and the EU in the energy sector, and inter alia in the sphere of energy security, apart from the Partnership and Cooperation Agreement rules, are formally governed by the provisions of the Energy Charter Treaty[4]. Nevertheless, the rules of the ECT are applied provisionally on the territory of Russian Federation to the extent that such provisional application is not inconsistent with Russias Constitution, laws or regulations. Such possibility of provisional application is provided for by the Article 45 of the ECT.

The roots of the Energy Charter date back to a political initiative launched in Europe in the early 1990s, at a time when the end of the Cold War offered an unprecedented opportunity to overcome previous economic divisions[5]. Nowhere were the prospects for mutually beneficial cooperation clearer than in the energy sector, and there was a recognised need to ensure that a commonly accepted foundation was established for developing energy cooperation among the states of Eurasia. On the basis of these considerations, the Energy Charter process was born. In a world of increasing interdependence between net exporters of energy and net importers, it is widely recognised that multilateral rules can provide a more balanced and efficient framework for international cooperation than is offered by bilateral agreements alone or by non-legislative instruments.

The Energy Charter Treaty therefore plays an important role as part of an international effort to build a legal foundation for energy security, based on the principles of open, competitive markets and sustainable development. The Energy Charter Treaty and the Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects were signed in December 1994 and entered into legal force in April 1998. To date, the Treaty has been signed or acceded to by fifty-one states, the European Community and Euratom (the total number of its members is therefore fifty-three).

The Treaty was developed on the basis of the 1991 Energy Charter. Whereas the latter document was drawn up as a declaration of political intent to promote energy cooperation, the Energy Charter Treaty is a legally-binding multilateral instrument.

The fundamental aim of the Energy Charter Treaty is to strengthen the rule of law on energy issues, by creating a level playing field of rules to be observed by all participating governments, thereby mitigating risks associated with energy-related investment and trade.

A decision regarding EU-Russia Energy Dialogue was adopted during the EU-Russia summit in 2000 to establish a strategic partnership in the energy sector which was later called the Energy Dialogue. The reason for that was basically the refusal of the Russian Federation to ratify the Energy Charter Treaty.

Apart from this, the new Energy Dialogue could serve as a basis for bilateral cooperation. The underlying reasons were to ensure stable energy markets, reliable and growing imports and exports, to address the need to modernize the Russian energy sector and to improve energy efficiency.

By establishing the Energy Dialogue, the parties put forward five major topics of common interest. Those topics included ensuring the security of energy supplies of the European continent, the development of the potential of the Russian economy, in particular Russias energy resources, the opportunities of the pan-European market, the challenge of climate change and the conditions framing the use of nuclear energy. It is thus evident, that the major part of the ECT elements was embodied in the programme of the Energy Dialogue. It gives an additional argument in favour of the opinion that the Energy Dialogue represented a specific substitute for the ECT.

Security of energy supply in Europe was obviously the key element of the Energy Dialogue. A number of political and legal measures were initially proposed in that area. As a starting point, the parties highlighted the necessity to share adequately the risks between the energy producers (investors) and the energy consumers. Such risk-sharing is essential in order to create the conditions for long-term investment decisions in large-scale projects, on the one hand, and guaranty the security of energy supply, on the other. At present certain results in the sphere of energy security are evident under the framework of the Energy Dialogue. The European Union acknowledged the importance of the long-term contracts for the supply of natural gas as such[7]. The EU confirmed the absence of a 30% limit for the import of the fossil fuels from one external source. On the one hand, it proves the impossibility for Europe to diversify the import of oil and still more the import of natural gas. On the other hand, it shows the necessity to develop a strategic cooperation with Russia as the major energy exporter, which means that Russian energy supplies should be stable and uninterruptible no matter how the international situation evolves.

From the legal standpoint, the Energy Dialogue represents a permanent consultative mechanism aimed at the development of international relations in the energy sector.

In general the level of legal formalization of the security of energy supplies from Russia to the EU does not adequately correspond to the scale of international relations and the amount of supplies. The enormous volumes of energy involved in the Russia-EU trade require a solid legal basis. Of importance in this respect may be the policy, currently being elaborated by the EU institutions. The said policy is aimed at creating a single European energy market that should embrace all European countries including Russia[8].

It is proposed to extend the basic principles of the EU law, particularly the rules of competition, free movement of goods and services, freedom of access to the energy infrastructure, to the markets of the energy exporting countries. Such measures aimed at energy prices reducing and establishing common requirements common for producing and consuming countries to reduce the amount of the natural rent received by producers. This can hardly coincide with the economy guidelines and the energy security of the Russian Federation.

In order to adopt and implement an agreement which would be legally binding and effective, the strategic interests of the Russian Federation should be taken into consideration. First, Russian energy companies are keen to gain access to downstream assets in EU member states. They want to sell their goods and provide services to the final consumers. Second, of importance to Russia are principles of non-interruption of transit and inviolability of resources transported. However, the freedom of transit is definitely contrary to the interests of Gazprom. Third, the emerging market players in Russian electricity sector, which has undergone the liberalization processes, may be looking forward to sell electricity in the EU-countries and hence require the interconnection of the network systems.

Conclusion

Europes citizens and energy companies need a secure supply of energy at affordable prices in order to maintain their current high standard of living. Europeans are looking for ways to ensure such supplies. External dependence is increasing, however, and is now focused on a worryingly small number of countries: Russia, the Middle Eastern states, Iran, Iraq, and Saudi Arabia; and Caspian, ex-Soviet countries such as Kazakhstan, Azerbaijan, and Turkmenistan.

None of these countries, including Russia, have yet developed liberal open markets and, in almost all of them, raw political power determines energy policy. Getting access to these resources also requires complex pipelines, which in the Russian case, pass through Belarus and Ukraine. The new Baltic pipelines will bypass Poland and the former Soviet satellites in the Baltic. In the Caspian case, problems are even more complex, with a choice of routes between Iran, Georgia, or Turkey each country bringing their own set of political considerations and negotiations.

Russia remains a necessary partner for the European Unions energy security. The dash-for-gas as the preferred fuel for electricity generation makes gas, rather than oil, a global priority. Gas is cheaper when transported through pipelines than when shipped around the world in tankers for LNG, and Russia knows that it currently has the pipelines to provide the affordable gas that Europe needs.

Can Europes growing dependence on Russian gas stay a purely economic matter or is it destined to become a source of serious political conflict in the near-term? The answer is not yet clear, though the need for cooperation is. For better or for worse, Russia and Europe must rely on one another for at least the next several decades.

Bibliography

EU-Russia Energy Dialogue, Synthesis Report, Brussels/Moscow, September 2001

Konoplyanik, Andrei A. The Energy Charter Treaty A Russian Perspective

Youngs, Richard - Energy security: Europe's new foreign policy challenge, Routlege, 2009

Hancher, Leigh Shared Competences and Multi-Faceted Concepts European Legal Framework for Security of Supply

www.encharter.org

www.europa.eu.int

https://eur-lex.europa.eu