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Europe's Energy Security
Obsession & The Ukraine Crisis

By Andrew McKillop


Who Shot the Maidan Demonstrators?

According to, 5 March, the snipers who shot and killed protesters and police in Kiev were hired by Maidan leaders. This bombshell was alleged to have been contained in a leaked phone conversation between the EU foreign affairs chief Catherine Ashton and Estonian foreign affairs minister Urmas Paet. The call was confirmed as authentic by the Estonian foreign ministry “but details of the conversation could not be confirmed”.

In fact whether the snipers were hired and ordered to shoot by pro-Russian forces, or by pro-EU forces, is not finally important because the fall and flight of the Yanukovych government was likely the desired final aim by both camps. With no government in place, the EU-Russia contest for power could move into the open. Into high gear. Why the two camps want Ukraine hinges on gas. At present although it is declining as the South Stream and North Stream gaslines serving the EU are built and ramped up to avoid Ukraine, about 85% of all Russian gas shipped to Europe passes through the country. Russia's dependence on this export route is high, and gas infrastructures inside Ukraine were mostly built in the Soviet era ­ mostly with Russian cash. EU dependence on Russian gas is high, although Norway ships almost as much, or more than Russia. Algeria also supplies a large amount of natural gas to Europe, but hangover European fears dating from the Cold War era dictate a set of European policies, including energy policy that set out to “reduce or eliminate dependence on Russia”.

European Energy Security

This now-open fight for control over the Ukraine sets the question of Why now? Stakes are high, and the possible civil war in a totally divided and ruined country could ignite longstanding political and geopolitical conflicts simmering in the region, but we can argue the event was directly sparked by Europe's obsession with energy security.

The EU-Russia contest for Ukraine took a decisive turn for the worst in late November 2013. The last-ditch effort in Vilnius by European negotiators to persuade Kiev to sign the ECSEE (Energy Community of SE Europe) agreement on 27 November included an offer from Brussels of a new gas pipeline, this time from Slovakia, to ease Ukraine’s reliance on Russian supplies. That offer, its timelines and building costs, the price of the non-Russian gas to be supplied to Ukraine were all described as “appealing” by European officials and some EU politicians, but were not enough to trump the promise of immediate national debt relief and lower gas prices dangled by Russia.

Ukraine’s decision to stay with Russia was naturally interpreted as yet more proof that the Kremlin is using its vast energy resources to maintain influence in the former Soviet bloc. The ease with which it does it cruelly underlines the basic weakness of the EU's Energy Community pact, and the EU's climate-energy policy and programmes ­ all of them including the goal of “energy security”. The ECSEE pact sets out to wean the entire continent off its “addiction to Russian energy” and this policy line is specifically targeted at southern and eastern Europe ­ and far beyond that, in Central Asia. The basic problem is that all the EU's energy security policies and programmes suffer from a huge disconnect between their political aims, and the realities of European, Asian and global energy and resources, infrastructures and supplies.

There is little point in saying, like the gas policy director at the Oxford Institute for Energy Studies, Jonathan Stern notes, that “People need to be realistic that European dependence on Russian gas is not going to decline over the next decade”.

We can add that Europe's dependence on Russian oil and coal, is also likely not to decline anytime soon although in every case “if the price is right” Europe could kick its Russian energy import habit, like its dependence on energy imports from Norway, Algeria, Qatar, Saudi Arabia, Nigeria, South Africa and other hydrocarbons exporter countries. This would need continuing and massive rises in the price of energy across Europe. If Europe decided, for whatever reason, that energy security trumped everything else it could double or triple energy prices, until demand fell enough, and local production rose enough, to create the illusion of “energy security”. This would be a “triumph” but the economic damage would be massive ­ as plenty of Europeans now say out loud.

The least astute observer can note that the net result, in Europe, of its energy security obsession plus the “market liberalization” policy applied for energy production, transport, supply and distribution generates one-only result. Ever-rising costs and prices for energy, fuel poverty, and the flight from Europe of energy-intensive industries, along with their jobs.

Secondly they can also note that Europe, as a trading bloc running a major surplus with Russia (and the USA), would be the first to scream if its trade partners claimed they must force national supply security against European export products such as German cars and machine tools, London City financial services or French camembert cheese.

As a trading bloc Europe imports energy and exports other products, and services. When or if its trade partners deem they must avoid dependence on European exports, like Europe must avoid dependence on imported energy, they will only be applying Europe's obsession with supply security to the products and services they presently import from Europe. In other words, Europe's energy security obsession can be treated by its trade partners as undeclared but real trade protectionism, including outright market rigging inside Europe, to pursue the claimed goal of “energy security”, linked in the case of the climate-energy policy with the claimed goal of “limiting global warming”. Europe's energy security obsession can be called protectionist measures aimed at preventing energy market access to foreigners, in Europe and a case can be made a case for anti-rigging complaints at the World Trade Organization.

Unbounded Ambitions

The “unbounded ambition” of pushing Europe's frontiers south and east is not limited by a trifling thing called the real world. It is part and parcel of Europe's political ideals and ambitions since the fall of the USSR in 1989-91. Energy provides a key prop for this expansionist mentality, with the EU's ECSEE and related pacts bounded only by the size of the Asian continent, from Vilnius to Vladivostok.

The keywords “energy enlargement” have an obsessional hold on European political mindsets and entities like the Commission, Council, and the EU's special agencies tasked with “integration”. Several key member state governments ­ especially Germany, France, Italy, Poland ­ pursue the same “highly ambitious” goals, for example targeting the eventual and final “integration” of countries such as Tadjikistan and even Mongolia in the “European” Union. In almost all cases, the target countries are described as “rich or potentially rich in energy resources”, or at least good for pipeline or power grid transit routes, providing a media-friendly rationale for massively enlarging the Union.

Ukraine is a “natural first step” with its own supposed “near total dependence” on Russia gas. In fact the country is rich in gas reserves, although this fact is totally ignored by mainstream media and European politicians. According to agencies including the IEA, EIA and CIA, Ukraine has around 1.1 trillion cubic metres of gas reserves ­ enough to cover about 185 years of its present consumption.

Including unconventional gas, shale gas and coalbed methane gas reserves, these may total as much as 4.5 trillion cubic metres ­ enough to cover about 600 years of present national consumption. Despite these massive reserves however, Ukraine's gas production has fallen by about 75% since its peak in 1975 and now covers only a quarter of national demand. For the EU and USA, this is Gazprom's fault! The claim that Gazprom “gouges” Ukraine for gas supplies is a heavily-wielded fantasy theme of European politicians and media ­ but it was precisely because Gazprom consistently underpriced the gas it almost gave to Ukraine, and waived Ukraine's constant under-payments or non-payments for Russian gas, that Kiev became “dependent on Russian gas”. Dependent because it was cheap and easy.

Ukraine has been treated by Union policy makers as a natural first step in pushing Europe's political frontiers south and east. For the EU and other western entities like the IMF and ECB, all Ukraine has to do is triple gas prices inside the country, pay back gas debt to Russia (possibly $7 billion or more), and compensate Gazprom for the value of the gas infrastructures Gazprom will lose if the ECSEE pact is applied. Among its “neolib” aims the pact demands the break-up of energy monopolies, defined as meaning that Gazprom - which in Ukraine presently owns both the pipelines it uses, and the gas it transports in them - must divest its infrastructures and ship gas for competitors at low prices not covering the costs of the “legacy infrastructures”.

No figure can be given for the value of the gas infrastructures or lost transit fees, but $25 - 30 bn would be a likely start price for any negotiations.

Ukraine's gas pipeline and gas storage infrastructures, which are vastly oversized relative to the country's own gas needs, are seen by Brussels strategists as a trump card, despite their antiquated, badly-maintained and inefficient status. The fact these infrastructures were mostly built during the Soviet era, using Soviet cash ­ mainly Russian ­ escapes any serious attention, but when or if the Ukraine signed and applied the ECSEE agreement or pact, this would effectively dispossess Russia's Gazprom of investments with a calculable and very high euro value.

The ECSEE pact ignores all such distasteful realities. It aims for the predictable “neolib” goals of breaking up monopolies, the trading of all energy supplies, and competition between energy producers, distributors and suppliers in a gay explosion of 1980s-vintage Reaganism-Thatcherism!

Who pays for the infrastructures to do this, and who prevents market price rigging are off the radar screen. The result of “energy liberalization”, exactly like bank-insurance-finance liberalization in the EU countries, has been a disaster for all players including governments, who have to play “lender of last resort” and bail out the collapsed, speculative, usually undersized companies competing for market share, always resorting to overpricing, while traders run riot with their daily circus act of “liberal and transparent” market pricing - producing speculative peaks and crashes of energy prices. In the Ukraine case, not only the existing Russian-paid gas infrastructures will have to be paid for by somebody if they are “liberated and liberalized”, but new and expensive additional and alternate infrastructures will have to be funded. The outlook for that in a market pricing context of totally variable and unrealistic prices, which are constantly manipulated, is realistically zero. It will not happen.

Energy Security ­ The USA Stokes the Delirium

Certainly since the years of Ronald Reagan's presidency, the US has constantly incited European politicians and the European Commission to go further with their security obsession, which it can be argued was one key founding pillar of the first European treaties, in the 1950s, which later became the European Union.

Firstly the European security obsession concerned coal supplies, then nuclear energy, before becoming like US policy, obsessed with oil supplies and their security in the 1970s. Reagan's two administrations, from the 1980s, then incited European policy makers to add an obsession with gas security to the list. The launch of global warming alarmism, or hysteria, from the early 2000's then added Europe's now 10-year-old obsession with high-priced renewable energy.

In every single case the stark facts of European economic history show that while there were either State energy monopolies, or State-backed private monopolies (especially the national oil companies originally including BP, Total, ENI, Shell, Statoil and others), the European energy system worked. When the monopolies were broken up, from the early 1980s, things went wrong for what “neolibs” treat as the “patsies”. The dumb final consumers and users ­ taxpayers whose taxes helped the State to build the energy monopolies it later gave away to crony capitalism.

The USA's constant interference in the “European energy security debate” is now well over 35 years old. A recent example was the August 20, 2013 hearings and Congressional Research Service report on “Europe's Energy Security-Options and Challenges”. This set of hearings and report, we can note, only concerned gas supplies in Europe. The tone of the report was clear: “Successive U.S. administrations and Congresses have viewed European energy security as a U.S. national interest. Promoting diversification of Europe’s natural gas supplies, especially.....through the development of a southern corridor of gas from the Caspian region as an alternative to Russian natural gas, has been a focal point of U.S. energy policy in Europe and Eurasia”.

Exactly like the Reagan, George H. Bush and Clinton administrations, the George W. Bush administration viewed the issue in geopolitical terms and stridently criticized Russia for using energy supplies as a political tool to influence other countries. Saudi Arabia's often strident use of oil energy supplies “as a political tool” were apparently not of interest to present or past US administrations. Europe's dependence on Algerian gas, as well as Norwegian and Qatari gas, was not considered “dangerous”, either. Europe's near-total dependence on imported uranium and coal, from countries such as Canada, Kazakhstan, Indonesia and South Africa was also omitted from any US Congressional handwringing and tub thumping.

The above-cited Congressional report, like othes before it, quickly lost itself in vacuous discussion of “sleeping gas giants” in far-flung Asia, such as Uzbekistan, Turkmenistan and other “stans”, before making a quick leap over the world map to include Libya, Egypt, the eastern Mediterranean (meaning Israel and Cyprus), and last but not least, the Arctic polar circle. Building the gas pipelines to bring this Friendship Gas to market in Europe was however at best sketchily covered. Such real world considerations would dampen the fun of dreaming out loud.

Meanwhile, inside the US, real world development of both conventional and unconventional gas reserves, and the associated infrastructures, went into high gear. Other than LNG transport and a very short-lived boom in building high-cost LNG import terminals to serve the USA, based on the wrongheaded notion that the US was “running out of gas”, no American Congressists were heard on record as promoting gas pipelines long enough to deliver gas to the USA from far-flung “friendship countries and areas”.

In the above-cited Congressional report, this ends with a consensus recommendation for Europe “to consider replacing all present Russia gas supplies”, although (it also said) this would be difficult, long and costly ­ and possibly not even physically possible! After that, presumably, lunch was served.

Security At Any Cost

Europe's energy security obsession is unlikely to go away. It could well get an unmerited extension of life from the present Ukraine crisis ­ but its unworkable extreme high costs, and physical shortcomings including the absence of continental integrated energy transport and distribution networks, result in this obsessional policy becoming shot through with hypocrisy.

Europe “strives for energy security” the same way that the developed countries still applying climate policies “strive to mitigate global warming”. In fact this only means much higher energy prices and a 24/7 speculative frenzy in “alternate energy asset” creation and trading, these assets being traded in the same way as the energy supplies that brokers and traders can get their avid hands on. Investing in such quicksilver-priced assets is extreme high risk ­ and is therefore declining.

The financial rout of speculation soon relegates any “noble high ground policies” to the trashcan they came from. The costs of maintaining the bank-broker-trader elite high on the barrel of oil, gas, or barrel equivalent of electricity has spawned so many diseconomies and dysfunctionalities in the now-financialized energy system, that energy security literally flew out the window. Or over the cuckoo's nest. Examples such as Europe's ill fated and now laughable, corrupt and dysfunctional Emissions Trading Scheme (ETS) are everywhere.

As of today, Europe is literally saturated with a potent combination of real gas pipelines, and proposed gas lines able to “securitize” the gas shipped in the real gaslines! All that is needed is to build the New Set of gas pipelines, charging consumers and users enough to cover the project total costs after “stakeholder benefit” has been extracted or extorted. Proving the degree of embarked delirium, major European energy corporations are engaged in a breakneck program to build LNG import terminals and local gas supply pipelines, for example to supply major industrial users and power generators. The intensely speculative LNG boom, at least in theory, could ramp up European LNG supplies to rival the total of present pipeline gas shipped to Europe! That would be energy security.

In addition, European energy security policy and its programs dictates the breakneck expansion of non-fossil energy supplies, notably wind and solar powered electricity generation, used to “back out” gas, coal and nuclear power. Pacts like the ECSEE agreement however operate on the articles of faith that firstly world gas reserves are limited, and in Europe are almost non-existent (for example in Ukraine!).

Their second major strand of fantasy is that gas demand is endlessly growing, but due to recession, deindustrialisation, the growth of renewable energy and the extreme high price of gas in Europe, EU natural gas consumption since 2012 is declining at an accelerating pace, quarter-by-quarter, and may fall below demand levels of 2007 by 2015. Gas market observers note there appears to be “no bottom to the decline” in European natural gas demand, for reasons that certainly include its extreme high price.

Europe's energy security quest ­ at least for gas ­ has reached its logical apogee, the top of the pyramid of hype from which it can only fall, taking any serious interest in the leitmotiv of “energy security” with it. Ukraine may well be the collateral damage, as events move forward in that country “dependent on Russian gas”



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