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Key elements – Europe’s energy security

The article discusses the core pillars of the US vision for European energy security: LNG terminals and interconnectivity of the energy grid. Implemented on a continental scale, this strategy has the potential to provide a long term “checks and balances” system on the Russian dominated web of oil and gas pipelines and contribute to a healthy market competition in Europe. The analysis does not include the overview of EU legislation or national energy policies, but focuses rather on the geopolitical dimension, as seen from across the Atlantic, including through the lenses of military organizations such as NATO.

The energy security of Europe has traditionally been an issue of major concern for the United States. Some European countries are over dependent on one supplier and one transport route and therefore are highly vulnerable to premeditated disruptions of energy flows. To say that Russia is using its energy resources, especially natural gas, as a strategic asset for maximizing its geopolitical purposes is hardly breaking news. There is, in fact, a long documented record of actions that testify to Moscow’s intent to use the overreliance of some European countries on Russian gas supplies as a blackmail weapon in order to exert explicit political pressure. For many observers on both sides of the Atlantic, the January 2009 Ukrainian gas supply crisis was a major wake-up call. This leverage could give Russia an indirect veto power on vital Euro-Atlantic policies, such as the expansion of NATO in the post Soviet space. Being a consensus-based organization, it is possible to imagine a scenario in which the vote preferences of a NATO country are constrained, shaped and even hijacked by fear of a Russian energy embargo: “Since it takes only one out of 28 NATO member countries to influence NATO’s decision making process, and because many members’ economies depend on Russian natural gas, Russia can rest assured that NATO will not be able to adopt policies that will negatively affect Russia’s grand strategic interests” (Alexander Ghaleb, 2011).

Ultimately, as a collateral damage, the Russian ability to constrain the sovereign foreign policy choices of some NATO members has an impact on the US. In fact, some core US interests in Europe could become hostage to a Russian veto in order to preempt any NATO decision that has a massive grand strategic impact on Moscow’s interests. Bulgaria’s tentative embracing of the radar facility, part of the US missile defense in Europe, could be a case in point. In addition, US officials highlighted the imperative for an energy secure continent and therefore for an economically healthy Europe: “looking at goods and services together, the EU and the US account for the largest bilateral trade and investment relationship in the world. The significant amount of bilateral trade and investment illustrates the high degree of interdependence of the two economies. We have an interest in maintaining this level of commercial and economic activity with Europe. Europe is our partner on any number of global issues” (Richard Morningstar, 2009). The consequence for Europe is that energy security becomes not only a matter of “security of supply”, “of the availability of sufficient supplies at affordable prices”, but also a matter directly related to the diversity of suppliers and diversity of transportation routes. The specific American concern for the energy security of the old continent is part of the larger geopolitical framework inspired by Nicholas J. Spykman that featured the whole post 1945 US foreign policy in the Eurasian rim lands: “no nation is allowed to emerge as a dominating power in either of the two regions of the Old World from which our security could be threatened.

(…) The safety and independence of this country can be preserved only by a foreign policy that will make it impossible for the Eurasian land mass to harbor an overwhelmingly dominant power in Europe”. Therefore the prospect of a hyper dependence of Europe on the Russian gas is a direct threat to the US long term interest of preserving a healthy energetic and “geostrategic pluralism in the European rim-lands”.

The US strategy: changing the game

The US strategy to facilitate and consolidate the energy security of Europe is generically based on two major components: a conventionally-minded component (based on alter-native pipelines) and a more flexible way of transportation (based on LNG terminals). Of course, there is no silver bullet or magical solution that could change overnight the energy equation in Europe, but there are steps that could open the European markets to new suppliers. The conventional one is focused on counterbalancing the “big bowl of spaghetti” (Daniel Yergin, 2011) that is the Russian dominated web of oil and gas pipelines, by opening a new southern corridor (based on the Nabucco pipeline and the Turkey-Greece-Italy Interconnector) in order to bring the Caspian natural gas to European markets. But sometimes a sound strategy is not defined in the old fashioned way of matching resources with purposes, but also as the ability to identify asymmetric and competitive advantages able to create a new foundation that could alter significantly the energy security status quo (Andrew Krepinevich, 2009).

For the United States, constructing new pipelines is not the only game in town, but just one piece in the larger European energy security puzzle. There are many things that Europeans can do in order to readjust themselves internally and create a flexible foundation for increasing the energy security of the most exposed and vulnerable allies to flows disruptions: “building a single market for energy, building interconnectivity of European gas and electricity networks, enhancing LNG import capabilities, and increasing gas storage” (Richard Morningstar, 2011). The energy security of Europe is hostage to a certain inflexibility of the conventional natural gas transportation system through pipelines. And this used to be also an American problem. As Alan Greenspan, then the Chairman of the Federal Reserve of the United States, testified in June 2003, before US House of Representatives’ Committee on Energy and Commerce: “Markets need to be able to effectively adjust to unexpected shortfalls in domestic supply”. But for this to happen, “unlimited access to the vast world reserves of gas is required” and therefore a major expansion of LNG terminal import capacity was needed. The same logic applies also to Europe. In order to connect European markets with alternative suppliers, Europe needs to expand its LNG terminal import infrastructure because it has the potential to be a major natural market for the LNG supplies, especially today when the US became a marginal LNG market.

The LNG option

Initially the global LNG exporters perceived the US as a guaranteed market, but at some point in time, something changed: America experienced the unconventional gas revolution. The first consequence of the American shale gas revolution is that it will put “much more LNG at sea, literally, in search of markets” (Daniel Yergin, 2011) with an immediate impact on Europe, which could be seen as the world’s number one contestable market. The impact on European markets will not only create a natural healthy competition, pushing down the price, but it could also be a geopolitical game changer, opening a window for challenging the Russian monopoly on the pipeline imports to Europe. According to BP Statistical Review of World Energy 2010, pipeline imports to Europe declined from 375.78 billion cubic meters (Bcm) in 2007 to 362.1 Bcm in 2009, at a negative Average Annual Growth Rate (AAGR) of 1.44%. On the contrary, LNG imports to Europe increased from 53.34 Bcm in 2007 to 69.02 Bcm in 2009, at an AAGR of 12.9%.

There is a growing LNG market (30.5% of the global gas trade in 2010) that Europe can access in order to increase the security of its natural gas supply: in 2010 Qatar reached a capacity of 77 million tons of LNG (28% of the world total); at the same time, Australia is becoming the second major LNG exporter with the highest addition in LNG liquefaction capacity globally planned for 2011-2016 (at least 14 new LNG liquefaction terminals will be built over this period); in addition, it is expected that the US will become a net exporter of LNG with a total planned LNG liquefaction capacity that will reach 17.5 MMtpa by 2016. “Altogether, between 2004 and 2012, the world’s LNG capacity will double” (Yergin). There is also an emerging network of LNG import terminals in Europe. The statistics of Waterborne Energy show that Europe had 20 LNG-receiving terminals in operation with a total capacity of around 125 Mtpa (170 Bcma) at the end of 2010. There are also four terminals under construction: in northern Spain (El Musel); north-west Italy (Livorno); the Netherlands (Rotterdam); and western Poland (Swinoujscie). They will add a further 20 Mtpa (27.2 Bcma) to import capacity by 2014.

The virtues of interconnectors

Still, there is a missing link in this larger European energy security puzzle, something that the US never stopped emphasizing: the imperative of building interconnectivity between the national gas networks and creating energy integrated Europe. Only in an integrated Europe (that has some sort of an “energy collective defense infrastructure”), a solidarity clause or an article 5 commitment on energy security can have real meaning. A political solidarity pledge without the necessary economic infrastructure to support it will produce no consequence. This is the only way to create a “reinforcement capability” or a “swing supply” for the most exposed states in cases of energy flow disruptions. As the University of Cambridge expert, Pierre Noël, said:

“a fully integrated European gas market would allow any molecule which reaches Europe (say, a LNG cargo unloaded in Spain) to be commercialized anywhere in Europe, thereby alleviating the problem of dependence of some countries on specific import facilities” (Noël, 2007).

Interconnectivity with larger European networks is the only guarantee of energy security for the Baltic States. In December 2011, Dalia Grybauskaitė, the President of Lithuania, highlighted that although the Baltic States have been integrated in the EU politically and economically for 7 years already, their energy system is still dependent on Russia: “there is only one way to protect the people of Lithuania, Latvia and Estonia from monopolistic energy prices and this way is integration into the European energy networks. Power and gas interconnections with Western networks, the liquefied gas terminal – these are immediate steps that will ensure economic independence in the region and a more secure life to our people”. In the same time, the Visegrád Group (V4) countries have taken charge of establishing North-South interconnectors, which are crucial for providing greater access to current energy supplies within the EU.

Protecting the global commons

As the importance of LNG for the European markets will increase, NATO could play a major role in securing the global commons, those sea areas of the world “that no one controls but that constitute the fabric or connective tissue of the international system” (Michele Flournoy and Shawn Brimley, 2009). In this context and in accordance with its Lisbon Strategic Concept, NATO should have the ability to project its power in order to secure the sea transit areas and lanes critical to the transport of the LNG: “All countries are increasingly reliant on the vital communication, transport and transit routes on which international trade, energy security and prosperity depend. Some NATO countries will become more dependent on foreign energy suppliers and in some cases, on foreign energy supply and distribution networks for their energy needs. As a larger share of world consumption is transported across the globe, energy supplies are increasingly exposed to disruption”. This new NATO mission is becoming more and more critical, especially today, when we see the step by step maturing of a dangerous trend: countries (like Iran) and even non-state actors that are developing “anti-access/area denial bubbles” (for instance, precision guided weapons which can be used to deter NATO from entering in a region and from protecting and effectively securing maritime routes in that region).

At the end of the day, it is always a mix (alternative pipelines, gas storage, unconventional gas, LNG terminals, and adequate interconnectors of Old Europe with the most exposed “energy islands” from New Europe) that seems better suited for achieving the security of energy supplies. Only against a highly interconnected energy infrastructure, will Old Europe be able to play for New Europe a “Lloyds of London” role in the field of energy security and genuinely act as a supplier of last resort.