EU members commit to build an integrated gas market and finally cut dependency on Russia

Signing of the Memorandum of Understanding of the High Level Group on Central and South Eastern Europe Gas Connectivity by Maroš Šefčovič, in the presence of Miguel Arias Cañete, standing, on the left, and Ivan Vrdoljak, Croatian Minister for Economy, standing in the centre. (EC Audiovisual Services, 10/07/2015)

Last week, amid uncertainty driven by the Greek vote in the referendum, an important step towards Energy Union was taken. Fifteen EU and Energy Community countries signed a deal to accelerate the building of gas infrastructure, and so to reduce their long lasting reliance on Russia. Ministers from Ukraine and other fourteen countries, more than half of them from the former Soviet bloc, met in Dubrovnik, Croatia, on July 10, and agreed to endorse an action plan to improve energy infrastructure and to formally move towards the development of a fully integrated energy market.

Seven Projects

The Memorandum of Understanding, which would “pave the way for the closer integration of the EU and Energy Community energy markets”, as stated by the European Commission, officially launched seven gas-linked projects that should be eligible for financial support. Projects, such as the Trans-Adriatic Pipeline (TAP), which is set to bring gas from Azerbaijan to Europe, an LNG terminal in Croatia and system reinforcement in Bulgaria and Romania, which have been set as top priorities. They also include gas interconnectors between Greece and Bulgaria and between Serbia and Bulgaria.

A crucial plan

EU Commission Vice-President for Energy Union Maroš Šefčovič, who supervised Dubronik agreement, said: “The improvement of infrastructure through realistic and feasible projects is crucial to diversify energy resources and strengthen the region’s resilience to supply shocks”. “Cooperation among the countries of the region is key in this regard. I myself and the entire Commission support this process, notably in the framework of the European Energy Union Strategy”, he then added.

Heavy dependency on Russia

The crisis in Ukraine and Russia’s decision to cancel the Gazprom-led South Stream project, last year, have once more alarmed the EU for the heavy dependency on Russian gas supplies. Russia procures almost 27 percent of the gas that keeps the EU warm in the winter, and a consistent part of it still flows through pipelines crossing Ukraine. The 63 billion cubic metres per annum-South Stream draft was actually a crucial project for Europe, and Russia’s decision in December last year to drop it as a consequence of the Ukrainian crisis left Brussels with the need to have all nations working together on protecting energy supply.

“The EU’s domestic production is decreasing, and it might lead to increased EU dependency on imports,” Sefcovic told the gathering last Friday. “We must make sure that our supplies are diversified. We need to make sure that nobody will be in a dominant position that would negatively influence our energy security.” The official EU statement indeed shows that the infrastructure projects will “help to diversify supply sources”, and that ultimately, each Member State in the region should have access to “at least three different sources of gas”.

The EU is hungry for energy

Although Dubrovnik agreement marks the time for a very ambitious new approach on energy for the whole Old Continent, the question is very delicate, and a full resolution of the heavy need of energy in Europe is possibly still quite far away. First of all because of the size of this “gap” in energy supply European states suffer from. The EU imports 53% of all the energy it consumes at a cost of more than 1 billion Euros per day.

Now, think about all the amounts are currently discussed these days on the subject of bailouts, debts and financial movements, and then read again that figure. Energy alone makes up more than 20% of total imports of the European macro-region. As official EU research explain, the EU imports specifically 90% of its crude oil, 66% of its natural gas, 42% of its coal and other solid fuels and up to 40% of its uranium and other nuclear fuels.

Financial labyrinth

Further, financing such a project won’t be too easy, let’s say. In general, infrastructure projects should be financed by the market participants, as explained by EU’s official channels, but most of the concerns in this kind of matters usually lay on quotas and the breakdown of responsibilities.

However, the EU has specified that, with regard to this particular topic, were necessary “for their timely completion” and the involvement of the European Investment Bank and the European Bank for Reconstruction and Development “will be considered by the CESEC countries”. The EU also stressed that project promoters are also “encouraged in particular to make use of the opportunities offered by the new European Fund for Strategic Investment”.

The topic as a whole and particularly the dependency on external energy supplies of the EU has become more and more important in the last few years. Already in 2010, in order to help protect against gas disruptions, the EU reinforced its security of supply laws with the adoption of the Security of Gas supply and Regulation and tried to raise awareness among its Member States.

“A well-connected EU energy market […] is a pre-condition for creating a resilient Energy Union with a forward-looking climate policy”, as the Energy Commission stated last week, is for sure the basis to “ensure secure, affordable and sustainable energy for all EU citizens and businesses”.

Having all Member States working together and sharing duties is the only key to make it happen.