Russian gas, and the power it gives Moscow, has become one of the main issues in international politics. Last year, Moscow used its ability to control Ukraine’s gas supply to interfere in Kiev politics. As European leaders huffed and puffed over Russia’s invasion of Georgia, the threat of having gas supplies cut off to parts of Europe explained the EU’s failure to develop a common policy approach towards Moscow. And now, Russia is leading Iran and Qatar – the world’s two biggest holders of natural gas after Russia – to form a “gas OPEC,” an organization modeled after the oil cartel.
Showing what hold this “gas weapon” has over our imagination the last episode of the BBC series Spooks featured a Russian plot against Britain and a double-agent weighing up his loyalties by thinking through Britain’s dependence on gas.
But despite this fear of Russian gas-based power, matters are not as dire as they seem. Russia is the largest external gas supplier to the EU, but is far from a monopoly provider. Since 1980, Europe’s diversification of its gas supply has seen Russia’s share of EU gas imports roughly halve, from 80% to 40%. Today, Russian gas represents just 6.5% of the EU primary energy supply, a figure that has remained essentially unchanged over 20 years. And, as my colleagues Pierre Noel notes, “contrary to widely held belief, Russian gas exports to Europe are unlikely to increase significantly in the foreseeable future.”
In a new report, Noel – one of Europe’s leading energy experts – says the problem is not dependence, but divisiveness. “Russian gas is divisive because Europe’s gas market is dysfunctional and segmented. Most of the EU’s imports of Russian gas go to a few countries in western Europe, where supply is diversified, while several member states in central and eastern Europe consume relatively little Russian gas but have no other external suppliers.”
How to solve this situation? You guessed it, by creating a single competitive European gas market that can ‘Europeanise’ the current large bilateral contracts between European importers and Gazprom, which so damage the EU’s negotiating position by allowing Moscow to divide and rule. Specifically, Noel says the EU should build on the 2004 directive on security of supply in natural gas, and help these member states devise and implement national action plans for gas security. He also proposes strengthening the powers of the new Agency for the Co-operation of Energy Regulators (ACER) so as to create a powerful regulatory coordinator with a mandate to deliver market integration.
Crucially, the paper warns the EU not to commit too many resources to its external energy policy, which can do little to solve Europe’s problem with Russian gas and serves as a distraction from internal reform.
As readers of Coffee House know, I think the Tories’ current EU scepticism will present serious problems for the party if it gets into government. But this is a policy area where the Tories’ EU policies — and the free-market instincts we all share — will stand them in good stead. Last year, Liam Fox wrote in The Times that “the EU has an important role to play” and the European Commission “must act to remove protectionism and national monopolies, creating a genuine free market in energy.” The government, meanwhile, seems torn between David Milliband’s belligerence and Peter Mandelson’s pro-Russian overtures.
Pierre Noel has provided the Tories – or any other political operators – with a fleshed-out Russian gas policy, which they should consider adopting as their own.
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