Energy continues to dominate the EU agenda and EUObserver has informed us that Javier Solana and the European Commission have recently drafted a strategy paper called “An external energy policy to serve Europe’s energy interests” which will be used as a discussion point for the European Council summit on 15-16 June. In light of the indecisive results of the EU-Russia summit in Sochi last month, which saw Russia still refusing to ratify the Energy Charter Treaty, it is no surprise that Russia appears (the text has not been released) to dominate the agenda. With this in mind it seems pertinent to take a quick look over two recent reported developments on the periphery of this tug-of-war and that should get a mention in Brussels next week: the EU special representative for the Caucasus intimating that the EU may get involved in future peacekeeping in Nagorno-Karabakh, on the Armeni-Azeri border, and the increasing closeness of Russo-Algerian relations that have led to media concerns of a possible OPEC-equivalent cartel forming to dominate trade in natural gas.
Thomas de Waal (apparently a second cousin of our very own Anastasia) reported for the IWPR on May 25th on a comment from Peter Semneby, current EU high representative for the Caucasus, who confirmed the renewed interest of the EU on the Frozen Conflicts that have arrested tangible social progress in this region (see European Union blog article on February 21st). Semneby notes a change in language in the mandate of his position, which asks the special representative to “contribute to the resolution of conflicts” rather than his predecessor who was asked to “assist the resolution of the conflicts”. To Semneby this represents:
“a political signal that the conflicts are very high on the agenda”
The UN and the OSCE are leading negotiations in the three Caucasus conflict zones (Abkhazia and South Ossetia in Georgia and Nagorno-Karabakh) but the EU’s role, according to Semneby, could be to lead a hypothetical international peacekeeping force in the region:
“We [the EU] will be expected to make a major contribution when a solution is found and we are looking into the possibilities we have, both in terms of post-conflict rehabilitation and also – if the parties so desire – in terms of contributing peacekeepers. And possibly even leading a peacekeeping operation”
It is no coincidence that the EU is apparently upping the ante of their interest in the region now, considering the dominance of Georgia and Azerbaijan to trans-Caspian pipelines. Besides the existing BTC (Baku-Tbilisi-Ceyhan) pipeline, the EU is also interested in tightening relations with both Kazakhstan and Turkmenistan in an effort to develop more Caspian pipelines that bypass Russia. Oil shipped from these countries would have to also cross Azeri and Georgian territory in order to reach Europe and hence it stabilising the South Caucasus (and counter-balancing Russia’s influence in the region) is becoming a higher priority on the EU agenda – one that could even command the potential commitment of a Battlegroup.
The second development that will likely be raised in the summit will concern Algeria, which is Europe’s third-largest supplier of energy (after Russia and Norway). Algeria is seen as a source that will be expanded as part of Europe’s drive for diverse energy suppliers and Sonatrach, the Algerian oil consortium, is planning to increase their current European export rate of 58 bcm (billion cubic metres)/year to over 100 bcm/year in 2020. To achieve this ambitious aim, Sonatrach has acquired stakes in two subsea pipelines – one connecting to Spain and one to Italy as well as downstream investments across Europe, including the Isle of Grain LNG depot in Britain. The cause of concern is that in April senior executives from Sonatrach and Gazprom announced a ‘memorandum of cooperation’ between the two countries to cover joint efforts in the exploration, production and marketing of Algerian gas. This was accompanied by Russia writing off $4.74bn of Algerian debt in March in association with Algeria buying $7.5bn worth of arms from the Russian state arms exporter Rosoboronexport.
The Washington Times led the response to this in an article on May 25th that quoted a former advisor to President Putin claiming that a gas cartel, whilst not officially materialising, was appearing ‘in another way’. Paoli Scaroni, chief executive of Italian energy company ENI, has commented that an alliance of the top three or four gas exporters would be more effective than OPEC, noting that:
“We are increasingly dependent on a small number of suppliers”However as the Times points out, the timing is right for the formation of a cartel (from the suppliers point of view at least) as the growth of LNG trade has created price competition between the US and European markets. Gazprom has typically lagged behind in LNG, something that is about to change as it develops the enormous Shtokman field in the Barents Sea (which could supply Britain with fuel for 35 years). No wonder they are jumping into bed as quickly as they can with Sonatrach, which is a major LNG exporter. They want stable and controllable prices in order to be able to get the maximum return for their reserves. However, for Europe this could mean that Russia ends up exerting control over their third largest supplier on top of their existing dominance in the energy market.
And so the plot continues to thicken at the accelerated pace that it has followed since the Ukraine gas crisis in January. The tightening relationship between Russia and Algeria, particularly if it results in the locomotive force behind a possible natural gas cartel and the EUs deepening involvement in the South Caucasus are both developments that up the ante of the game of energy-poker between the EU and Russia. What comes out of these developments (which could be something or nothing) is yet to be seen, however as any poker player knows, the higher the ante, the more committed the players become. One of the EU’s next hands is the Energy Plan for Europe that is being worked on at the moment. It will be interesting to see what comes out of Brussels on the 15th and 16th and how the EPE will develop in the next few months.