EU-Russia Energy Relations: What Chance for Solutions?
Total Page:16
File Type:pdf, Size:1020Kb
Universität Potsdam Dimo Böhme EU-Russia Energy Relations: What Chance for Solutions? A Focus on the Natural Gas Sector Universitätsverlag Potsdam Dimo Böhme EU-Russia Energy Relations: What Chance for Solutions? Dimo Böhme EU-Russia Energy Relations: What Chance for Solutions? A Focus on the Natural Gas Sector Universitätsverlag Potsdam Bibliografische Information der Deutschen Nationalbibliothek Die Deutsche Nationalbibliothek verzeichnet diese Publikation in der Deutschen Nationalbibliografie; detaillierte bibliografische Daten sind im Internet über http://www.dnb.de/ abrufbar. Universitätsverlag Potsdam 2011 http://info.ub.uni-potsdam.de/verlag.htm Am Neuen Palais 10, 14469 Potsdam Tel.: +49 (0)331 977 4623 / Fax: 3474 E-Mail: [email protected] Das Manuskript ist urheberrechtlich geschützt. Satz: Martin Meyerhoff Druck: docupoint GmbH Magdeburg ISBN 978-3-86956-120-2 Zugl.: Potsdam, Univ., Diss., 2010 Zugleich online veröffentlicht auf dem Publikationsserver der Universität Potsdam URL http://pub.ub.uni-potsdam.de/volltexte/2011/5021/ URN urn:nbn:de:kobv:517-opus-50210 [http://nbn-resolving.org/urn:nbn:de:kobv:517-opus-50210] To My Family 6 Dimo Böhme Abstract Public debate about energy relations between the EU and Russia is distorted. These distortions present considerable obstacles to the development of true partnership. At the core of the conflict is a struggle for resource rents between energy producing, energy consuming and transit countries. Supposed secondary aspects, however, are also of great importance. They comprise of geopol- itics, market access, economic development and state sover- eignty. The European Union, having engaged in energy market liberalisation, faces a widening gap between declining domestic resources and continuously growing energy demand. Diverse interests inside the EU prevent the definition of a coherent and respected energy policy. Russia, for its part, is no longer willing to subsidise its neighbouring economies by cheap energy exports. The Russian government engages in assertive policies pursuing Russian interests. In so far, it opts for a different globalisation approach, refusing the role of mere energy exporter. In view of the intensifying struggle for global resources, Russia, with its large energy potential, appears to be a very favourable option for European energy supplies, if not the best one. However, several outcomes of the strategic game between the two partners can be imagined. Engaging in non-cooperative strategies will in the end leave all stakeholders worse-off. The European Union should therefore concentrate on securing its partnership with Russia instead of damaging it. Stable cooperation would need the acceptance that the partner may pursue his own goals, which might be different from one’s own interests. The question is, how can a sustainable compromise be found? This thesis finds that a mix of continued dialogue, a tit for tat approach bolstered by an international institutional framework and increased integration efforts appears as a preferable solution. Table of Contents 7 Table of Contents Abstract 6 List of Tables 12 List of Figures 13 Abbreviations 15 1. Introduction and Motivation 18 1.1. Purpose of the Study 18 1.2. Methodology and Course of the Investigation 19 1.3. Motivation: The public debate about European-Russian energy relations 23 1.4. Conclusion 32 2. Setting the Scene 33 2.1. Conceptual Framework: A changing global energy policy scheme 33 2.1.1. Energy Policy in the 21st Century: A new degree of internationalisation 34 2.1.2. General Energy Policy Aims 37 2.1.3. Concepts of Energy Security and Energy Sovereignty 39 2.1.3.1. Energy Security 39 2.1.3.2. Securitisation vs. Transparency 43 2.1.3.3. The Energy Charter Treaty (ECT) 45 2.1.3.4. Energy Sovereignty 46 2.1.4. Summary 48 2.2. Natural Gas: A strategic fuel for the coming decades 50 2.2.1. The European Gas Sector: A picture of growing import dependency 52 2.2.2. The Russian Gas Industry: Vast resources, large distances and state control 58 2.2.2.1. Resources and Reserves 59 2.2.2.2. Russian Gas Production 61 2.2.2.3. Transport and Storage 64 2.2.2.4. Gazprom, the State and Competition in the Gas Sector 66 2.2.2.5. Russian Natural Gas Exports 71 2.2.3. Summary 74 8 Dimo Böhme 3. Manifest Conflicts and Corresponding (Re)actions 75 3.1. Highly Conflictual: Gas pricing 75 3.1.1. European Price Formation and Long-Term Contracts 76 3.1.2. Gas Pricing in Russia 80 3.1.2.1. Political Motivation for Price Subsidies 81 3.1.2.2. Price Regulation as an Environmental Policy 82 3.1.2.3. Careful Policy Steps towards Price Liberalisation 83 3.1.3. Exports and Pricing for CIS Countries 87 3.1.4. Summary 89 3.2. Gas Transit: Price disputes and the threat of supply cuts 90 3.2.1. What Role for Transit Countries? 91 3.2.1.1. Obsolescing Bargaining and the Hold-Up Problem 91 3.2.1.2. Specificities of Pipeline Transport and Effects on Competition 93 3.2.1.3. Summary 98 3.2.2. The Disputes between Russia and its Western CIS Partners 100 3.2.2.1. Disputes with Ukraine 101 3.2.2.2. Disputes with Belarus 106 3.2.3. The Background of the Conflicts and Lessons to Draw 107 3.2.4. Summary 109 3.3. Strategic Projects: The political game of export routes and joint ventures 110 3.3.1. Strategic Objectives of Russia and Gazprom 111 3.3.2. Transport Route Diversification: Alternatives to the traditional transit system through Ukraine and Belarus 113 3.3.2.1. The Northern Alternative 114 3.3.2.1.1. Nord Stream: The Baltic Sea Pipeline 115 3.3.2.2. The Southern Alternative 117 3.3.2.2.1. Blue Stream 118 3.3.2.2.2. South Stream 118 3.3.3. Central Asia 121 3.3.3.1. Competition over Resources and Export Routes 121 3.3.3.2. Nabucco 124 3.3.4. Export Market Diversification: Projects in the Far East and Eastern Siberia 128 3.3.4.1. The Sakhalin Projects 128 Table of Contents 9 3.3.4.2. The Eastern Gas Programme and the Altai Gas Pipeline Project 130 3.3.4.3. Entering LNG Markets 132 3.3.5. Business Diversification: Gazprom’s downstream activities in Europe 133 3.3.6. Production in Other Countries 137 3.3.7. Summary 137 4. The Background: Interest Guidelines and Policy Priorities 141 4.1. European Energy Policy 141 4.1.1. E Pluribus Unum? 141 4.1.1.1. Evolution of Consciousness: Towards a common energy strategy? 142 4.1.1.2. Common EU Energy Policy Objectives 143 4.1.1.3. Dissent and National Industrial Policy 145 4.1.2. More Competition: Natural monopolies, unbundling and regulation 147 4.1.3. Material Supply Security for Europe: Demand side policies 152 4.1.3.1. Reduction of Energy Dependency 153 4.1.3.2. Precautionary Measures and Solidarity 154 4.1.4. European Policy Objectives in the Environmental Sphere 155 4.1.5. The Energy Partnership with Russia 157 4.1.6. Summary 161 4.2. The Economic Situation and Interests of the Russian Federation 162 4.2.1. The First Transformation Phase 163 4.2.2. The Boom Phase: Net improvement of social and economic indicators 166 4.2.2.1. GDP, Trade and Investment 166 4.2.2.2. State Revenues and Budget Policy 171 4.2.2.3. Employment, Wages and Living Standards 173 4.2.3. Persisting Problems of a One-Sided Economy 174 4.2.3.1. Under-Diversification and Productivity Gap in Industrial Production 174 4.2.3.2. The Resource Curse and Dutch Disease 175 4.2.3.3. Affected by the World Financial Crisis 179 10 Dimo Böhme 4.2.4. Summary 181 4.3. Russian Energy Policy Objectives 184 4.3.1. A Sector of Unrivalled Importance 185 4.3.2. Russian Energy Policy as Part of an Assertive State Economic Policy 187 4.3.2.1. Consolidation of State Power 187 4.3.2.2. Industrial Policy, “Resource Nationalism” and “Re-Nationalisation” 191 4.3.2.3. What Role for Russia in the International Division of Labour? 196 4.3.3. The Energy Strategy of the Russian Federation for the Period until 2020/2030 200 4.3.3.1. Major Investment Needs in the Energy Sector 203 4.3.3.2. Ecological Energy Safety and Climate Protection 205 4.3.3.3. Energy Intensity of the Russian Economy 207 4.3.3.4. External Energy Policy 209 4.3.4. Summary 213 5. Towards a Solution 216 5.1. Opposed and Shared Interests 216 5.1.1. European Union and European Companies 216 5.1.2. Russia and Gazprom 219 5.2. Four Possible Scenarios for Future EU-Russia Energy Relations: An application of game and cooperation theory 226 5.2.1. The EU Imposes its Will 228 5.2.2. Russia Imposes its Will 229 5.2.3. The Status Quo 229 5.2.4. The Cooperative Solution: Which strategy performs best? Contributions from cooperation theory 230 5.3. Criteria for Solutions 234 5.3.1. Energy Security 235 5.3.1.1. Physical Availability 235 5.3.1.2. Price and Cost Security 236 5.3.1.3. Reliability, Predictability, Transparency 236 5.3.1.4. Investment Security and Protection 237 5.3.1.5. Access to and Control over Infrastructure 238 5.3.2. Profitability or Economic Viability 238 Table of Contents 11 5.3.2.1. Price Security and Investment Profitability 238 5.3.2.2. Revenue Security 239 5.3.3.