European Energy Security the New Role of the Atlantic and the Portuguese Speaking Countries of the Region

European Energy Security The new role of the Atlantic and the Portuguese Speaking Countries of the Region

The European Union (EU), namely after its expansion in the East, is proportionally much more dependent on Russia and Eurasia than the Middle East/Persian Gulf region, counting on an energy province within it, although facing a decline in production – the North Sea -, and with two regions of proximity – the North of Africa and West Africa. Security of an energy supply encompasses all Member-States, even if some regions are more vulnerable than others; in particularly the less integrated and connected regions, such as the Baltic region and Eastern Europe.

Simultaneously, the Atlantic region is becoming the scene of important transformations, such as those arising from the discovery of new energy resources and technological advances that will impact the future.

To this effect, the present work focuses its attention on the Atlantic, proposing to observe, analyze, and attempt to comprehend, as much as possible, the future of its influence in geopolitical and geo-economics terms, highlighting the role of Portugal and the Lusophone countries of the Atlantic could potentially take regarding energy as an alternative route to the Russian supply for the EU, allowing for a more energy secure Europe.

This research paper consists of five chapters, including a vast bibliography revised. The period studied is from present time until 2030. We begin by presenting the current energy landscape. Following by analyzing the evolution of energy policy in the EU, from the institutionalization of the European Community to present time, especially focusing in more recent developments, namely the “Magic Triangle”, the European Strategy for Energy

Security, and the Energy Union Package. The third chapter will consist of a diagnostic view of energy dependency in the EU, drawing attention to the role and influence of Russia in that regard. From there, we present a survey of the energy map in the Atlantic basin, highlighting the shale gas revolution in the U.S. and examining the energy resource potential of the Lusophone countries within the Atlantic region. In the fifth and final chapter we analyze the role Portugal will potentially have in the reinforcement of the Lusophone influence in Europe terms. For final considerations, we present four scenarios subordinate to the focus “The Energy System in the EU for 2030”.

Keywords: Atlantic Basin, Lusophone Region, Geo-economy, Energy Resources, Security, European Union.

LIST OF ABBREVIATIONS AND ACRONYMS

BBPD One Billion Barrels Per Day Bcf Billions of Cubic Feet BCM Billions of Cubic Meters BP British Petroleum CCGT Combined-Cycle Power Plant CPLP Community of Portuguese Language Countries EU European Union GBN Global Business Network IEA International Energy Agency IOC International oil companies KBPD One Thousand Barrels Per Day LPG Liquified Petroleum Gas LNG Liquified Natural Gas LPG Liquified Petroleum Gas NOC National oil companies OECD Organization for Economic Co-operation and Development OGJ Oil and Gas Journal OPEC Organization of the Petroleum Exporting Countries RRP Reserves to Production Ratio Tcf Trillion of Cubic Feet Toe Ton of Oil Equivalent TCM Trillion of Cubic Meters UN United Nations WEO World Energy Outlook

INTRODUCTION

Since the beginning of the European Communities that energy has been a present topic, as we can see with the early implementation of EURATOM as one of the initial measures of the European integration process. But has time developed since the implementation of the European Communities, energy as essentially been left to the responsibility of each Member-State and to variable geometry Europe projects, moving further away from a common policy.

During the first decade of the new millennium, and already under the influence of the deepening of the EU as an institution, triggered by the reunification of Germany, significant steps were made to pave the road to an energy common policy, largely inclined by the EU’s choice to assume the leadership in climate change mitigation. Particularly, the developing stages of a common energy policy for the EU in the new millennium, three key years: 2007, 2010, 2014.

With the Lisbon Treaty, energy came to have an autonomous chapter, becoming a shared competence in some areas. Since then, the European energy policy was built on four pillars, namely: (1) to ensure a well function energy market; (2) to ensure a secure energy supply; (3) to promote energy efficiency; and (4) to promote an interlink of energy networks.

Currently, the EU imports 53.2% of the energy it consumes. The dependency on energy import occurs in relation to crude oil (near 90%), to natural gas (66%), and, on a smaller scale, to solid fuels (42%), as well as to nuclear fuels (40%).

A secure energy supply concerns all Member-States, even if some regions are more vulnerable than others regarding external supply, such as the Baltic region and Eastern Europe.

The most pressing question for the EU, in terms of energy supply security, is the accentuated dependency on one external supplier – Russia. This component, is particularly true when it comes to natural gas. Indeed, in 2013, energy supplies from Russia represented 39% of EU natural gas imports or 27% of EU gas consumption: Russia exported 71% of its gas reserves to Europe, its most significant volumes being channeled to Germany and Italy – and the same is applicable to electricity for the three Baltic States.

Concomitantly, in the recent past, the Atlantic basin has been the site of important oil and gas discoveries in the Gulf of Mexico, in the offshore of French and Dutch Guiana, in the deep-offshore of Brazil, and, on the other side of the Atlantic, in the Gulf of Guinea, offshore of Ghana, the Niger Delta, in the deep-offshore of Angola. Consequential to this, we have been witnessing the enlargement of the Atlantic energy basins in the offshore component – from the most traditional, the North Sea and the Norwegian Gulf Sea to Mexico, as well as the three basins in Brazil and Western Africa -, expanding its role in the global supply of oil and natural gas.

The impact of the Atlantic Ocean´s emergence as a vast energy world region is unavoidable: 91% of the world´s oil reserves are located on the offshore of the Atlantic Ocean. Deep-shore production in the Atlantic represents around 10% of the world´s production, with half to Brazil and Angola.

The emergence of the Atlantic basin could also contribute to an important role for the Lusophone region to play in the future, providing Portugal with an opportunity to become a fundamental hub between the Atlantic and Europe.

The South Atlantic, as well as being a resourceful platform for the supply of raw materials and energy where the role of offshore resources will tend to grow, will increase its value due to be an open ocean, without blockages that tend to condition energy flows.

In this context, through this research paper, we attempt to contribute to the debate and to reflect about the central question of the increasing geopolitical and geo-economic importance of the Atlantic basin in current times and its future perspectives, as well as the increasing role of the Lusophone region in the Atlantic (Angola, Brazil, Guinea-Bissau, Equatorial Guinea, and Sao Tome and Principe) and Portugal´s role, which can be seen as a viable alternative for the supply to EU countries, contributing for a lesser dependency to the supply from the Russian Federation and, simultaneously, to greater European energy security.

Our starting issue to tackle is to deduce, given the emergence of a new energy order in the Atlantic Ocean, what will be the geopolitical and geo- economic consequences for the functioning of the European energy system, focusing on the Lusophone region.

The object of our research will follow a multicentral concept, that is, the social-international phenomena that cover relations between foreign actors (Westphalian States – Angola, Brazil, Portugal, United States …), the relations between non-sovereign actors (IOC, NOC, OIG, NGOs…) and the relations that all these actors sustain among themselves.

Regarding the methodology, we have developed a qualitative bibliographic analysis and an empirical approach through the study of the information gathered on actors involved in the process under studied and a prospective exercise of different possible scenarios.

This research paper is organised in five chapters and draws on a large commented bibliography. The period investigated runs from the present until 2030.

We begin by completing an analysis on the recent progression of the concept of energy security, along with some non-political assumptions, to present a framework on the international energy system of oil and natural gas, regarding stock, flows and markets. The presentation of the more recent data

6 regarding this system allows for a visualization of the energy status quo, which is essential to develop a substantial basis for extrapolation into the possible and probable future of the energy sector.

We then analyze the evolution of energy policy in the EU, since the establishment of the European Communities to present day, with special focus on more recent developments, namely the Magic Triangle, the European Strategy on Energy Security, and the Energy Union Package.

In the third chapter, considering the dependency many EU State- Members have on Russia´s natural gas supply, and the implications it causes to the energy security of the EU, we draw attention, on the one hand, to the EU´s oil and natural gas needs and changes in the geography of the potential supply of natural gas to the Union; and, on the other hand, Russia´s position regarding the European energy security.

In the following chapter, we survey the energy map of the Atlantic basin, outlining the ongoing shale gas revolution in the United States and analyzing the energy resources of countries in the Lusophone region of the Atlantic.

In the fifth and final chapter, we emphasize the role Portugal could yield in reinforcing the importance of the Portuguese Speaking Countries region1, possibly functioning as a counterpoint to Russia in the context of the EU´s energy dependency to that country.

For the “Final Considerations” chapter, we elaborated four scenarios in attempts to combine the geo-economic perspective with the perspective of primary energies and technologies, to predict what the energy system in the EU will look like in 2030.

1 This research opted to only analyze the Portuguese Speaking Countries of the Atlantic and not all members of the Community of Portuguese Language Countries – including Mozambique and East Timor – due to, despite the fact these countries possess energy resources that could potentially give them an important role in the future, both being located in the Indian Ocean.

I. THE CURRENT ENERGY LANDSCAPE: CONCEPTS, RISKS AND CHALLENDGES

I.1. Energy Security in the 21st Century and its structural changes

Since the conclusion of the Cold War, the concept of energy has been reconsidered and enlarged to nonmilitary dimensions2. Its security has come to be an integrated design, with different levels of analysis – the individual, the state, the regional, and the systematic; as well as different security dimensions – political, military, economical, societal, and environmental. In an increasingly globalized world, we are witnessing growing concerns regarding energy security.

Concerns revolving around energy security predate World War I. After 1906, the oil concession of William K. d’ Arcy was placed under the protection of British soldiers, which stemmed from the plan to substitute coal for oil to fuel British war ships. In 1912, Winston Churchill had decided that the Royal Navy would be completely fueled by oil. There were multiple strategic advantages in transitioning to oil: ships would run faster, refueling would become easier and the autonomy to travel long distances would be greater, due to the high levels of thermal oil. A year after, the British acquired 51% of the shares to the Anglo-Iranian oil company and, as W. Churchill stated, “for the victory, His Majesty has its own carburant resources”. Contextually, in recent years, energy has become increasingly important in the framework of security, due to military and safety measures.

“Energy security exists when there are energy sources large enough to meet the needs of the political community (the energy demands), which include all military, economic, and social activity. Those sources must be able to deliver such quantities of energy in a reliable and stable manner,

2 Barry Buzan, People States and Fear: An Agenda for International Security Studies in the Post-Cold War Era, 2.ª edição revista, Hertfordshire, Harvester Wheatsheaf, 1991, pp. 1- 34 e 363.

and for the foreseeable future. As soon as these conditions are not met, there exists a problem of energy (in)security”3

Energy security has been defined as a shared interest between various actors within global oil system, rather than as a game in which the triumph of the oil producers means a defeat to the consumers and vice versa.4

In more recent decades, government officials, analysts and scholars have identified energy security as a growing concern that affects both the northern States as well as the southern ones. Due to the rapid evolution of industrialization in certain world regions and a transformation of the leading economies that forces them into an increasingly growing dependency on fossil fuels, energy security has become presently, a key political and economic issue. Creating reliable supply sources is fundamental for economic activity and should be considered a pre-requisite for economic security.

To guarantee a stable supply source of energy, big powers are increasingly militarizing their approach to energy security; with consequences to overall international security whenever inter-State cooperation escalates the threat into an armed conflict in order obtain control of energy reserves. In parallel, militarization also has a profound impact in the safety of those who live in “oil rich” regions in the South. Oil abundance can also create other consequences in certain Southern States, such as regime security, which is often closely linked to obtaining and collecting oil revenues (an income- generating method that allows governments to become self-governing politically from their citizens). This process exacerbates both the development of those regions and the very security of their citizens. Often States are confronted with the so called Dutch diseases.5

3 Sam Raphael and Doug Stokes, «Energy Security», in Contempory Security Studies, 2.ª ed., Oxford, Oxford University Press, 2013, p. 307. 4 Cf. João Garcia Pulido and Pedro Fonseca, O Petróleo e Portugal – O Mundo do Petróleo e o Seu Impacto no Nosso País, Lisbon, Tribuna da História, December, 2004, p. 260. 5 Dutch disease – phenomenon in which the increase in income from natural resources increases the exchange rate, making the remaining export industries non-competitive and can

The fossil fuel dependency that is affecting the world today also causes a great impact in environmental security.

In short, energy security is, without a doubt, an issue with ramifications within the various aspects of security.

Thus, already in the international context of the post-Cold War period, researchers such as Michael Klare6 argued that the post-1991 international system will be characterized by conflicts between nations fundamentally for sustainability and survival purposes, in other words, conflicts resulting in disputes for natural resources.

According to Klare, the present world has a new geo-economical dividing line – on one side, there are the net exporters of fossil fuels that dominate the market (Russia, former colonies, regional powers), which are able to collect enormous amount of dollar income and acquire geopolitical projection; and, on the other side, there are the importers of these strategic raw materials – States chronically deficient in energy balance ( the majority of the OECD powers, two emerging powers (China and India), and the great majority of developing countries and a wide range of impoverished countries).

In a multipolar world with scarce resources, humanity will inevitably witness an unbridled competition. M. Klare states that the resource scarcity determined a shift in military strategy of certain countries and that the ideological conflicts from the Cold War period have been replaced by conflicts that are based around energy security; which indicates a threshold in which a State will enter a conflict solely for the acquirement of a pertaining resource.

The only viable solutions to these issues – the degradation of the ecosystem and environment, and the tendency of an increase in regional conflicts due to energy concerns – will be the drastic alteration of the Western cause deindustrialization. The Nigerian mono-commodity economy has been sustainable, despite some recorded social behaviors and the potential risk it can cause to the national unit. 6 Cf. M. T. Klare, Resources Wars: The New Landscape of Global Conflict, New York, Metropolitan Books, 2001.

10 lifestyle, to reduce energy consumption, and the implementation, by developing countries, of environmental-friendly measures, financed by the West.

Still, it is important to emphasize M. Klare´s theory that has not yet been considered, the historic-civilizational elements of political communities (historic and cultural inherency of a society, regarding its religion, for natural collective dispositions) and neglecting the phenomena of regional integration and the advantages of being competitive.

For a few authors, energy security becomes a perplexing concept that lacks technical specification, and is often broadly used.

Sovacool and Brown7 highlight four elements of energy security:

 Availability or, “we don´t have enough”;  Accessibility or, a “fair price”;  Efficiency or, “we can consume less and obtain the same results”;  Sustainability or, “we are irreversibly damaging the environment through production and consumption of energy”.

Until recently, State agents would focus their attention to availability and accessibility (1 and 2). Only recently have the components related to efficiency and sustainability (3 and 4) been address by political agendas, especially in Europe and certain American States.

The following illustration synthesizes the central issues and a few possible solutions within the energy security framework:

7 B. K. Sovacool and M. A. Brown, «Competing Dimensions of Energy Security: An International Perspective», in Annual Review of Environment and Resources¸ 35 (2010).

Figure I.1. Energy Security in the XXI Century: Problems and Solutions

Solutions Problems

Source: Illustrated by Catarina Mendes Leal, 2014.

Box I.1. Energy Security and Theories of International Relations8 Liberalism and Energy According to this theory, the process of globalization is Security accelerating and expanding; exponentially, the interlink between states, forcing to a submission of national interests for a logical transnational economic cooperation. The potential for a competition between is ever decreasing and, consequentially, many liberals believe that a war between superpowers became an obsolete phenomenon. Thus, the natural global economic interlink, presently, ensures that “one’s energy security is the energy security of others” and so, superpowers will have mutual interests in maintaining a conditional shared market. While this economic order stands, it is highly improbable that a

8 Cf. Sam Raphael and Doug Stokes, «Energy Security», in Security Studies, 3.ª ed., Oxford, Oxford Universty, 2013, pp. 309-311.

conflict between these powers ignites.

Realism and In contrast of liberalism, realists are skeptical of the Energy durability of the current liberal order and indicate certain Security disturbing tendencies that can potentially create devastating geopolitical conflicts. “resource wars”, specifically energy resources, present a clear ability to rupture international cooperation, in a time when States move to compete in the control of large resource reserves.

Historical This methodological approach suggests that neither Materialism liberals nor materialists have taken into consideration a and Energy very important element that relates this issue to the Security development of world capitalism, as well as the defense and the expansion of the current economic system of certain key countries: that fossil fuels remain a vital force to the current world order – an order based on an imbalanced distribution of power and wealth that only favors economic global elites. Contextually, the ones that benefit the most from this order will continue to condition the current energy flow so that they can maintain their place in the global system.

To summarize, we are currently witnessing the redefinition of the energy security concept9. The security challenges are global and there are multiple threats, such as, terrorism, piracy, internal destabilization in the countries of production, the erosion of the spare capacity, the increase in dependency from the OPEC, the disruption in the production and development networks in social media, the intensification of hurricane occurrences (Rita, Katrina), blackouts, the extreme price volatility, climate change, demographic factors, and the unsustainability of the current source of energy.

Structural Changes:

9 Cf. António Costa and Silva, Global Security Challenges for Europe: Structural and Strategic Changes in Energy Markets and Major Implications, EUI Working Papers, RSCAS 2012/24, Global Governance Programme-19, Florença, Robert Schuman Centre for Advanced Studies, 2012), p. 5.

Currently, five key factors will introduce, both midterm and long-term, transformations in the economy of both fossil fuels and natural gas:

1. The interest in searching for fossil fuels continues to increase, triggered by the emerging Asian economies; 2. Increase in searches for natural gas in developed economies with the goal of obtaining a more efficient production of electricity that will also

produce CO2 on a much smaller scale; 3. Peak “conventional” fossil fuel and natural gas production in non-OPEC energy provinces; 4. Climate change raises a critical eye on burning fossil fuels, requiring technological changes related to renewable energy, nuclear rehabilitation and the more sustainable use of natural gas in smart grids. 5. Fossil fuels as a financial asset.

Simultaneously, it is possible to identify key changes in the geo-economic and geopolitical concept of energy:

 The wave of fossil fuel discoveries and the strengthening of the energy basin(s) of the Atlantic;  Discoveries and potential oil and natural gas reserves in the Easter Mediterranean region (Israel, Cyprus, and Greece);  The untapped potential of the Arctic;  The U.S., EU and Israeli confrontation with Iran over their nuclear program;  The conflicts within the Islamic world between Shiites and Sunnis, Persians and Arabs (for example the case in Syria);  The regime changes in the Arab world and the rise of the Muslim Brotherhood, with the support of the American Administration; the failure in Egypt.

I.2. The main non-political assumption in energy

To comprehend the current energy landscape, it is important to start by analyzing the non-political components that condition and have an important impact in energy trends, in other words: population, economic growth, energy prices, CO2 and technological emissions.

The rapid growth in the world’s population and increasing prosperity exert unsustainable resource pressures. It is estimated that in the next two decades there will be a 30% to 50% increase in search for energy sources, while simultaneously, an accentuation in economic disparity that will require short term responses in relation to production and consumption that will affect long term sustainability.

Important long-term trends will continue to influence the current energy economy, specifically the industrialization, urbanization and motorization. These trends are related to the growth in energy consumption and the efficiency increase of its use, as well as its production and consumption.

Populations are continuously more concentrated in urban settings, contributing to a growing urban tax of 53% in 2013 to 63% in 2040, which means the absolute number of people living in rural areas will continue to decrease. Urbanization tens to increase energy demand as the supply of this resource, together with income and economic activity, increases, although this growth can be attenuated through a strategic approach to transportation policy.

In 2008, the energy markets were confronted by a tense volatility. Even though there was a verified rapid growth, economies outside of the OCED are still responsible for 25% of the global GDP. However, these 25% result from 82% of the world’s population. And, due to the industry’s role regarding that growth, as well as the inefficiencies, it is necessary for more energy to produce 1 unity of the GDP of non-OCED countries than of the OCED countries. 2008 was the first year that non-OCED countries consumed more energy that the OCED countries (as verified in figure II.1).

Prices are one of the main drivers of energy trends: the prices paid by consumers affect the quantity of each fuel to be consumed and choice of technology and equipment. The prices that producers receive also strongly

15 influence their investment choices and, consequentially, future levels of production.

A range of reasons and factors explains the extreme price volatility of energy10: supply disruptions11, economic growth, spare capacity limitations of the OCED, raise in fossil fuel stock worldwide and, a gradual shift from developed countries to the production of non-conventional gas.

The last decade has witnessed an unprecedented increase in energy prices. From 1998 (when oil prices were under US$ 10 per barrel) until July 2008 (when prices rose to US$ 147 per barrel), the price tenfold was followed by a decline, hitting US$ 32 per barrel by the end of 2008. From 2010 until the middle of 2014, there was a period relatively stable, but historically high, around $US 115 per barrel). However, in 2015, international reference prices of oil had fallen once again by more than 50%, standing in the range of US$ 40- 60 per barrel. This drop was due to a marked slowdown in demand growth and an increase in supply, especially in North American tight oil, as well as to the Organization of Petroleum Exporting Countries (OPEC) decision not to seek to rebalance the market through cuts in production.

In terms of natural gas, for the moment, there isn't a global market and there isn't a global price. Therefore, regional price changes are those that mirror the underlying forces of demand and supply, as well as patterns of change over a given period. The annual average spot LNG prices could be driven by a combination of higher oil prices, raising the prices of oil-indexed contracts, and generating a large additional demand for LNG (for example from Japan to replace losses which the country suffered related to nuclear energy).

10 Oil is being priced in fully liberalized markets. As a result, price changes based on supply and demand. Schematically, the international trade of crude oil is organized in two modalities: short-term (spot market) and long-term (about two financial markets – International Petroleum Exchange or IPE and Nymex). 11 OPEC’s decision to restrict production, political unrest and violence has caused disruptions in oil and gas production in parts of the Arab world; such as the earthquake in Japan and the damage it caused to the coal-fired power plants that led to the closure of Fukushima along with subsequent reactor closures in Japan and Europe.

The strong growth of energy translates into negative consequences for CO2 emissions. In the last decade, they have grown by 2.8% per year (for example they are higher than primary energy consumption). With increasing coal consumption, the highest rate among fossil fuel consumption, global CO2 emissions from energy – measured by standard conversion rates – have grown faster than total energy consumption. Emissions are growing more and more in both OECD countries and non-OECD countries (which are currently higher than in the OECD).

Finally, in regard to technology, advanced energy technologies can alter the long-term evolution of the energy market and have a great influence regarding environmental objectives, including those related to greenhouse gas emissions.

In fact, important advances have been made, allowing a maximization of recovery factors and, at the same time, the postponement of peak oil. In terms of exploration, a tool called Seabed Logging (SBL), based on electromagnetic methods, with a 3D seismic integration, allows for a better resolution; at the development/production level, a new approach to data collection and processing called Digital Field Concept detects what is occurring in the reservoir (allowing for a better positioning of wells, signals filled wells from different areas of the reservoir, remote collection of date from wells and fields and allows an optimized decision process). However, these technologies require substantial investment.

In the future, demand for primary energy will increase by 32% between 2013 and 2040, a period in which growth will come from non-OECD countries, with OECD decreasing by 3%. However, the relationship between world population growth and that of the economy will be less in terms of “intensive energy”. Fossil fuels will continue to play a central role in energy demand by 2040, notably oil, which will remain the dominant fuel source in the primary energy basket.

The main scenario presented by the 2015 World Energy Outlook, shows global primary energy demand will increase by almost a third between 2013 and 2040 to reach 17.9 billion toe. The average annual growth rate of primary energy demand will decline overtime: from 2.5% in 2000-2010 it will drop to 1.4% in the current decade, 1% in the decade after and below 1% in 2030. Slowdown of global economic and population growth, couple with the implementation of more robust energy efficiency measures and other policies, will lead to a slowdown in economic expansion in many key economies (such as China). At the beginning of 2030, China will become the largest consumer of fossil fuels, crossing with the United States, where the if this hydrocarbon will call to levels not verified for decades. At that point, India, Southeast Asia, the Middle East and Sub-Saharan Africa will become the engines of global energy demand growth.

Figure I.2. Primary Energy: Demand and GDP in the New Policies Scenario (1990-2040)

Source: OCDE/IEA, World Energy Outlook 2015, p. 61.

I.3. The Geography of Petroleum and Natural Gas

Today, the global energy supply is profoundly affected, either by the current state of international disorder or because it is itself a driving force in exacerbated international competitiveness.

In terms of definitions and concepts, it is essential to bear in mind the difference between resources and reserves:  Resources are portions of minerals (commodities) that have been targeted/identified, but whose extraction is not economically and/or technically feasible at current prices and with existing technology because they are often located in areas that are extremely deep, extremely low, or are very difficult to get to.  Mineral Reserves are identified resources whose extraction is/can be economically and/or technically feasible, at current prices and with existing conditions. There are probably reserves and proven reserves.

Combining the definitions presented by the Canadian authorities12 and those presented by other countries, that is, internationally accepted definitions, we conclude that there are three types of oil reserves:

 Proven Reserves are those that can be estimated, and the degree of certainty of being recoverable is high. It is likely that the quantities effectively recovered will exceed amounts estimated as proven reserves (P90);  Probable Reserves are those whose recovery is less certain. It is also likely that the remaining quantities may be larger or smaller than the total of the proven and probable reserves – also known as P50;  Possible Reserves are the additional reserves whose recovery is less certain than the proven and probable reserves. After possible reserves, it is unlikely that there is still any remaining oil (P10).

The three types of reserves identified above are also known respectively as P90, P50, P10, the numerical part indicating the probability level, percentage wise, of the oil recovery in the respective field.

The growing need for energy, coupled with technological developments (and, consequently, greater efficiency in the extraction process), has allowed access to what has been referred to as unconventional resources/hydrocarbons. In this context, there are conventional and nonconventional resources13:

 The former is found in conventional reservoirs, in easily exploitable small volumes;  As for the unconventional, they are hydrocarbons (petroleum and gas14) that are found in conditions that do not allow fluid

12 “Canadian Oil and Gas Evaluation Handbook (COGEH)”, Sec. 5-Vol.1, 2011. 13 Cf. REPSOL, “Special Upstream”, in Publications and Specials Issues 2014. 14 There are the following types of crude and nonconventional gas:  Unconventional Crudes: (1) Heavy oil – Liquid petroleum in high density. It is extracted from the rock by the injection of vapor or polymers; (2) Oil shale – Oil produced directly from the parent rock (shale rich in organic matter); (3) Oil sands or bituminous sands – Sands containing bitumen, which is a hydrocarbon of very high density and viscosity. This bitumen in its natural state does not have the capacity to flow to the well; (4) Tight oil – Oil from reservoirs with low porosity and permeability.  Unconventional gases: (1) Shale gas – Natural gas contained in shale with high organic matter content and very low permeability (parent rock). For its exploitation it is

movement, because they are stuck in rock hardly permeable, or because they are oils with a very high viscosity. Its extraction requires the use of special technology, the properties of the hydrocarbon itself and the characteristics of the rock that contains it. Nowadays they are an interesting source of resources, since many of them are in deposits what were considered exhausted, assuming they exist in large volumes.

Overall, oil consumption has a rather uneven geographical distribution. The three regions that consume most are Asia/Pacific (33.9%), North America (24.3%) and Europe/Eurasia (20.4%). Three regions do not reach the 10% of consumption, namely the Middle East (9.3%), Central and South America (7.8%) and Africa (4.3%). If we look at countries individually, in terms of per capita consumption, we see that the United States is the largest consumer (19.9%), followed by China (12.4%), Japan (4.7%) and by the Russian Federation (3.5%). By 2014, overall, non-OECD countries consumed more 3.4% (51.7%) than all OECD countries (48.3%)15.

Table I.1. Proven Oil reserves by Micro regions of the Global Economy (1994-2004-2014)

Region 1994 (%) 2004 (%) 2014 (%)

Middle East 59.4 54.9 47.7

Central and 7.3 7.6 19.4 South America North America 11.4 16.4 13.7

Europe and 12.6 10.3 8.9 Eurasia Africa 5.8 7.9 7.6

necessary to drill horizontal wells and to fracture the rock; (2) Tight gas – Natural gas contained in rocks of low porosity and permeability; (3) Coalbed methane - Natural gas extracted from charcoal covers. Due to its fluidity, its high content of organic matter, the coal retains a large amount of absorbed gas; (4) Methane hydrates – An ice-like solid compound containing methane. It is trapped in a crystalline structure of water molecules, stable in marine sediments at depths of more than 300 meters. 15 Cf. BP, BP Statistical Review of World Energy, 2015, London, p. 11.

Asia/Pacific 3.5 3.0 2.5

TOTAL: (1 Billion 1118.0 1366.2 1700.1 Barrels)

Source: BP, BP Statistical Review of World Energy, 2015, p. 7 At the end of 2014, proven oil reserves reached 1700.1 billion/b (compared to 1687.9 billion/b in 2013). Enough to account for 52.5 years of production-to-production ration (R/P) overall. The growing increase in Venezuelan official reserves (already verified in 2012) points to a R/P of more than 100 years in Central and South America. The Middle East has the highest proven reserves: 47.9% with a R/P of 78.1 years16.

Although globalization favors the economic interaction of all actors when it comes to access to resources, they are largely dependent on States that do not follow Western norms, as can be seen from the following table:

Table I.2. Leaders in Oil Reserves (End of 2014)

Oil

Ranking Country Billion Barrels % Position in Global Terms 1 Venezuela 298.3 17.5 2 Saudi Arabia 267.0 15.7 3 Canada 172.9 10.2 4 Iran 157.8 9.3 5 Iraq 150.0 8.8 6 Russian Federation 103.2 6.1 7 Kuwait 101.5 6.0 8 United Arab Emirates 97.8 5.8 9 Libya 48.4 2.8 10 Nigeria 37.1 2.2 Source: BP, BP Statistical Review of World Energy, 2015, p. 8 To summarize, it can be stated that:

16 BP, op. cit., 2015.

- Asia/Pacific (which included India, Pakistan, and the rest of South Asia) with its demographic weight and economic size, holds the smallest of reserves among the macro-regions considered; - The Middle East/Persian Gulf hold the largest oil reserves, while Latin America and Eurasia also have substantial reserves.

Relatively to unconventional oil, there has been a growing increase in discoveries, which will lead to significant consequences, both geopolitical and geo-economic. Regarding unconventional crude, oil sands or bituminous sands, the discoveries represent a potential almost equivalent to the proven reserves of the Middle East, placing Venezuela and Canada among the big holders of these reserves. The need for unconventional oil is highlighted by the growing demand for petroleum products in emerging markets, such as China and India, where more and more people are “getting out of poverty” by increasing their income and, at the same time, energy demand (China’s auto motor market is larger than the US). Although in many cases unconventional oil is considered more expensive than conventional oil, world demand for energy clearly demonstrates its importance for the continues development of the world economy.

Table I.3. Unconventional Oil – Reserves (b/b) 2014 Unconventional Resources EHOB Kerogen OIl Tight Oil OECD 809 1016 118 Americas 806 1 000 83 Europe 3 4 17 Asia Oceania ... 12 18 Non-OECD 1068 57 230 E. Europe/ Eurasia 552 20 78 Asia 3 4 56 Middle East 14 30 0 Africa 2 ... 38 Latin America 497 3 57 World 1878 1073 347 Source: OCDE/IEA, World Energy Outlook 2015, p. 131. In terms of oil production, the Middle East is the region with the largest reserves, as well as the highest production (31.7%), highlighting Saudi Arabia

(12.9%), followed by Europe and Eurasia (19.8%), and the Russia Federation (12.7%)17. Table I.4. “Top 5” Oil Producers (mb/day) at the end of 2014 Country Volume (mb/day) United States 11.6 Saudi Arabia 11.5 Russia 10.8 Canada 4.2 China 4.2 Source: BP, BP Statistical Review of World Energy, 2015, p. 10. In 2014, international trade in crude oil and refined petroleum products grew by 0.9% - among importers; with China and other emerging economies standing out as the major importing country. In the United States there was a decrease in imports.

To transport crude from production sites – wells or reservoirs – to refineries and distribution centers, considerable investments are required, either pipelines (ranging from the well to the nearest port of dispatch and the port of importation to refineries) or tankers. Trains or tank trucks are normally used in the distribution of by-products.

17 Cf. BP, op. cit., 2015.

Figure I.3. Main Movements of Petroleum Trade in 2014 (millions of tons)

The map illustrates the movements of crude and of products between the sources of production and the regions of consumption. Source: BP, BP Statistical Review of World Energy, 2015, p. 21. Looking at figure I.4, it can be concluded that, in 2014, the region that most exported oil was the Middle East (19.761 mb/d). Its exports were destined to practically all continents (Africa, Asia, America, and Europe), emphasizing Asian/Pacific region (13.733 mb/d). The second largest exporter of oil in the world the same year was the Russian Federation (8.932 mb/d). Its main recipient was undoubtedly Europe (6.028 mb/d). Exports from North Africa declined by 17.1% (equivalent to 360 mb/d), due to lower production in Libya. Nevertheless, the U.S. increased its production by 530 mb/d.

For the main importers, in 2013, Europe ranked first (12,637 mb/d), followed by the United States (99.792 mb/d).

The reorganization of energy trade flows towards Asian markets has accelerated. The increased import needs of China and India’s crude oil vis-à-vis the Middle East and other regions increases their vulnerability, with implications in terms of investment breakdown or oil supply disruption. By

2025, the non-OPEC supply from the United States, Canada and Brazil contributed to the growth of production. But by mid-2020, total oil supply outside of OPEC will begin to decline, boosting demand from holding countries for Middle Eastern resources. During this period, the capacity to produce above 100 mb/d will only be ensured by a very limited number of suppliers.

To summarize, for the major oil exporters, four major regions of supply can be identified, depending on the consumer markets that supply on a significant scale:

1. A central region, Middle East/Persian Gulf, which supplies Asia/Pacific, United Sates and Europe; 2. A first crown, consisting of Eurasia, which supplies Europe and Asia, so far with a clear predominance of the first, but evolving to a greater involvement with supplies to Asia; 3. A second crown, including the exporting countries supplying Europe and to a lesser extent the U.S. and China (West Africa); 4. A third crown, consisting of regional suppliers: Indonesia, Brunei and Malaysia for Asia-Pacific; Cana, Mexico and South America to the U.S.; and Africa (North Africa/Mediterranean) to Europe.

-Natural Gas-

Regarding natural gas consumption, it grew only by 0.4%, well below the 2.4% average recorded in the last 10 years. Global consumption is distributed in an unbalanced way. Two areas consume between 25-30% - Europe and Eurasia (29.6%) and North America (28.3%, up from 21.9% in 2012); two others consume between 10% and 20% - Asia Pacific (19.9%) and Middle East (13.7%); and two have almost no expression in consumption – Central and South America (5.0%) and Africa (3.5%). If we analyze countries individually, in terms of per capita consumption, we will see the major consumers are the United States (22.7%) and the Russian Federation (12%). Non-OECD countries, however, recorded a higher consumption than OECD countries (53.3% and 46.7%, respectively). Following a trend also in relation to oil consumption.

The Asia/Pacific region is scarce in terms of proven natural gas reserves, contrasting with the concentration of conventional reserves in the Middle East/Persian Gulf, as well as in Russia and Central Asia (Eurasia).

Table I.5. Proven Reserves of Natural Gas by Micro regions of the Global Economy (1994-2004-2014)

Region 1994 (%) 2004 (%) 2014 (%) Middle East 38.2 46.1 42.7 Europe/Eurasia 34.1 27.3 31.0 Asia/Pacific 8.1 8.3 8.2 Africa 7.7 9.1 7.6 North America 7.1 4.8 6.5 Central and 4.8 4.4 4.1 South America TOTAL (Trillions 119.1 156.5 187.1 of cubic meters)

Source: BP, BP Statistical Review of World Energy, 2015, p. 21.

In the same year, proven natural gas reserves reached 185.7 tcm (compared to 185.7 tcm in 2013, approaching 2012 values – 187.3 tcm), enough to account for 54.1 of production. The Middle East continues to hold the largest reserves (42.7% of the world total, compared to 31% in Europe and Eurasia) with a R/P around 150 years. In terms of countries, Iran, the Russian Federation and Qatar (with 18.2%, 17.4% and 13.11%, respectively) constitute the “Top 3”.

Regarding unconventional gas, it accounts for almost 60% of world production growth, pushing China to register the fastest growing production of gas among the largest producers. The United States continues to be the world’s largest producer of gas, although production is expected to slow down beginning in 2030.

Table I.6. Leaders in Natural Gas Reserves (End of 2014)

Natural Gas

Ranking Country TCM % Position in Global Terms 1 Iran 34.0 18.2 2 Russian Federation 32.6 17.0 3 Qatar 24.5 13.1 4 Turkmenistan 17.5 9.3 5 United States 9.8 5.2 6 Saudi Arabia 8.2 4.4 7 United Arab Emirates 6.1 3.3 8 Venezuela 5.6 3.0 9 Nigeria 5.1 2.7 10 Argelia 4.5 2.4

Source: BP, BP Statistical Review of World Energy, 2015, p. 22.

Table I.7. Unconventional Natural Gas – Reserves (TCM) 2014

Unconventional Tight Gas Shale Gas Coalbed Gas Sub-Total E. Europe/ Eurasia 11 15 20 46 Middle East 9 4 ... 13 Asia-Pacific 21 53 21 95 OECD Americas 11 48 7 65 Africa 10 39 0 49 Latin America 15 40 ... 55 OECD Europe 4 13 2 19 World 81 211 50 342 Source: OCDE/IEA, World Energy Outlook 2015, p. 131.

In the Americas, in addition to the U.S., both Canada and Mexico have significant shale gas resources. Substantial sources of shale gas were also found in parts of Europe, Argentina and South America. The unconventional gas revolution also hit China, where rapid economic development forced to accelerate the development of domestic energy resources. In addition, shale natural gas could help China reduce air pollution and environmental problems. Chinese companies have already signed

28 agreements with Western companies to exploit shale gas opportunities, and the Chinese government has signed an agreement with the United States to promote the production of shale gas. In 2014, natural gas production grew by 1.6%, below the average of the last 10 years (2.5%), except for the North American region. The United States continues to maintain its leadership in natural gas production (+6.1%); China continues to grow (+7.7%). The Russian Federation had a negative growth (- 4.3%), unlike the one registered in 2013 (+2.4%). The major producers are the U.S. and Russia, followed by Qatar, Iran and Canada18.

Table I.8. “Top 5” of Natural Gas Producers (BCM) at the end of 2014

Country Volume (BCM) United States 728.3 Russia 578.0 Qatar 177.2 Iran 172.6 Canada 162.0 Source: BP, BP Statistical Review of World Energy, 2015, p. 24.

Trade of natural gas contracted in growth in 2014, namely -3.4% per pipeline and -6.2% per vessel. Figure I.6 illustrates the routes of natural gas flows through the pipelines and liquefied natural gas (LNG) between the sources of production and the regions of consumption. In global terms, exports via pipeline decreased by 3.4%. Exports by pipeline fell by 6.2%, the largest decline in recent times, due to a reduction in exports from Russia (-11.8%) and the Netherlands (-29.2%). The United Kingdom (-28.2%), Germany (-10.1%) and Ukraine (-29.9%) also reduced their imports by pipeline. Looking at Figure I.4, we see that the country that most exported gas via gas pipelines was Russia. In fact, Europe is the main user of natural gas via

18 Ibidem.

29 pipeline. The European countries are supplied by countries of the same continent and Eurasia, highlighting the Russian Federation (187.4 bcm) and Norway (101.1 bcm). Europe is still supplied by African countries (most notably Algeria, with 19.5 bcm and, to a lesser extent, Libya with 6.0 bcm). European imports are lower than their exports.

Figure I.4. Main Movements of the Natural Gas Trade in 2014 (BMC)

Source: BP, BP Statistical Review of World Energy, 2015, p. 29.

In relation to the American continent, the movements registered through pipelines are intercontinental. Thus, in North America there are movements between the United States, Canada and Mexico, with Canada being the main exporter in this region, which in 2014 supplied only the United States (74.6 bcm). In Central and South America, Bolivia exported its gas mainly to Brazil (11.1 bcm) and Argentina (5.4 bcm).

Although the Middle East is the region with the highest proven reserves, the truth is that the movements through pipelines are few; exports (22.2 bcm) were lower and imports (29.7%). The African continent is undoubtedly an exporter of natural gas through gas pipelines (34.3 bcm), to European countries – Italy (Algeria and Libya), Spain (Algeria), Portugal (Algeria). In relation to the Asia/Pacific region, as it happens in the American continent, there are intracontinental movements, in which the following stand out as suppliers: Myanmar (12.7 bcm), Indonesia (9.5 bcm); Singapore (9.2 bcm) and Thailand (9.7 bcm), Australia (5.7 bcm), Malaysia (2.9 bcm) and China (2.8 bcm). China imported 31.3 from Eurasia. Compared to 2014, global LNG trade increased by 2.4% in 2014, with China (+10.8%) and the United Kingdom (+10.8%); with the reverse development in South Korea (-6.0%) and Spain (-15.7%). International Trade will expand faster than output because of the geographical imbalance between the holders and consumers of this resource. The main consumer regions of this raw material will be increasingly dependent on their imports. The share of natural gas in the total inter-regional fossil fuel trade will increase by a quarter (more than 20%) by 2040. LNG accounts for more than half of the increase in interregional global trade. The low percentage of international trade is mainly due to high transport costs. This latter aspect is complex and involved high investments, especially since a large part of the reserves are far from the regions of consumption. It should also be borne in mind that both the construction and the management of pipelines create legal and judicial issues. Concerns about gas safety are mitigated by increased LNG availability. All geographical regions, except for Europe, will contribute to a more than 50% increase in natural gas production. Global production of natural gas will increase almost linearly to 5400 bcm by 2040, with an increasingly important role for unconventional gas, which will increase its production share

31 from 17% to 31%. Gas resources will be more than sufficient to meet demand growth, but a cumulative investment of more than US$ 11 trillion will be needed along the gas supply chain. In relation to the major exporters of natural gas, there are four major supply areas, according to the diversification of the consumer markets that supply on a significant scale:

1. A central region, Middle East/Persian Gulf, which supplies Asia/Pacific, the United States and Europe; 2. A first crown, consisting of Eurasia, which supplies Europe and Asia, so far with a clear predominance of the first, but evolving to a great involvement with supplies to Asia, both Russia and Turkmenistan, being the supplier of China and, to a lesser extent, Japan the engine behind the shift to the Asia/Pacific region; 3. A second crown, including the exporting countries supplying Europe, and to a lesser extent, the U.S. (North and West Africa); 4. A third crown, consisting of regional suppliers: Indonesia, Brunei, Malaysia and Australia to the Asia/Pacific region (although they may also export to the U.S.); Canada and the Caribbean (Trinidad and Tobago) to the United States.

To summarize, natural gas continues to be largely marketed on a regional basis, especially as there are few physical links between the major regional markets in North America, Europe, Asia/Pacific and Latin America. However, as LNG trade expands, these markets are expected to become more and more integrated. As for oil and natural gas transportation infrastructures, they are extremely costly and their construction involves extended deadlines and predictable economic and political contexts for investors to invest their capital and know-how. While the oil market is global, the same can no longer be said of natural gas, which is still regional. In both resources we notice a move away from producing centers in relation to consumption regions (United States, Western Europe, China, Brazil, and India). In the 21st century, we will see a redesign of major oil and natural gas exchanges between producers and consumers. Effectively, it will be necessary to redesign the entire energy supply infrastructure as well as the functionality of the supply routes. In short, the

32 great challenge today is not so much with the quantities available as it is to “bringing them” to where they are needed. Emerging relations between the final key consumers will create new perspectives that will be reflected at high levels of economic and security policy.

II. THE EUROPEAN UNION AND ENERGY POLICY – A HISTORY

II.1 Background to the new EU energy policy – More than six decades of progress.

Ever since the implementation of the European Communities, energy policy has been a topic of discussion, be it explicitly or implicitly. The founding treaties of the European Communities refer to energy issues; however, none of them attributed a specific chapter solely for this issue. The first founding treaty of the European Coal and Steel Community (ECSC), known as the Treaty of Paris, signed on 18th of April 195119, aimed at creating a common market for coal and steel, so as to enable a susceptible modality to be progressively applied to other economic areas, in order to, if necessary, have access to the designing of European policy. Articles 3 (general objectives) and 57-64 (production and prices) reflect their purposes in this area. At the Messina Conference in 1955 the following was stated in the final declaration: “[...] to this end, the ministers agreed on the following objectives: […] to make available to the European economies more abundant and cheaper energy […]”. In the two subsequent treaties, also known as the “Treaties of Rome”, signed on March 25th, 195720, the energy issue was addressed once again. The Treaty establishing the European Atomic Energy Community (EURATOM), in particular articles 40-76 (Investments, Joint Ventures, Supply) and 92-100 (Common Nuclear Market), were intended to coordinate the research programs already underway in the Member States, or in preparations, for the peaceful use of nuclear energy. In addition to the research, the EURATOM treaty also sought to establish uniform safety standards for the safety if nuclear workers

19 The ECSC Treaty entered became abiding on July 25th, 1952, with a 50-year term (Article 97). 20 The two Treaties of Rome became abiding on January 1st, 1958, for an unlimited duration (Article 240 of the EEC Treaty and Article 208 of the EAEC Treaty).

34 and populations, to promote joint investments and to provide regular supplies of fossil fuels to Member States (having created a Common Supply Agency). The Rome Treaty which established the European Economic Community in Articles 100 (Supplying Issues) and 308, again, addressed energy issues. Examining the revisions that have taken place affecting the EEC treaty, we can conclude that aspects of energy policy in general and other areas have, over time, been addressed. However, the subsequent treaties did not provide for a specific legal basis for a Community energy policy, the fundamentals of remaining associated with the EURATOM Treaty and certain provisions scattered in the “Internal Market and Environment” chapters of the EU treaty. In fact, there are energy allusions in the Treaty on the European Union (Amsterdam Treaty), in particular Article 99 (4) (previously Article 3 (4) of the Maastricht Treaty, “Supplying Issues”) and in Article 308 (Previously Article 235). However, in this revision of the EU treaty, energy was not incorporated with its own chapter. In fact, energy policy was simply included in the list of objectives (Article 3 (u), previously Article 3 (t)) In addition, the same issue is referred to in the article titled “Environment” (Title XIX, previously Title XVI; Article 175 (2) – Previously Article 130 s (2)). The EU treaty also pointed to trans-European networks, which also includes energy infrastructure (Title XV, Articles 154, 155 and 156 in conjunction with Article 158 – previously Title XII, Article 129b, 129c and 129b – D in conjunction with Articles 70 and 130a). On the other hand, the EU treaty confirms that energy forms part of the Community´s fields of action. However, it remained clear that certain Member States did not have the capacity to delegate important energy policy competences in the Community. Accordingly, and in line with the principle of subsidiarity (enshrined in the treaty), energy policy will have to be regarded primarily as a task for the Member States. In October of 2004, a treaty was signed establishing a Constitution for Europe to replace existing treaties. The constitution contained a chapter devoted to energy. In Article I-14 (2) (i), energy was defined as a shared

35 competence; and in Section 10, Article III-256, the objectives of the EU’s energy policy were stipulated.

However, the problems that arose in 2005 in the context of the ramification of the Constitutional Treaty led the Union to launch a process of reflection on future reform. This led to an IGC with the task of drawing up a “reform treaty” designed to amend the existing treaties to enhance the effectiveness and democratic legitimacy of the expanding Union, as well as the coherence of its external action. The IGC’s work resulted in the Lisbon Treaty, signed on December 13th, in Lisbon. This treaty incorporated Title XX, focusing on energy. In Title I, Article 2, second paragraph, energy is defined as a shared competence21; and Title XX, Article 176a, stipulates the following objectives of EU energy policy:

 Ensure a well-functioning energy market;  Ensure energy supply security in the EU;  Promote energy efficiency and energy savings and the development of new and renewable energies. With the Treaty of Lisbon, energy would now have its own chapter, becoming a shared competence. Since then, European energy policy has rested on four pillars, namely: (1) ensuring the correct functioning of the energy market; (2) ensuring energy supply security; (3) promote energy efficiency; and (4) promote interconnection of energy networks.

In the first decade of the new millennium, and already marked by the deepening of the EU, which was triggered by the reunification of Germany, very significant steps were taken towards a common energy policy, largely influenced by the EU’s choice to take over the global leadership in the climate change mitigation process. Particularly the stages of building a common energy

21 According to Article 2 (2) (TItle I), “shared competence” between the Union and the Member States in a issue means that the Union and the Member States can legislate and adopt legally binding acts regarding this issue. Member States shall exercise their competence to the extent that the Union has not exercised its decision or has decided not to exercise it.

36 policy in the EU in the new millennium, without claiming to be exhaustive and giving special emphasis to three dates: 2007, 2010 and 2014.

II.2. The “Magic Triangle” and the 2007/2010 decisions.

Figure II.1 illustrates the Magic Triangle and its three cornerstones – supply security, economic competitiveness and environmental sustainability – pursued by the EU to achieve a common energy policy. These three cornerstones are interlinked and interdependent, implying a great willingness on the part of Europe, at various levels – political, economic, social and cultural – to put them into practice.

Figure II.1 EU - Major EU Challenges in Energy Sector - The Magic Triangle

Source: Illustrated by Catarina Mendes Leal, based on Keepler "European Energy Supply Security: Facts and Policy Options", 22/05/07; and Devos, "Security for Natural Gas Supply in Europe – The European Gas Industry Facing Security of Supply", 22/05/07.

The following table summarizes the challenges and measures required for each of the aspects of the Magic Triangle.

Tabela II.1 The Three Cornerstones of the Magic Triangle – Challenges and

Measures

Challenges Measures to Adopt

 Investments in the energy infrastructures of oil, gas, electricity and coal; Create a new concept of Security energy security in order to be  Implementation of energy efficiency policies prepared to face multiple  Clean Energy Policy Development of Supply challenges that the new century poses.  Creation of strategic reserves;

 Investing in the Atlantic Mediterranean axis.

The EU should, at an internal level, focus on neutral and independent infrastructure Implement the operation of the management (an effective separation between European Integrated Energy production and distribution = asset divestiture Market, not only for purely or other effective solution), create strong national Economic economic reasons, but also as regulators capable of ensuring effective a means of contributing to European coordination; to prevent abuses of a Competiti supply security. dominant position and to apply the competition rules where necessary, as well as in the field of veness natural gas, to assess the issue of long term contracts

There are three key factos at  Need to decarbonize economies through the the root of climate change: (1) development of new plans of action Ongoing population growth (by  Emission reduction, in order to be successful, 2030 it is estimated that must be linked to market mechanisms population numbers will reach Environm 9 billion); (2) At a biodiversity  Absolutely necessary to act in the largest level, 50% of current species polluting centers: thermal powerplants, will disappear; (3) the levels of electric powerplants and transport systems; ental CO2 are currently at 400ppm  EU and Emissions Trading Scheme (ETS), and projections are expected Objectives launched as a market-based instrument to to be 560ppm by the end of help achieve the Kyoto targets, accompanied st the 21 century. As a result, by interventionist policies; there will be a possible temperature increase of about  Mobilizing citizens, taking into account that 3 to 4 degrees Celsius and, the economy is global and government is local, inevitably, the instability of life the problem of global governance of the planet on Earth will also increase. and the need to restructure the functioning of the economy.

Source: Catarina Mendes Leal, 2015.

The 2007/2010 Decisions

Facing the needs, challenges and responses (environmental concerns, the new functioning of the European internal market, external dependence on energy products), the EU increasingly sees the importance of creating an interconnected energy policy. Four key documents marked a new stage in EU energy policy, with a central role for it in European action, as can be seen in the following figure:

Figure II.3 Elements of Energy Policy in the EU – 2007-2010

Source: Illustrated by Catarina Mendes Leal, 2012

The European Energy Policy, as decided by the European Council in March of 2007, following the Green Paper presented by the European Commission, clearly defined its three main objectives: competitiveness, sustainability and supply security, unfolding into a group of three guidelines and priorities: 1. Implementation of a Single Energy Market, to be concluded in the upcoming years; 2. Implementation of a broad articulated set of actions to achieve three targets in 2020 (in what is known as the “20-20-20 Strategy”. Renewable energy should contribute to 20% of the total of energy consumption, greenhouse gas emissions should be reduced by 20% and energy efficiency gains should allow for 20% savings in energy consumption: 3. Ensuring supply security to its 500 million citizens at competitive prices in the face of increasing international competition for energy resources, at a time when the EU will become more dependent on imports, due to the decline of its main internal energy basin (the North Sea)

The decisions made by the EU in 2010 reflected a triple evolution in the respective energy strategy: 1. A clear definition of the driving force for the entire EU energy policy, the decarbonization of the economy, pointing to a process that will allow for the reduction of CO2emissions from 80% to 95% by 2050: 2. Defining a set of energy infrastructures that will jointly move towards the objectives of decarbonization of the economy and the security supply of

fossil fuels during the transition to the decarbonized economy, which will still play a dominant role in the European energy sector; 3. A new approach to the R&D effort in energy technologies to ensure an effective decarbonization of the economy by 2050, built around a strategic plan (SET Plan towards a Low Carbon Future), organized around eight European industrial initiatives, to which four new large scale European projects are added, with the aim of making energy technologies a lever for resurgence of Europe as an innovative and competitive worldwide focal point. Let’s take a closer look at the priorities for infrastructure and technology.

Energy Infrastructures – EU’s priorities for 2020

Few priorities of the EU that were decided in 2010. These are:

1. Two concentration poles of the use of renewable and intermittent energies in the output of electricity and its connection to the electricity grid of the center of Europe: a.) The offshore wind energy network in the North Sea is based on the collaboration of nice States (Norway, United Kingdom, Ireland, Denmark, Sweden, Germany, Netherlands, Belgium, Luxembourg and France) for the installation of wind farms, possibly organized in clusters and located in the shallow offshore part of the North Sea, which could together achieve a capacity of 38.2 GW, making wind energy represent about 18% of the electricity generated, overall, in the nine countries, or 90% of all offshore wind that is to be implemented in the EU. To take full advantage of this investment in offshore wind requires building a regional network that connects these clusters and which has cross-border interconnections between participating States; b.) The mega production of solar and wind power in South-West Europe and North Africa its connections with the European networks with development projects in Spain, Portugal, France and Italy, plus those to be installed in North Africa (Project DESERC for example) that

could potentially reach 10GW capacity, of which 40% are wind and 60% are solar (example: solar thermal by concentration); this would involve expanding the currently trivial electric networks that run from the Iberian Peninsula to France, that would make the peninsula almost an “electric island” on the European continent, as well as from the Maghreb and southern Europe, notably by submarine cable between Italy and Tunisia, which in 2017, could be an addition to the Morocco/Spain connection. (Currently, the original members of project DESEREC have abandoned the project, as well as the developers of the project – Aglaia Wieland); 2. The power grid connections of Central/East and Southeast Europe to the new electric output poles, allowing the existing (starting with the German) networks to adapt to the strong flux changes resulting from the new onshore wind capacity and offshore power plants and the new thermal power stations set up in the north and northeast of reunified Germany, at a time when demand for electricity is growing mainly in south and southwest Germany. On the other hand, Southern Europe has a regional network that is not only poorly developed but also unprepared to receive electricity that a potential hydroelectric source could generate, making it desirable to create networks with Central Europe; 3. Completion of the electricity connection plan in the Baltic energy market, which included Denmark, Germany, Poland, Lithuania, Latvia, Estonia, Finland and Sweden, which consists of the most advanced macroregional integration project in Europe; 4. The southern pathway for supplying natural gas from the Caspian energy basin (Caucasus and Central Asia) and eventually the Persian Gulf energy basin. This pathway is part of a series of gas pipeline projects starting from the Caspian energy basin (Azerbaijan and Turkmenistan) and traversing Russia and Iran through Turkey, reaching Central Europe, Italy and the Balkans (including the often-referenced Nabucco project). The toughest challenge for the success of this pathway is to ensure that all its components (natural gas resources, transport infrastructures, and political, business and technical) are completed in a timely and compatible manner. 5. Finalizing the natural gas network plan in the framework of the Baltic energy market, in parallel with what has already been mentioned regarding electric power. 6. The implementation of north-south network for natural gas: a.) In Eastern Europe, an interconnection is being implemented to transport natural gas between the Baltic Sea region, including Poland,

served by the pathway from Russia with the Adriatic and Aegean seas and the Black Sea, and various Member-States (Poland, Czech Republic, Slovakia, Hungary, Romania, and possibly Austria, where the Nabucco pipeline ends), taking advantage of the existing Baltic Sea/Black Sea gas pipeline. This network will provide overall flexibility in the supply to Central/Eastern Europe, ensuring greater supply security and competition, enabling the communication of the east-west pathways: b.) In Western Europe, linking the Iberian Peninsula with its multiple LNG terminals and connections by pipeline to Algeria and Libya with Northwest Europe, allowing our continent to access the resources from Norway, Russia, the Mediterranean and the energy basins of the Atlantic. This connection also complements the forecast for solar and wind electricity already mentioned, providing the backup necessary to expand the output by renewable and intermittent sources. 7. Reinforcing infrastructures allows for greater security in the supply of oil to face potential interruptions in the main pipeline coming from Russia and that was built during the Cold War period.

In 2010, the European Strategic Energy Technology Plan (SET-Plan) was presented, organized by eight European industrial initiatives (EII), with the objective of strengthening R&D and energy technologies, aiming at the main objective of preparing the decarbonization of the European economy. These initiatives are targeted at sectors where collaborating at EU levels adds value and to technologies where barriers, scale of investment and risks are things that can best be collectively addressed. Then, in the Energy 2020 guidelines paper, four additional large projects were added.

Table II.2 European Industrial Initiatives (EII), 2010

Initiative Objective

Focus on photovoltaic (PV) and solar concentrator technologies to Solar Energy produce electricity (CSP), making these technologies more competitive and facilitate their large-scale implementation, both in urban areas and in large dedicated facilities, as well as allow for a better integration in the electrical networks. The estimated cost of this initiative was EUR 16

billion over the course of 10 years.

Wind Energy Make wind power more competitive in production of electricity, standardize exploitation of offshore wind energy and facilitate the integration of wind energy into the grid.

Demonstrate the long-term sustainability of nuclear energy by focusing Sustainable on the design and construction of demonstration reactors for fourth- Nuclear Energy generation nuclear technologies based on fast neutrons and closed-loop nuclear fuels. Three types of reactors stand out: fast reactors cooled by sodium, lead or gas (LFR and GFR). The first demonstration reactors are expected to start operating by 2020. This initiative also includes a R&D program for reactor safety, life cycle and waste management, for both current and fourth-generation reactors. The cost of this initiative has been estimated to be between EUR 7 billion to EUR 10 billion over the course of 10 years.

Develop and demonstrate the most promising solutions for carbon CO2 Capture, capture and sequestration (CCS) technologies that have a high potential Transport and to reduce the impact of continued fossil fuel burning on the planet’s Storage climate and environment. These technologies can help reduce CO2 emissions by 20% by 2050. CCS technologies will be applicable mainly in the electricity generating sector and in intensive energy industries that rely on fossil fuels. The ultimate goal was to achieve the commercial viability of these solutions under the European Emission Trading Scheme by 2020. The cost of this initiative has been estimated at around EUR 13 billion over the course of ten years, depending on the number and size of the CCS facilities that are built.

1) Full-scale development, demonstration and validation of Industrial technologies, processes and systems integration to enable the Electrical transmission and distribution of up to 35% of the electricity Networks generated from renewable, dispersed or concentrated sources by 2020, making the output of electricity completely decarbonized by 2050; 2) Integrate national networks further into a distinct European network, driven by market needs; 3) Optimize the investments and operational costs involved in upgrading European electrical grids; 4) Ensure a high quality of electricity supply and anticipate new developments that may occur, such as the overall electrification to transportation. The estimated cost of this initiative was EUR 2 billion (excluding the costs of assets used in the demonstration of the new solutions).

Technological Accelerate the development of technologies to enable commercial supply Industrial of hydrogen and fuel cells to enable the industry to make marketing methods joint decisions on the scale necessary for mass diffusion over the 2015-2020 by Fuel Cells timetable. The cost of this initiative, which is complementary to large and Hydrogen scale projects in certain Member-States, could reach EUR 1 billion over the course of 5 years.

Overcoming economic and technological barriers for the development of Industrial biomass-based energy technologies, seeking 60% reductions in Sector for greenhouse gas emissions from biofuels and bioliquids, according to Bioenergy sustainable criteria. This initiative predicts for the construction of up to 30 plants of industrial size and/or first industrial testing that allows the exploitation of bioenergetic value chains with a potentially large global market. The cost of this initiative was estimated at EUR 9 billion over the course of 10 years.

Smart Cities Increase energy efficiency and increase the use of renewable energy in large cities to achieve targets higher that those set by the EU’s Energy and Climate Policy. No cost estimates.

Source: European Commission, European Strategic Energy Technology Plan (SET – Plan), 2010. In 2010, two other large-scale projects were added to these eight initiatives. One project to enable Europe in regaining world leadership in energy storage technologies (for stationary and vehicle purposes), applying methods using hydroelectricity, compressed air, batteries and other innovative technologies, such as hydrogen. It includes energy storage technology that will allow the preparation of the electrical grids, of all voltage levels, to introduce massive units of small or large scale renewable electricity production. And a second project aimed at the development of smart grids, allowing to connect the set of electrical grids to offshore wind power from the North Sea, solar fields of Southern Europe and North Africa, and the existing dams for the individual consumers, making the networks more intelligent, efficient and reliable. In addition to these projects referenced in 2010, the ITER nuclear fusion project will be one of the main focuses of the European energy strategy long term. Finally, in terms of security of energy supply and international cooperation, five areas of actions were proposed, which are summarized in the following table:

Table II.3 EU: Energy Supply Security and International Cooperation

• Coordinating the internal market: enhancing the STRENGTHENING OF influence of the EU and its Member States THE EXTERNAL • Network integration: diversification of sources and supply DIMENSION OF THE routes EUROPEAN MARKET • Market integration with neighboring States: a comprehensive but differentiated approach • EU-Russia dialogue on energy: from partnership to integration • Parnerships with energy suppliers STRENGTHENING • Partnerships with industrialized countries and fast- PARTNERSHIPS FOR growing economies A GUARANTEED, • A stable and predictable framework for trade and SAFE, SUSTAINABLE investments AND COMPETITIVE • Promoting the highest environmental standards and ENERGY physical and operational safety on a global scale IMPROVING ACCESS  Energy cooperation adapted and differentiated according TO SUSTAINABLE to different types of EU relations with its partners ENERGY IN (market integration, consumer/supplier relationship, DEVELOPING consumer/consumer relationship) and the legal and COUNTRIES political instruments that must be used IMPROVEMENT IN • A strategic approach to energy partnerships PROMOTING EU • Stronger coordination between Member States POLICIES BEYOND • Optimization of EU external assistance in the energy ITS BORDERS sector

Source: Catarina Mendes Leal, based on European Commission’s “The EU Energy Policy: Engaging with Partners Beyond Our Borders”, 07/09/2010

II.3 The European Energy Security Strategy and the Energy Union Package – Safety and Sustainability

In 2010, the European Energy Security Strategy was approved. The Strategy identifies five mutually reinforcing, closely interlinked aspects that are designed to provide stronger energy security, sustainability and competitiveness.

Figure II.3 European Energy Security Strategy: Foundations and Issues

Source: Based on European Commission’s “The EU Energy Security Strategy”, Commission's Communication to the European Parliament and to the Council - COM (2014) 330 final, Brussels, 28/05/2014

In the framework of this energy strategy for the EU, the European Energy Security Strategy sets out in more detail the areas in which short-term, medium- term, and long-term concrete actions have to be taken or implemented in order to address the concerns linked to energy security based on the principle of solidarity, which together promotes close and mutually beneficial cooperation for all Member States while allowing them the freedom to make their energy choices.

Leaving aside the first line of action focused on short-term (immediate actions aimed at increasing the EU’s capacity to overcome a major energy outage during the winter of 2014/2015) there are seven issues that must be addressed for intervention.

Figure II.4 seeks to illustrate the integration of the two strategies.

Figure II.4 Energy Security and Sustainability

Source: J. Félix Ribeiro, Based on EU Council "Energy", 2015

While all economic sectors need to act to increase energy efficiency, the EU will pay particular attention to sectors with high energy efficiency potential, in particular transportation and construction, while continuing to create synergies between energy efficiency policies, resource utilization and circular economic principles. That will include exploring potential energy recovery from waste.

 Decarbonization of the economy and increase of energy production in the EU

The EU faces the dual challenge of both decarbonizing the economy by drastically reducing CO2 emissions and, on the other hand, increasing primary energy production within the EU in order to reduce the import of hydrocarbons. Renewable energies are seen as a means to achieve both

47 objectives and this is on the reasons why the EU wants to become the world leader in the renewable energy sector, and will have to lead the next generation in renewable technologies and methods for energy storage. It is just as essential to put the EU at the forefront of technologies for smart grids and smart homes, green transportation and environmentally friendly fossil fuels, as well as the safest nuclear energy production globally.

Due to its importance in the consumption of hydrocarbons, the decarbonization of transportation methods is fundamental to the decarbonization of the economy, which will require a gradual transformation of the whole transportation system, as well as the further development and implementation of alternative fuels. On the one hand, the EU must invest in advanced and sustainable alternative fuels, in particularly, biofuel production processes, as well as bio economy in general. On the other hand, the electrification in transportation is important to break the oil dependency and decarbonize the sector, especially in the case of road transportation (short and medium distance) and rail systems. Europe must accelerate the process of electrification to its motor vehicle sector and the other methods of transportation and take a leading position in the field of electromobility and energy storage technologies, and it is vital to take additional measures at Union level, to promote the rapid deployment of necessary infrastructure, i.e. fueling and recharging stations.

 Functional and Integrated Internal Market. Infrastructures and Networks

European electricity and gas transportation systems, including cross-border connections, are not sufficient to ensure the proper functioning of the internal energy market and to connect the remaining energy islands to the main electricity and gas network. In 2013, the EU identified 248 Projects of Common Interest (PCI) in the energy sector. The list was revised and updated at the end of 2015, and thereafter, it as to be revised every two years. In 2014, the

European Energy Security Strategy identified more than three dozen infrastructure projects considered essential to increase supply security and the improvement of interlinking energy markets.

Due to their special vulnerability – cooperation, solidarity and confidence in Central and South-Eastern Europe must be improved. The conclusion of specific cooperation agreements would help to promote a stronger integration of these markets into a wider European energy market, which would improve the liquidity and resilience of the energy system and enable full use of the energy efficiency and renewable energy potential of the region. The Commission will take concrete steps in this area as it is an urgent priority.

 Diversification of external sources and their respective infrastructures

To ensure the diversification of gas supplies, work is to be intensified in the construction of a southern gas pathway to allow countries in Central Asia to export gas to Europe. In Northern Europe, the realization of multi-supplied liquid gas platforms has greatly enhanced supply security. This example should be followed in Central and Eastern Europe, as well as the Mediterranean region, where a platform for Mediterranean gas is being developed.

The construction of infrastructure to deliver new sources of gas to the EU involves a great number of partnerships, whilst being a complex and expensive project. To resolve this issue, it is indispensable that the EU acts. The Commission will strengthen its support for this process by using all available Community funding instruments, in particular the planned European Fund for Strategic Investments (EFSI), fully involving all European financial institutions. However, the necessary infrastructures within the EU must also be developed, including the possibility of reversing the fluxes, to transport the gas to the necessary locations.

The EU should also exploit the full potential of liquified natural gas (LNG), in particular as an alternative method in times of crisis, when the gas arriving in Europe through the current pipeline system is insufficient. To address these issues, the Commission will develop a comprehensive LNG strategy which will also examine the transportation infrastructure needed to link LNG access points to the internal market. The potential for gas storage in Europe and the regulatory framework needed to ensure a sufficient level of winter gas reserves are also issues to be address within this context. The Commission will also work to remove barriers to imports of LNG from the United States and other LNG producers.

 Security and Sustainability – Funding Solutions

The transition to a more secure and sustainable energy system will require large investments in energy production, networks and energy efficiency, estimated at EUR 200 billion per year over the next decade. Given that most of the investment is to be undertaken by the private sector, the issue of access to financing will be critical. Currently, the European Investment Bank, the Connecting Europe Facility and the European Structural and Investment Funds already provide means to this end. In addition, the proposed European Fund for Strategic Investments will provide additional support by facilitating access to finance for projects regarding Europe, particularly in the energy network field, renewable energy and energy efficiency. The Commission will consider proposals regarding investments structures in the energy sector which will gather resources to finance economically viable investments, avoiding market distortions and fragmentation.

The Energy Union Package

On February 25th, 2015, the European Commission published the Energy Union Package, which aims to ensure secure, sustainable and affordable energy. The package consists of three main goals:  A framework strategy for the Energy Union, which specifies the objectives of the Energy Union and the concrete steps that be taken to implement it;

 A statement that sets out the EU vision for the new global climate agreement, to be adopted in December of 20015, in Paris;  A goal that defines the measures necessary to reach the 10% objective of electric interconnection by 2020. Figure I.5 Energy Union

Source: Illustration by Catarina Mendes Leal based on the European Council, “Energy Union: Safe, Sustainable, Competitive and Affordable Energy for Europe”.

In line with EU’s objectives set in the climate and energy action framework for 2030, the EU also must reduce its global dependence on fossil fuels and greenhouse gas emissions.

At the European Council meeting of March 19th and 20th 2015, EU leaders agreed particularly on:

 Accelerate completion of electricity and gas infrastructure projects;  Strengthen security of electricity and gas supply through increased energy efficiency, use of internal resources and low carbon technologies;  Ensure that gas supply contacts with external suppliers are more transparent and in full compliance with EU safety regulations;  Developing innovative strategies for a new generation of renewable energies and increasing energy efficiency;  Intensify EU climate diplomacy before the Paris Summit on climate change in December of 2015. The role of energy and climate diplomacy will play a key role in the implementation of the Energy Union. These two aspects of diplomacy should work in complementarity, and there should be coordination between EU diplomats with expertise in energy diplomacy and diplomats with expertise in climate diplomacy.

III. EUROPE, ITS CURRENT ENERGY SUPPLY SITUATION AND RUSSIA’S ROLE

III.1 Oil and natural gas demand in the EU and the geographical supply shifts of natural gas. Oil and natural gas are undoubtedly, the two primary forms of energy with the greatest impact in the EU energy umbrella (59% overall), a trend that will continue, according to various studies estimated by the EU and the IEA22, at least until 2030, with an estimated 55%, on that date.

Currently, the EU has a very high external dependency on its energy supply (oil and natural gas). It imports 53.2% of energy consumed. Of the 28 Member States, 16 imports more than 50%, Malta being the highest, which imports all the energy it consumes, followed by Luxembourg and Cyprus. And for countries not fully dependent on external supply, Denmark leads the list.23

Figure III.1 EU’s Energy Dependency (% of Energy Imported for Consumption)

Source: Eurostat, Energy Dependency Rate, EU-28, 2013-13, 2015.

22 23 EU Energy Figures - Statistical Pocket Book 2014, 2014 53

The dependency levels of energy imports are: crude oil (88.4%), natural gas (65.3%) and, to a lesser extent, on solid fuels (44.2%), as well as on nuclear fuel (40%).24

Energy supply security concerns all Member States, although some are more vulnerable than others; specially the least integrated and connected regions, such as the Baltic region and Eastern Europe.

The most pressing issue for the EU in terms of energy supply security is its strong dependence on a single external supplier – Russia. This is particularly true regarding gas. In 2013, energy supplies from Russia accounted for 33.5% of oil imports and 39% of EU natural gas imports: Russia exported 71% of its gas reserves to Europe, its most significant importers being Germany and Italy (although the same applied to electricity of the three Baltic States).

Figure III.2 Dependence on Natural Gas Supply from Russia

Source: European Commission, “European Energy Security”, 28/05/2014.

24 Eurostat, Energy Dependency Rate, EU-28, 2003–-13, 2015, [on-line], Available at: http://ec.europa.eu/eurostat/statisticsexplained/index.php/ Energy_production_and_imports#Energy_security.

Looking at Figure III.2, it can be noted that the graph reveals a stark contrast between EU States regarding both the importance of natural gas regarding energy supply and the crucial role Russia has as the supplier.

Thus, for example,

 France has one of the lowest impacts on natural gas within the energy umbrella, and depends very little on Russia’s domestic supply;  Slovakia, Latvia, Lithuania and Hungary, in contrast, are the obsolete opposite – a dominant role on natural gas and very dependent on Russia;  Germany remains in a more “centered position” – strong impact on natural gas and dependency on Russia’s supply, without reaching the levels of some Central and Baltic States;  The United Kingdome has a strong impact on natural gas in its energy umbrella, but has a weak dependency on imports from Russia.

The EU’s external energy spending represents more than EUR 1bn per day (approximately EUR 400bn spent in 2013) and more than more than a fifth of total EU imports, which imports more than EUR 300bn of crude oil and petroleum products, one third of which comes from Russia.

It is also important to examine EU energy security in the increasing global energy demand, which is expected to increase by 27% 2030, with major alterations in the energy and trade supply fluctuations.

Russia plays a significant role in the EU’s supply of both hydrocarbons, accounting for about 35% of the oil supply and 30% of natural gas. However, this average on natural gas omits a strong internal differentiation – that European States near the Atlantic have low dependency values and these values increase heading east to 80% or 90% to the States that joined NATO after the collapse of the USSR.

Concerns surrounding Russian’s supply security escalated during the conflict in Ukraine.

In response to the Russian-Ukrainian gas crisis in January 2009, the legislative framework on energy supply security was revised and in September

2009 the EU Council implemented Directive 2009/119/EC, imposing an obligation on Member States to maintain a minimum stocks of crude oil and/or petroleum products.

These measures for the oil and gas markets are designed to ensure that all parties take effective measures to prevent and mitigate the consequences of potential supply disruptions and to create mechanisms for Member States to work together to deal effectively with any significant disruptions that may arise in the supply of oil or gas; a coordination mechanism has also been set up so that Member States can react uniformly and immediately in emergencies.

In November 2010, the European Commission implemented an initiative titled “Energy 2020 – A Strategy for Competitive, Sustainable and Secure Energy” (COM 2010, 639). This strategy sets energy priorities for a 10-year period and puts forward the actions that can be taken to address a range of challenges, including achieving a competitively priced market, supply security, incentivize technological leadership, and effectively negotiating with international partners. One of the priorities is the advancement of good relations between countries in the energy interchange and external EU suppliers. Through the Energy Community (established in October of 2005), the EU has sought to integrate neighboring countries into its internal energy market. Establishing reliable partnerships with supplier countries, transit countries and consumers is seen as a way to reduce risks associated with the EU’s energy dependency; so, in September 2011 the European Commission produced a statement entitled “EU Energy Policy: Engaging with Partners Beyond our Borders” (COM 2011, 539).

Many initiatives are currently under way to develop gas pipelines between Europe and its eastern and southern neighbors. These include the Nord Stream (between Russia and the EU via the Baltic sea), which became operational in November of 2011, and the Trans-Adriatic Pipeline (linking

Turkey to Italy through Greece and Albania to import gas into the region of the Caspian Sea to the EU).

In response to persistent concerns about the EU’s dependence on energy imports, in May of 2014 the European Commission published its Energy Security Strategy (COM 2014, 330), which was analyzed in more detail in chapter II-section 3.

Shifts in the geography of the EU’s potential supply of natural gas

Natural gas is, among hydrocarbons, the one that, with the technologies in use, allows a more efficient and less CO2-generating electricity production. Therefore, special attention is given to natural gas and its European supply.

Three recent developments mark a change in the geography of the EU’s natural gas supply:

1. The North and Norwegian Sea have serious limitations on production growth, whereas they have previously played a significant role in supplying Europe (productions in the Netherlands, the United Kingdom and Norway); 2. North Africa faces physical constraints on increased production in the current energy basins in production (Algeria for example) and may remain in a turbulence that threatens production (in Libya’s case for example); 3. In Russia, the West Siberian deposits are also on track to reach limits on increased production and Russia will need to rely on natural gas from Central Asia (Turkmenistan for example) to secure Europe’s supply commitments if it does not enter in production with the new deposits located in the northern margin.

III.2 Russian and the European Energy Security

Russia – Oil and natural gas: reserves and production, size and location

Russia holds 103 billion barrels of proven oil reserves, with most of the production reserves located in the Volga-Ural region, extending to the Caspian

Sea (the oldest zone in terms of production) and to Western Siberia between the Ural Mountains and the central plateau of Siberia. There are other basins with important reserves, but they lie more to the north, in the direction of the Artic and more to the east, in Eastern Siberia and Sakhalin Island. In 2014, Russia produced 10.8 million barrels per day and consumed approximately 3.2 million barrels per day, having exported 8.9 million barrels per day.

Regarding natural gas, Russia has the largest reserves of natural gas in the world, which makes up just over a quarter of the total (36.6t cm). Over 40% are in Western Siberia, in the Yamburg, Urengoy and Medvezh’ye deposits are located to the north and east of Russia.

Russia – Petroleum and natural gas, export and transportation

In 2012 Russia’s oil exports were clearly Europe-oriented – most notably Germany and Holland, Poland, Finland, Estonia, Lithuania and Sweden, and already with significant exports to China.

Figure III.3 Russia: Crude and Condensed Oil – Main Export Locations,

2012

Source: EIA, Country Profile Russia, 2014.

In the same year, Russian sent about 76% of its natural gas exports to customers in Western Europe, with a volume highlight for Germany, Italy, France and the United Kingdom, and in smaller volumes – Austria, Finland and Greece. Turkey and Eastern Europe were the other destinations for Russia’s exports, as can be noted in the following table:

Around 88% of all crude oil and about 27% of the petroleum products produced in Russia are operated in a series of pipeline networks for essentially internal use and oil pipelines that transport oil to large export terminals such as Primorsk ( on the Baltic Sea) and Novorossiysk ( on the Black Sea); in addition, a series of export pipelines send oil directly to the Western European markets, namely the Druzhba oil pipelines – which provide the bulk of exports to Western Europe, and the Baltic Pipeline system (see Figure III.3).

Table III.1 Russia: Natural Gas – Main Export Locations, 2012

Russian NG – Main Export Locations %

Germany 24%

Eastern Europe 24%

Turkey 19%

Italy 11%

Other Western European Countries 10%

France 6%

United Kingdom 6%

Natural gas circulates in a very extensive network of pipelines – with links to producers in Central Asia and the Caucasus (former USSR). There are more

59 pipelines for export to Europe, with a first flow using Ukraine as a transit country and, more recently, a new flow performs the by-pass of Ukraine, using Belarus and Poland (as in the case of Yamal 1) or bypassing either Ukraine or Poland (as in the case of the North Stream), as described in Table III.2

Figure III.4 Main Russian Pipelines and Gas Pipelines to Europe

Source: Energy Challenges for Europe Structural Change in Europe; Cities and Regions – Facing up to Change, Germany, Hagbarth Publications, October of 2007, pp. 52-57.

Table III.2 Major Russian Gas Pipelines for Exporting

PIPELINES DESCRIPTION

Yamburg-Uzhgorod, Russia’s main export pipelines are four pipelines with Orenburg-Uzhgorod, combined annual capacity between 700 Bcf and 1 Tcf. They Urengoy-Uzhgorod, transport Russian gas from the West Siberia reservoirs to Dolina-Uzhgorod Western European countries (mainly Germany, Italy and France) through Ukraine.

Northern Caucasus It is a 350 Bcf gas pipeline linking Russia to Georgia and Armenia. It can carry 500 Bcf per year. It is a frequent target of sabotage in the North Caucasus.

Gas Pipeline Mozdok- Gas pipeline linking Southern Russia to Azerbaijan. Initially Magomed it was used to export Russian gas to Azerbaijan, but was later reversed and can now send about 200 Bcf of gas from Azerbaijan to Russia.

Gas pipeline operating since 2005, it is 750 miles long, Blue Stream linking Izonilnoye (Russia) to Samsun (Turkey) across the Black Sea. The gas pipeline capacity is approximately 560 Bcf per year.

Gas pipeline operating since 2006, transports Russian gas Yamal-Europe I to Germany through Belarus and Poland. Its maximum capacity is 1165.25 Bcf. The current proposal for Yamal-Europe II would expand the pipeline by 1 Tcf, although disputes between Poland and Gazproom in pipeline routing make the project less likely.

North Stream The North Stream pipeline was inaugurated in 2012 and has a maximum capacity of 1942,09 Bcf; it connects Russia directly to Germany via a submarine section of the Baltic Sea. To these pipelines, it was planned to connect them to the South Stream, which it be covered further on.

Announced in 2007, its construction began in December of 2012. South Stream The South Stream was designed with an offshore crossing of 931 km by the bed of the Black Sea (reaching the depth of 2200 m). An expensive infrastructure, which would have to pass through Turkish waters. It would be constituted of two branches: one

oriented north towards Austria; and another oriented south, towards the Balkans.

Source: IEA, Country Profile Russia, 2014.

Finally, in its energy development plans, Russia must ensure a more significant presence in international LNG trade, which will enable it to have a much greater flexibility in the exportation of natural gas in spot market (rather than the market for long-term contracts).

Russia currently has a single LNG export terminal in the Pacific on Sakhalin Island (operating since 2009), through which it can export up to 788 MMcf of LNG per year on two trains; the majority of LNG was contracted by Japanese and South Korean buyers under long-term supply agreements25.

Currently, there are proposals for new LNG terminals at various stages of planning and development, such as:

 Yamal LNG – Project located on the Yamal peninsula in the Arctic (technologically, politically and economically challenging);  Shtokman LNG – In the Barents Sea as well.

Russia’s oil and natural gas production base: limitations and potentialities The energy geo-economy in Russia faces a very significant challenge: the energy basins, which were the basis for Russia’s production and export of oil and natural gas from the 1960s and 1970s, located in the Volga and Western Siberia, are in the process of declining production (susceptible to some delay if EOR technologies developed by Western companies are intensively used). As a result, Russia needed to be able to rely on natural gas from Central Asia (Turkmenistan) to secure its commitments to supply European countries.

But Russia, as previously stated, has large untapped deposits, although further north – some even in the Artic basin and to the east – in Eastern

25 In fact, in 2012, LNH exports were distributed as follows: Japan – 76%; South Korea – 20%; China – 35%; and Taiwan – 0.6%, according to PFC Energy

Siberia, or on Sakhalin Island. Figure III.5 illustrates the extent of the expected reduction in the production of the reservoirs currently securing the bulk of natural gas production and the need to replace them with new production that requires investment in the development of the new reservoirs.

Figure III.5 Russia: Decline in Production of the Giant Gas Fields in Western Siberia and Its Successors

Source: Bent Soderbergh, «Production from Giant Gas Fields in Norway and Russia and Subsequent Implications for European Energy Security», Global Energy Systems, Uppsala University, Stockholm, 8-4-2010.

Russia and energy – Looking towards the future

 Russia has a sector in the energy field in which the international relevance of the Eurasian centrality is evident, since it can sell oil and natural gas both to the European continent, Asia Pacific and, particularly China. It constitutes, for the moment, as the simultaneous purchaser of arms and energy.  Russia, however, faces a constraint in the exploitation of this centrality in terms of energy: the capping or even decline of production in the energy provinces on which it has based its supplies to Europe.

Overcoming this limitation requires massive investment in the development of the new northern provinces on the Arctic or Eastern Siberian border.  In order to move forward with the development of the new deposits and the great investment it requires, without undermining the current priority of applying energy income to the industrial military complex, Russia must seek foreign partners to invest in that development (while promoting penetration of Russian state-owned enterprises into the downstream of developed economies, thereby increasing their revenues). Two of these partners are in the Asia-Pacific: China and Japan.  Russia has wished to maintain competition between China and Japan for the access to East Siberian energy reserves, in a direction during the Putin presidencies that would be interrupted during the Medvedev presidency, in favor of closer rapprochement of China.  Russia uses energy to maintain or strengthen its influence in the territory of former USSR; (Nord Stream and Turkey Stream pipelines), which will enable it to use the “energy weapon) with Ukraine in the future without running the risk of disrupting supplies to Europe.  Russia has sought to intervene in the pipeline of oil and natural gas production in Central Asia (Kazakhstan and Turkmenistan), placing it in its network of oil ad gas pipelines. Although China has established partnerships with both these states to supply oil and natural gas through the construction of new pipelines.  Russia uses energy to consolidate its influence in Europe by maintaining the full energy supply of the Eastern European states that have joined NATO and the EU and gradually building a partnership with “central” European states (notably Germany, Austria and Hungary) in order to accentuate divisions within the EU.

Box III.1

Russia’s Energy Strategy and EU Energy Strategy on the South Rim26

After the direct connection to Germany via the Nord Stream gas pipeline and the two Eastern Europe supply cuts in the 2000s, Russia has carried out a number of maneuvers with the aim of dominating or having a relevant stake in the alternative natural gas distribution circuits in the south, especially in the Eastern Mediterranean:  2012-2013 – Gazprom has consolidated its participation in the development of Leviathan, Israel’s largest offshore gas field; provided financial assistance to Cyprus, in exchange for preferential terms for future participation in projects for the production and distribution of the country’s huge natural gas reserves;  2014 – It abandoned the South Stream pipeline because of the Ukrainian conflict and European competition rules that prevent the same company from producing and distributing natural gas, turning to the Turkish Stream – that is, a pipeline that will cross the Black Sea perpendicular to the Crimea Peninsula, crossing Turkey, connected by an interconnector to Greece, with further distribution in Eastern Europe. Russia therefore offers Turkey and Greece the opportunity to become strategic energy hubs for the EU by economically undermining the European Trans-Anatolian Pipeline (TANAP) project, which would transport gas from Azerbaijan and thereby mitigate European dependency on Russian gas.  First week of April of 2005 – On the 7th, a joint declaration was signed on energy cooperation between Greece. Serbia, Hungary, Macedonia and Turkey, i.e. the same set of countries as the Turkish Stream; on April 8th, the summit between Putin and Tsipras established that Greece could count on Russia’s support in building the Hellenic Stream, which would connect to the Turkish Stream. This support could materialize through Gazprom’s entry into the privatization of DEPA, the Greek natural gas distribution company. At the same time, Gazprom is also a major shareholder in the promising El Assel Project, one of the most important in Algeria regarding natural gas. Which means that Russia has already advanced beyond the Easter Mediterranean.

26 Cf. Ruben Eiras, «Gás natural: o longo jogo da Rússia», in Jornal i, 14-04-

2015.

Box III.2

The New Geo-economy of the Energy Security Enhancing Energy

Five regions are creating new opportunities for EU supply of oil and natural gas:  Norway and the Arctic – By exploiting the natural gas fields located in the Barents Sea, Norway can supply natural gas to Europe, either through gas pipelines or through LNG, and the EU positions on these is still unclear regarding these possible methods of supply.  US and shale gas – The start of largescale shale gas exploration in the second half of the 2000-2010 decade marks a shift in the supply profile of one of the largest consumers of natural gas in the global economy which may even become an exporter;  The Surprise of the Eastern Mediterranean (as of 2009, there have been discoveries of large offshore natural gas deposits, first in Israel, then in Cyprus and, by 2015, in Egypt). The Eastern Mediterranean together with the “southern pathway” defined by the EU, could be an alternative source of supply, notably for the Balkans and Eastern Europe;  The discoveries in the deep offshore of the South Atlantic, reinforcing the role of Angola and Brazil and possible including Namibia;  Large-scale natural gas discoveries in the offshore of the Western Indian Ocean – Northern Mozambique and Tanzania. A more detailed examination of the contribution of the South Atlantic and Lusophone region will be established further on.

IV. THE EMERGENCE OF THE ENERGY ATLANTIC BASIN – AN ALTERNATIVE TO RUSSIAN ENERGY?

IV.1 Energy Map of the Atlantic Basin

According to Paul Isbell27, from a cartographic point of view, the Atlantic basin encompasses:

“in the north at the Arctic Ocean, moving southward and counterclockwise along the coasts of Greenland and Canada to the United States; down through the Gulf of Mexico and the Caribbean to Venezuela, the Guyanas, and the eastern Amazon Basin; and then moving on through southern Brazil, the Rio de la Plata, Argentina’s Patagonia, Cape Horn, and Antarctica. The basin then turns northward, continuing counterclockwise back up to the Cape of Good Hope, along the coasts of South Africa, Namibia, Angola, the Congo River Basin and the Gulf of Guinea, West Africa, Mauritania, Morocco, Spain, France, the British Isles, the Low Countries, Germany, Scandinavia, and back up to the Arctic Ocean. A broader definition would include the countries bordering the Caribbean Sea and the Gulf of Mexico, as well as the Mediterranean, and possibly even the Baltic. A narrower definition would probably first exclude the Baltic, and then perhaps the Mediterranean. Considering the history and geography of the Atlantic, however, a definition that excluded the Caribbean would probably be considered too narrow and less credible”.

27 Cf. Paul Isbell, Energy and the Atlantic: The Shifting Energy Landscape of the Atlantic Basin, Wider Atlantic Series, Washington, GMF, 2012, pp. 9-12.

For the author, the Atlantic basin’s economy – as a geo-economic unit, has never been the subject of a quantified mapping, so the author has proposed the following:

“The “broad” definition of the Atlantic Basin includes in their entirety the three continents — North America, Central and South America, Europe, and Africa — that border the Atlantic, including those countries from these continents (such as Peru and El Salvador, or Kenya and Tanzania) that do not border on the Atlantic Ocean. [...]

An “intermediate” definition might include all countries that have some sort of water outlet to the Atlantic Ocean (including countries on the Mediterranean, Baltic, or Caribbean seas) but exclude landlocked countries and countries that only have a coast on the Pacific or Indian Ocean. [...]

The “narrow” definition of the Atlantic Basin is actually an economic adjustment to the looser version of the “intermediate” definition. Although the “direct coastline” definition is probably too rigid to be meaningful to most (unless we are willing to view the claim of the Caribbean as no more, and no less, legitimate than that of the Mediterranean), a looser definition, which includes the Caribbean but excludes the Mediterranean and the Baltic, does bound the possible geographic range of the Atlantic at one end of the continuum, opposite the other extreme, anchored by the “broad” definition (which almost universally would be considered too excessively broad). However, some countries, if only a limited few, have direct coastlines on two different ocean basins. Some of their energy production, consumption, and trade could be linked to the Pacific Basin, whereas the rest may more credibly belong to the Atlantic Basin. This is the case for the United States and Canada, for example. South Africa is also a dual-basin economy; however, that country’s Indian Ocean and Atlantic coasts form part of a continuous coastline that directly integrates these two basins. Still,

68 because disaggregated data is often not available to break down energy and energy trade activity by ocean basin, a geo-economic adjustment is applied to the looser version of the “direct coastline” (or loose “intermediate”) definition of the Atlantic Basin: dividing in half the key data figures of those Atlantic Basin countries that also have a direct coastline on the Pacific or Indian Ocean. This would imply 50 percent adjustments to the United States, Canada, and South Africa, as well as a number of continental European countries (e.g., Germany), with their long Eastern European/Russian “backyard” (a kind of “land basin” with respect to energy trade) supplementing their Western European energy position on the Atlantic Basin”.

Figure IV.1 The Atlantic Basin

Source: Encyclopedia Britannica, Scholarly Edition, 2014.

In recent years, the Atlantic basin has witnessed impressive oil and gas discoveries in the Gulf of Mexico, in the offshore of French and Dutch Guiana, the deep-offshore of Brazil and across the Atlantic, the Gulf of Guinea, offshore Ghana, in the Niger delta and in the deep-offshore of Angola.

One of the great revelations was the discovery of large-scale oil resources in pre-salt formations in the Brazilian offshore.

The estimated reserves can go up to 80 or 90 billion barrels of oil, which means the discovery of a new Kuwait right in the middle of the South Atlantic. For the first time in decades, there seems to be a new counterbalance to the power and influence of the Middle East and Russia in the international system. The impact of this re-emergence of the Atlantic Ocean as an energy region is significant: 91% of the world’s offshore oil reserves are in the Atlantic Ocean. The production of the deep offshore in the Atlantic represents about 10% of the world’s production, with half being from Brazil and Angola. The geopolitical consequences of the re-emergence of the Atlantic basin will influence the functioning of the international energy system.

The emergence of Asia and the intense demand for energy, minerals, food and arable land and water resources are found on the shores of the South Atlantic, Africa and Latin America, with a unique concentration of this natural resource. And so, the South Atlantic will become a geo-economically central ocean, for both Asia (China and India) and for the US (energy and minerals) and, as the norm, Europe. At its margins are emerging international corporations involved in the areas of agri-food, forestry, mining, oil and construction/public works.

Table IV.1 The Atlantic: Main Reserves and Production of Oil and Natural Gas (Conventional and Non-Conventional) – 2013/2014

OIL NATURAL GAS

Non- Non- conventiona Conven Conventio Reserves l Reserves – Productio tional nal Production Countries Billion Tight Oil n (mb/d)* Reserve Reserves (bcm)* Barrels* Billion (2014) s (tmc)* tcf** – (2014) (2014) Barrels** (2014) shale gas (2013) (2013) South Africa ...... 389,7 ...

Angola 12,7 ... 1712 ......

Argentina 2,3 27 629 0,3 801,5 35,4

Brazil 16,2 5,3 2346 0,5 244,9 20,0

Canada 172,9 8,8 4292 2,0 572,9 162,0

USA 48,5 78,2 11644 9,8 622,5 728,3

Nigeria 37,1 ... 2361 5,1 ... 38,6

Venezuela 298,3 13,4 2719 5,6 167,3 28,6

Source: *BP, BP Statistical Review of World Energy, 2015; **EIA, Technically Recoverable Shale Oil and Shale Gas Resources, 2015.

If China’s growth is sustained, albeit at a slower pace, the South Atlantic margins will continue to benefit from a surge in high commodity prices by 2020. The fact that all the countries on its banks stand out as producers of raw materials reduces the role of regional trade agreements that may (if they could) cover ocean territory, although these agreements are interesting for countries with more diversified, more industrialized economies and with business service sectors, and with a regional commercial space on the continent. Mercosul, in Brazil’s case, and SADC in South Africa. However, it

71 should be noted that the functioning of Mercosul is far from commensurate with the initial ambitions due to protectionist policies that are difficult to overcome in of its States.

Looking at the next figure for 2015, it is possible to evaluate, according to country @rating, the risk presented by all the major countries in the South Atlantic energy basin for investments and businesses.

Effectively, country @rating assesses the extent to which corporate financial commitments are influenced by the economic, financial and political prospects of the respective country. This classification includes seven risk categories – A1 to A4, B, C, D – regularly applied to 160 countries.

 A1 – The stable of political and economic environment has a positive effect on an already good situation of business payments. The probability of default of payments is very low;  A2 - the probability of default of payments is still weak, even in the case where the political and economic environment of a country or the register of payments of companies is not as good as in A1;  A3 – Adverse political and economic circumstances may lead to worse payment records, which are already lower than in previous categories, although the probability of default of payments is still weak;  A4 – An irregular payment registered may be worsened by the deterioration of the political and economic environment. However, the probability of default is already considerable;  B – An unstable political and economic environment is likely to further affect an already weak payment record;  C – A very unstable political and economic environment could deteriorate a negative payment record;  D – The high-risk profile of a country’s political and economic environment will further worsen a negative payment record.

Table IV.2 The Main Countries of the Atlantic Energy Basin – Business Risks (2015) Country Rating

South Africa A4 Angola C Argentina C Brazil B Canada A1 Cape Verde B USA A1 Nigeria C Portugal A4 São Tome and C Principe Venezuela D

Note: COFACE does not have the ratings for Guinea Bissau and Equatorial Guinea.

Source: COFACE, Country Risks Analyses, 2015.

Of the selected countries from the Atlantic basin, only two are classified as A1. None of the countries rated were classified with an A2 and A3 rating. With an A4 rating, there’s Portugal and South Africa. With an unstable political and economic environment – B – are Brazil and Cape Verde. Four of the actors identified in this area are confronted with an unstable political and economic environment with repercussion on the payments and exchanges of their respective corporations; and one of these actors is in a political-economic situation characterized as a high risk.

Before concluding this section, it should be emphasized that there are geological similarities between the west coast of Angola and the east coast of

Brazil, as well as between the Portuguese marine basins and the margins of the Grand Banks of Canada.

And so, Figure IV.2 illustrates the geological similarities between the west coast of Angola (along with some neighbouring countries) and the east coast of Brazil, which contains pre-salt formations with a potential for large supply amounts of hydrocarbons.

Figure IV.2 When the Two Margins were Jointed – Tectonic Plates of South America of the African Continent – Geological Similarities

Source: Wood Mackensie, HIS e Colbat International Energy, Offshore-mg.com.

Recently, pre-salt discoveries have been made in Africa, as had happened years earlier in Brazil. Data available today, mostly from 3D seismic analysis of existing oil and parent rock geochemistry, as well as 3D modeling of reservoirs, show a very pronounced similarity between the South and West African oil

74 basins as far as to the pre-salt deposition sequences. This can be explained by the fact that these regions were in continuity with each other before the separation of the continents, hundreds of millions of years ago.

Similarly, the Portuguese marine basins are the combined margins of Canada’s Grand Banks, with the potential to share the same Jurassic-bearing rocks.

Figura IV.3 Portuguese Marine Basins – Conjugated with the Margin of Canada

Source: Manuel Ferreira de Oliveira, «Exploration of Oil and Gas in the Deep Water and Border Areas», July 2014

IV.2 The Central Player of the North Atlantic – The United States and shale gas The shale gas revolution in the United States is a clear example that energy systems retain the potential for drastic and rapid change as a technology reaches a point of inflection of proven effectiveness and commercialization. In 2005, shale gas production accounted for 6% of total US gas production and

1% of global gas production. By 2014, shale gas production had grown at the rate of 52% in terms of US production and 11% of global production. Even though gas markets outside of North America still do not feel the direct impact of this revolution (pending the start of US LNG exports), the indirect results of a reorientation of market expectations have shifted the gas and coal market, and the economic momentum in the United States economy itself is already important both inside and outside North America.

Shale gas has long been known in the US as a potential resource exploited, albeit on a small scale and in geological formations that allowed for easier exploration. However, for years it was considered that its production was too difficult and expensive. In the 1970s and 1980s, constraints on expanding conventional natural gas supply drove efforts to overcome these obstacles, with a series of government-funded research projects emerging, examining the technology needed to achieve this resource (given the concerns about high natural gas prices and the decline in conventional reserves).

Four technological advances were essential to make possible the large-scale exploitation of shale gas deposits in very different geological formation in the US. Two of these technologies – horizontal drilling and 3D Seismic – were developed for the petroleum sector. Fracturing was developed in the way it was diffused in the natural gas (hydraulic fracturing) industry thanks to the research and experimentation carried out by one of the pioneering companies, Mitchell Energy & Development (meanwhile acquired by DEVON Energy). Another technology – the Microseismic Fracture Mapping – was very relevant to allow us to define the most appropriate method of fracturing, considering the specific characteristics of the fissures in the schist rocks of each deposit.

Figure IV.4 Shale Gas: Horizontal Drilling and Hydraulic Fracturing

Source: IEA, Annual Energy Outlook 2011.

Since 2003, shale gas has experienced an extraordinary boom, after representing only 1.6% of total US natural gas production in 2000; increased to 4.1% in 2005 and to 23.1% in 2010. In a few years, shale gas production has become dominant and, according to reserve estimates in the meantime carried out by official bodies, will increase its importance in the future (although there is no unanimity around these estimates, which analysts consider overly optimistic).

The United States, due to technological innovations (horizontal drilling and hydraulic fracturing), has established a new frontier in the use of unconventional energy resources, with the start of large-scale exploitation of shale gas, which will not only allow them to be self-sufficient in the coming decades in relation to the least polluting fossil fuels, but become exporters as well.

The development of oil and gas production in the United States is occurring in 31 states, with many producing non-conventional gas. Since 2008, shale gas production has increased significantly, especially in Texas (Barnett and Eagle Ford) and Pennsylvania (Marcellus), as shown in the following figure. At least half of the States involved in the production of unconventional gas have introduced specific rules or legislation in this area, with particular emphasis on the regulation of the stimulation processes, i.e. hydraulic fracturing. The Federal Government is directly involved in regulating oil and gas on federal lands. In addition, municipalities have broad powers over traffic and noise management; and sometimes use these powers to oppose or, in some cases, block the development of unconventional gas production.

Figure IV.5 Location of Shale Gas’s Top Reservations in the US

Source: OECD/IEA, World Energy Outlook 2015, 2015, p. 238. Meanwhile, the US and Japan are moving forward with the development of much less polluting natural gas energy transformation technologies in the form

78 of new turbine generators and fuel cells. According to forecasts projected by BP28, in 2035 the US will be self-sufficient, maintaining the position of top producer of natural gas and LNG. Natural gas will exceed oil in terms of hydrocarbon consumption, i.e. it will increase from the presently 30% to 35% by 2035, while oil consumption will decline from 36% at present to 29% by 2035. Production of shale gas will double. In this context, with a substantial increase in oil and gas production, oil imports will decline by 75% and the country will become an exporter of natural gas by 2017.

These BP forecasts are reinforced by the World Energy Outlook (WEO) 2015 estimates for the long-term relative to the future path of unconventional gas in the US. Indeed, the United States is expected to remain the largest producer of unconventional gas globally by 2040, when shale gas will have a centered influence, as only about 10% of estimated gas reserves of shale, and there are no signs of diminishing this resource in the near future: according to WEO 2015 projections, shale gas will grow from its current levels of about 420 bcm by mid-2015 to a peak level around 570 bcm in the next decade (2020), following a continuous trajectory in 2030 and only seeing a small reduction to 460 bbc in 2040 (illustrated in Figure IV.6).

Figure IV.6 Projection on Non-Conventional Gas Production (by Type) in the US (2013-2040)

28 Cf. BP, «Country Insights US 2035», BP Energy Outlook 2035, 2014, [on-line], available at http//www.bp.com/energyoutlook.

Source: OECD/IEA, World Energy Outlook 2015, 2015, p. 244.

At the same time, two processes are changing the “composition of value” of the North Atlantic in order to increase its geo-economic importance.

The US has assumed with the current Administration a geo-economic strategy in Globalization that involves the creation of two ocean-setter trade and investment partnership areas with Pacific and the North Atlantic coastal States that maintain strategic alliances or excellent economic relations with the US and it policies. One is the Transpacific Partnership and the other is the Transatlantic Trade and Investment Partnership negotiating between the US and the EU.

IV.3 Lusophone States of the CPLP Located in the South Atlantic In an increasingly globalized world, the vast body of water of the Atlantic, located between the two poles and three continents, is in the process of regaining its strategic status. As previously mentioned, 30% of the oil reserves are at sea and 35% of the natural gas reserves are as well – of these percentages (30% and 35%), 90% are in the Atlantic. In addition to the shale gas reserves in the US and Canada, let us now focus our attention on the South Atlantic zone, particularly in the Portuguese-speaking CPLP area, which includes Brazil, Angola, Guinea Bissau, Equatorial Guinea and Sao Tome and Principe.

Table IV.3 Relevant Data

GDP GDP 2015 Index of Country Territorial Populatio 1 per Economic Extension n Millions Billion Capita Freedom 1000 km2 USD USD (Ranking of 186 Countries) Angola 1246,7 20,8 124,0 5485 158 Brazil 8515,8 198,7 2.253 11 630 118 Cape Verde 4,0 0,5 2,0 3838 60 Guinea Bissau 36,5 1,7 0,9 539 145 Equatorial 28,051 0,8 14,3 17 430 173 Guinea Portugal 90,2 10,5 220,6 25 403 64 Sao Tome and 1,0 0,2 0,263 1402 146 Príncipe Total 9922,71 233,2 2613,2 65 727 800 6

Source: World Bank, Index of Economic Freedom, United Nations, 2005 The Lusophone Atlantic region has seven of the nine CPLP member countries, representing 233.2 million people, with an official language in common, significant cultural ties and an important legislative foundation shared between Portugal and the PALOP.

Since 2006, 50% if the world’s total oil and gas deep water discoveries have been located within the CPLP member countries area (Angola – 5%, Brazil – 30%, and Mozambique – 15%); and of these. 19% are in the Lusophone region of the Atlantic.

Figura IV.7

Petroleum and Gas Discoveries in Deepwater After 2006

* Deepwater discoveries refer to discoveries on water depths of more than 400 meters

Source: Wood Mackenzie e Bernstein Research, 2015.

Portugal in between two Atlantics

In prosperity terms for oil and gas in Portugal29, only recently has national political power recognized the strong potential that the national territory has in terms of geological resources. In the scope of existing or potentially existing geological resources capable of generating energy, this is still a poorly explored area, where it is necessary to take policies that lead to the development of projects, the use of renewable resources and the exploration and exploitation of hydrocarbons for which a great potential has been untapped in Portugal, especially deep-offshore, that in, in the Portuguese Continental Shelf, between 200 and 2000 meters deep.

29 Cf. Information provided by the General Directorate for Research and Exploration of Petroleum (DGPE), of DGEG, [online], available at http://www.dgge.pt; and by the National Entity for the Fuel Market (ENMC), 2015, [on-line], available at http://www.enmc.pt/en/en/activities/search-and-exploration-of-resources-petroliferos / contracts-and-concessions / in-execution /

Over the last 35 years, Portugal has gained a knowledge of the national energy resources resulting from the seismic campaign carried out in the Portuguese deep-offshore by TGS-NOPEC, which revealed the existence of several potentially interesting geological structures for the accumulation of hydrocarbons. Thus, Portugal should promote the petroleum potential and encourage research to attract international investments related to this field.

Table IV.4 Portugal: Concessions and Contracts

LOCATION CONCESSION CONTRACTS Australis Oil & Gas LTD required the license for three Onshore – concessions through direct negotiation. Lusitanian Basin: The concession contracts for the areas named Three Areas “Batalha” and “Pombal” were signed on September 30th, 2015 with Australis Oil & Gas Portugal. Onshore – Algarve The concession contracts were signed on September Basin: Two Areas 25th, 2015 with Portfuel, Oils and Gas of Portugal, LDA. Deep-Offshore – Kosmos Energy LLC required the license for two Alentejo Basin: Two concessions through direct negotiation. Areas Deep-Offshore – The concession contracts were signed on September Algarve Basin: 4th, 2015 with the Repsol/Partex consortium. “Sapateira” and “Caranguejo” Areas Deep-Offshore – The concession contracts were signed on October 21st, Algarve Basin: 2011 with the Repsol/RWE consortium. “Lagosta” and Desde 13 de setembro de 2012, por adendas aos “Lagostim” Areas contratos, estas concessões passaram a ser detidas pelo consórcio Repsol/Partex. Deep-Offshore – The concession contracts were signed on May 18th, Peniche Basin: 2007, with the consortium Petrobras/Galp/Partex. “Camarão”, Since May 18th, 2013, by edits made to the contracts, “Amêijoa”, these concessions have been held by the “Mexilhão” and Repsol/Galp/Partex consortium «Ostra» Areas The concession contracts were signed on February 1st, Deep-Offshore – 2007 with the Hardman/Galp/Partex consortium. Alentejo Basin: On March 25th, 2010, through additions to the “Lavagante”, contracts, these concessions were now held by “Santola” e Petrobras/Galp consortium. “Gamba” On February 1st, 2014, by additions to the contracts,

these concessions were held by Galp. Since December 18th, 2014, by additions to the contracts, these concessions are now held by the ENI/Galp consortium. Source: ENMC, “Presentation of the Current Situation in Research and Exploration of Petroleum Resources in Portugal”, 2015.

Table IV.5 Research and Exploration of Petroleum in 2015-2016 LOCATION CONSORTIUM

Deep-Offshore – A research survey to be carried out by the ENI/Galp Alentejo Basin consortium

Deep-Offshore – A research survey to be carried out by the Algarve Basin Repsol/Partex consortium

Source: ENMC, “Presentation of the Current Situation in Research and

Exploration of Petroleum Resources in Portugal”, 2015.

A public procurement is scheduled to be launched soon, with the aim of awarding seven exploration licenses and production of oil and natural gas. There are four shallow offshore areas in the Porto basin, and two deep offshore areas there as well, and a deep-offshore area in the Algarve basin.

Figure IV.8 Current Map of the Concession in Portugal

Source: ENMC, “Presentation of the Current Situation in Research and Exploration of Petroleum Resources in Portugal”, 2015.

Brazil

Brazil stands out in the South Atlantic for a variety of reasons, namely: its geographical and population dimension; the centrality of its territory in South American; the importance of the Amazon in global environmental terms; the exceptional variety of its natural resources, which it processes and exports; the extensive industrial platform of intermediate goods, of current and durable consumer goods, of the automotive sector, in which North American and European multinational corporations are involved; and its sector of civil and military equipment – specifically civil and military aeronautics.

Brazil is also distinguished by the technological capacity at the service of the natural resources sectors, among which, the exploration of hydrocarbons in deep-offshore and mass agricultural production. Its largest mining and construction/public works corporations have strengthened their presence in the African continent, particularly investing in Angola, and more recently, Mozambique.

In 2014, Brazil was the eighth largest energy-consuming country in the world; and the third largest in the Americas (after the US and Canada). In a decade, Brazil almost doubled its energy consumption due to its economic growth.

In terms of energy consumption, the largest share corresponds to oil (142.5 mt), followed by hydroelectricity (83.6 mt equivalent to oi) and natural gas (35.5 mt equivalent to oil).

Brazil’s proven oil reserves in 2014 were estimated at 16.2 billion barrels30, the second largest in South America, following Venezuela’s. The Brazilian pre- salt oil reserves are located in the Southeast, in the so-called Brazilian Exclusive Economic Zone. The energy region of the Brazilian pre-salt is an area with approximately 800 km of length and 200 km of width, in the coast

30 BP, BP Statistical Review of World Energy, 2015.

86 between the States of Santa Catarina and Espirito Santo, passing through Rio de Janeiro. It is estimated to contain around 100 billion barrels of oil, which, if confirmed, would make it the largest unexplored reserve in the world.31

The beginning of the pre-salt production took place in 2006; and from 2010- 2014 the annual average daily production grew by almost 12 times, rising from an average of 42 mb per day in 2010 to 492 mb per day in 2014; and 800mb per day in pre-salt by April 2015 (only eight years after the first discovery in the region in 2006).

Brazil has been rapidly increasing its oil production (2346mb/day) and, if we add biofuel production, in which Brazil was already leading the production of liquid fuels in South America in 2010, will lead to Brazil’s self-sufficiency and, in the future, become a main exporter. Currently, this production corresponds to approximately 20% of total petroleum production in Brazil, which in 2018, will have increased to 52%.

Figure IV.9 Brazil: Marine and Terrestrial Producing Basins (2015)

Source: Petrobras, 2015

31 A comparison with the history of oil production in Brazil gives an idea of the scale of the impact of pre-salt exploration: it took 31 years for Brazil to reach production of 500 million barrels per day, which occurred in 1984, with contribution of 4108 producing wells. Comparing with the pre-salt, only in the Campos Basin, it took 21 years to reach this same level, counting only on the contribution of 411 producing wells.

Most of Brazil’s petroleum production is located in the country’s Southeastern states, namely Rio de Janeiro, Espirito Santo and Sao Paulo, with 90% of the oil being extracted offshore, at exceedingly deep levels.

In fact, five fields in the Campos basin (Marlim, Marlim Sul, Marlim Leste, Roncador and Barracuda) alone represent 50% of Brazil’s production, all of them being operated by state-owned Petrobras, which has direct control of most of the production and the operation in progress.

The latest business and management plan calls for the pre-salt to account for more than 50% of total oil production by 2020.

In 2014, Brazil reached a refining capacity of 2.4 million barrels per day of crude oil, in its 17 refineries (of which 13 are operated by Petrobras), translating to 6.8% more than in 2013.

In 2014, the main exporting regions of crude oil to Brazil were Africa (68.7%) and the Middle East (26.3%), totaling 95%. Nigeria alone accounted for 52.4% overall.

Brazil is the second largest producer and consumer of ethanol in the world, second to the US. In 2014, ethanol production grew by 4% compared to 2013, surpassing the record reached in 2010. In February 2015, the Brazilian government increased the percentage of ethanol in gasoline (27%), and is considering increasing it to 27.5%, as a measure to reduce gasoline imports.

Although natural gas accounts for only 12% of energy consumption in Brazil, Brazil has the second largest reserve in South America, located in the Campo basin (mainly offshore). Indeed, in 2014 Brazil’s proven natural gas reserves totaled 0.5mtc, following Venezuela (5.6mtc). About 85% of Brazil’s natural gas reserves are sea based, and 66% of these reserves are concentrated off the coast of the state of Rio de Janeiro. Together with the potential to significantly increase the country’s petroleum production, the pre-salt areas present considerable estimates of natural gas reserves.

In 2014, Brazil produced 20.0bmc of natural gas (an increase of 7% compared to 2013%). Offshore production accounted for 73.3% of the natural gas produced in Brazil.

Brazil has three LNG regasification terminals: Pecém terminal (in the Northeast), Guanabara Bay terminal (in the Southeast), and the TRB terminal, opened in January 2014 (in the state of Bahia).

Petrobras plays a dominant role throughout the natural gas supply chain. In addition to controlling most of the country’s natural gas reserves, it accounts for most of Brazil’s domestic natural gas production and imports of natural gas into Bolivia. Petrobras operates the country’s internal natural gas transportation system through the subsidiary Transpetro. Brazil imported 19 bmc of natural gas in 2014, which is an increase over the previous year, due to a large increase in domestic demand of natural resources.

The Business Management Plan for 2015-2019 provides for investments totaling US $130.3 billion. The plan’s investment portfolio prioritized oil exploration and production (E&P) projects in Brazil, with an emphasis on pre- salt. In other business sectors, the investments are basically aimed at the maintenance of operation and projects related to the oil flow and natural gas production.

Western Africa Figure IV.10 Main Infrastructures and Hydrocarbon Basin in Africa

Source: OCDE/IEA, World Energy Outlook 2014, p. 465.

According to the following figure, of Africa’s total reserves, four are found in West Africa – Nigeria, Angola, Equatorial Guinea and Gabon (42%), producing a total of 51%, as can be seen in the following table.

Figure IV.11 Main Reserves and Production Sites for Petroleum in Africa

Source: EIA – US Energy Information Administration, 2015.

Angola Different assessments of proven oil reserves in Angola indicated that in 2014, 12.7 billion barrels were produced32. Most of these reserves are located offshore and a significant part - deep-offshore. However, Angola accounts for 7% of proven African oil reserves, with potential for additional resources supported by recent discoveries. Production increased rapidly from 2002 to 2008, having seen a stabilization in later years, coinciding with the most acute phase of the global economic crisis and operational problems in some fields. Production is almost entirely exported. Currently, it ranks second in the list of African producers, with a production of deep and ultra-deep-water. State- owned Sonangol was in hopes of increasing the crude oil production rate in 2016 through the deep-water oil fields that were scheduled to become online.

However, in recent years, Angola has consistently fallen short of defined production targets, even witnessing a decline in crude oil production in 2014 due to frequent technical problems that led to lower production levels than expected.

Most proven reserves are located in the deep waters of the Lower Congo and Kwanza basins. Typically, most of the exploration and production activities are

32 Cf. BP, Statistical Oil Review 2015, 2015.

91 located in an offshore area of the Lower Congo. The onshore and offshore of the Kwanza basin are gaining the attention of the IOC because of their pre-salt formations. The theory is that the three basins of Angola, Lower Congo, Kwanza, and the still unexplored Namibia basin – are similar to the Campos and Santos basin in Brazil. Pre-salt exploration is the current sector for which international oil corporations (IOC) and Sonangol are targeting.

Since 2005, following Saudi Arabia, Angola has been China’s largest oil supplier. The United States, the EU and India are also important destinations for Angolan oil. However, US imports of Angolan crude oil continue to decline, given the volume of US-quality crude oil production.

Nevertheless, the limitations imposed by the OPEC quote regime – which it has adhered to – Angola, it expected to increase its oil production capacity in the short term due to the involvement the production of new offshore projects. Observing the developers of the new projects, we can see that they stand out, given the expected capacity of the respective blocks: BP (UK); Chevron (USA); Total (France); ExxonMobil (USA).

Sonangol is the national oil company (NOC) in Angola, a shareholder in almost all oil and natural gas exploration and production projects. IOC in the United States and Europe lead the exploration and production of oil and natural gas in Angola. Simultaneously, Chinese companies are increasing their share of the industry (figure IV.10).

Regarding natural gas, Angolan production is strictly linked to oil production, and a liquefied natural gas (LNG) plant is in the works for export.

Angola is a small produced of natural gas. The large production of Angolan natural gas is associated with gas from the oil fields, which is ventilated and burned for reinjected into oil well to increase oil recovery. For the moment, Angola does not have the necessary infrastructure to market more than its natural gas resources. The country’s new LNG (at Soyo) was developed to

market more natural gas. However, the facility has had chronic problems and temporarily closed (until ends of 2015 or by 2016).

In 2013, Angola exported, for the first time, 0.4bcm. This was LNG exported to Brazil, Japan, China and South Korea.

Sonangol shares with dozens of international companies the exploration of auctioned blocks, being, however, the operator of a few of them and associated with China.

Table IV.6 Angola: New Projects (Petroleum) Peak productio Est. n Operato Locatio Project start Notes (000 r n bbl/d) Mafumeira 110 Chevron 2015 Block 0 Associated natural gas will be Sul offshore sent to the LNG plant in Soyo, Angola. An additional 10,000 bbl/d of non-crude liquids will be produced. Lianzi 23 Chevron 2015 Block 14 Located in the offshore field deepwat unitization zone between Angola er and Congo (Brazzaville). Field will produce a total of 46,000 boe/d of crude oil, non-crude liquids, and natural gas. Kizomba 59 ExxonM 2016 Block 15 Combines the development of Satellites obil deepwat Kakocha. Phase 2 er East Hub 100 Eni 2016 Block Additional development phases project 15/06 are planned to start production (Cabaca deepwat from neighboring discoveries. Norte, er South- East) Greater 22 BP 2016 Block 18 The production will sustain Plutonio deepwat current production at the Great Phase 3 er Plutonio. Kaombo 200 Total 2017 Block 32 Final investment decision to Project ultra develop the project was made deepwat April 2014.

er Negage 75 Chevron NA Block 14 Near the Lianzi field and the deepwat border with Congo (Brazzaville). er Lucapa 100 Chevron NA Block 14 Near the Lianzi field and the deepwat border with Congo (Brazzaville). er Chissonga 100 Maersk NA Block 16 The project was declared Oil commercial in 2011. Malange 50 Chevron NA Block 0- The project is expected to supply Area B a significant amount of natural offshore gas to Angola LNG. Cameia 100 Cobalt NA Block 21 Cobalt expects to make a final offshore investment decision to develop presalt Cameia by end 2015.

Source: EIA Based on Company Reports and Oil & Gas Journal, 2015.

Figure IV.12 Angola – Map of the Concessions (2015)

Source: Sonangol, 2015

Guinea Bissau

After several attempts to start the exploration of oil and natural gas, in the last decades Guinea Bissau started a process of concession of block for offshore exploration, and its government officially admitted, for the first time, in March 2014, the possibility of oil in the country

Countries like Angola, Brazil, France and Sweden exploring oil in Guinea Bissau. Brazil is one of the countries that has already signed a memorandum agreement for exploration and exploitation of oil in the country. Effectively:

 Recently, the block awarded to Svenska has led to the discovery of reserves of unexpected proportions;  CAP Energy is exploring oil in block 1 (Corvina) and 5B (Becuda) off the coast of Guinea Bissau in partnership with Atlantic Petroleum Guinea Bissau Limited.

Equatorial Guinea

By the end of 2014, Equatorial Guinea will have 1.1 billion barrels of proven crude oil reserves, ranking as the eighth largest country in sub-Saharan. As for proven natural gas reserves, they were estimated at 0.1bcm, corresponding to the tenth largest country in the region. Most of the operating fields are located offshore near the island of Bioko.

By 2014, the average total of oil production was almost 270mb/d, well below Equatorial Guinea’s peak of output (369mb/d in 2007).

The Zafiro field, operated by ExxonMobil, is the most prolific oil field in the country; however, having already reached its peak, Equatorial Guinea is beginning to focus on the production of new fields.

Equatorial Guinea does not have refining capacity. The country consumed 2.1mb/d of oil in 2014, which were 100% imported. The government as announced the goal of opening a refinery in Mbini with a capacity of 20mb/d, but the project has seen very slow progress.

In terms of crude oil exports, the main destinations of Equatorial Guinea have been the Asian, European and American markets. China is the most important destination for crude oil in the country.

Equatorial Guinea’s National Oil Company (NOC) is GEPetrol, which is responsible for managing the state’s interests through PSCs and joint ventures with international oil companies. GEPetrol is responsible for marketing, petroleum licensing, hydrocarbons and policy implementation.

Figure IV.13 Equatorial Guinea – Activity in Progress (2015)

Source: Ministry of Mines, Industry and Energy, 2015. The major foreign investors in Equatorial Guinea are US corporations, particularly ExxonMobil, Hess, Marathon and Noble Energy, although

98 corporations of European and Chinese origin are also starting to play an important role in Equatorial Guinea.

Equatorial Guinea is an exporter of liquid natural gas. While dry natural gas production increased rapidly from 0.28bcm in 2001 to 6.29bcm in 2013, domestic consumption has increased at a slower pace, to 1.5bcm in 2013. Recent discoveries at the Ophir Energy’s Fortune complex in the British IOC may increase natural gas production in the future.

Most of the dry natural gas production in Equatorial Guinea is exported as liquified natural gas (LNG). The country has a LNG facility: Punta Europa (ELNG), located on Bioko Island, since 2007. Equatorial Guinea has plans to build a second LNG terminal to use natural gas from Equatorial Guinea, Cameroon and Nigeria.

The distribution, marketing and exploitation of natural gas assets, along with industrial and residential markets, belong to the state hydrocarbon company, Sonagas.

Sao Tome and Principe

In 2005, Sao Tome and Principe and Nigeria established a Joint Development Zone (JDZ) project for the exploration of the oil reserve located on the maritime border between the two countries, and the establishment of a joint exploration zone was agreed upon and a commission for it was formed. This is an area zone of maritime boundary overlap established on February 21, 2001, through an agreement that gave 60% of capital to Nigeria and 40% to Sao Tome e Principe.

In terms of operators (oil companies) present in the Joint Development Zone, see figure IV.14.

Figure IV.14 Nigeria – São Tome and Principe – Joint Development Zone (JDZ) – Distribution of Concession

Source: National Petroleum Agency, Sao Tome and Principe, 2015. At the same time, Sao Tome also has its exclusive economic zone, which later began granting licenses. In effect, the first round of licensing covered seven EEZ blocks (Zone A and B) and were allocated to corporations as explained in Figure IV.15.

Figure IV.15 Sao Tome and Principe – Exclusive Economic Zone – Distribution of Concessions

BLOCKS CORPORATION Block 3 Oranto Petroleum Block 4 and ERHC 11 Block 5 and Equator Exploration 11 Galp Energia (45%); Block 6 Kosmos Energy

(45%); National Source: National Petroleum Agency, Sao Tome and Petroleum Agency Principe, 2015. represented by the Government (10%)

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At the end of October 2015, Galp reached an agreement with the government of Sao Tome and Principe and Kosmos Energy to allocate Block 6 on the Sao Tome and Principe offshore, covering an area of 5024 km2. Galp Energia and its partners undertook to carry out exploration activities, including seismic acquisition, during the four years of the first phase of the exploratory period.

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V. PORTUGAL AND ITS POTENTIAL ROLE IN THE ATLANTIC

V.1 The Presence of National Energy in the Atlantic In terms of business organization in the Lusophone region, there is a cross- shareholdings of participation and partnerships in concessions for the exploration of oil and natural gas between Portuguese speaking companies – GALP, PARTEX, PERTROBRAS and SONANGOL – involving, through GALP, ENI, while it is a shareholder of the Portuguese company.

Galp has long been investing in Portuguese-speaking space, first in the South Atlantic and later in the Western Indian Ocean. In fact, Table IV.1 summarizes Galp’s presence in the Atlantic in two business areas:

Table V.1 Galp Energia – Involvement in the Lusphone Region of the South Atlantic (2015)

BUSINESS AREA

Explor Refiner COUNTRY ation y and DESCRIPTION and Distrib

Produc ution tion

X X Galp Energia has been working in Angola since 1982. Angola Present in two business área: E&P oil in three offshore

blocks and an integrated offshore gas E&P project with Sonogas; and in refininf and distribution, where it has a retail network of more than 10 filling stations. Brazil X Since 1999, Galp Energia has been involved in Brazil, currently involved in 30 projects – in several onshore and offshore basins, privileging the partnership with Petrobras. According to the ANP, the Santos basin is expected to have about 50 billion barrels of oil.

X Galp Energia has been working in Cape Verde in the

refining and distribution sector, more concretely from North Cape Verde to South of the country with a retail network of filling stations It also works in the maritime and air banks, LPG and lubricants.

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X Similar to Cape Verde, in Guinea Bissau, Galp has been Guinea Bissau working in the refining and distribution sector. Galp Energia is a leader in import, storage, commercialization and distribution markets for liquid fuel, lubricants and gas in Guinea Bissau. Sao Tome and X Galp Energia has been working in Sao Tome and Principe Principe since 2015 as a result of the acquisition of a 45% stake in Block 6, in which it operates.

Source: Galp Energia, 2015.

V.2 The Potential Resolution of the Transatlantic Trade and Investment Partnership Agreement (TTIP) and the Role of Portugal as an Actor in European Energy Security.

The Transatlantic Trade and Investment Partnership (TTIP) is a trade and investment agreement between the EU and the US that has been in a negotiation process since July of 2013. Its main objective is to stimulate trade between the EU and the US by removing tariff and regulatory barriers.

On December 3rd, 2014, at the Eu/US Energy Council, the EU High Commissioner for Foreign Affairs publicly defended the inclusion of an Energy Chapter in the TTIP, arguing that its inclusion could act as a “global benchmark for transparency and energy markets based on clear rules”.

In terms of supply security, the positions emphasize the development of provisions for energy security, in particular the identification of supply and transport bottlenecks that may affect energy trade, as well as mechanisms to deal with disruptions.

The following table attempts to synthesize drivers, key areas, transatlantic dynamics, obstacles and advantages for Portugal.

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Table V.2 TTIP: Key Aspects

TTIP • Transatlantic market • Commerce, goods, services, investiments • Define the structure of the international market in the 21st Century • Game changer (more than comercial agreements) Drivers Key Areas Transatlantic Advantages for Obstacles Dynamics Portugal • Conditions • Opening • Commerce: • Removal of • Dynamization key of the New School customs clusters: agricultural international economy • Goods barriers products; shoe; competition clothing; • Increase • Services • Access to • Changing the public markets construction; • Investments distribution international competitive • Access to trade ness of the • Access to investments • Dynamization of • Effects of EU public markets ZEE • Financing globalization • Engine of • Sustainable small and • Development of • USA+EU: economic Development medium size marine resources 50% Global growth (cities) companies • Strengthening trade GDP and one • Job • Customs • US/EU relations with the US third of global creation facilitation regulatory (Azores, Center of trade Atlantic) • convergence

Exploration/Pro • • New dynamics in duction of raw Standardizatio ports materials n of products • Trade/wealth and • Energy: new • Turntable of energy resources and procedures flows new flows • Regulation, • Technological Competition, solutions and liberalization • Small and medium size companies

Source: A. Costa e Silva, «Geopolítica da Energia e Segurança da Europa», in Seminário Diplomático, 6-1-2015.

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The impact of the TTIP on trade and competitiveness, supply security, market access and the internal energy market, as well as their implications for renewable and sustainable energy technologies were examined in a report prepared by the European Commission entitled “TTIP Impact on European Energy Markets and Manufacturing Industries”33. The document underlines that a free trade agreement could accelerate the licensing process of LNG exports. In the long run, if the US increases its natural gas production, this would immediately lead to an increase in LNG trade on the other side of the Atlantic.

According to the report, the TTIP could also act as a deblocking factor for the exploitation and production of shale gas in the EU as it simplifies the mobilization of companies abroad by harmonizing legislation on foreign direct investment and protection of foreign investment against measures such as expropriation, as has already been the case with the signatory countries for the Energy Charter Treaty (ECT)34 enforced since 1991.

“And considering the almost half of the new sources of natural gas with potential for export to Europe will arrive from African countries, it is of European and Portuguese interest in the long term that the CPLP countries join the Energy Charter, so that they can operate within the framework of the future Energy Chapter of TTIP. Thus, in the case of US-Africa-EU energy relations, the processes of the Energy Charter Treaty and TTIP are of particular importance to institutionalize the emerging new energy diplomacy, where North

33 European Commission, 'Potential impact of TTIP on the energy sector', 2015 [online], available at http://www.europarl.europa.eu/RegData/etudes/STUD/2015/536316/IPOL_STU%282015% 29536316_EN.pdf 34 The Energy Chapter Treaty is the first multilateral treaty regulating investments in the entire industrial sector of the global economy. Currently in addition to the countries and organizations signatories to the Treaty (including Portugal), 24 countries and 10 international organizations participate as observers.

Its provisions apply to various segments of energy, be it fossil, renewable or even of nuclear origin. The Treaty does not merely provide for a set of legal mechanisms for investment protection and dispute settlement, but also regulates free trade in materials and energy products, facilitates their transportation and, finally, energy efficiency and protection of the environment.

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American and African natural gas exports are seen as strategic pillars of European energy security policy. Effectively, future new sources of LNG supply from Sub-Saharan Africa must integrate this new geopolitical framework, especially if the EU is to promote in the long term the inclusion of these new producers in the Energy Charter Treaty. In this regard, Portugal could play an important role in the new energy diplomacy by promoting the integration of the CPLP countries into the Energy Charter Treaty.”.35

And the role of Portugal…

Difficulties in gas supply to Europe are a growing concern of policy makers, particularly as the reliance on a limited number of supplier countries, some of which show significant political instability, undermine EU energy security. In this context, several national energy experts are on the opinion that the Iberian Peninsula, and in particular Portugal, through use of the investments and infrastructures defined for the port of Sines, can be the gateway of natural gas in Portugal. Increasing supplies (beyond Russia and Ukraine) by using feedstock from Nigeria and Algeria, transported by ship or pipeline.

It should be noted that in September 2012, REN – National Energy Networks inaugurated the expansion of Sines Liquified Natural Gas (LNG) Terminal, a budgeted investment of around 200 million euros that allows the terminal to increase significantly its LNG storage capacity and, at the same time, ensure the supply of this gas to the country, improving its competitiveness in the national market. The expansion works included the construction of the third LNG storage tank, new seawater circuits and emission system and a third truck filling bay, enabling the terminal to receive larger vessels from anywhere in the world. In fact, the increasing consumption of natural gas must be accompanied by the implementation of new technologies that increase the energy efficiency of its use. For example, the case of the integration of cogeneration in natural gas combined use of natural gas with

35 Research Stream USA Shale Gas 4, Europe Policy Paper n.º 2, 2015.

106 solar panels for water heating. There are also advantages of having natural gas storage capacity off the coast of the Algarve, which has not yet been completed. Utilizing Portugal as a center for the storage and sale of natural gas to Europe is a strategic opportunity that will allow it to compete with countries such as Belgium and the Netherlands, which already export gas.

The natural gas sector has grown significantly in recent years. Until 1991, when it was introduced in the country, consumption of this hydrocarbon was practically non-existent; however, there has been a positive evolution in the energy mix, representing this fuel in 2013, 17% of the total consumption of main energy.

This increase can be attributed to the construction of the import infrastructure, including the pipeline network linking Portugal (via the two links to the Spain, Tarifa, and Tuy gas pipeline) to North Africa and the LNG receiving terminal in Sines. As for the port of Sines, it is a deep-water port, leading nationally in the quantity of good moved, that presents unique natural conditions in the Portuguese coast too receive all types of ships. Equipped with modern specialized terminals, it can move to different types of goods, is open to the sea and has good maritime accessibility without constraints.

It is the main port on the Iberian-Atlantic façade, whose geophysical characteristics have contributed to its consolidation as a national strategic asset, being the country’s main energy supply port (oil and by-products, coal and natural gas) and already positioning itself as an important port of general cargo/containerized with high growth potential to be an Iberian, European and world reference.

With a recent building structure (1978), it has a reference system, free of urban influences, ensuring long-term expansion capacity. It also has adequate land access for current traffic and a road-rail evolution plan that will allow to respond to future growth projections of the port and its area of influence.

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NGT – Natural Gas Terminal started its activity in 2003, it is operated under concession for private use by the company REN Atlantico, already handling more than 50% of the natural gas consumed in Portugal. It presents itself as the main national source of supply of this product and has an enormous national strategic importance, since it constitutes as an alternative to the terrestrial gas pipeline.

Equipped with a berthing stating with 15m ZH bottoms, it allows the reception of methane vessels up to 225,000 m3. For the storage of the natural gas received, the terminal has two storage tanks with a capacity of 120,000 m3 each, and a third tank with a capacity of 150,000 m3, offering a total storage capacity of 390,000 m3 of liquefied natural gas.

Associated with these tanks, the terminal is equipped with a regasification plant that introduces natural gas into the national high-pressure network. There is also a tank filling station that allows the supply of isolated areas of the national network. Before entering the regasification plant, the natural gas discharged from the vessels and stored in the tanks is at a temperature of -163 degrees Celsius.

Regarding the organization of the sector, it is also a subsidiary of Galp Energia who dominates – the Gas of Portugal. GoP directly controls the import, transportation and supply of gas; and indirectly controls distribution through its holdings in nine regional distribution companies. The GN distribution network currently has 12,348 km, of which 9,333 km were built in 2007.

Portugal today has two major challenges: on the one hand, to ensure sustained growth in a regional geo-economic framework that does not suffocate its economy; and, on the other hand, to gain a greater autonomy in external relations that would strengthen the negotiating power within the EU.

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Portugal’s geographical position, often evaluated as peripheral, is being transformed, as can be seen from this research, in its value by the following processes:

 Negotiations for the formation of geo-economic partnerships, involving the US and Canada, if successful, could create opportunities for an increase in European exports to the US/Canada and for the eventual deployment in Europe of companies in the North American Continent interested in selling to Europe, Africa and the Middle East. Such a partnership could involve a strengthening of the US role in Europe’s energy security by supplying shale gas to Europe, and Portugal could intervene in supplying gas to European states.  The transformation of the South Atlantic into a nexus of energy basins of global importance, both on the Latin American margin and on the African margin, extending to the African coast of the Indian Ocean, will lead to a strong growth of oil and natural gas exports originating from these basins; in turn, the greater energy autonomy of the United States, after the shale gas and tight oil revolution, will release a more substantial part of this new oil and natural gas production capacity for Western European supply (partially replacing current flows from the Eurasian space), while the major discoveries in the Eastern Mediterranean (in Israel, Cyprus and possibly Greece) may change the geography of Eastern Europe’s energy supply.  The process of extension of the continental shelves, occurring in this environment of searching for new sources of ores (but also biological resources susceptible of application in the discovery of new drugs) values countries with archipelagic configuration like Portugal. In this context, Portugal should consider:

 To become a potential hub of the Iberian Peninsula, for later distribution in Europe, thus taking advantage of the geographical conditions and infrastructure, it already has. In fact, Portugal, along with Spain, currently has seven LNG terminals, totaling 12 other terminals with the rest of Europe. Portugal, joint by Spain, could turn out to be an alternative to Russia in Europe’s Energy supply due to the fact that the available capacity at Iberia LNG terminals could represent an alternative of around 25% to Russian natural gas.  Nonetheless, it will have to overcome the virtually non-existent interconnection with France, a strategically vital issue from the point of view of energy security and supply;  Build at least one more LNG terminal, allowing the country to diversify its supply. If the terminal is directly connected to the French grid via a terrestrial pipeline (Sines-France) operating at maximum

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output, Sines will have a potential replacement of 3.5% of the volume of natural gaa imported annually to Europe from Russia. If the Sines- France pipeline is connected to the remaining Spanish LNG plants, it will theoretically be ppossible to replace Russian imports (38 million m3) by 20-20%, i.e. 44% of the volume transited via Ukraine (78 million m3)36;

Figure V.1 LNG port in the Iberian Peninsula:

Source: Chart Courtesy of Gie – Gas Infrastructure Europe  At the same time, Portugal has an ideal geographic platform to store natural gas, which reduces national energy dependency and distributes it to Europe (Belgium and the Netherlands already being distributors) as well as participating in an integrated strategic plan by strengthening international connections with Spain and France; thus easily reach Central Europe through storage on the Algarve coast.

36 CF. Information available at the US, Africa and Portugal Conference “Horizons for European Energy Security in Natural Gas”, Lisbon, FLAD, 19-10-2015. 110

 Through Galp, it is necessary to: (i) continue to increase direct presence in upstream gas, in a strategy similar to that followed for oil ; (ii) access to liquefaction facilities in NG exporting countries and regasification in the Peninsula and development of combined cycle plants for NG placement; (iii) strengthen the contracting of GN with diversification of sources; and (iv) penetrate the Spanish market;  Focus on energy efficiency and renewable energy, which not only contributes to national energy security, but also the EU Magic Triangle.

If the EU, as part of energy security, opts for greater “maritime” supply of natural gas supplies in its Atlantic dimension to the detriment of the solely continentalism focus which it has insisted on in the last two decades, we will certainly have an energetically safer Europe, based on the strategic valuation of Portugal and Spain as energy hubs.

And to conclude, in the natural gas sector, Portugal will have to take advantage of the geo-strategic and geopolitical advantages of the country through the expansion/conversion of the European electricity generating system, through the development of a strong nucleus of CCCGN fed by the import of alternative raw materials to Russia’s supplied and the EU.

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Final Considerations – Accounting for the Long-Term

Trajectories for a long-term European energy security strategy

A 21st century energy security strategy, both for the EU as a whole and for its Member States on an individual basis, necessarily includes three trajectories:

1. A sustainability trajectory through a mix of primary energies and technologies, both in the production of electricity and heat in mobility, which guarantees a significant reduction in CO2 emissions, in accordance with international commitments.

2. A trajectory to reduce energy dependence from abroad, through efficiency gains in the use of imported energy and the exploitation of endogenous energy sources. The solutions for this trajectory must respond in addition to three requirements:

 Contribution to the reduction of greenhouse emissions, from a perspective of sustainability;  Reduction of the capitalist intensity of the economy thanks to ‘light’ solutions in the infrastructure sectors, in transportation/mobility and energy;  Multiplication of impacts on the economics of the adopted solutions, through the endogenization of technologies of multiple use and with strong future growth potential; 3. An energy supply security trajectory, which seeks to limit the risks of supply disruption, either from supplier countries or following possible attacks on the transportation of supplier’s energy means to national markets.

Throughout the previous sections we have attempted to address the issue of security in the EU’s energy supply from a geo-economic point of view – focusing on the possible diversification of supply sources.

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Geo-economics and technologies – Two crucial uncertainties in scenario building

To conclude this research work, we utilized the elaboration of a dimming exercise (according to the methodology of the Global Business Network, see Annex I), in which we tried to combine the geo-economic perspective with the view of the primary energies and the technologies in which it will be based in the EU’s energy system. Through an array organized in two crucial uncertainties and its four resolution configurations, we developed four contrasting scenarios.

The two crucial uncertainties considered were the following:

 Geo-economic uncertainty – focusing on the EU’s external supply base for natural gas – the least polluting of fossil fuels when used in energy transformation processes involving their burning;

 Technological uncertainty – focusing on the technologies used to

transform different forms of primary energy – namely, renewable

energy, petroleum, natural gas, uranium (or other radioactive

elements).

 Geo-economic uncertainty

We considered two contrasting configurations for its resolution: (1) Eurasia and the Arctic; and (2) Mosaic.

 EURASIA AND THE ARCTIC

This configuration would result in a reinforcement of supply from three main sources, namely:

 Russia, through two structuring pipelines – the North Stream already in operation and the Turkey Stream in the planning phase,

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Russia being the main supplier of the Balkans and Eastern Europe;  Azerbaijan, with the development of the new “southern pathway”, from Azerbaijan through Turkey (TANAP) and continuing with the Transatriatic Pipeline (TAPI) to Greece and Italy. A third one located in the Arctic

 Norway, with the start of the production of the Barents seaports and connection to the existing pipeline network in the Norwegian Sea. The traditional supplies coming from North Africa (Algeria and Libya), particularly in southern Europe: Portugal, Spain and Italy remain, albeit with less importance.

 MOSAIC

This configuration would lead to a reduction in the dependence of Western Europe and the South and Southeast Europe on Russia’s natural gas inputs in the context of prolonged turbulence in the Middle East by:

 Consolidation of a Southern Pathway with origin in Azerbaijan, transit through Turkey and the passage through Greece, towards Italy, as in the previous scenario;  Strong development of production in the Eastern Mediterranean (Israel, Cyprus and Egypt) towards Greece and Turkey (in addition to Jordan and Palestine, with regard to the production from Israel and Egypt) and in conjunction with the Southern Pathway;  Transformation of the Iberian Peninsula into a platform for receiving and distributing European natural gas from the Western Indian, the South Atlantic and the United States (shale gas), thanks to the expansion of the capacity of LNG treatment facilities and storage capacity;  Implementation of a North-south Western Pathway for natural gas from the Iberian Peninsula to Northern Europe, a pathway foreseen in the trans-European networks of the EU.

 Technological Uncertainties

We considered two contrasting configurations for its resolution, namely: (1) Varied decarbonization and (2) Multiple gasification.

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 VARIED DECARBONIZATION involving, depending on national choices:  Priority to invest in renewable energies in the supply of electricity directly channeled into the networks, accompanied by a large-scale investment in a new electricity storage solution, articulated with electric mobility solutions;  Continued use of centrally produced nuclear power based on traditional nuclear reactor in periods of lesser daily use to recharge batteries used in electric mobility.

Both options would be combined to reduce the use of natural gas as a primary energy source.

 MULTIPLE GASIFICATION – Covering both electricity production and mobility solutions and linking three primary energy sources: natural gas, nuclear fuel and renewable energy;  Large-scale use of natural gas in the production of electricity – either in the form of centralized production in combined cycle plants, or possibly in decentralized form, in heat-electricity cogeneration by mean of stationary fuel cells;  Prioritizing the diffusion of natural gas as fuel for road transportation vehicles used for long-distance journeys;  Utilizing electricity generated on renewable energy platforms (i.e. wind power) to power the hydrogen energy storage for urban public transportation;  Diffusion of carbon capture and sequestration technologies.

Experimentation and testing of a new generator of nuclear power plants using small nuclear power reactors – from modular manufacturing working for enriched uranium (e.g. GT-MHR reactors) and gas cooled for decentralized production of heat and electricity, ensuring greater independence of centralized power grids.

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Figure FC.I. Four Scenarios – Obtaining Matrix: EU’s Energy System in 2030

Source: J. Félix Ribeiro; Catarina Mendes Leal, 2015

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ASIA & THE ARCTIC

G E O - E C This scenario would allow the EU to curb the growth of its natural gas imports, O without however reducing Europe’s dependence on the Southeast and East Russia’s natural gas imports. Advancing its core – around Germany and France N – to a significant reduction of CO2 emissions by two distinct paths: renewable O energy in the case of Germany and nuclear energy in the case of France. M I

U Technological Uncertainty N DIVERSED C E DECARBONIZATION R T

A I N T This scenario would allow the EU to curb the growth of its imports from Russia, y including Southeast and Eastern Europe, while at the same time ensuring significant levels of CO2 reduction, focusing on innovations in efficiency gains from the accompanying renewable energy technologies for significant advances in the storage of renewable electricity and counting on the multiplication of combined cycle of plants with natural gas.

MOSAIC

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EURASIA & ARCTIC

G E

O In a context of drastic reduction of tension between Russia, the US and Germany, E dependence on Russia’s natural gas imports would no longer be a security issue for C the EU. At the same time, technological options would not only achieve significant levels of CO2 emissions, but would also favor European participation in the O development of innovative technologies, both in the use of hydrocarbons and in N nuclear energy. O M I Technological Uncertainty C MULTIPLE GASIFICATION U N C E R T A I N T y This scenario would significantly reduce dependencies on Russia’s natural gas supplies, achieving significant reductions in CO2 emissions. At the same time, Europe could develop innovative technological solutions with a vast market potential worldwide – particularly a new nuclear and new way of using natural gas in the decentralized production of heat, electricity and mobility.

MOSAIC

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ANNEX I METHODOLOGY OF PRESENTED TASKS FROM THE GLOBAL BUSINESS NETWORK (GBN)

Through this research, for the development of scenarios, we opted for an adaption of the methodology of the Global Business Network37.

The research paper began with an orientation, that is, identifying a strategic focus: the Atlantic, Asia and Europe and Energy. And to set a time limitation: 2030.

According to the GBN methodology, the scenario building goes through five phases: Orient, explore, synthesize, act, and monitor.

Figure A.1Creating Advantages from Uncertainty – The Five Phases of Scenario Building

37 GBN was created in 1987 in San Francisco to be a learning organization based on curiosity, collaboration and to develop the tools to think and shape the future. The methodology was developed by GBN is described in the book by Diana Scearce and Katherine Fulton “What If – The Art of Scenario Thinking for Nonprofits” (San Francisco, Global Business Network Community, 2004).

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In the first phase – Orient, we proceeded to identify a strategic focus and a time horizon.

In the second phase – Explore, we identified the driving forces of change in the present time.

The driving forces of change are:

 Key Factor – set relatively obvious and close to the factors that are in the sector in which the industry/organization is inserted.

 Environmental forces – set of less obvious driving forces found in the macro-environment (environmental forces). Examples of environmental forces are demographics (aging, immigration), values (lifestyles, political or spiritual movements), technological innovations, industry competitive structures, legislation and/or regulation, commercial).

After identifying these forces, we selected those that are considered as predetermined38 elements and the uncertainties. Uncertainties can be critical39 and in this case, became key-factors for the strategic focus.

In the third phase – Synthesize – two critical uncertainties or two contrasting axes are chosen, each corresponding to an uncertainty and with two contrasted configurations of response, for the construction of the four- scenario mix.

The main causal factors in each scenario are identified in order to understand the caused that may lead future trends and anticipated and

38 The predetermined elements are critical forces for the client’s business and relatively predictable in the future. An example of this, in the case of Europe, is the aging of the population. 39 Critical uncertainties are, like the predetermined elements, critical forces for the “costumer business”. They are crucial because they become the framework for the elaboration of the set of scenarios. In fact, critical uncertainties define the dynamics that have to be monitored and answered over time.

125 relevant events in one direction or another. At the end of this third phase, a designation was assigned to each scenario.

In the fourth phase – Act – one tried to understand the impacts that the various scenarios may have for those who decided to carry out the drilling exercise – these are intellectual evaluations, not actions, about what the scenario could mean. In the options “strategic responses”40, the possible strategies are defined so that the entity that decided to carry out the exercise can respond to each scenario. Some of the decisions made today will make sense in all future scenarios. Others only in some.

40 Given a set of alternative scenarios, what are the possible strategic responses? According to BGN’s methodology, there are four types of “ways to bet”:  “Robust” – Only those options that will work well (or at least harmless) in each of the four scenarios are selected. It is a conservative strategy;  “Bet the farm” – Betting on a future and only drawing strategies for a scenario;  “Hedge your beats” – You choose several options for each of the four scenarios. Multiple strategies are created simultaneously until the future is clear.  “Core/satellite” – A strong bet is placed on one of the scenarios creating most of the strategies for this scenario. Nevertheless, small strategies are created for the remaining three scenarios.

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INDEX Pág. INTRODUCTION

I. THE CURRENT ENERGY LANDSCAPE: CONCEPTS, RISKS AND CHALLENDGES

I.1 Energy Security in the 21st Century and its structural changes

I.2 The main non-political assumption in energy

I.3 The Geography of Petroleum and Natural Gas

II. THE EUROPEAN UNION AND ENERGY POLICY – A HISTORY

II.1 Background to the new EU energy policy – More than six decades of progress.

II.2 The “Magic Triangle” and the 2007/2010 decisions.

II.3 The European Energy Security Strategy and the Energy Union Package – Safety and Sustainability

III. EUROPE, ITS CURRENT ENERGY SUPPLY SITUATION AND RUSSIA’S ROLE

III.1 Oil and natural gas demand in the EU and the geographical supply shifts of natural gas.

III.2 Russian and the European Energy Security

IV. THE EMERGENCE OF THE ENERGY ATLANTIC BASIN – AN ALTERNATIVE TO RUSSIAN ENERGY?

IV.1 Energy Map of the Atlantic Basin

IV.2 The Central Player of the North Atlantic – The US and shale gas

IV.3 Lusophone States of the CPLP Located in the South Atlantic

V. PORTUGAL AND ITS POTENTIAL ROLE IN THE ATLANTIC

V.1 The Presence of National Energy in the Atlantic

V.2 The Potential Resolution of the Transatlantic Trade and Investment Partnership Agreement (TTIP) and the Role of Portugal as an Actor in European Energy Security

FINAL CONSIDERATIONS – ACCOUNTING FOR THE LONG-TERM

BIBLIOGRAPHY

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INDEX OF BOXES, FIGURES AND TABLES

Pág.

Figure I.1 Energy Security in the XXI Century: Problems and Solutions

Box I.1 Energy Security and Theories of International Relations

Figure I.2 Primary Energy: Demand and GDP in the New Policies Scenario (1990-2040)

Table I.1 Proven Oil reserves by Microregions of the Global Economy (1994- 2004-2014)

Table I.2 Leaders in Oil Reserves (End of 2014)

Table I.3 Unconventional Oil – Reserves (b/b) 2014

Table I.4 “Top 5” Oil Producers (mb/day) at the end of 2014

Figure I.3 Main Movements of Petroleum Trade in 2014 (millions of tons)

Table I.5 Proven Reserves of Natural Gas by Microregions of the Global Economy (1994-2004-2014)

Table I.6 Leaders in Natural Gas Reserves (End of 2014)

Table I.7 Unconventional Natural Gas – Reserves (TCM) 2014

Table I.8 “Top 5” of Natural Gas Producers (BCM) at the end of 2014

Figure I.4 Figure I.4. Main Movements of the Natural Gas Trade in 2014 (BMC)

Figure II.1 EU – Major Challenges in the Energy Sector – The Magic Triangle

Table II.1 The Three Cornerstones of the Magic Triangle – Challenges and Measures

Figure II.2 Elements of Energy Policy in the EU – 2007-2010

Table II.2 European Industrial Initiatives (EII), 2010

Table II.3 EU: Energy Supply Security and International Cooperation

Figure II.3 European Energy Security Strategy: Foundations and Issues

Figure II.4 Energy Security and Sustainbility

Figure II.5 Energy Union

Figure III.1 EU’s Energy Dependency (% of Energy Imported for Consumption)

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Figure III.2 Dependence on Natural Gas Supply from Russia

Figure III.3 Russia: Crude and Condensed Oil – Main Export Locations, 2012

Table III.1 Russia: Natural Gas – Main Export Locations, 2012

Figure III.4 Main Russian Pipelines and Gas Pipelines to Europe

Table III.2 Major Russian Gas Pipelines for Exporting

Figure III.5 Russia: Decline in Production of the Giant Gas Fields in Western Siberia and Its Successors

Box III.1 Russia’s Energy Strategy and EU Energy Strategy on the South Rim Strategy and EU Energy Strategy on the South Rim

Box III.2 The New Geo-economy of the Energy Security Enhancing Energy New Geo-economy of the Energy Security Enhancing Energy

Figure IV.1 The Atlantic Basin

Table IV.1 The Atlantic: Main Reserves and Production of Oil and Natural Gas (Conventional and Non-Conventional) – 2013/2014

Table IV.2 The Main Countries of the Atlantic Energy Basin – Business Risks (2015)

Figure IV.2 When the Two Margins were Jointed – Tectonic Plates of South America of the African Continent – Geological Similarities

Figure IV.3 Portuguese Marine Basins – Conjugated with the Margin of Canada

Figure IV.4 Shale Gas: Horizontal Drilling and Hydraulic Fracturing

Figure IV.5 Location of Shale Gas’s Top Reservations in the US

Figure IV.6 Projection on Non-Conventional Gas Production (by Type) in the US (2013-2040)

Table IV.3 Relevant Data

Figure IV.7 Deepwater Oil and Gas Discoveries since 2006

Table IV.4 Portugal: Concessions and Contracts

Table IV.5 Research and Exploration of Petroleum in 2015-2016

Figure IV.8 Current Map of the Concession in Portugal

Figure IV.9 Brazil: Productive Maritime and Mainland Basins (2015)

Figure IV.10 Main Infrastructures and Hydrocarbon Basin in Africa

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