SPES Policy Papers

Rethinking EU-Russia energy relations: What do the Baltic States want?

Arunas Molis

February 2011

The Study Programme on European Security (SPES) has been supported by the Volkswagen Foundation. This support is gratefully acknowledged. About the author Arunas Molis, Fellow in the Study Programme on European Security (SPES), holds a PhD from the Institute of International Relations and Political Science at Vilnius University, Lithuania. Since September 2010, he has worked as Associate Professor at the Vytautas Magnus University, Kaunas; senior researcher at the Energy Security Research Centre, Kaunas, and lecturer at Vilnius University. Since February 2011, he has worked as an expert in the Energy Security Center under the Ministry of Foreign Affairs of the Republic of Lithuania, Vilnius. His research interests include EU foreign, security and defence policy, NATO transformation, Russian foreign policy and energy security.

About IEP Since 1959, the Institut für Europäische Politik (IEP) has been active in the field of European integration as a non- profit organisation. It is one of Germany’s leading research institutes on foreign and European policy. The IEP works at the interface of academia, politics, administration, and civic education. In doing so, the IEP’s task include scientific analyses of problems surrounding European politics and integration, as well as promotion of the practical application of its research findings. www.iep-berlin.de

About SPES Policy Papers The electronic collection “SPES Policy Papers“ is dedicated to issues of current and future relevance to European foreign and security policy. Written by grantholders of the Study Programme on European Security (SPES) for fellows from Central and Eastern Europe – conducted by IEP and supported by the Volkswagen Foundation – as well as researchers from IEP, the papers focus on four thematic clusters:

• The EU and Russia • European Enlargement and Neighbourhood Policy • The EU’s civilian and military crisis management • European energy policy and climate change policy

Against the background that the scientific debate on European foreign and security policy is often dominated by Western perspectives, this paper series stands out by providing a platform for alternative viewpoints that focus on external perceptions and assessments of EU policies, actions and discourses.

This paper, like all publications in this series, represents only the views of its author. Copyright of this paper series is held by the Institut für Europäische Politik.

ISSN 2191-0006

Editorial Team

Publisher: Prof. Dr. Mathias Jopp, Director, Institut für Europäische Politik

Executive Editor: Mariella Falkenhain, Research Associate and SPES project coordinator, Institut für Europäische Politik

Area experts: Dr. Elfriede Regelsberger, Deputy Director, Institut für Europäische Politik Editorial area: European Foreign and Security Policy

Dr. Katrin Böttger, Deputy Director, Institut für Europäische Politik Editorial area: European Enlargement and Neighbourhood Policy

Layout: Matthias Jäger, Institut für Europäische Politik SPES Policy Papers 2011 3 5 7 7 10 15 15 18 21 21 25 28 30 36

Overview of the major risks and vulnerabilities Overview of the and oil sectors gas the Baltic States in the electricity, The progress of EU gas and electricity markets Creation of common Gas supply diversification Shaping ‘consumer solidarity’ and legally binding agreements Promoting ‘reciprocity’ Challenges and opportunities for the Baltic States’ energy sector the Baltic States’ opportunities for Challenges and common EU energy policy the for The Baltic agenda EU-Russia energy cooperation priorities for The Baltic States’ I II III Conclusions Bibliography Annexe Introduction Table of Contents Table

SPES Policy Papers 2011 5 2 develop and sustain bilateral 3 The current institutional structure of the EU-Russian Dialogue is presented in Figure 1 (see annexe). Energy Germany’s by made those include investments such of Examples Ruhrgas towards the modernisation of Gazprom’s gas-export infrastructure, the Gazprom and French jointly Total design, agreement finance, to construct andgas operate field. The joint venture South the Shtokman Stream AG, equally owned by Gazprom and Italian Eni and created to execute the Stream pipeline project, can be also mentioned in this regard. South In seeking EU support in energy affairs, the Baltic States face a twofold problem. supranational First, EU involvement in energy affairs is a quite recent phenomenon. Therefore to it has be constantly improved. Second, promoted, the EU developed, energy with deal to how over divided significantly member states and are risks, what should be the internal priorities and of external the energy policy EU dimensions. For instance, countries, which are interested participating in in Russian oil and gas and export production projects energy energy relations with even Moscow, if this means deviating from a position of solidarity with other EU member states. Those, which heavily depend on Russian imports, favour towards Russian a energy tougher policy. stance deeper integration of the European They energy market ask for and the development of an external EU policy, energy but face the sceptics of the need challenge for this. Assuming of the high importance persuading of a coordinated and institutionalised EU external energy policy for the Baltic States, this paper focuses on their motives and strategies 2 3 infrastructure infrastructure projects. presumes that without However, the contribution of the EU, this the paper Baltic States will not island’ status escape for their years. Their ‘energy negotiating power and financial capacities are simply too weak for negotiations with partners such as government the Russian and Russian Gazprom, companies the United such Energy System (UES) as Russia or of Transneft. It may be assumed that the Baltic States have a genuine interest in a stronger EU energy policy and support ideas such as the creation of a (Andoura et European al. 2010). Energy impact To Community have on a the meaningful important most the among is content EU-Russia and structure energy cooperation aspects in this regard. claim 1 As energy security is crucial for the state, national the governments security of of the Baltic the States pay great attention to the development of this Thus, sector. in this paper the terms ‘Baltic interests’, etc. States’ ‘Baltic concerns’ mean States’ the or interests the (i.e. state the of positions and concerns, interests, governments). official positions of the Baltic States’ The governments of the Baltic States In light of these concerns, the Baltic States are 1 Dependency and the absence of a well functioning functioning well a of absence the and Dependency the of relics challenging most the are market energy electricity the In States. Baltic the in legacy Soviet are grids Estonia’s and Latvia’s Lithuania’s, sector, the In system. Eastern post-Soviet, the to linked all other option no have countries three all sector, gas than to import gas exclusively Major from Gazprom. vulnerability is circumstance in this regard: the or single supplier, caused by regulator in the a case tends of to electricity, follow specific a strategy of ‘energy diplomacy’, rather than the principles of a market economy. The obligation to pay a considerably higher price for natural gas than many other member states of the European Union (EU), the avoidance of the Baltic States as possible regarding blackmail and countries, transit supply disruptions are clear consequences of this situation. Introduction that the close connections between the Kremlin’s foreign policy and dependence a the create Gazprom of strategies pricing ‘selective’ supply and on supplies from Russia that national jeopardises security their (Spruds 2009). gas A sector centralised in Russia highest Russian and officials towards the energy affairs attitude indicate that of the the politicisation of energy will affairs not cease in the foreseeable future. In other words, if nothing is done, the threat of increasing energy prices, supply disruptions and blackmail will continue, at least under the current Russian government. This will political independence of the Baltic States. further challenge the looking for possibilities to change the situation. Some aspects of the energy security Baltic States’ may be covered by threats can national be addressed by measures. developing regional Other cooperation and implementing joint energy 6 SPES Policy Papers 2011 EU energy policy decisions shapers and makers. and shapers decisions policy energy EU and Baltic for handbook a become to ambition the has nor formula magic a proposes neither policy? paper energy EU an of development the shape to directionwhich want States Baltic the do is: paper this of question research the background this Against etc. investments, volumes, prices, supply regarding negotiations Russia EU- multilateral with Gazprom) (or Russia with other choice relations bilateral of no replacement the seek to than have States Baltic the future, near the in least at words, other In foremost. and first are government Russian Russian the which and companies of suppliers, with negotiations bilateral for small too are States Baltic the jointly dimension ofthecommonEUenergy policy. the external analyse the developing in interests States’ to Baltic and dependence, States’ Baltic the of consequences negative the mitigate could supply infrastructure development projects, which energy alternative the of overview an provide to is study this of aim second The their security. energy safeguard to hope States Baltic the which in Russia ways presents and towards companies, energy approach its and ‘hostile’ a such for reasons economic and political explains historical, major study EU- this cooperation, to energy relation Russia in expectations States’ Baltic the discussing In ties. energy EU-Russia of closer development the impeding on fact in are dependence which whose Estonia, Gazprom gas is striking, all advocate for measures, Lithuania, and whereby Latvia situation, paradoxical the compensate this gap. First of all, it aims to explain to attempts partially least at tendencies, latest the and events current on concentrating cooperation. study, This energy EU-Russia EU common policy: the energy aspect of dimension important external the most of the towards approach States’Baltic the of analysis deeper a provide and aspects these unite to tried ever has them of none However, security general. in States Baltic the of energy interests the or relations, energy Russia EU- policy, energy EU on analyses recent their main energy supplier, Russia. the towards position EU’sstrategic the shaping in It is presumed that both individually and even and individually both that presumed is It focus researchers Baltic and European Many why and in and why This (chapter 3). relations energy Baltic EU-Russia the in be priorities to States’ considered are which of both ‘reciprocity clause’ in EU relations with Gazprom, the of and EU the solidarity’inside ‘consumer of importance the explain to seeks chapter last The 2). (chapter companies Russian of dominance the will be analysed as instruments, which would limit diversification, supply gas of level the in increase an as well as sectors), electricity and gas the in all of (first market energy EU common a of creation sufficient and supply of stable energy resources to the Baltic a States. The securing for instrument common main the as perceived a is policy,energywhich EU of development the on focuses part national or regional efforts (chapter 1). The second either with dependence this overcome their to inability and Russia on dependence import their of presentation a with starts paper this arguments, easy target for divide-and-rulepolicies. an of role the play to continue will States Baltic the and Moscow with relations in partner weaker the remain will EU the – Russia towards policy implemented commonly and defined clearly a all of first meaning – dimension policy energy EU external coherent a without that argues paper this firms, private and experts governments, Western of positions and views the with and them contrasting priorities States’ Baltic the of potential and the assessing By development security. energy policy States’ Baltic energy the EU on both of principles the ‘solidarity’ and ‘reciprocity’ has a negative impact of understanding common a of absence the that argues and Baltic concerns the States’ for reasons the explains it However, n ekn t epan h Bli States’ Baltic the explain to seeking In SPES Policy Papers 2011 7 8.8 61.2 17.3 35.8 25.3 12.6 1466 1466 2015 181784 669687 358047 334149 690801 487045 243715 170461 1213468 1927639 8.2 56.3 17.2 13.2 36.4 24.9 1496 1496 2010 153315 623018 294227 318268 674035 462439 245217 152646 EU 27 1073937 1854101 6.8 973 973 Source: Capros et al. 2008. Capros Source: 52.4 17.7 14.2 36.7 24.6 2005 589611 126702 256828 975298 320065 665514 444804 257360 122689 1811406 0 0 129 896 896 670 11.4 42.9 48.1 27.1 15.2 -102 -102 1773 2602 2835 1600 5899 2015 0 0 119 973 973 697 42.1 47.4 25.3 17.5 12.5 -151 -151 1556 2401 2634 1405 5559 2010 ESTONIA 0 0 11 27 867 800 800 621 25.5 57.8 19.4 14.2 -138 -138 1463 3255 1090 5627 2005 However, However, in 2002 the Lithuanian government 0 0 72 76 1.2 gas and oil products (Rudzikas 2006). Despite the and oil the both in dependencies import significant gas sectors, the Baltic States can not be treated as countries. consuming and importing energy purely The presence of an import/export terminals oil for oil and oil products in refinery in Mazeikiai, Riga Butinge and Klaipeda Ventspils, (Lithuania), and Liepaja (Latvia), and Tallinn and (Estonia), as well as a gas Sillamae transit pipeline through of some least at mitigate Kaliningrad, to Lithuania related risks. the import dependency and the European Commission (EC) reached an agreement regarding the decommissioning of the Ignalina Nuclear Power Plant by the end of 2009. At the time, Ignalina not of only Lithuania’s provided domestic ~80% electricity requirements but also exported electricity to the States. other In addition, over a five year period starting Baltic in 2016, Estonia will have to emissions comply regulations on large combustion with power EU plants, meaning that the country will practically 181 181 57.6 32.3 30.1 33.5 2443 1909 3878 2051 1909 2127 6344 2015 0 0 79 82 1.5 172 172 55.9 31.5 29.0 34.8 2057 1594 3252 1732 1594 1910 5490 2010 LATVIA 0 0 76 83 1.8 185 185 55.9 29.2 28.8 36.4 1662 1434 2783 1376 1358 1718 4720 2005 0 0 3.9 -71 -71 339 346 11.4 85.6 36.1 49.5 3147 4418 7808 3220 4418 1015 8929 2015 0 0 24 24 4.5 345 355 843 86.1 37.6 46.8 10.8 2872 3663 6882 2941 3663 7826 2010 LITHUANIA 31 2.5 8.8 190 215 758 58.3 31.9 28.8 -255 -255 2677 2492 5096 2746 2476 2666 8606 2005

Oil Natural gas Electricity Total Solids Solids Solids Oil Oil Natural gas Nuclear Renewable Natural gas Nuclear Electricity Renewable Total

(%)

consumption consumption

Challenges and opportunities for and opportunities Challenges energy sector States’ the Baltic (ktoe)

(ktoe)

gross inland inland gross consumption consumption

Until the end of 2009, the three Baltic States had quite a diverse energy mix. In Estonia, the energy Latvia in shale, oil of use the by dominated was mix by the use of hydro resources and states in Lithuania by three all addition, In energy. nuclear of use the complemented these energy sources with biofuel, natural of imports with course, of and, energy wind Overview of the major risks and and risks major the of Overview vulnerabilities This chapter also It is sector. energy States’ Baltic the in problems concerned with the main the of assessment and overview brief a gives existing projects, which have been implemented so far to diminish the energy insecurities of the region. It will be shown that without political and financial support from the EU, the Baltic States will not be key objectives. able to achieve their I Net imports imports Net

As % in in % As Gross inland inland Gross Import dependency Table 1. Baseline scenario of the main energy balance indicators 1. Baseline Table 8 SPES Policy Papers 2011 5 4 energy insecuritymaybesummarised asfollows: States’ Baltic the for reasons main The 1). 2010: al. et (Dreyer policies Gazprom’s to has vulnerable policy’) extremely are States Baltic the that antimonopoly demonstrated of of rank the ‘effectiveness concentration, market gas retail of level the gas, Russian on dependency import the consumption, energy primary in gas of share the as (such indicators of analysis the words, other In 2). figure annexe, (see cuts to supply gas to able respond least are (ECIPE) States Baltic the Economy that conclude Political International for Centre European the from analysts Subsequently, States have to rely Baltic on Russian ‘back-up’ the capacities. sector, 2009). electricity (Janeliunas, the in products Additionally, oil of case the Belarus, in or Russia either from imported oil also refined is or consumed internally the huge A of supplies. share gas Russia their of on 100% almost dependent for been have States Baltic tendency isclearlyillustratedbytable1. latter This imports. energy increase on dependency sharply their and economies States’ Baltic the influence negatively will developments these within remaining producers, energy local support to countries these of instead external suppliers, to energy wired be to need subsequently will that money of sums huge the to Due electricity. of generation the for required be will which gas, or electricity imported with energy shale oil and Baltic States will have to the replace both their nuclear aconsequence, As plants. power shale-fired oil in electricity of production the cease to have 1. ic giig oiia idpnec, the independence, political gaining Since instance, the gas price in Lithuania was $US 310 for 1000 cubic for 2010, January In true. however,always is, not average. This EU-27 the below prices gas from benefit still States Baltic the in consumers dependence, this despite that claim analysts Some 2008). European countries for political Eastern reasons to 40 (!) supply times gas (Kolesinskas the suspended has Moscow 1991, Since of natural gas may be limited or stopped supply the consequence, a As market. Baltic States’ the on monopoly’ ‘vertical complete 1): In the gas sector, Gazprom enjoys a so called supplier single a on Dependency negotiations. price may be lifted at any time without any real 5 It is even more dangerous that dangerous more even is It (see graph (see 4 or its 7 6 2. Nafta’ refinery were also stopped after Russia failed to gain failed control overthisenergy infrastructureasset (Whist2008:23). Russia after ‘Mažeikiu stopped the also to were pipeline refinery Nafta’ Druzhba the through oil crude of Williams International (Hamilton 2008). In July 2006, deliveries from Lithuanians selling the their port, pipeline stop and refinery to the to American company order in times nine than less no company oil Transneft. Between 1998 Russian and 2000, Transneft the cut off oil supplies to Nafta Ventspils company transit oil its sell to refusal Latvia’s with perfectly coincided embargo this that noted have Ventspils.Analysts of port Latvian the to deliveries oil suspended Russia 2003, January in instance, For make foreignpolicyconcessions(Mae2009). energy their dependency to interfere in use their domestic affairs or force them may to Russia that concerned are States Baltic The Lithuania. and Latvia Estonia, of policies the influence to energy possesses currently Russian Russia tools strongest the of one is supplies on dependence analysts, some to According increase thegaspriceforBalticStates. to opportunity this uses Gazprom shale, oil and energy nuclear for replacement the as gas complement could which resources, alternative of lack the to Due increase. will States Baltic the in gas for need the Estonia, in market electricity free a to transfer Power Plant in Lithuania and the problems with oil shale and the meters. Besides this, due to the shutdown of the Ignalina Nuclear on the so called ‘spot’ market for merely $US 200 for 1000 cubic gas natural purchasing were consumers Western while meters, means of sanctioning. a as or pressure, economic or political direct create to instruments these use may Moscow decisions. economic and political internal their influence to used be may States’dependence Baltic the Western or Northern Europe. Integration into Integration Europe. Northern or Western with States Baltic the uniting pipeline gas no infrastructural serious physically is there words, other In constraints. to due impossible practically is supplies ‘safe’ politically of these usage However, States. Nordic instance, the for from elsewhere, from States the Baltic to supplied be could electricity and as gas such resources and energy Theoretically, Northern 4): of Europe systems Western energy with the interconnections energy of Absence oil resources. local limited very only possess States Baltic the that fact the to due relevant, also are risks dependency sector, oil the In 9). providers 2008: (Aalto electricity Russian by dominated system a on rely to – option one only possess they deficit electricity term short a of case the in that means This network. Russia’ of ‘UES the into only integrated are States Baltic the 6 rcial, hs en that means this Practically, (see annexe, figures 3 and figures annexe, (see 7 In the electricity sector, SPES Policy Papers 2011 9 The energy intensity of intensity energy The Source: Noël 2008. Source: industry in the Baltic States is one of the highest the of one is States Baltic the in industry in the EU. Energy efficiency in buildings, the transport sector and district heating systems are extremely low. This stems from the use of out-dated Soviet technologies, insufficient investment and a weak savings culture. The biggest challenges towards Baltic improving States’ energy the efficiency areto the related lack of knowledge and experience common in property management, low incomes and the fear of taking out loans. The inability of residents to decisions, agree the lack of trust and and knowledge in make the common realisation of successful projects and the unattractive financing conditions forenergy efficiency investments also play a significant role in this regard (Janeliunas 2009). viable projects face administrative as hurdles, those to be involved development, with the operations planning, or renewable energy promotion projects lack of the required levels of education and training. efficiency: energy Low 4.

8 Officially, it is expected that by that expected is it Officially, Slow growth consumption: of 2020 the share of renewable energy resources renewable to final energy energy consumption will be 23% in Lithuania, 25% in Estonia and 42% in Latvia other However, 2009). portal energy (Europe’s experts (see table 1) say that these figures are energy renewable of use the that and unrealistic this for reasons main The slowly. too growing is the technologies, renewable of costs high the are lack of stable financial support systems, little legal unsettled an and experience technological further a words, other In 2007). (Piebalgs base increase in renewable resource consumption requires further research and high investments. up-front However, even economically the world’s biggest energy grid, Continental Europe (formerly the ordination Union of for the Transmission UCTE), is not yet completed. Co- of Electricity, As of July 2009, the work of the „Continental Europe“ regional Europe“ „Continental the of work the 2009, July of As group (formerly UCTE), as well as ATSOI, BALTSO, ETSO, NORDEL and UKTSOA, has been fully European integrated into Network the of Electricity Transmission (ENTSO-E). System Nevertheless, Operators the for synchronisation (the principle integration of Baltic energy grids goal into the of European energy network) remains. For more information on ENTSO-E and „Continental Europe“ energy grid see: https:// accessed 10 September 2010. www.entsoe.eu/index.php?id=10, 3. Graph 1. Russian gas as a share of primary energy supply (2006) of primary energy a share Russian gas as Graph 1. 8 10 SPES Policy Papers 2011 energy networks(EuropaPressReleases2009). EU wider the into systems energy States’ the Baltic integrate better to order in taken which be to measures, have concrete envisages plan This (BEMIP). Plan Interconnection Market Energy Baltic the on Understanding of Memorandum a signed states member Sea Baltic eight 2009, June in as implemented, being for prospects real have LitPolLink, and bridge energy Estlink Lithuanian-Polish of the branch second the include also which projects, important strategically these All Sweden. with States Baltic the connect will which link, energy NordBalt the of construction the for million €175 allocating of target EU the reaching in succeeded the they 2009, with January In one. systems Finnish electricity Baltic the uniting companies completed the energy350 MW States’Estlink project, Baltic three the 2007, January in 9 2010. for planned were offers best the presenting bidders two the parallel with and negotiations NPP new a for investor strategic a Lithuanian government announced a tender to find the 2009, In project. the for in participation Poland’s light green the gave which Communiqué, a signed Ministers Prime Polish 2007, and Lithuanian the March In 2009). (Spruds ahead go could project the that concluded and study feasibility a Latvian and Estonian energy companies conducted registered since the end of 2006, when Lithuanian, been has NPP common a of development the Progress on group. regional Europe” “Continental the into systems electricity Estonian and Latvian Lithuanian, the integrating and Lithuania in built be to (NPP) Plant Power Nuclear common a new of construction limited the planning some in both achieved concerned, progress have is States sector Baltic electricity the the as far As well governments and are trying to mitigate States’these vulnerabilities. Baltic the recognise the major risks in the energy sector quite that seems It electricity, gasandoilsectors The progressoftheBalticStatesin Besides the construction of the new NPP and NPP new the of construction the Besides strateginiai_projektai/, accessed5October 2010. http://www.enmin.lt/en/activity/veiklos_kryptys/ see: projects interconnection electricity and NPP on information more For 9 Besides this, Besides exchange withtheirEasternneighbours. electricity for model market Spot NordPool the Baltic the States would group this way have the possibility of using regional Europe Continental the into integration full without Ministry even Energy, of Lithuanian the from officials some to According years. coming the in States Baltic the in emerge to expected is which market, electricity common a to way the on step first the be to seen is BaltPool rules, NordPool the on Based Estonia. in later, months few and Lithuania in operational became market free the BaltPool, of creation the with 2010, of beginning the At momentum. new gained has States Baltic the in market electricity free a having of idea the consequence, NPP.a As imports and producers are now keen to through replace the Ignalina needs energy their covering in Therefore consumers have become more interested 2009). (Mae cheaper considerably is production) energy for oil-shale fires still (which Estonia or Lithuania, even from the hydro-energy rich Latvia electricity from Russia, Ukraine and, in the case of importing as need, countries the as produce electricity much potentially could products) oil and Although changed. has coal gas, (consuming plants power domestic other situation the now but possibilities, import for look to the States Baltic the been has NPP for need no been has there region, the in cheapest Ignalina the by produced of ‘UES Russia’effectively.more post-Soviet and electricity the as long As the markets of potential their the use liberalise to fully to keen are States Baltic the regard, this In 1). chart annexe, see details (for States Baltic the in electricity of provision the improve to how on plans other also are there grid, energy wider the into integration 10 hmevs urnl ipr eetiiy from electricity electricity the that expectations Therefore Russia. import currently themselves of countries Scandinavian the that highlights Energy Ministry Lithuanian a the instance, from Baltic For representative sector. the electricity of the projects in assessments States ambitious their most in the optimistic of less are who ept sm pors, hr ae experts are there progress, some Despite October 2010. 5 accessed ec.europa.eu/energy/infrastructure/bemip_en.htm, http:// at available is model, “NordPool” the on based is which system, “BaltPool“ the of creation the on information Further 10

SPES Policy Papers 2011 11

17 Taking Taking 15 Finally, the 16

18 Not to mention the investments Given the economic crises required currently facing the governments of for such projects. the Baltic States it seems hardly possible that they will find an development. infrastructure opportunity to invest in energy Nemunas Biknius, interview Energy, of Ministry Chief the at division Heat and Electricity specialist of Lithuania. Energy Vilnius, by author 16 November 2009, Resources, The Russian region of Kaliningrad is geographically separated energy self-sufficient a have not does and Russia of rest the from It is therefore supplied with gas via Lithuanian territory. sector. Nemunas Biknius, interview Energy, of Ministry Chief the at division Heat and Electricity specialist of Energy Resources, On the other hand, there are also some positive some also are there hand, other the On into consideration Gazprom’s approach towards competition, an agreement with Gazprom or its very difficult to reach. subsidiaries may be First of all, a large developments in the gas sector. transported is products oil and oil Russian of share to the EU either by tankers via the or Baltic ports pipelines over the Baltic the States’ fulfilment soil. of Thus, Russia’s global energy obligations supply requires considerable in the cooperation Baltic Sea from region making and politically motivated prevents decisions Russia the in energy sector. Second, some approve may States Baltic the in subsidiaries even the Gazprom form of supply route diversification, for instance, the supply of gas to Lithuania, and maybe even Poland, via Latvian territory, since allow this them would to avoid the the transit risks of gas associated through with Belarus. Of course, the pipelines going through Lithuania companies by controlled are 4) figure annexe, (see loyal to Gazprom, which may not agree to satisfy the ‘political’ requirements of government. The the ‘Kaliningrad Lithuanian card’ lose its may significance if the Nord Stream branch also to Kaliningrad is built or a local nuclear power plant consumes region Kaliningrad the (as constructed is most of its gas for electricity production). In any case, as long as the Nord Stream implemented, plans the are not ‘Kaliningrad card’ remains in hands. the Baltic States’ 15 16 17 18 would still have the final word as to whether or not the transportation of through the pipelines this should be allowed. ‘alternative’ gas governments of the Baltic risks States their of some diminish to leverage theoretical have at least by exploiting the so called ‘Kaliningrad card’.

14 An 11

13 To summarise, progress in the in progress summarise, To 12 Nemunas Biknius, interview Energy, of Ministry Chief the at division Heat and Electricity specialist of Lithuania. Vilnius, Energy 16 November 2009, by author, Resources, Dr. Petra Wirtschaftsforschung Opitz, (DIW econ), interview Manager December 2009, Berlin, Germany. by author, at 18 Deutsches Proof of this is the current failure to contract Institut (through a formal für competition process) the ‘strategic in Lithuania. construct and operate the proposed NPP investor’, which would In Lithuania, Gazprom owns 37% of shares in the gas importer and distributor Lietuvos dujos gas The International second owns E.ON (Gazprom’s largest 39%). Ruhrgas strategic partner importer and distributor Dujotekana is under informal Gazprom influence (through private businessmen closely associated with the Kremlin). In Latvia, Gazprom owns 34% Ruhrgas (E.ON of Gaze Latvijas distributor shares and importer in gas single the International owns 47%). In Estonia, (E.ON Gaze Gazprom Eesti distributor and importer owns gas main the in 34% shares of Ruhrgas International owns 33%). Further information may be obtained at: http://www.osw.waw.pl/sites/default/files/GP_EU_ en_.pdf, accessed 5 October 2010. The implementation of projects strengthening

independence in the gas complicated sector (for is details even see more Governments annexe, and private chart investors 1). are dubious about further investments (in Liquefied Natural Gas (LNG) terminals, gas storages, as Gazprom pipelines), not only supplies 100% of consumed the in gas the Baltic States, but also controls, whether directly or through crucial subsidiaries, both infrastructure storage objects facilities), as well as the gas (pipelines distribution companies and (see annexe, figures graphic 5 and representation of 6 resources). energy Russian the for a on dependence States’ EU’s and Baltic expert from the German Institute of Research underlines Economic that no NPP has ever been built by a private investor in Europe, as the Baltic States plan to proceed. Besides and this, risks associated the with costs nuclear waste storage make the project less attractive to and investors, both and put the construction society process in danger. permanent Therefore even if there was a political decision to build an storage LNG facilities or terminal, a underground gas Poland, interconnection gas with Gazprom, together with its partners, 11 12 13 14 supply will be diversified through the Estlink or NordBalt interconnections may not be met. relatively ‘easy’ relatively electricity ‘easy’ sector may take much more time than expected. 12 SPES Policy Papers 2011 lo te mot f a fo Nra via Norway from gas of Finland. import the would allow which project, Interconnector Baltic the accelerate to as well as Poland, and Lithuania and Finland, and Estonia unite would which projects, interconnection gas the implement to striving all of first are States Baltic the market, EU the to gas even Russia. or built) is Poland in terminal LNG the that case the (in Qatar Norway, Germany, Denmark, from Poland through gas’ ‘surplus to called possible so re-import it make could this States Baltic the For EU. the to supplied gas of amount overall the increase and consumers of position in negotiating prices gas the strengthen on would this Consequently, limit Europe. a put discipline and should monopolists whole a as market European the to supply of diversification the Nevertheless, States. Baltic the in consumers reach hardly will Stream White and Nabucco both that region the in understood is It region. Sea Caspian the from gas with gas Russian supplementing at aimed are they as projects, Stream White and Nabucco the 21 20 19 a t Erp truh h Bli Sae, thus States, Baltic Belarus. the avoiding through Europe Russian to carry gas could implemented, traditional if the project”, to “Amber the instance, For gas EU. the in destinations new transport of to construction the pipelines on insisting also are government Russian the and Gazprom of strategies the with In order to benefit from a diversified supply of supply diversified a from benefit to order In n rig o iiih h rss associated risks the diminish to trying In trg fclte. h gooia srcue n iln makes Finland domestic storageveryexpensivetobuild. in structure underground geological Latvia’s The of facilities. use make storage to it allow would this as States, Baltic the with link a having in interested also is Finland aim oftheprojectisinfact,toreducetransitcosts. main the as term, long the over suppliers for expensive more be would it that say proposal the of Critics impact. environmental Nord Stream, would be shorter, and would have a less significant have claimed that the Amber Proponents pipeline would cost only half as be much as pipeline. Yamal–Europe would the it to where then reconnected Poland, and to Russia Lithuania in and Latvia oblasts through Pskov and Novgorod Tver, the across pipeline a of laying the envisions project” “Amber The the governmentareconsideredtobeverymuchinterdependent. this In objectives. and companies energy Russian of policy and study,strategy political the achieving for tool a as resources Assuming that the Russian government’s strategy is to use energy by author16November2009, Vilnius, Lithuania. 21 Additionally, the Baltic States are also are States Baltic the Additionally, 19 n h gs etr te atc States Baltic the sector, gas the in 20 The Baltic States also support also States Baltic The f h fclt lctd n nhkls Latvia. Inchukalns, in located facility capacity the storage of the increase to or storage gas risks, would be to construct a second underground least allow the Baltic States to deal with short term at could which possibility, Another 2009). Group (Ramboll Europe Western in the terminals to brought existing LNG the on sell which tankers, Sea. An alternative possibility is to use small LNG Barents Qatar,the from or LNG Nigeria supply to used be could vessels largeLNG built, is terminal terminal in one of the Baltic States’ ports. If such a LNG an constructing of possibility the discussing 24 23 22 rnpr srie ae nldd (Mauring/Schaer included are services transport if 10% to up and GDP of 4-5% represent which (Sleivyte 2008) and their income from transit fees, States will lose both their leverage vis-à-vis Russia Baltic the endeavour, this in succeeds Moscow If States. Baltic the through transit this avoiding increasingly thus is Primorsk) and soil its in on pipelines and (e.g. terminals new currently constructing is Russia however, time, same the At States. Baltic the in remaining up end products oil As a consequence of this cooperation, some oil and capabilities. these on dependent are companies Russian capacities, shipping and refining of lack tothe Due Lithuania. Mazeikiai, in refinery the States’Baltic the to connected and is ports system as was noted before, the Russian crude oil pipeline however, hand, other the supply.On their of 90% importers, depending on Russia for approximately oil net are States Baltic three all hand, one the On sector.gas the in as threatening as not is sector oil the feasibilitystudies. of completion the past advanced yet has these projects of none reasons, of set complex very a to due However, Europe. to the running to pipelines connected gas be also could storages These The Baltic States’Baltic The the in Russia on dependence such astrategy. of elements evident most the are System” Pipeline “Baltic the and district) Petersburg (St. Ust-Luga in port Aopened recently oil extractionfieldsandtransportationroutes(Ventspils 2009). oil and petroleum products from Russia as it is linked to Russia’s crude Ventspilsthe of example, shipments For handles terminal total of20bcm(KPMG Advisory 2008). a to volume up increased be could storages The gas underground Latvian of Russia. of those also Latvia, but of Estonia, reserves and gas Lithuania the holds only not facility This bcm. 2.3 of capacity a has facility storage Inchukalns the present, At 24 23 22

SPES Policy Papers 2011 13 , the Baltic States Despite the fact that 30 29 Nemunas Biknius, interview Energy, of Ministry Chief the at division Heat and Electricity specialist of Lithuania. Vilnius, Energy 16 November 2009, by author, Resources, For instance, the Russian state-owned attempted company to gain “Transneft” control of the “Mazeikiu nafta” Lithuania refinery in and the Ventspils oil-export terminal 2002. When the two governments in refused to sell their stakes to Latvia in Ventspils forcing deliveries, oil cut sharply Moscow “Transneft”, to obtain oil by rail. Deliveries of oil to the Lithuanian refinery “Mazeikiu nafta” were cut after the refineryPolish company was“PKN Orlen” instead of soldthe Russian “Lukoil”. to the Other notorious examples are the gas conflicts between Russia and Ukraine and the increase Belarus and Moldova (Spruds 2009). in gas prices for Azerbaijan, To To sum up, being more than once ‘punished’ remain vulnerable in sectors. National the and regional cooperation efforts gas and to electricity mitigate these vulnerabilities important but not appear sufficient. Indeed, to the last 10- be 15 years of action within this framework have not resulted in reliable solutions. There is a risk that in dealing only bilaterally at level, the or governmental leaving it up to implement essential energy security projects, may private companies to result in a further deterioration of the In situation. other words, it may put the ability to provide a 29 30 will be built in the region. the Polish power company PSE Operator is one of the partners in constructing an energy in NPP bridge new the and Poland and Lithuania between about worried is government Polish the Lithuania, the competition, which local energy may producers face if As a these consequence, projects the simultaneously considering Polish are the government construction completed. is several of NPPs in Poland, negotiating the of import electricity from German NPPs and examining an of construction the supporting of possibility the NPP in the Kaliningrad region. Outdated energy infrastructure is another challenge. In the case of the construction of LitPolLink, the upgrading of would grids power domestic Polish and Lithuanian cost €95 million and €371 million respectively. Competing NPP Kaliningrad may only deepen projects the reservations of in potential partners to invest into the modernisation Belarus of Baltic and electricity grids and new infrastructure 2009: 5). Tribune objects (The Lithuania by Moscow for in their foreign-policy growing making independence and the 27 ). Even after 28 For instance, 25

26 For example, after oil Russian through the “Druzhba” companies pipeline in stopped (BNS Venezuela 2006, from imported was refinery) nafta” (“Mazeikiu oil supplying to Lithuania 2006). The best example of this is the Lithuanian-Polish some to cooperation contributed which refinery, nafta” “Mazeikiu the around progress on the Odessa-Brody-Plotsk-Gdansk pipeline, which aims to ensure the import of oil from the Caspian Sea region. The national investor “LEO LT” was created to complete the project, only to be subsequently abolished. After the European Commission stated its potential support for the financial “NordBalt” project, the Latvian and Lithuanian governments engaged in a competition concerning cable linking Sweden should be built. from which the energy the place Besides these direct reasons (the absence of interconnections, the dominance of Gazprom in the gas sector and poor governmental investment factors, indirect more other, also are there capacity), which to date have prevented the from Baltic effectively countering States their energy security related risks. For instance, the the new NPP in construction Lithuania was postponed several of times, due to internal mismanagement complicated relations with the Polish, Latvian and Latvian Polish, the with relations complicated other partners (The Lithuania Tribune 2009: 17). There is also no excuse for the situation, which forced the Lithuanian government to appeal the European to Commission in order to convince Latvia to cooperate in energy affairs (as it was in the case of energy link to Sweden the European Commission interfered, cooperation remained technical, on the rather level than of orientated towards operators, long term such as goals, a firm agreement that only one new NPP the Kazmunaigaz Company uses some of these terminals for the export of Kazakh oil, which is transported to the ports by rail. Therefore it may be concluded that despite Russian to their efforts, traditional due intermediary role and current capacities in the processes, the refining Baltic States and will most retain probably transportation the possibility of supply and diversifying even of using their their oil infrastructure oil intensifying for catalyst a as projects development cooperation in other sectors. 25 26 27 28 2006). On the other hand, the terminals located on their soil allow for destinations the import other of than oil Russia. from 14 SPES Policy Papers 2011 o temie h E cmo eeg plc in order tomakeitmoreeffective. policy energy common EU the streamline to attempting are States Baltic the how explore will chapter policy.energynext EU The on discussion broader a partners, priorities their with their together lead, define and should States Baltic the instruments or EU strategic energy reserves. Thus, management crisis of creation the in result not did it Moreover, dimension. external an of creation it was not implemented, nor was it extended to the liberalisation of the EU energy market was agreed, mean ‘beneficial’ policy. For instance, necessarily although the not will policy EU ‘common’ not, If initiatives. reasoned and projects pilot proposing than other to be the choice ones generating innovative a ideas and have not do they words, other In spectators. passive remain affordto not can States Baltic the affairs, energy in integration European price ofenergy forconsumers. the raise and Russia from supplies on dependence increase further risk, at electricity of supply stable However, with their reliance on a deepening of SPES Policy Papers 2011 15 In 32 The problem has been, 33 According to the recently ratified Lisbon Treaty, competences in competences Treaty, Lisbon ratified recently the to According institutions EU the between shared are policy energy of field the and the member states (Official Journal of the European Union 2007: 21). It was agreed that 9 major axes for electricity, 64 ‘common projects interest’ of and 32 projects 122 axes, gas major 6 the of concerns also agreement The included. ‘European interest’ be projects of common interest, 10 projects of European interest in the gas sector. The provisions laid down in the Lisbon 32 33 Creation of common EU gas and electricity gas and electricity of common EU Creation markets The Baltic States’ efforts to prevent motivated supply politically disruptions and constant price lifting are pointless, if the Baltic common EU electricity the if or properly work not do markets gas and States’ energy sector stays outside this Being a part market. of the European market would mean a diversified supply, while staying outside means playing into the monopolists hands, i.e. their price paying without negotiations, experiencing the pressure to sell energy infrastructure objects, and facing blackmail and disruptions due to political reasons or outdated infrastructure in the East (see chapter 1). The provisions of the Lisbon Treaty and more detailed EU regulations on the creation of a common Legislative & Energy Gas EU Package) provide some energy market hope (e.g. and allow the Baltic third States to have at least minor leverage against the growing influence of Gazprom. But this is not sufficient – the resulting common market is of no less importance than the process of its creation. The question remains as to why the process is so slow and how the Baltic States envision speeding it up. Treaty are neither the first, nor the onlyattempt to employ transnational instruments to strengthen the EU member states’ energy security. however, however, that the construction of these networks has not received enough support institutions. from In this the regard, the EU Baltic States first of all argue for political support, which would be very helpful in attracting private investors, the and establishment of more favourable conditions for the development of the networks (e.g. for the adoption of fast approval procedures). According 2006, for instance, member states agreed on the energy Trans-European the inside projects priority networks (TEN-E). acquis . Against this background the Baltic States 31 Dr. Petra Dr. Opitz, Manager at DIW econ, interview by 18 author, December 2009, Berlin, Germany. The Baltic agenda for the common the common agenda for The Baltic policy EU energy 31 Officials and scholars in the Baltic States argue that by exploiting their of creation current the in role crucial a play could institutions competences the EU EU’s the strengthening market, energy EU common a energy ties with ‘alternative’ energy suppliers, and negotiating the conditions of a strategic partnership with Russia in the energy sector. The majority Western of experts and officials, however, doubt the institutions EU has supranational involving of efficiency EC “the it puts expert German a As matters. such in a mandate in competition, infrastructure and climate policies, it can foster energy efficiency projects or not does it But resources. energy renewable promote energy comprehensive a develop to mandate a posses policy” II face a twofold challenge: 1) to convince sceptics that sceptics convince to 1) challenge: twofold a face effective be already can policy energy EU common a today; 2) to promote creation the the further for arguing development by of policy a energy EU common of common electricity aspects and Both dimension. external gas the of strengthening markets, and the are crucial, as important achievements are possible EU the in changes structural big without even . For instance, communautaire political support from the EU could trigger the construction of important infrastructure objects and also encourage member states to continue reforms despite the pressure from monopolists. At the same time, amendments to the legal base and the creation of new legally binding commitments could ensure that once started, process this becomes irreversible and complements the security of each energy and every EU member state. The following two sub-chapters EU an of development the for priorities will States’ Baltic discuss the common energy These policy. priorities include the creation of common EU gas and electricity markets and the diversification of gas These supply. are two areas in which the involvement of supranational EU institutions could, according to the Baltic bring a clear added value even in the short term. States, 16 SPES Policy Papers 2011 34 thinking and favourstheBalticStates’ interests. EU in rift a represents institutions EU the of attitude latest the with, deal to companies private for left traditionally being despite affairs energy Clingendael, Relations Institute Netherlands International the of from researcher a to the common free electricity and common market common and electricity free common the the with of country creation and philosophy guided market a overall “is instance for Germany, expert, German a completely by highlighted not As unfounded. are expectations States’ Baltic the sector, energy the in achievements concrete making from far are they Though States. Nordic the and UK the Germany, with dialogue political extensive in engage to efforts States’ Baltic the explains fact This states. member EU largest the by opposed is idea this if projects infrastructure contribution to the development of regional energy mechanisms will not be used to make a significant burden amongseveralparties. risky projects, whether on their own or sharing the where and companies are not willing to invest resources into financially sufficient allocate to able not are governments whose States, Baltic the for problematic is approach This investment. private stimulate would which framework, a of the creation to limited is EU the of role The companies. private by or budgets national by either being covered mainly are projects infrastructure energy new EU’s of costs the the that in means This role affairs. energy key a play to continue states member the Lisbon matters, financial the regards of as Treaty, ratification problem the after the even that However, is pipelines, things. and other grids amongst energy of the modernisation and interconnections gas and electricity for regional or EU markets requires budget allocations bigger into, integration or of, creation the words, electricity other In ground. the and on made if are investments vision no a gas than more little EU remain will markets effective single, of Even with such political support, the creation the support, political such with Even t s oe hn la ta E financial EU that clear than more is It hitf a At Sno rsace a te Clingendael the at 2010, The Hague,Netherlands. researcher Senior March 2 author, by interview Progarmme, Energy International Agt, van Christof 34 oni ad h Primn o te e TEN-E new the on Parliament the and Council the between agreement final The funds. these of reduction drastic a on insisted however, Council, The 2007-2013. period financial €340 the for proposed Commission, million support, Parliament’s EU the the with projects, TEN-Energy the for Initially, 2006). Council and Parliament n Dcso N 1229/2003/EC“ 96/391/EC No Decision Decision energy and repealing trans-European and for networks guidelines „Laying Decision down the by governed are market bargaining with theleadingEUcountries. their in diplomats States’ Baltic the for hope provides This active. become to prefer usually states member EU leading crisis, serious really a of case the show,in fund facility stability financial the European and the Greece surrounding and discussions Ireland for packages out bail- of creation the as such examples recent as ol b oe f t goals” its of one be could 37 36 35 pursuing the projects on their of own. instead free-ride to countries encourage help of construction would this that arguing Plan, Recovery Economic the finance European the of part as pipelines interconnecting to government reluctant German the is addition, In market. German the enter to outsiders allowing on keen very not are companies energy German that fact the in lies this for reason German main The the government. for priority real a than more rhetorical is a market energy EU single a the of reality, creation in that claims researcher German a The financial aspects of creating an EU energy EU an creating of aspects financial The is themostdesirableforBalticStates. development and integration into the EU energy market projects infrastructure energy the financing for option this costs), the of bulk the cover to required still states member (with catalyst a as only serve may Community the from support financial that fact the Despite (ibid.). sector private the from contributions or (EIB) Bank Investment European the from aid that assistance, fund mentioned also is financing for It the TEN projects can 2008). be complemented by structural (Inforse-Europe networks energy and transport trans-European the of field the of common in interest to projects aid financial Community granting for procedures and methods conditions, the defines document This 2009, Berlin,Germany. December 10 author, by interview DGAP), Politik, Auswärtige German Council on Foreign Relations (Deutsche the Gesellschaft at für Climate and Energy for Officer Program Viëtor,Marcel December 2009,Berlin,Germany. author,18 by interview econ, DIW at Manager Opitz, Dr.Petra 35 O te te hand, other the On . 36 Nevertheless, 37 (European SPES Policy Papers 2011 17 GAS Projects of European interest North European gas pipeline, - Europe gas pipeline, Yamal Natural gas pipeline linking Denmark, Germany and Sweden Algeria - Spain - Italy - France -northern continental Europe Caspian Sea countries - Middle East-European Union (The Nabucco pipeline) LNG terminals in Belgium, France, Spain, Portugal and Italy storage in Spain, Underground Greece and the Portugal, Italy, Baltic Sea region Mediterranean Member States - East Mediterranean gas ring Source: European Parliament and Council 2006. European Source: The indifference The of indifference EU member states towards Priority projects United Kingdom - northern continental Europe, including the Netherlands, Belgium, Denmark, Sweden and Germany - Poland - Lithuania - Latvia - Estonia - Finland -Russia the Western the Western (but not Central) EU member states. Thus, the Baltic States must once solve a twofold task: again to increase the EU try financial to allocations for the creation of well common functioning EU electricity and gas markets and ensure to that the biggest investments are made on their soil. the creation of effective, electricity liberal and and common gas illustrated by markets the fact that, may out of 25 27 be have countries, not implemented clearly the directives liberalisation on of the the electricity and gas correctly. markets However, concerns about the possible ‘free riding’ are not investing the only into reason for are hindered interconnections. not by the right Investments feeling effective EU electricity that and gas common markets will not internal EU the of goals the until properly function coherence and solidarity are overshadowed by Projects of European interest Poland - Lithuania link, including necessary reinforcement of the Polish electricity network and the Poland - Germany profile in order to enable participation market in the internal energy Submarine cable Finland -Estonia (Estlink) Germany - Poland - Czech Republic - Slovakia – Austria - Hungary - Slovenia Mediterranean Member States - Mediterranean electricity ring ELECTRICITY Priority projects Denmark - Germany - Baltic Ring France - Belgium – Netherlands –Germany Borders of Italy with Austria, Slovenia France, and Switzerland United Kingdom - continental and northern Europe Ireland - United Kingdom France - Spain – Portugal Greece - Balkan countries - UCTE System financial framework provided only €155million, which represents 45% of the amount proposed originally (Soave 2008). This very minor sum for energy infrastructure projects is about to be spent on supporting the feasibility studies of considered projects to be of interest, according ‘European’ to the or Guidelines for ‘common’ TEN-E from 2006 However, the attention (European that leading EU member Commission states pay to financial matters, discussed 2007). earlier, is not the only challenge in this regard. Another problem is that despite the fact States that the have Baltic no other EU member states, energy very few of the planned interconnections with energy links important to the Baltic included on States the list are of EU priority projects most (the important of these are listed in table 2). In other words, even a greater awareness on the part of the most powerful EU governments may only result in greater EU support to the energy grids of Table 2. TEN-E projects relevant for the energy security of the Baltic States the energy security for relevant TEN-E projects 2. Table 18 SPES Policy Papers 2011 but goes beyond these if the free market does not does market free the if these beyond goes but energy policy with the rules of the internal market, EU external the of consistency the acknowledges includes which concept This ‘co-dependency’. on provisions new base, legal a of creation the be would possibility One dilemma. this to solution market, common a promoting and finding in interest vested free a have functioning securely of a supporters prominent most States, the among Baltic being The philosophy. market contradicts free actually the package) energy EU the in third foreseen unbundling the instance for (as and EU the both Russian sides rightly note that regions). this on sort of initiative politicians certain and Analysts in for or support activities entrepreneurial measures fiscal (via or indirectly Nabucco) into investing (e.g. directly either governments of intervention the deepening about ongoing the is dimension policy energy external claims, the on debate a rightly As simple. researcher so Dutch not be however, may, policy energy external EU common a of aims the with common marketdoes. the of creation the as extent same the to interests energy States’Baltic the to corresponds dimension policy EU external an of development the that the to concluded be may it back regard, this In States. gas Baltic Russian re-export to be not allowed may still Europe Western in gas companies other or Poland interconnected, are and Poland Lithuania of systems gas the and allocated are million €343-778 necessary the if even that means This market’. ‘European the of part a be to Gazprom by considered not are States Baltic the borders, Western Poland’s on happens ‘gas-up’ called so this Until Poland. of borders Eastern the border of the EU’s gas market from the Western to Eastern the in shift to Gazprom ‘convince’ nothing to order do countries Western that situation this regard the Baltic States point to the paradoxical of a free market in the Baltic region and the EU. In creation the towards Moscow’sresistance notably factors, external concerns efforts States Baltic the of dimension third the this to Due suppliers). gas energy and electricity potential external or real (whether with players relations good maintain to preoccupation states’ member individual the Matching the objectives of a common market common a of objectives the Matching goals. States’political Baltic the very serve to is equipped well detail, more in below discussed be will which 2010), al. et (Andoura Community Energy the hand, other the On development.unlikely an be to appears currently this requires, materials nuclear of transport and trade the that standards security higher much the to compare not do issues security sector gas Since sector. gas the for ‘community’ Community (Euratom), i.e. the creation of a similar EnergyEuropean Atomic the by set pattern the of repetition a means it terms practical In suppliers. energymarket non with relations external in work would open up the possibility of gas and electricity production of‘unconventional’ gasandoil. the increase to order in fracturing rock or drilling and how to improve the technologies of horizontal energy, how to develop solar and hydrogen energy, geothermal and hydro- biomass, of consumption the increase to how energy, price nuclear and the wind of cut to how of possibilities scholars the debate and companies energy Western today, even when so doing for arguments irresistible are There monopolies. existing break and supply diversify to help would which dimension, policy energy EU external the of strengthening the for security. supply argue to increase continue States Baltic the Nevertheless, to which by feasible means more therefore, and are EU-internal there other, although Indeed, overestimated. be dayfor that not the should of strategies claimed such for need practical the ‘motto’ politicians, is the is it prices. diversification energy Moreover, higher much accept to to forced have being by projects expensive will of burden the share consumers Otherwise, prevail. should imports Russian again, then LNG, or gas from imported Norwegian than cheaper is gas Russian If Russia. be (e.g. should country electricity another Finland), from than Russia from it is argued that if it is cheaper to import electricity instance, For feasible. economically is it if make sense to only resources energy of supply the of Many Westerndiversification the consider experts Gas supplydiversification h fntoig f fe E eeg market energy EU free a of functioning The elrto o te rain f European a of creation the on Declaration SPES Policy Papers 2011 19 The prospects of advancing the diversification A significant share of the obstacles to gas be transmitted to the EU. In practice, Azerbaijan will decide on the scope and route of the corridor, on the basis of its own calculations (Jarosiewicz 2011). At the same time, however, the is corridor bringing various to other the fore: conflicting as a strategic interests transit hub, pressing Turkey is the EU to accept application; its Germany, Italy EU and France membership question the necessity of Nabucco; and Russia is about to implement competing projects The (Liuhto 2009). White Stream and the Trans-Caspian projects are experiencing similar problems and are even less advanced than Nabucco. Thus, the Baltic States’ diplomatic efforts in this area have not resulted in any tangible results so far. of gas imports to the regions Baltic States from are other of even vaguer. new consideration The undersea construction and pipelines is not feasible due to the absence of LNG import the is facilities not shipping in or around the under of Baltic States. has Poland taken some LNG practical steps in by this implementing direction an LNG terminal construction project in Swinoujscie and has already signed a Operating Company to Qatargas deal with Qatar’s deliver about 1.4 bcm of gas through the terminal starting in 2014. for However, the Baltic States to benefit from this, a completelynew 820 kilometre pipeline would have to to be Lithuania. built Therefore from several Poland ‘internal’ infrastructure development projects are also being LNG currently is government Lithuanian The discussed. exploring the idea of constructing an LNG import LNG an for plans has Latvia Klaipeda, in terminal terminal in Ventspils and Estonia envisions the construction of a terminal in 2009). Paldiski However, (Esmerk the costs of terminals, the as well as other economic and financial LNG import factors (the tight market, the price of LNG), are forcing the Baltic States to look for more creative solutions. supply diversification, however, arethe related to Gazprom factor. has For announced its instance, desire construction to Gazprom of participate the in Nabucco the pipeline 2006), (Interfax which could contradict the concept In 2009, after seven years of debate, the European Commission proposed €250 million in initial funding for the Nabucco pipeline. In same the year, Turkey and four EU member signed a states deal allowing work on this pipeline start (Lobjakas 2009). to In early Commission 2011, President Jose Manuel Commissioner, Barroso Günther and visited Baku Öttinger, Energy and Ashgabat confirming theEU’s personally determination to gain access to Caspian energy resources and attempting to specify the scope of the proposed Southern Corridor Azerbaijan (the together only reliable gas supplier with for the Southern Corridor route). Nevertheless, problems related to the construction of Although the launch of the Southern fundamental. Nabucco remain Corridor on the basis of Azeri gas is at present a near-certainty, it has not yet been established via which route or under what conditions will the gas exchange exchange among the EU the Baltic member States this would states. make it For possible import gas to and electricity from other EU member states and to rely on their networks for the supply of imports from On negotiable. become would prices more consequence, remote sources. As the other hand, a at least the partial diversification away from Russian gas and the pipelines through which it is supplied is possible even in the short term, without integration into the common market. Striving for this, the EU Baltic States rely on two important factors: 1) the fact that, officially, strengthening cooperation with both traditional and alternative energy suppliers is EU’s external energy one policy priorities of and 2) the no its diversify to desire the up given has country EU supply of gas. In this regard, the starting point for construction the is sector gas the in States Baltic the of the Southern Corridor Nabucco and White the Stream pipelines), as well (Trans-Caspian, the as the contracting of suppliers in the Caspian Sea are States Baltic The 7). figures annexe, (see region also keen on preserving the independence and the Ukrainian the of modernisation the of speeding-up pipeline system, as well as on the construction of an interconnection between Poland and Lithuania. already has what ask to important is it vein, this In prospects the are what and regard this in done been of achieving more. 20 SPES Policy Papers 2011 “Europe needs a stronger, deeper, common energy the reads: Delors of Jacques and President Parliament, European Buzek, Jerzy by Community Declaration on the creation of a European Energy so joint supply. The of is diversification the for crucial which policy, energy common dimension EU the external of the of development the on as insist to continue borders also will They possible. as soon current its beyond market common the of provisions the extend to order in possible continue to require that the Union does everything probably most will problems. States Baltic the Nevertheless, structural these overcome to how on prescription foolproof no is there time, same the supply. At of diversification the and markets gas serious as obstacles to serve the creation of common electricity and resistance external active and mechanisms financial insufficient level, national results. significant any about brought yet not has options negotiations with Gazprom over in alternative supply least at or competition this in institutions the EU engaging of tactic States’ Baltic The cartel. LNG an into turns and stronger becomes (GECF) the Forum if Countries Exporting happen Gas guided easily Russian could This Gazprom. by another just dominated becoming become may again once which ‘pipe’, from LNG prevent to instruments many too have not does EU the that recognised be should it Finally, market. LNG the enter participation to ambitions its and their projects competing in Nabucco regarding countries potential transit signing with of agreements strategy Russia’s bilateral mind in important keep is to it context, this In 2009). Houman (Burns/ sector energy the in Asia Central and EU the between cooperation direct prevent to also but needs, energy growing China’s serving for plans its own energy exports to the EU and even develop sustain fees, transit from profit a make to only not managed has Gazprom way, this In and Azerbaijan. Turkmenistan as such countries producing term long gas from gas of supplies sign possible all on contracts to project. managed has this Gazprom that into fact the by caused be may damage greater investing Even potential from some prevent investors and diversification of To sum up, the lack of will at the European and

fossil fuels,areatthecentreofthirdchapter. and Russia, as the EU’s largest external supplier of EU the between reciprocity and towards solidarity internal approach unified a of development the allowing by reciprocate market access to their own national not systems. Thus, do that third from countries undertakings for access denying on States’ Baltic the tactic of questioning the wisdom of a policy based on focuses also It amend. to trying are States Baltic the which situation, a is This affairs. energy on legislation in EU secondary or policy, energy EU common of dimension external the to related those energyas such instruments, multilateral not in found has concept a become solidarity’ ‘Consumer fully been implemented. not has far so but essential is which ‘solidarity’ of principle the on focus will other chapter that contracts term members consider problematic. Therefore the next long entering from developments such prevents and members its for agenda. andeconomic EU’s political the on a place find the is It proposals similar that States’ensure Baltic to task dominance. Gazprom’s to response a political support for any other proposal suggesting secure of to try will wake States Baltic the the initiative, this In 2010). al. et (Andoura policy” What the Baltics want is that the EU stands up stands EU the that is want Baltics the What SPES Policy Papers 2011 21 Therefore 38 Moreover, some 39 Marcel Viëtor, Program Officer for DGAP, Energy interview and Climate by at Germany; author, Dr. Franziska 10 Holz, Researcher at December the Energy, Department 2009, Transportation, Berlin, Environment, German Economic Research, Institute interview by for author, 8 December Berlin, Germany. 2009, Politik, und Wissenschaft Stiftung Fellow, Doctoral Grätz, Jonas Russia/CIS Division, interview by author, 15 December 2009, Berlin, Germany. The Baltic States have drawn an interesting 38 39 ‘all inclusive’ international treaty) relations with external suppliers, as long as they feel that their own bargaining power is greater or equal to that of their suppliers. What is even worse is that the voice Baltic arguing for States’ a strengthening of Black and Caspian the with cooperation energy EU Sea region countries is going Recognising almost their unheard. limited influence intalks and the absence bilateral of means to manage energy governments States’ Baltic the crises, related supply with deal to how on tactic another discovered have energy insecurity. The main element of this is to EU of strengthening and construction the for argue 2009). (Vaiciunas affairs solidarity in energy conclusion regarding the main causes of missing EU solidarity. It seems that the main constraint is not the opposition to of the concept some of member ‘solidarity’ in states but energy different perceptions affairs, inside the EU on what ‘energy solidarity’ actually means. Consequently, task main the into turned has consensus a building for the Baltic States. These various perceptions ‘starting positions’ by the different are determined of the EU member positions states. are Respective influenced by starting factors such attitudes different towards the liberalisation of the the as energy market, different geographical locations, different energy mixes and levels of dependence, and different historical experiences. some EU member states perceive first ‘solidarity’ of all as a short term action in times of crisis that is, as an ability and willingness to support other EU member states in case of short term disruptions. supply German researchers argue that the for solidarity clause instance is important the for German government, but Germany’s energy companies do not interest maintain in any investing considerable politically into motivated projects. unprofitable, solely The Baltic States’ priorities for EU- priorities for States’ The Baltic energy cooperation Russia Shaping ‘consumer solidarity’ Shaping ‘consumer solidarity’ It is widely coherence, recognised an that effective fact without a also external is It impossible. practically is dimension energy internal policy that the today, EU fails to speak with a ‘common voice’ in Nord as energy such affairs agreements, (Braghiroli/Carta energy 2008). bilateral term Long Stream South Germany, and Russia between Stream between Italy, Bulgaria and Russia and various LNG supply contracts between Spain, France and Algeria, indicate that big member states continue A issue. policy national a as security energy view to recently countries some that claims expert German out little gaining are they that understand to started of the strategy to ‘play’ bilaterally with Russia. Nevertheless, bilateral politically of use and the economically, favour to EU continue states member an by regulated not (i.e. ‘non-institutionalised’ and In 2009, Russia withdrew provisionally its apply commitment the to Energy (ECT), Charter Treaty an protection agreement and transit regulating in Europe the investment and the energy Commonwealth sector of Independent in States (CIS). In addition, member of the Trade Russia World Organisation (WTO) is economic neither international other any to signatory a a nor agreement (Dreyer et al. 2010: 1). In other words, there is no international legal instrument to limit Moscow’s actions in the field of energy As policy. a consequence, may the use national Russian energy implementation of its government ‘champions’ foreign and security policy for the without obstacles, for instance, by streamlining energy resource export and pricing Such policy. a strategy would negatively affect the effectiveness of a common EU energy policy and is a constant source of worry for the governments of the Baltic States’ Baltic the on focus will chapter This States. agenda towards shaping possible could successful, if which, responses, EU external internal and lead to a situation where relations with Russia do not determine the conditions of access to Russian gas. III 22 SPES Policy Papers 2011 40 gas orelectricity. with grids energy or pipelines these supply will who for regard no with words, other in supply’, energy of or ‘security the to only related reasons for bridges pipelines on interconnecting money payers’ European government’s tax spend German to unwillingness the underline experts and upstreaminfrastructure. will be able to conceal the deficit of its own gas production without investing into energy efficiency Bulgaria) continue to base their energy policy only on opportunistic, economic calculations, Russia Hungary, (Austria, Stream South of favour in Nabucco from defecting and Stream South joining (by countries Eastern Middle from countries the if States, Baltic b) the to ToGECF). according through up, supplies sum “coordinating” and Stream) South controlling (by region Asia CEE Central the and from Balkans a) the to least at supply, gas entire the control will Gazprom Stream, Central Asian gas through the South Stream pipeline. Thus, if Russia succeeds in constructing South the gas supplies for Nabucco from Central Asia and the Caspian Region allowing Russia to transport to Europe. In other words, they fear that the EU may refuse to compete with Russia and may switch by Gazprom in order to control the flow of natural gas from the Caspian region and the Middle East initiated was pipeline Stream South the that argue States Baltic The implemented. is project the if Greece and Slovenia in the project and to secure the support of others, who could potentially benefit bilateral diplomacy on the part of Gazprom managed to Subsequent 2007. involve in ENI additional Italian EU and Gazprom member Russian states, by initiated namely was project Stream South The Case 2–SouthStream Nordic statesacceptedNordStream. the of majority the which under circumstances the demonstrated year one for timber unprocessed on duties export increase not would Russia that pledge Moscow’s obtained Helsinki that fact The of Nord Stream, despite all of these possible economic, political, ecological and technological risks. construction the to agreed had Sweden and Finland Denmark, of governments the 2009, of end the by Nevertheless, Bornholm. on impact possible project‘s the over concern its expressed Denmark the pipeline might be used by Russia as a good excuse for it to militarise the Baltic Sea. In addition, concern about the environmental impact of the project and Stockholm was additionally worried that expressed repeatedly had Sweden and Finland because so more the countries. All Nordic the from doubt that Russia and Germany would issue such permission, but the Baltic States expected support no was permission. There their granted had routed is pipeline the zones economic exclusive whose in countries those once begin only could project the Workon billion. €7.4 at projected is pipeline consist of two parallel lines with an annual capacity of around 55 bcm. TotalAG, E.ON Ruhrgas investment AG and N.V.in the Nederlandse Gasunie. The offshore pipeline will be 1,220 km long and will Nord Stream is a joint project between four major companies: Gazprom, BASF/Wintershall Holding Sea. Baltic the via Union European the and Russia link to aims that pipeline gas a is Stream Nord Case 1–NordStream Box 1:ExamplesofmissingEUsolidarityinenergyaffairs interview byauthor, 10December2009,Berlin,Germany. Marcel Viëtor, Program Officer for Energy and Climate at DGAP, 40

Source: Informationintheboxwasprepared using:Paszyc2010. euiy cmimns n h eeg sector. energy trying are States Baltic the the solidarity, for Asking in ‘collective commitments of type security’ some even the and from budget, EU projects infrastructure energy key of financing the the transporters, and suppliers include external goals policy’towards energy term ‘harmonised a of creation long pipelines. strategic concrete Their not into or made are whether investments than more means ‘solidarity’ However, for the countries of the CEE region CEE the of countries the for However, SPES Policy Papers 2011 23

46 In this context, instead 47 to share the risks of costly pipeline construction and resource development between producers and 2009). consumers (Janeliunas For instance, in February 2009, Russia and intergovernmental agreement China on the signed construction of an a pipeline branch from Skovordino to the Chinese border and long term Russian oil supplies of 110 million barrels of from crude 2011 per until year 2030. On the other hand, Asian markets be more will expensive to develop, Asian therefore markets may be difficult for Russia to dominate (Ziegler 2009: 22). Politik, und Wissenschaft Stiftung Fellow, Doctoral Grätz, Jonas Russia/CIS Division, interview by author, 15 December 2009, Berlin, Germany. Due to perceptions the of different ‘solidarity’, The Baltic States would like Western Europeans to recognise this threat as a common European states the Western EU. so However, far, threat for concerns. have not shared these the latter has objective. For instance, become it is a widely to that Russian companies act as the ‘gatekeepers’ recognised hardly achievable the Russian energy market and that the disparity in the rules, which market on the one regulate side and Russia’s on the other, the EU’s energy is huge (Grajauskas 2008). However, according to both German and Dutch experts, there is only a small hope that the EU and Russia can reach a legally binding strategic agreement, because such an agreement would first require all EU member states to demonstrate solidarity with one another. states member large and small between Consensus is hardly possible, as the current state of the legal framework (or the absence of it) in fact satisfies the interests of the largest EU energy companies, who are the main players in the national are energy companies Italian and French German, sectors. import better receive to other each with competing conditions; they manage to negotiate access the Russian to upstream energy market and would not like to give up this power to, for instance, the European Commission. 46 47 to diversify its gas market from Europe to Asia. of engaging the Baltic States’ energy companies Westerners suppliers, external with negotiations in tend to criticise them for energy infrastructure development related bills or refusing to pay the for unfair attempts to profit from transit fees (as Republic’s Czech the this, of example opposing an ; ; ; 41 42 43 ; and the threat 45 ; concentration on 44 In recent years, several foreign companies Mitsui, Mitsubishi and – BP – have such faced abuses as in Russia. For Shell, more details see: http://www.forbes.com/2007/02/16/bp-russia- energy-markets-equity_cn_0216markets11.html, accessed October 2010. 5 Russia insists that foreign companies wishing to take part in oil partners Russian their offer should Russia, in exploration gas and 2009). “something in exchange” on their home market (Mae Russia is using outright ownership and joint ventures to control sale, and distribution of natural gas and is the buying supply, up major energy infrastructure assets, such as pipelines, refineries, electric grids, and ports. As of 2004, $US 2.6 Gazprom billion in had 23 major invested joint ventures and was buying up strategic infrastructure companies in Georgia, Ukraine. In 1998, Hungary, Gazprom took over shares in a and “Topenergy”, Bulgarian company dealing with the commercial distribution of gas (Amsterdam 2007). Examples include the cancellation of II the pipeline Yamal that Belarus of territory the through I Yamal to parallel built be to was to intended was which project, Amber postponed the Poland, and create a pipeline running through the Baltic States and Poland, the all bypass will which Stream, Nord build to decision the and field gas Shtokman the of development The countries. mentioned is also partly driven by a strategy of avoiding transit countries, gas Russia’s to directly transported be to is field this from gas as customers either through a pipeline going via Russia and then through Nord Stream or as LNG from the LNG plant that is to be built just East of Murmansk. To reduce dependence on the use of the Baltic ports, Russia is currently building ports on the Northern shore of the Baltic Sea (Grajauskas 2008). Since the 1970s, the supply of natural gas has been long term based contracts agreed for a on period of 15-20 years, in order direct ownership of increased strategic participation in oil and gas energy exploration assets in the post-Soviet countries, in the Middle East as well as in Africa, Asia, and South America avoidance of transit countries 41 42 43 44 45 to upload to the Kremlin’s national priority to strengthen EU Russia’s their worries role about in the world energy the market. They argue that the over control state gain to endeavour Moscow’s Russian of role increasing the as well as pipelines, companies on the European energy market Russia’s and closer cooperation with South China and Korea, India on oil and gas be matters, perceived should as Russia’s ambition to become leading energy a superpower and to use this status to improve its standing in European and politics. global In other words, afraid the that Baltic Russian States energy are policy an is instrument for becoming a “new Russian imperialism” (Aalto 2008: 147). The main policy are: elements close control of of foreign investment this long term gas supply contracts 24 SPES Policy Papers 2011 h rssac t te osrcin f h Nord the of Stream pipelineissometimescited. construction the to resistance the misuse’, ‘solidarity this of manifestation practical financial assistance to infrastructure projects” to infrastructure things) assistance other financial (among providing by market the of fragmentations and weaknesses structural the that today it means to give “support in overcoming claiming affairs energy in solidarity of definition broad rather a adopts Lang Kai-Olaf regard, this effectiveenergymentioned). often is policy 53 52 51 50 49 48 e coeain ntaie wt Russia. with initiatives cooperation new or at least to consult these countries before starting include to necessity the understand to tend They countries. Baltic the and Poland of attitudes the German politicians are keener to take into account action intimeofcrises’. term ‘short the than definition broader much a is it Nevertheless, homework”. their done “haven’t suddenly agree to solve the problems of those, who mean that the representatives of German companies will not does this however, time, same the At of the Lisbon Treaty. After the completion of some ratification the since plausible more become has solidarity’ ‘energy of definition the on consensus with Russia were at stake a few years ago. agreements energy when EU the inside consensus and discussions broader having of importance the about sceptical members. rather was instance, Germany,for EU smaller the with cooperation for gradually changing their attitudes towards the need are and process learning certain are a through going governments European Western many that h Bli Sae’ betv o rahn a reaching of objective States’ Baltic The On the other hand, it should also be recognised Ibid. EU Division by interview Research author, 24February2010,Berlin,Germany. Politik, of und Wissenschaft Head Stiftung Integration, Deputy Lang, Kai-Olaf interview byauthor, 10December2009,Berlin,Germany. Marcel Viëtor, Program Officer for Energy and Climate at DGAP, 4 March2010,Berlin,Germany. und Wissenschaft Stiftung author, by interview Integration, EU Division Research Politik, Fellow, Senior Kremer, Martin with do “solidarity inenergy affairs” assuch (Hamilton2008). to nothing has this that and transit gas from incomes their lose to want not do simply pipeline the of construction the resisting countries the that claimed is it logic, this to According interview byauthor, 10December2009,Berlin,Germany. Marcel Viëtor, Program Officer for Energy and Climate at DGAP, 53

49

50 Today, 48 51 a As In 52 . assets was also the fault of EU market regulators. Gazprom to takeover the Baltic States’ key energy certain extent, the Baltic States are right. Allowing a To infrastructure. energy additional into to invest decisions make to likely not are Gazprom to as investments, local monopolies under companies closely aligned European for need the to continue explain will be States also Baltic may the that It expected Europe. in stability on impact broader a having and security political implying factor a as solidarity stressing towards States shift will Baltic the future, the in that expected be Itmay ineffective. therefore to and insufficient appears be island’ ‘energy and solidarity’ ‘EU of repetition security The Baltics. the energy of the to considerably contribute should sector energy the in champions’ ‘national or etc.) funds, structural officials, policy external (Commission, bodies EU the why of explanation the current circumstances is to build an appropriate in energy affairs. in putting place a mechanism reflecting EU a real EU ‘solidarity’ the of favour in arguments solid provide to and this capture to fail States Baltic the momentum’‘new a if inexcusable be would it and by secured are represent developments differentmeans. these All resources energy external that and market energy internal the of functioning the improves EU the that ensuring in role operational and important very energy a play to starting also are for climate, responsible those particular in Commissioners, New suppliers. external towards and policy energy includes policy,security also which foreign of terms in voice’ ‘single EU’s the of embodiment strategic real first the become to and Affairs Foreign Security Policy of the EU, now has for the opportunity Representative High Ashton, Catherine changes, structural important 54 atc tts itrss t peet r vn roll- even or prevent (to interests States’ Baltic the that states member EU the persuading hand, other the On subject debate. governmental or internal the of become now negative should these developments of abuse the prevent to of and consequences this the address to EU the Asking One of the main tasks for the Baltic States in States Baltic the for tasks main the of One author, 2March2010, The Hague, Netherlands. by interview CIEP, the at researcher Senior Agt, van Christof clichés uh as such 54

SPES Policy Papers 2011 25 As such, the GECF 59

58 and enjoy the highest profit margin 57 For instance, Moscow knows that some suppliers are seeking to open or broaden their access to markets. Western Therefore, Gazprom is trying to establish permanent control of markets, such as those of Hungary and the Balkans, that are strategically important for transportation before Caspian gas can reach them through the Nabucco pipeline (Socor 2008). the while profitable, most the of one is business distribution The upstream market requires the most investment. is trade gas pipeline global the in forum the of weight the While not that pronounced (about 38%), its share of LNG production share OPEC’s contrast, In 2007. in 85% around was exports and of world oil supply is barely half that, at about 43%. However, it is still too early to say that a similar ‘gas to cartel’ OPEC has been created. The GECF membership has not been stable nor are all gas exporters members of the GECF. The behaviour of key members may have an important, but not always positive, afford not can Russia Finally, future. the in GECF the on impact Another tendency, which worries the Baltic States, is the Russian endeavour to ‘coordinate’ the ‘coordinate’ to endeavour Russian the is States, gas policies of the leading gas exporting countries through measures such as new pipeline the projects, the ‘joint’ exploration construction and of development of gas fields and theof coordination production schedules. As December proof 2008, Russia, Qatar and of Iran formally this, in inaugurated the GECF. Russia was the initiator of this forum and views it as attracting a mechanism more for investment funds industry into and establishing its Gazprom gas as global force in a the LNG business 2009). major (Weafer The GECF has since enlarged and now includes Algeria, Nigeria, Libya, Tobago, Egypt, Venezuela, Russia, Trinidad Iran, Qatar, and Oman, the United Arab Indonesia Emirates, and Norway Brunei, (as observer) (Hallouche Malaysia, 2006). Members of the GECF exchange and information on views project developments, supply and demand balances, exploration, and transportation costs, etc. production 57 58 59 institutionally institutionally (Grätz 2009). strategic Whereas energy interests are Russian usually represented at the highest political level, with the President or government taking all strategic decisions, within the EU and its individual are member represented at the level states, of private companies. they This secures Russian companies the possibility to penetrate into the EU gas market. Russian firms usually not only succeed presence in in securing the EU a gas direct market, competition but also avoid (Aalto 2008: 60).

55 Nevertheless, they 56 It is said that Russia will not be willing to miss out on the world’s world’s the on out miss to willing be not will Russia that said is It (China Asian small relatively for bcm/year) (500 market biggest bcm/year) (140 American North or bcm/year) 80 need India and markets. DGAP, at Climate and Energy for Officer Program Viëtor, Marcel 10 December 2009, Berlin, Germany. interview by author, Lithuania, Latvia and Estonia recognise that For many Western experts these The problem is circumstances imply a ‘mutual interdependence’. that the Baltic States think differently. “even though ‘love’ between Russia and the EU most probably will not emerge, the necessity for cooperation will remain.” claim that real reciprocity in EU-Russia energy relations is missing, due to the of unequal weight the two players. vulnerability compared to that of In the EU is much other words, lower, as Russia’s it can shift current oil flows easily and gas exports are relatively unimportant as a source of revenue for the Kremlin (Grajauskas Besides this, 2008). relevant Russian actors are capable of acting in unison and strategically, EU while is the internally divided, both structurally and 55 56 Promoting ‘reciprocity’ and legally binding Promoting ‘reciprocity’ agreements Russia supplies around 25-30% of total EU and gas oil consumption and serves as an important the 2020 By growth. economic Europe’s for motor EU will need to import approximately 600 bcm of gas, up from ~ and 400 at bcm least today, half of this demand will have to be sourced from Russia (Weafer 2009). Thus, the possibility that Russia rightly is future the in exports gas its diversify will Europe’s of security the to threat a be to considered gas supply (Poussenkova 2009: 9). In addition, as much as 90% total of natural Russia’s gas exports are delivered to the EU. Adding together exports of oil and other raw materials, Russia’s exports energy to the EU account Russia’s of for 40% and earnings export total Russia’s roughly 75% of budget receipts (Perret 2007). In other words, the European market is crucial for Russia and neither Asia nor North America will serve as future. foreseeable a the in Gazprom reliable for alternative back the monopolisation in energy affairs) are in line with those of the EU might become quite a process. complicated 26 SPES Policy Papers 2011 not misstheopportunitytoconcludeit. does EU the that ensure to order in everything do should States Baltic The EU. the with agreement an reaching in interested become soon will Russia 60 some to agree may concessions. and tendencies recent by concerned become has Kremlin the that seems It market. EU the of 20% this worrying even lose will it started that has Gazprom words, other In 30%. supply to wants it that states now but US), needs (the rest would be exported to China gas and the its of 20% with EU the supply would it that claimed have previously ofthis Gazprom appeared. already consequences practical first The production. gas and oil from income possible of portion large a of loss the in result may investors, to and customers both come away scares which strategy, have a of continuation the they truth: simple a understand as international frameworks, to policy compliant more and assertive less become have officials Russian particular. in Gazprom and government Russian the of position negotiating the in change a to led already fact, in have, sector, gas shale the in developments latest construction of new LNG terminals, as well as the The resources. energy Russian to alternatives find do consumers that important, more even is what and, investment lacks sector energy Russia’s that not inconceivable. is so This assumption is policy based on a the energy fact Russian EU, in ‘U-turn’ the called from coming proposals may discard government Russian the term, short the in though Even affairs. energy in agreement binding legally new a regarding Russia with negotiations continue to necessary is it that partners Western their convince to endeavour to than choice other without extremely complicated. exporters (Russia) member new GECF dominant the consulting contracting makes and it approach Indeed, EU. market’the by promoted policy ‘free competition the with clashes hl dsusn te otn ad h essence the and content the discussing While n hs iuto, h Bli Sae hv no have States Baltic the situation, this In author, 2March2010, The Hague, Netherlands. by interview CIEP, the at researcher Senior Agt, van Christof want to(Kavalovetal.2009). it does nor consumption LNG of increase world-wide a fund to 60 Due to this, it may be expected that expected be may it this, to Due h ET n xrml cmlctd ak one task, complicated feasible solution extremely (however, not yet articulated even an ECT the situation. complicated this in solutions propose and find to h srtgcly motn Tast Protocol. Transit important strategically the even without treaty this to ‘return’Russia the of accept probably most would Westerners Russia. with discussions further for space a preserve to of value added negotiations would then be to The remain involved and board. on taken be should President Russian the by out set proposals the that agree to seem experts Western sector. gas the especially in views, market their on compromises make to ability their in limited fairly are Russia) and EU (the parties both that is here problem the But 2009). (Paszyc ECT the on based be would reaffirming that regulation of the European market by proposal Russia’s to responded indirectly has lbl nry akt hud operate. should market energy global the which under rules of set new a for proposals Moscow’s containing Commission for European the Principles) Framework and (Goals Legal Cooperation New Energy the to entitled Medvedev Approach document President a Russian submitted 2009, However, April agreement. in energy comprehensive integral, the as ECT the from away walk not does EU the that prefer would States Baltic the sector, energy the in agreement EU-Russia potential a of 63 62 61 is quite wide and legally speaking sufficient to issues. transit with sufficient deal speaking legally and wide quite is ECT the of issues) transit with (dealing 7 Article As Russia’s objection makes proceeding with proceeding makes objection Russia’s As remained unsigned. ECT.the Transitthe ‘strategy’, Protocol this of failure the After of 7 Art. than interests strategic Russia’s accommodates better In essence, the Russian side supported the Transit Protocol, as it author, 2March2010, The Hague,Netherlands. by interview CIEP, the at researcher Senior Agt, van Christof projects (Paszyc 2009). infrastructure including policies, energy co-ordinate to obligation the concerns proposal market). Another EU the in distribution and supplies separate to plans EU with clash could (which markets” energy international to access ensuring discriminatory in factor key “non- a as well as investments of protection the as security), energy contracts long-term to given is priority that means (this alia, sales inter of predictability demands, and guarantees It Charter. Energy the of provisions the and Commission European the by planned market energy EU the of liberalisation the to counter run which rules proposes and ‘Medvedev’sConcept’called also sometimes is document This 63 The Baltic States’ Baltic The is task Conceptual A 61 h EU The to 62

SPES Policy Papers 2011 27

67 , and have nothing to do with ‘mutual 68 Now, third country companies are Now, allowed to participate, unless (Grätz otherwise decide Commission the and regulator national a 2009). Lithuanian the that claims official Gazprom’s serve may proof As decision to separate sales and transmission ownership of activities implementation that and country the in investment hurt its unbundling could cause disruptions of gas details supply. For more see: gazprom-e-on-should-redirect-unbundling-complaints-to-eu- http://www.bloomberg.com/news/2010-09-30/ lithuania-says.html , accessed 5 October 2010. For example, a country would allow Gazprom greater access to its energy market to be sure that its energy giants secure energy deals with Russian companies. interdependence’ or ‘strategic reciprocity’. interdependence’ This kind of relationship goes back to the ‘barter reciprocity’ so unacceptable for the Baltic States, where energy assets become exchange objects of barter 67 68 are very much disappointed with this They outcome. argue that while the EU tries to address the by level macroeconomic the at problem reciprocity setting equal conditions for all representatives of the sector, Russia continues an effective policy at the microeconomic level, looking at specific deals beneficial to Russian companies. Accordingthe Baltic States, being dubious to about the need to encourages fact in companies energy EU unbundle Russian companies to increase pressure and deal to with different member states separately. , the Baltic States Requirements for 66 65 They adopted the third 64 The initial proposal by principle the that any Commission company from clearly a third stated country to would the need “demonstrably and unequivocally comply unbundling requirements with as the EU companies”. same This means that third countries, such as Russia, would need reforms to in make their similar purchases home asset downstream market, significant any make before could countries companies from these in the EU (Goldirova 2008). Germany, Italy and France oppose the deal, as national they utility companies all with have substantial foreign protection ownership. strengthened secure to action an took Netherlands The also was same The deal. separate a in sector energy own their for done by Denmark, Sweden and the UK, making it impossible for the law to make it through the EU (Goldirova 2008). parliamentary process According to the initial agreement, despite the need to enforce liberalisation measures at home, companies of a third country could, in ‘special’ cases, participate in the EU market anyway. While waiting for a real shift in Russia’s Energy Energy Liberalisation exceptions Package or without transiting 2008). any Russia has periods voiced its (Grajauskas clause opposition and to received the strong support EU countries from led by eight France, Germany and Italy (Dimireva 2009). These countries refused to take the path of so called ‘full ownership unbundling’, in which a parent company sells its transmission networks to a different firm. 64 65 66 thinking to concentrating on the occur, construction of the internal the EU legal framework, Baltic which would to States be external applied suppliers. are by the Baltics) is to look for a ‘specific agreement’ agreement’ ‘specific a for look to is Baltics) the by with Russia, without distancing the demands of ECT. the of those from far too agreement new this agreement the as such agreements’, ‘specific Other between Norway and the Agency International could Energy serve as a template. In any such case, an alternative agreement can only become that prejudice its from departs Moscow if possible the rest of the world has very few alternatives to Russia that therefore, and supply energy its secure with agreements binding legally any need not does the EU. vertically integrated companies were they were obliged softened: to meet rather vague ‘effective unbundling’ and energy security criteria, which would be assessed by both national regulators and the European Commission (Grajauskas Although in practical 2008). terms the difference might prove to be not very significant 28 SPES Policy Papers 2011 69 political leverage. of form a as strategies export their or companies energy its use government’sto Russian tactics the of victims the become often States Baltic the that shown also was It shortage. the energy an face of threat permanently from States imports Baltic oil the and Russia, gas on dependence and developing in efficiency progress energy catastrophic energy, slow renewable very the to Due system. electricity EU the to connection modest a only with not and network gas EU the states into integrated member EU continental only the Finland, are with together States, Baltic the of the paper, chapter first the in demonstrated was As Conclusions h Bli Sae ecuae h E t take to EU the encourage States concerned, is Baltic diversification the as far As 2007). Europe’sof energy Commission (European policy heart the at market” energy internal single Europe-wide and interconnected competitive, truly “a the document “Energy Policy of for Europe”, which puts letter the to up live to states member EU all convince to trying are States Baltic the market, Western andNorthernEurope. with interconnections gas projects, and electricity as such infrastructure support strategic developing and in power monopolists’ for framework legal diminishing a of creation the means it Practically supply. resource of diversification the and markets gas and electricity EU functioning of creation the up speed way this in to and states member EU bigger the to proposals and worries Baltic’s top the channel to The is regard this affairs.in objective security serious energy most in the policy challenges tackling energy by EU them help common could of vision kind clear what less or on more a have States Baltic In creating a functioning EU electricity and gas the that demonstrated chapter second The or Gazprom(Makaraityte2010). power, back the decisions favourable to the Russian government parties. Subsequently, these political actors, if they gain political Russian other to ‘invest’ or their financial surplus into local politicians or by political Gazprom asked are who is businessmen to or companies energy Estonia monopolies) close and (but Latvia local Lithuania, supporting in situation political internal the manipulate to way common most and easiest The 69

infrastructure objects. energy certain constructing and markets gas and electricity national integrating resources, energy alternative developing for framework a up setting but non-political, informing people on effective consumption habits, regional as such measures, beneficial highly and economically national on regard, the Baltic States are advised to concentrate this In future. the in disruptions supply gas avoid to order in suppliers undemocratic ‘modernising’ and ‘engaging’ of possibility the about primarily worry and ineffective as relations, energy Russia EU- towards vision common a governments including policy, EU security energy external many EU common a shown, consider also was supply. more As energy is sufficient securing cooperation for bilateral effective that believe tend policy, are to energy EU which common countries, the to These crucial on basis. suppliers bilateral energy external a the with deal to prefer the Denmark or Italy, Finland Germany, France, Netherlands, in companies private and ulc pno i te nie EU entire the in opinion public positive despite and voice European common a Asia andtheMiddleEast. from Eastern Europe, the South Caucasus, Central potential oil and gas suppliers and transit countries with relations external develop and responsibility 71 70 common EU the energy in policy participated from have they the that very fact beginning. the of use oee, ept te atc tts hps for hopes States’ Baltic the despite However, eetees te atc tts oe o make to hope States Baltic the Nevertheless, by author, 18December2009,Berlin,Germany. interview econ, DIW at Manager Dr.Opitz, gas. Petra imported should be evaluated whether the market is big enough to sell the an LNG terminal should be built on the same logic – first of all it of construction the on decision Ainvestors. for interesting also the be could this if – strategy export an constructedup build to plan States be Baltic could NPP new A countries. other and Poland fromFinland, and import resources energy grids/pipelines the from electricity/gas profit the building be in would who interested investors for attractive market domestic their make should States Baltic the then suppliers, reliable fully be to not considered are Russia or Belarus If done. be should this price, lowest the for Belarus from gas or electricity possibility import the to is there if that states instance, for Opitz, Petra 2005). Commission (European level local the at 8% and national the at are taken at the European level, whereas 37% favoured decisions European member states support that decisions on the key energy policy issues EU 27 for all from respondents the out of 47% carried 2005, in Commission poll opinion an to According 71

70 governments , SPES Policy Papers 2011 29 market structure Second, the Baltic States should base their States Baltic the solidarity of spirit the in Third, be deduced from the analysis. First, in to contrast the cases of Western the and EU Southern Europe, has never soon Thus, States. Baltic had the with interconnections a debate regarding the which Nabucco, in investment begins EU the after is aimed to supply both Central and South Eastern Europe, or to deliberate the Caspian Development the out point should States Baltic the Cooperation, imbalance created by the focus on these projects and propose measures that will similarly benefit security. their situation of supply motivation on and reasons present of the development desired projects as energy enabling a infrastructure competitive market structure. In other explain words, to their they partners that should the current market structure is such that some states monopoly experience risk. a Therefore new somebody get to not pipelines, needed are NPPs or terminals LNG out of the market, but are instead prices vital to within keep certain limits and influence. avoid In this political regard, the Baltic States could argue that even if interconnections the options LNG terminal will commercialise, this will not necessarily mean that or be gas difficultwill assets these Rather, money. losing is someone to serve to definitively limit prices monopolists’ and thus benefit consumers. Indeed, this difference in prices may even make some non-viable projects viable. should insist on a combination of two aspects: (a) physical energy interconnections and investments and (b) policies restricting market promoting monopoly powers. competition This way, they could and back the development of the external energy policy dimension and at the call for the application of competition and same market time rules. status As regards the debate on reciprocity, the As regards the debate on reciprocity, The following policy recommendations Thus, despite repeated advice to concentrate on national efforts, the Baltic States hope instead to extend the reach of this very important ‘common’ EU area policy. Two of conceptual directions of their strategy – establishing perception a on common ‘solidarity’ EU in within principle energy ‘reciprocity’ real the affairs of application and the in analysed were – relations energy EU-Russia third chapter. It was stressed that disputes related to ‘consumer solidarity’ arise first of all differences due to in the various and divergent national views on discourses how to principle, implement but not this because member states oppose the ‘solidarity’ idea as such. Nevertheless, it was principle the of implementation the that concluded the by understood is it as solidarity’, ‘consumer of States Baltic the for importance prime of is Baltics, if they hope to finance nationallyimportant or regionally energy projects from the EU budget. infrastructure development quo of EU-Russia energy to the relations Baltic according States can strategic, predictable not and be equally considered beneficial as both for parties in the partnership. The Baltic States argue that it represents asymmetrical producer- consumer relations that neither boost the aspired modernisation and transformation nor oblige Russia of to fulfil Russia supply Europe itswith the promised commitments amount of gas. to Therefore it would be in the interest of the EU to conclude a long term agreement on energy issues instance, for of, revival the However, Russia. with negotiations on the ECT is hardly Moscow perceives possible, the ECT as to be ‘not balanced’ and countervailing to Russian interests. The goal of the Baltic States in this regard back is Russian not investment to decisions, roll but to agree on some stricter terms of may how Gazprom conditions which under established, the gas price is invest, etc. In this context, this paper has argued that the main task for the Baltic States is to equate the attitude that the EU holds towards Gazprom’s monopolistic position with the attitude it towards, for instance, Microsoft and its monopoly holds sector. in the IT (addressing the Baltic States’ governments) can 30 SPES Policy Papers 2011 20) “eeal eeg rsucs ttsi. http://www.energy. statistic.” resources energy “Renewable (2009): Portal Energy Europe’s Europa Press Releases Press Europa http://www.logisticsturku.2009. June 19 2014.” by built be to terminal LNG “Estonia: (2009): Esmerk Washington.http:// Deux”. Part Europe, to Gas “Russian (2009): Foundation Research Policy Energy Gas Russian on Dependency Europe’s “Fighting (2010): Winkler Erixon/Robin Iana/Fredrik Dreyer, Dimireva, Ina (2009): “Future Energy Policy.” Ceperkovic, Bratislav (2009): “Eastern Europe gas: Serbia mulls “White Stream” gas pipe alternative.” VasilisMantzos/ Leonidas Pantelis/ Capros, TasiosNikos Papandreou/ “Model-based (2008): Analysis Central Asia.” in Energy & Oil of “Geopolitics (2009): Houman Nathan/Sadri Burns, Braghiroli, Stefano/Caterina Carta (2008): “The EU’s attitude towards Russia: condemned to be divided? 2006. September 13 from Venezuela” oil imported time first the for nafta’ “’Mazeikiu (2006): BNS Energy European a “Towards (eds.): (2010) Woude der van Hancher/Marc Sami/Leigh Andoura, (2008): Pami Aalto, Bibliography 2009. July 12 accessed rence=IP/09/945&format=HTML&aged=0&language=EN&guiLanguage=en, http://europa.eu/rapid/pressReleasesAction.do?refe 2009. June 17 Plan.” Interconnection Market eu/#renewable, accessed29 December2009. 2dcd!OpenDocument, accessed28July2009. fi/logistics/bulletin.nsf/b07c22e6837926a3c225692800297c45/3868b186e9790c39c22575de0031 www.eprinc.org/pdf/gazprom-ukrainedeux.pdf, accessed2November2009. 2010. January 15 accessed www.ecipe.org/press/press-releases/Press%20Release%202010-01-07.pdf, Policies.“ Competition Better with Effectively more future-policy, accessed25September2009. The Economist.2February2009. Commission, DGENV.Brussels. Renewables”. and Change Climate on Package Policy EU 2008 the of future”. New York City, 15February 2009. the anticipating past, the “Exploring ISA’sConvention the Annual of 50th meeting annual the at accessed 3October2009. Institute Pan-European of Publications An analysis of the Member States and Members of the European Parliament’s preferences.” http://www.politika.lt/index.php?cid=831&new_id=113495, accessed5July2009. European%20Energy%20Community_A%20Policy%20Proposal.pdf, accessed8October, 2010. europa.eu/webnp/webdav/site/myjahiasite/users/nsalliarelis/public/Towards%20a%20 Proposal”. Policy A Community: University of Tampere. h E-usa Eeg Daou. uoes uue nry Security Energy Future Europe‘s Dialogue. Energy EU-Russian The (2009): “The Baltic Sea Region States reach agreement on the Baltic Energy Baltic the on agreement reach States Region Sea Baltic “The (2009): Prs Nte uoe pi 21. http://www.europarl. 2010. April Europe. Notre Paris: Study. . http://www.jhubc.it/ecpr-riga/virtualpaperroom/042.pdf, . EUBusiness. http://www.eubusiness.com/energy/Energy/ . 7 January 2010. January 7 Paper . Occasional ECIPE Report to the European. the to Report Paper presentedPaper Helsinki: . Electronic SPES Policy Papers 2011 31 .pdf, accessed 14 January 2010. (2006): “Russia mulls participation in Nabucco gas pipeline - Russian Industry and Energy European European Parliament on Energy Policy for ” Europe COM(2007). Brussels. http://ec.europa.eu/ 14 September 2010. accessed energy/energy_policy/doc/01_energy_policy_for_europe_en.pdf, Secure .” Energy SEC (2006) 317. rtapi!celexplus!prod!DocNumber&lg=en&type_doc=COMfinal&an_doc=2006&nu_doc=105, Brussels. http://eurlex.europa.eu/smartapi/cgi/sga_doc?sma August 2009. accessed 10 accessed 24 November 2009. ec.europa.eu/public_opinion/archives/ebs/ebs_258_en.pdf, MEPs.” accessed 1 November 2009. 20080616FCS31737-16-06-2008-2008/default_p001c002_en.htm, http://www.europarl.europa.eu/news/public/focus_page/051-31738-168-06-25-909- accessed 1 November 2009. 2008. www.energy.eu/news/EU_weakens_Gazprom_clause.pdf, efforts in tackling the crisis jointly”. accessed http://www.lrvk.lt/naujienos/aktualijos/?nid=5530, 13 November 2009. Eastern Geopolitical Studies. accessed 25 September 2009. stories/eu-russia%20pulse%201(2).pdf, http://www.rytugeopolitika.lt/multisites/rytugeopolitika/images/ accessed 3 November 2009. http://library.fes.de/pdf-files/ipg/ipg-2009-3/06_a_graetz_us.pdf, Oxford Institute for Energy Studies. accessed May 2006. www.oxfordenergy.org/pdfs/NG13.pdf, 10 November 2009. transatlantic.sais-jhu.edu/bin/e/s/dh_3.08_baltics_currenthistory http://europa.eu/legislation_summaries/energy/internal_energy_market/l27081_en.htm, http://europa.eu/legislation_summaries/energy/internal_energy_market/l27081_en.htm, accessed 2009. 4 November infrastructure/events/doc/2009/2009_11_25_hlg_report_170609.pdf, accessed 1 February 2010. infrastructure/events/doc/2009/2009_11_25_hlg_report_170609.pdf, 2009. accessed 12 September hydrocarbons-technology.com/projects/swinoujscie/, accessed 4 November 2009. www.inforse.org/europe/eu-ten-e.htm, Minister.” http://www.highbeam.com/doc/1G1-152027538.html, accessed 26 May 2009. http://www.highbeam.com/doc/1G1-152027538.html, Minister.” Communication from the Commission to the European Council and the and Council European the to Commission the from Communication “ (2007): Commission European European Commission (2006): “Green Paper - A European Strategy for Sustainable, Competitive and European Commission (2005): “Special Eurobarometer Nr. 258. Energy issues”. Brussels. http:// European Parliament News Reports (2008): “3rd Energy Package gets finalGoldirova, Renata approval(2008): “EU weakens ‘Gazprom clause’ on from foreign energy investors.” 14 October Government of Lithuania (2009.): “Prime ministers of the Baltic States consult and coordinate their Grajauskas, Rokas (2008): “’Gazprom and Clause’ the Issue of Europeanization”. Russia’s Centre for Graetz, Jonas (2009): “Energy Relations with Russia and Gas Market Liberalization.” March 2009. Making?” the in OPEC Gas a really it Is Forum: Countries Exporting Gas “The (2006): Hadi Hallouche, Hamilton, Daniel S. (2008): “The Baltics: Still Punching Above Their Weight.” March 2008. http:// European European Commission (2007): “Priority Interconnection Plan (PIP).” COM(2006) 846. Brussels. High Level Group (2009): Action “BEMIP Plan”, Final Report, June 2009. http://ec.europa.eu/energy/ Hydrocarbons (2009): “Swinoujscie LNG Gas Terminal, Baltic Coast, Inforse-Europe (2008): “Trans-European Poland.” Energy Networks (TEN-E’s).” http://www. 30 December 2008. http:// Interfax http://www.interlinks.lt/lt/swedlit/apie-projekta-.html, NORDBALT.” projektą “Apie (2008): InterLinks 32 SPES Policy Papers 2011 Mauring, Liina/Daniel Schaer (2006):“TheEffects oftheRussianEnergy SectorontheSecurityof Makaraityte, Indre (2010): “Dujotekana project”. in: cooperation” regional the to implications its and strategy energy “Estonian (2009): Andres Mae, Loskot-Strachota, Agata (2008): Muddled.” Remain Intentions EU’s Plan, Funding Nabucco “Despite (2009): Ahto Lobjakas, Pan-European problems.” and politics Pipes, connection: gas EU-Russia “The (2009): Kari Liuhto, http://www.leolt.lt/ studija.” galimybių projekto Link “LitPol (2007): organizacija elektros Lietuvos to transportation gas natural liquefied of “Prospects (2008): Kugelevičius Algirdas/Jonas Kuprys, http://www. 2008.” Outlook Gas Natural European Eastern and “Central (2008): Advisory KPMG Some Europe– for Gas Natural “Liquefed (2009): Aliki Hrvoje/Georgakaki Boyan/Petri´c Kavalov, for issue security supply new a dependence: import gas natural “Unilateral (2007): Peter Kaderjak, Corridor”, Gas Southern the of shape the decide will “Azerbaijan (2011): Aleksandra Jarosiewicz, Janeliunas, Tomas (2009): “Lithuanian energy strategy and its implications on regional cooperation.” in: Baltic States.” Baltic lt/Aktualijos/Dujotekanos-projektas, accessed15December 2010. 2010. April 25 http://www.batory.org.pl/doc/GP_EXP_US_1.pdf,accessed Studies. Eastern for Centre Latvian Instituteofinternationalaffairs: 250-281. Andris Spruds/Toms Rostoks (eds.): EUs_Intentions_Remain_Muddled_/1376046.html, accessed17July2009. http://www.rferl.org/content/Despite_Nabucco_Funding_Plan_ 2009. January 28 Europe. Free 2009. 29 July accessed www.tse.fi/FI/yksikot/erillislaitokset/.../Liuhto%200809%20web.pdf, Institute. accessed 16July2009. lt/apie-leo-lt/projektai-130/lietuvos-lenkijos-jungtis-132/projekto-galimybiu-studija-106.html, http://www.images.katalogas.lt/ leidykla.” akademijos mokslų maleidykla/Ener84/Ener_059_066.pdf, accessed28 August 2009. Lietuvos countries. Baltic the Outlook_2008_web.pdf, accessed9November2009. kpmgglobalenergyinstitute.com/documents/GEI/324200894513KPMG_CEE%20GAS%20 accessed 6November2009. http://ec.europa.eu/dgs/jrc/downloads/jrc_reference_report_200907_liquefied_natural_gas.pdf, 2009. July Energy. for Institute commission/The European Consideration.” for Issues Important european-review-of-energy-market/erem5-article-kaderjak, accessed25 April 2010. Europe.” accessed 22January, 2011. for Eastern Studies. 19 January 2011. http://www.osw.waw.pl/sites/default/files/EastWeek_237.pdf, EastWeekCenter2/237. Central Asia Europe, Caucasus, Eastern Russia, for Newsletter Analytical Latvian Instituteofinternationalaffairs: 190-222. Andris Spruds/Toms Rostoks (eds.): accessed 28July2009. 2(2) December 2007. http://www.eeinstitute.org/ 2007. December 2(2) Markets Energy of Review European . http://www.bdcol.ee/fileadmin/docs/bsdr/4-8. Review Defence and Security Baltic Gazprom’s expansion in the EU – co-operation or domination? Warsaw: Energy. Pulling the Baltic Sea region together or apart. Riga: Energy. Pulling the Baltic Sea region together or apart. Riga: Atgimimas. 3 December 2010. http://www.atgimimas. Radio SPES Policy Papers 2011 33

Baltic Russian analytical . November . Brief Policy ECFR OSW Commentary. Center for EastWeek Analytical Newsletter Analytical EastWeek Report, March 2009. http://viewer. .” 1 December 2008. http://www.ukmin.lt/lt/veiklos_kryptys/ Presentation Presentation presented at Baltrel Seminar. 17 October 2008. Warsaw. Presentation Presentation presented at the international seminar for the Strategies Estonia. Tartu, , 1-2 October 2009, for consensus of consumers: search energy suppliers and energetika/bendrieji_dokumentai/doc/Ataskaitos_2008/Liet_Lenkijos_dujos.pdf, energetika/bendrieji_dokumentai/doc/Ataskaitos_2008/Liet_Lenkijos_dujos.pdf, accessed June, 2009. 19 Russian%20Energy%20Sector%20and%20Baltic%20Security-Liina%20Mauring%20and%20 2009. 4 September accessed Daniel%20Schaer.pdf, network systems interconnection index.php?id=50, accessed 16 July 2009. index.php?id=50, accessed 16 July Union and the establishing Treaty the ” European Community. 13 December 2007. http://eur-lex. accessed 12 November 2009. europa.eu/en/treaties/dat/12007L/htm/12007L.html, in the electricity ring.” accessed 3 September 2009. http://www.lfpr.lt/uploads/File/2007-19/Perret_ENG.pdf, 2008. European Council 2009. ggm6banc4.pdf, accessed 7 October on Foreign Relations. http://ecfr.3cdn.net/c2ab0bed62962b5479_ accessed 12 July 2009. http://www.baltrel.com/06.pdf, for Eastern Europe, Russia, Caucasus, Central Asia 2/237. 2009. Center for http://www.osw.waw.pl/en/publikacje/eastweek/2009-04-29/moscows-response-to-energy- Eastern Studies. April 2010. accessed 25 November charter-treaty, Eastern Studies. January 2010. http://www.osw.waw.pl/en/publikacje/osw-commentary/2010-01- August 2010. accessed 15 28/nord-and-south-stream-wont-save-gazprom, Rim . Economies 28 February 2007. http://www.tse.fi/FI/yksikot/erillislaitokset/pei/Documents/ August 2009. bre/expert_article77_12007.pdf, accessed 28 Digest 58. ipublicationdocument_singledocument/C1BC5C37-C974-484D-8DAC-113D364C5560/en/ 21 April Russian_Analytical_Digest_58.pdf, accessed 7 October 2009. 2009. 5-11. http://kms1.isn.ethz.ch/serviceengine/Files/ISN/99249/ Paper presented at the annual meeting of the ISA’s 50th Annual Annual Convention 50th “Exploring The Past, at the annual meeting of Paper the presented ISA’s zmags.com/publication/ac37c9f8#/ac37c9f8/1, accessed 3 June 2010. Naudužas, Vytautas (2009): “Strategies of energy suppliers and consumers: search for consensus.” gas.” Russian with deal to how dependence: “Beyond (2008): Pierre Noël, Ministry of Economy of the Republic of Lithuania (2008): “Feasibility study of Polish-Lithuanian gas Nordic Nordic Energy Link (2008): “Baltic - Finnish submarine cable.” http://www.nordicenergylink.com/ Official Journal of the European Union (2007): “Treaty of Lisbon amending the Treaty on European Paškevičius, Vladas (2008): “Lithuanian Association, Electricity Place and role of the Baltic countries Treaty”, Charter Energy the to response “Moscow’s (2009): Ewa Paszyc, Paszyc, Ewa (2010): “Nord and South Stream won’t save Gazprom”, Politics.” of Supremacy and Mortality of Intimations Gas: and Russia EU, “The (2007): Quentin Perret, Policy Issues for in Andris Europe: the Current (2007): Baltic States.” Energy “Energy Piebalgs, Poussenkova, Nina (2009): “Gazprom and Russia’s Great Eastern pipe-Dreams.” Ramboll Group (2009): “Annual Report 2009. Shaping the future.” Romanova, Tatiana (2009): “The EU-Russian Energy Dialogue: What Causes Limited Progress?” 34 SPES Policy Papers 2011 acua, yiats 20) “omn uoen no Eeg Plc o te aig n the and Making the on Policy Energy Union European “Common (2009): Zygimantas Vaiciunas, Tubalkain-Trell, Marge (2009): “Estonia to prepare a decision in principle for nuclear power plant.“ Social & Opinion TNS 16 project.” nuclear their join to Lithuanians invited “Belarusians (2009): Tribune Lithuania The Plant.” Power Nuclear Baltic new a for date realistic a is “2018-2019 (2009): Tribune Lithuania The choices.” policy and entrapments structural between “Latvia’sstrategy: energy(2009): Spruds, Andris Soave, Piero (2008): “Financing The Trans-European Networks.” Trans-EuropeanThe “Financing (2008): Piero Soave, States.” Baltic The and Agenda European “Russia’s (2008): Janina Sleivyte, Veiderma, Mihkel (2005): “Natural gas in the Baltic Sea Region”. Sea Baltic the in gas “Natural (2005): Veiderma,Mihkel project.” Pipeline Gas GUEU) (former Stream White of “Progress (2007): Giorgi Vashakmadze, 20) “ihai: ot o ul LG emnl ihAhm. 1 Spebr 2008. September 16 Achema.” with Terminal LNG Build to Govt “Lithuania: (2008): Rzd-partner 2009. May 19 undermined.” security energy EU to commitments “Russian (2009): Today Russia academy strategy.”States’Lithuanian energy Baltic the of “Project (2006): Rokus Zenonas Rudzikas, &ftuId=FTU_4.7.2.html, accessed4November2009. http://www.europarl.europa.eu/parliament/expert/displayFtu.do?language=en&id=74 2008. June Interests ofLithuania.” d1d0-46cf-9e1c-0471d2433e33, accessed28May2009. http://www.balticbusinessnews.com/?PublicationId=f2c9d2ab-2009. February 16 News. Business accessed 25September2009. Brussels: European Commission. http://ec.europa.eu/public_opinion/archives/ebs/ebs_247_en.pdf, join-their-nuclear-project/, accessed17September2009. http://www.lithuaniatribune.com/2009/09/16/belarusians-invited-lithuanians-to- 2009. September baltic-nuclear-station, accessed12September2009. 23 August 2009. www.lithuaniatribune.com/2009/08/23/2018-2019-is-as-realistic-date-for-a-new- Riga: LatvianInstituteofinternationalaffairs: 223-249. (eds.): Rostoks Spruds/Toms Andris in: http://www.rzd-partner.com/news/2008/09/16/330509.html, accessed5July2009. document-listings/monographs/Shrivenham%20Paper%207.pdf, accessed5July2009. http://www.da.mod.uk/colleges/arag/ . Kingdom. United the of Academy Defence 2/2008. n°7. 2 Nvme 20. http://www.akadeemia.ee/_repository/File/ 2005. November Veiderma_ettekanneINGL.pdf ,accessed7July2009. 26 States. Baltic the of Assembly pls/portal/docs/91811.PDF, accessed25September2009. Presentation presented at the Gas Forum Maribor. November 2007. www.energy-community.org/ undermined_.html, accessed6June2009. http://russiatoday.com/Business/2009-05-19/Russian_commitments_to_EU_energy_security_ August 2009. 28 accessed http://www.lsta.lt/files/studijos/2006/13_BEStr.pdf 2006. December 13 science. of Anticipating TheFuture”. New York: New York MarriottMarquis. (2006): “Attitudes Towards Energy.” Special Eurobarometer 247, Wave 64.2. Wave247, Eurobarometer Special Energy.”Towards “Attitudes (2006): Politologija . 30September2009. Energy. Pulling the Baltic Sea region together or apart. or together region Sea Baltic the Energy.Pulling Fact Sheets on the European Union European the on Sheets Fact Paper delivered at the session of session the at delivered Paper The Shrivenham Papers Shrivenham The Baltic

SPES Policy Papers 2011 35

Baltic Rim Economies 1/2009.

(2009): “Nuclear Power in Lithuania.” http://www.world-nuclear.org/info/ http://www.ventspils.lv/ENG/5Bizness/2Brivosta/bdalja.htm?NRMODE=Published, accessed 5 http://www.ventspils.lv/ENG/5Bizness/2Brivosta/bdalja.htm?NRMODE=Published, July 2009. http://www.tse.fi/FI/yksikot/erillislaitokset/pei/Documents/bre2009/292%201-2009%20 accessed 3 September 2009. Expert%20articles.pdf, inf109.html, accessed 29 May 2009. inf109.html, accessed (2009): “Ventspils transport infrastructure.” 2009. 2009. transport infrastructure.” (2009): “Ventspils Ventspils Weafer, Chris Weafer, (2009): “GAS-OPEC – cooperation or confrontation?” World Nuclear World Association 36 SPES Policy Papers 2011 Figure 2.Indexofnationalvulnerabilityto“Gazprom SupplyCuts” Figure 1.Institutionalstructure oftheEU-RussianEnergyDialogue Annexe Source: Dreyer/Erixon/Winkler 2010. Source: Romanova2009. SPES Policy Papers 2011 37 Source: Veiderma 2005. Veiderma Source: Source: Naudužas 2009. Source: Figure 4. Gas pipelines in the Baltic States Figure Figure 3. Electricity import-export capacities of the Baltic States capacities of import-export 3. Electricity Figure 38 SPES Policy Papers 2011 Figure 6.Netimports/totalconsumptioninthenewEUmember states Figure 5.European dependenceonRussiangas Source: Loskot-Strachota2008. Source: Kaderjak2007. SPES Policy Papers 2011 39 Source: Jarosiewicz 2011. 2011. Jarosiewicz Source: Source: Vashakmadze 2007. Vashakmadze Source: Figures 7. Gas pipelines to Europe 7. Gas pipelines Figures 40 SPES Policy Papers 2011 LNG importstoEurope Figures 8:LNGimportandconsumptioninEurope Source: Energy PolicyResearch Foundation 2009. Source: Liuhto2009.

SPES Policy Papers 2011 41 Source: Kavalov/Hrvoje/Aliki 2009. Source: Pipeline and LNG net imports in the EU by countries of origin (in 2007, %) origin (in 2007, by countries of in the EU and LNG net imports Pipeline 42 SPES Policy Papers 2011

Chart 1. Most important energy infrastructure projects for the Baltic States

Es t i m a t e d Pr o j e c t Ca p a c i t y construction Ow n e r s h i p Op e r a t i o -n a l s i n c e St a t u s Ma i n c h a l l e n g e s c o s t s Eesti Energia (39.9%) 350 MW 110 million € Latvenergo, Lietuvos Too low capacity of the first Operational Energija (25% each), 2007 cable Second cable Second cable – Pohjolan Voima, Second cable ESTLINK – 635 MW 250 million € Helsingin Energia Second cable - 2013 No funding for the second under discussion (remaining 10.1% each) cable Lietuvos energija, The reinforcement of Svenska Kraftnat, domestic power grids in 700 - 1000 516-738 Construction Augstsprieguma Tikls 2016-2017 Lithuania; MW million € begins in 2010 (final parties to be No energy surplus in (SWEDLIT) NORDBALT NORDBALT clarified) Sweden;

The reinforcement of PSE Operator, Lietuvos domestic power grids in 1000 MW 237 million € 2012–2015 Under discussion Energija Poland and Lithuania is needed LITPOLLINK

Lietuvos energija, Funding, other planned Latvenergo, Eesti Energia In LT 3200 MWe 3-5 billion € 2018-2019 Under discussion nuclear power plants in the and Polska Grupa region Energetyczna No necessary legislative, In EE 800 MW Not calculated Eesti Energia 2025 Under discussion experience, funding.

New NPP Rosatom, 49% of shares in the project will be First reactor 2016, Under In KD 2300 MW 6 billion € Funding offered to European second - 2018 construction companies

SPES Policy Papers 2011 43

Turkmenistan and Azerbaijan and Turkmenistan pipeline

in 2010 in m³/year m³/year

Southern Corridor

Disagreements between between Disagreements PSG International, Shell International, PSG $ billion 2,5 Caspian Caspian

Feasibility study study Feasibility 30 billion billion 30

Russian-Iranian objections; objections; Russian-Iranian Trans-

feasibility study feasibility billion $ billion m³/year Stream

Lack of gas gas of Lack Stage 1 in 2016 in 1 Stage disclosed Not

EU funded the the funded EU 2.5 - 3.5 3.5 - 2.5 32 billion billion 32 White White

begin in 2010 in begin RWE RWE

m³/year

Lack of gas of Lack of the pipeline pipeline the of 2014-2015 Bulgargaz, BOTAŞ, Bulgargaz, 7.9 billion € billion 7.9 Nabucco

25-30 billion billion 25-30

Construction Construction OMV, MOL, Transgaz, Transgaz, MOL, OMV,

in the region the in Others m³/year

Under discussion Under 2015 480 million € million 480 In EE In

Funding, role of GAZPROM GAZPROM of role Funding, Eesti Gaas, Gaas, Eesti 2.5 billion billion 2.5 LNG terminal

in the region the in

In LV In Under discussion Under 2012-2018

Funding, role of GAZPROM GAZPROM of role Funding,

year

of GAZPROM in the region the in GAZPROM of till 2010 till million € million

2012-2018 unclear are Contributors billion m³/ billion In LT In

Transparency, funding, role role funding, Transparency, Feasibility study study Feasibility 270-320 270-320

3.5–5.3 3.5–5.3

bcm

2009-2010

Dobele: 6 6 Dobele: Underground gasstorage

Not decided Not € 230million 2022

Feasibility study study Feasibility storage in in storage

2. New New 2.

In LV In

gas)

to 3,2 bcm 3,2 to

for cushion cushion for

storage storage

Latvijas Gaze Latvijas Not decided Not Operational million € million

of Incukalns Incukalns of

(plus 250-350 250-350 (plus

1.Expansion 1.Expansion

140 million € € million 140

0.5 bcm 0.5

No decision No € 347million 2015 Under discussion Under Funding In LT In

Syderiai Syderiai

s t s o c

C P O - O S M

t c e j o r n o i t c u r t s n o c y t i c a p a p i h s r e n w l a n o i t a r e p s u t a t e c n i s n i a s e g n e l l a h c

E

d e t a m i t s 44 SPES Policy Papers 2011

Es t i m a t e d Pr o j e c t Ca p a c i t y construction Ow n e r s h i p Op e r a t i o -n a l s i n c e St a t u s Ma i n c h a l l e n g e s c o s t s Gazprom, BASF/ 2 Lines. First Preparations for Environmental danger; 55 billion Nord Stream 7.4 billion € Wintershall, E.ON scheduled for 2011, the pipeline’s Russia’s instrument of m³/year Ruhrgas, Gasunie second for 2012 construction political pressure 63 billion Gazprom, ENI, The construction Rival to the planned Nabucco South Stream 19-24 billion € 2015 m³/year is to start in 2010 pipeline Odessa-Brody- UkrTransNafta, PERN, Lack of funding and oil, 15-40 360 mln. - 3,5 “reverse-use” of Plotsk-Gdansk SOCAR, GOGC, 2004 political disputes between million t. mlrd. $ the pipeline oil pipeline Klaipedos Nafta Russia and EU Baltic Pipeline 50 million The construction 4 billion $ Transneft 2012 system 2 (oil) tons/years started in 2009

Own compilation based on the following sources: Nordic Energy Link 2008, InterLinks 2008, Lietuvos elektros organizacija 2007, Paškevičius 2008, World Nuclear Association 2009, Tubalkain-Trell 2009, Kuprys/Kugelevičius 2008, High Level Group 2009.