OIL AND GAS DELIVERY TO EUROPE An Overview of Existing and Planned Infrastructures New Edition GOUVERNANCE EUROPEENNE ET GEOPOLITIQUE DE L’ENERGIE 11 Susanne NIES The Institut Français des Relations Internationales (IFRI) is a research center and a forum for debate on major international political and economic issues. Headed by Thierry de Montbrial since its founding in 1979, Ifri is a non-governmental and a non-profit organization. As an independent think tank, IFRI sets its own research agenda, publishing its findings regularly for a global audience. Using an interdisciplinary approach, IFRI brings together political and economic decision-makers, researchers and internationally renowned experts to animate its debate and research activities. With offices in Paris and Brussels, IFRI stands out as one of the rare French think tanks to have positioned itself at the very heart of European debate. The Program aims to contribute to the emergence of a coherent and sustainable energy and climate policy through seminars, debates, and publications. This series of works covers the principal issues in the energy sector. Tome 1: Abatement of CO2 Emissions in the European Union (2007) Tome 2: L’énergie nucléaire et les opinions publiques européennes (2008) Tome 3: The External Energy Policy of the European Union (2008) Tome 4: Gaz et pétrole vers l’Europe. Perspectives pour les infra-structures (2008) Tome 5: La gouvernance mondiale de l’énergie : enjeux et perspec-tives (2009) Tome 6: Governance of Oil in Africa: Unfinished Business (2009) Tome 7: Energy in India's Future: Insights (2009) Tome 8: At the Speed of Light? Electricity Interconnections for Europe (2009) Tome 9: Ukraine: a Transit Country in Deadlock? (2010) Tome 10: The EU’s Major Electricity and Gas Utilities since Market Liberalization (2010) © All rights reserved, Ifri, 2011 ISBN: 978-2-86592-817-0 ISSN: 1962-610X Ifri Ifri-Bruxelles 27 rue de la Procession Rue Marie-Thérèse, 21 75740 Paris Cedex 15 – France 1000 Brussels – Belgium Phone: +33 (0)1 40 61 60 00 Phone : +32 (0)2 238 51 10 Email: [email protected] Email: [email protected] Website: Ifri.org Abstract The European Union‟s hydrocarbon energy supply depends heavily on imports. While the European Commission has recommended diversifying and increasing domestic resources, notably with rene- wable resources which should grow to 20% by 2020, dependence on hydrocarbon imports will remain not only substantial, but will increase. Particular attention must thus be paid to the question of trans- portation, and also to the countries of origin, investments in infrastruc- ture, their protection, relations with transit countries, „competing con- sumers‟ (notably China and emerging countries, but also the United States), energy wastefulness in producing countries, and, finally, price. Security of supply depends on adequate and reliable infra- structure, and must always be thought of in the long term. This entirely revised edition of the fourth study conducted by the European Governance and Geopolitics of Energy program at Ifri includes discussions about pipeline routes and potential outputs, their current use and financial requirements for transportation, ongoing projects and those planned for the future, their cost, their financing, and their probable operational start-up date. While all infrastructures are necessarily included (including Norway, the United Kingdom, and North Africa), particular attention is paid to transportation infras- tructure that connects Europe with Russia and the former Soviet Union (Central Asia, Caspian Sea). It will be immediately clear that the issue of gas is dominant in current discussions. 1 © Ifri S. Nies / Oil and Gas to Europe Contents INTRODUCTION ................................................................................... 4 Methods and Sources ................................................................ 7 SETTING UP GAS AND OIL INFRASTRUCTURES IN EUROPE ................... 10 Developing Infrastructures in the Soviet Bloc, and their Extension to Western Europe .................................. 15 Sorting Out Transit Countries: the Federal Republic of Germany and Austria ....................... 16 Continuity and Ruptures .......................................................... 18 Hydrocarbon Transport and the Consequences of the Fall of the Soviet Union ................................................. 18 EU ACTIONS ON GAS AND OIL INFRASTRUCTURE ............................... 23 Normative Actions, the Domestic Market, and the Impact on Third Countries .......................................... 25 Lines with TPA Exemption ....................................................... 26 Gas Security in the EU ............................................................. 27 Gas security legislation: endorsement in autumn 2010 ......... 28 System Security and Renewables (RES): the Intermittency Challenge ..................................................... 29 Priority Projects and Interconnectors ..................................... 30 OIL TRANSPORT TO THE EU .............................................................. 31 Introduction: Origins of Resources and European Supply ... 31 The EU’s Principal Suppliers ................................................... 36 Summary and Conclusion ........................................................ 51 GAS FROM THE NORTH, SOUTH AND EAST EUROPEAN DEMAND FOR GAS AND SOURCES OF SUPPLY .................................... 52 Introductory Remarks on Gas Markets and Gas Transport ... 55 Future Supplies: Looking to the North, South, and East ....... 62 Norway and the Baltic Region: Northern Dynamics ............... 65 Russia and the CIS ................................................................... 68 2 © Ifri S. Nies / Oil and Gas to Europe Case Study: Nord Stream ......................................................... 73 Gas Resources in the Caspian and Central Asia .................... 77 Case Study: the Southern Corridor ......................................... 83 The South: Algeria and Nigeria ................................................ 90 TURKEY AND UKRAINE: TWO MAJOR TRANSIT COUNTRIES FOR EU ..... 95 Transit Country at the East-West Crossroads: Ukraine ......... 95 The Transit Country at the Crossroads of the Southern Corridor: Turkey .......................................... 101 Conclusion .............................................................................. 107 CONCLUSION AND PROSPECTS ........................................................ 108 The Overhaul of our Energy Mix ............................................ 108 The Community Context ........................................................ 109 ANNEXES ................................................................................... ....112 3 © Ifri S. Nies / Oil and Gas to Europe Introduction The European Union‟s hydrocarbon energy supply depends heavily on imports. While the European institutions have set the 20/20/20 targets for 2020 (20% of energy to come from renewable sources; a 20% increase in energy efficiency; and a 20% reduction in green- house-gas emissions), European dependence on hydrocarbon imports will not only remain important but will continue to increase. This is also the case with the reduction in consumption induced by the recession, which is expected to continue affecting consumption until 2015/16. Particular attention must thus be paid to the question of transportation of oil and gas, to the countries of origin, the invest- ments in infrastructure, the protection of such infrastructures, rela- tions with transit countries, the „competing consumers‟ (notably China, emerging countries, and the United States), inefficient use of energy in producing countries, and, finally, the price involved in each case. Security of supply depends on adequate and reliable infra- structure, and must always be thought of in the long term. However, it is interesting to note that the EU-27 currently considers itself quite vulnerable, and opinions are divided about relations with its largest supplier, Russia. Excessive dependence and beneficial interdepen- dence are the buzz-words on both sides of the debate. Escalation in the bidding to secure potential routes for Russian and Commonwealth of Independent States (CIS) gas delivery to Western Europe is putting the two schools of thought into conflict. In addition, Russia‟s domi- nance in the debate, as presented by the media, means that the role of the second largest exporter of natural gas to the EU – Norway – is often forgotten or pushed to the side. When creating new oil and gas infrastructure it is imperative to pay special attention to geopolitical issues and „energy diplomacy‟: pipelines are not only commercial concerns but also fall into the political realm and can sometimes become overly politicized. These energy links, which include interconnectors in addition to massive oil pipelines spanning thousands of kilometers such as Druzhba and the BTC (Baku-Tbilisi-Ceyhan), in many cases replace dependence with interdependence. An oil or gas pipeline can be as much a factor for peace and stabilization as for war. For example, during the Afghan- Soviet War, the Soviet gas pipeline to Kabul became a target for multiple attacks, but its parts today are used in the construction of private houses in the Afghan capital. It is also important to remember that the construction of one such link allows others to be added onto 4 © Ifri S. Nies / Oil and Gas to Europe it. The construction of Yamal, for example,