Energy Security in the EU

Energy Security – diversity, solidarity and interdependence in energy supply

Energy security has an important and growing position on the EU agenda. The focus on ‘security of supply’ is a result of European Union’s (EU) increasing dependence on energy imports. While the EU meets today slightly more than 50 per cent of its energy needs through imports, this figure could rise to 70 per cent within the next 20 years if no concrete action is taken. With regard to oil, the EU’s dependence could reach even 90 per cent in 2030.

It should be noted that in spite of its crucial importance, energy security lacks both a common definition and a methodology for its evaluation. Although its meaning varies between different countries and organisations, in general it is used to signify some of the following:

  • Reliability of supply;
  • Self-sufficiency;
  • Security of infrastructure;
  • Stability and diversity of suppliers;
  • Reduced consumption through energy efficiency;
  • Diversity of energy carriers; and
  • increasingly, environmental sustainability.

The European Commission refers to “the uninterrupted physical availability of energy products on the market at an affordable price for all consumers, whilst respecting environmental concerns and looking towards sustainable development.”[1] Threats to energy security may include political instability in energy producing or transit regions, the distortion of market forces by energy cartels, attacks on supply infrastructure, as well as accidents and natural disasters. One increasingly prominent concern, however, is anxiety over whether there will be sufficient resources to meet the world’s energy requirements in the decades ahead.

Global and geopolitical challenges

The scale of the global energy challenges is enormous as highlighted by the following trends[2]:

  • Global energy demands, given current trends, are set to increase by around 40% between 2007 and 2030. Most of this increase is a result of higher energy demands in non-OECD countries with China expected to double its annual energy consumption until 2030. Although the global energy consumption dropped significantly in 2009 (for the first time since 1981) as a consequence of the world-wide financial crisis, it is expected to quickly resume its upward trend after the economic recovery.
  • According to the Reference Scenario, fossil fuels will remain the dominant source of primary energy and are projected to cover 84 per cent of the global increase in energy demand until 2030. Oil is likely to remain the world’s most important energy source and its global demand is expected to grow by 37 per cent until 2030. In absolute terms, the biggest increase in global energy demand will come from coal, rising by over 70 per cent until 2030.
  • The main driver of demand for coal and gas is the growth in energy needs for power generation. World electricity demand is projected to grow at an annual rate of 2.5 per cent until 2030 with over 80 per cent of growth taking place in non OECD-countries.
  • At the same time, renewable energies and new non-hydro technologies are expected to become more important. The share of non-hydro renewable energies in total power output will rise from 2.5 per cent in 2007 to 8.6 per cent in 2030 with wind power seeing the biggest absolute increase.
  • The capital required to meet projected energy demand until 2030 in the Reference Scenario accounts to 1.1 trillion USD per year on average (or 1.4 per cent of global gross domestic product – GDP). Over half of all energy investment is needed in developing countries, where demand is foreseen to increase fastest. At the same time, worldwide energy investment dropped in 2009 as a result of the global financial crisis. It is estimated that investment in oil and gas exploration fell by 19 per cent in 2009 compared to 2008, which is a reduction of over 90 billion USD.

EU Energy mix 2006 and 2030[3]:

EU’s policy response to these challenges

Since the issuance of the Commission’s Green Paper on a European Strategy for sustainable, competitive and Secure Energy of 2006, there have been ambitious efforts to design a policy response to the question of security of supply. The key concept of the EU’s policy response is an integrated energy and environment policy as agreed by the European Council in May 2007. The European Council committed Europe to transforming itself into a highly energy-efficient, low carbon economy.

To kick-start this process, the European Council set a series of climate and energy targets to be met by 2020. These targets are known as the ’20-20-20 targets’[4].

In the Second Strategic Energy Review of November 2008, the European Commission identified a number of weaknesses and problems to be addressed in order to overcome obstacles to a common energy policy and to enhance the energy security supply within the EU. The Review outlined a ‘European energy security and solidarity action plan’, which proposed an ambitious policy based on the ’20-20-20 targets’ with explicit targets and timetables to meet the three fundamental energy policy objectives: security of supply, competitiveness and environmental sustainability.

The five key areas of this action plan are:

  • Infrastructure needs and the diversification of energy supplies,
  • External energy relations,
  • Oil and gas stocks and crisis response mechanisms,
  • Energy efficiency, and
  • Making the best use of the EU’s indigenous energy resources.

The second point regarding the effective external energy policy stressed the importance of international frameworks, which promote and are capable of sustaining the major investments needed in the future.

With regard to energy infrastructure, the Commission proposed a set of six priority actions[5]. The European Parliament responded supportively to these Commission proposals[6]. It also called on the member states to speak with one voice towards external energy partners and considered an “energy security clause” in any future trade, association, partnership or cooperation agreements with producer and transit countries in order to ensure that commercial disputes do not lead to supply disruptions.

Also the Council cautiously welcomed this energy security and solidarity action plan and invited the Commission to present the detailed actions necessary to realise the six priority infrastructure actions.

EU legal framework on security of supply

The above-mentioned policy proposals have been implemented with several Commission proposals of 2008 and 2009. Among these proposals is the Proposal for a Council Regulation concerning the notification of the Commission about investment projects in energy infrastructure within the European Union[7] and the Commission’s comprehensive infrastructure package of 16 July 2009[8]. This package comprises two Regulations and is a set of measures to tackle long-term structural issues.

The third Energy Internal Market Package[9], which promotes sustainability by stimulating energy efficiency and removes obstacles to a competitive (internal) market, also contains provisions regarding security of supply. In particular, there are provisions improving the   conditions for investment in power plants and transmission networks and strengthened provisions to guarantee fair competition with third country companies.

Furthermore, the Directives in the areas of oil[10], natural gas[11] and electricity[12] are currently under review since the Second Strategic Energy Review highlighted that legally these instruments would not be suitable to ensure a coordinated response in case of a serious supply crisis.

The former Commission President Jacques Delors criticized in a policy paper[13], which he presented to the European Parliament at the beginning of May 2010,  that “none of the these instruments provide for a supranational, coherent approach to responding to strategic issues of supply“.  The main criticism is that the formulation and implementation of policy is left to the individual member states, which is neither harmonised nor coordinated at European level.  Furthermore, the policy paper criticises that the proposed measures such as increased stocking requirements are only reactive solutions and they are not designed to anticipate or limit the likelihood or cost of a supply disruption.  Finally, the paper notes significant gaps in the coverage of the proposed measures. For example, they do not cover networks and LNG, thereby not taking into account the changing nature of the European energy markets.

The European Union efforts in external energy policies

The recent Russian-Ukraine gas crisis of January 2009, which resulted in a major reduction in or termination of gas supplies from Russia in 18 member states, highlighted again the need to develop an effective external energy policy. This includes speaking with one voice, identifying infrastructure of major importance to its energy security and ensuring its construction, and finally acting coherently to deepen its partnerships with key energy suppliers, transit countries and consumer states. The rising dependence of the EU on energy imports and, at the same time, interdependence between producer, consumer and transit countries requires closer cooperation with supplying countries.

As a result, the EU has become more pro-active in promoting and strengthening dialogues on energy and contractual relationships with its neighbouring countries and regions. Furthermore, the EU is currently putting a greater emphasis on energy aspects in its Common Foreign and Security Policy (CFSP). In addition, the entry into force of the Lisbon Treaty in November 2009 has improved the EU’s external representation by creating the External Action Service. This also has the potential to contribute to the establishment of a more effective external energy policy.

Multilateral initiatives

The first attempt to establish a contractual relationship was the Energy Charter Treaty, which became effective in April 1998. It recognises the importance of multilateral rules as an effective means for international energy cooperation. The aim of this Treaty is to strengthen the rule of law on energy issues by creating a level playing field of rules to be observed by all 51 participating governments. However, concrete measures regarding energy security or solidarity between participating countries is missing. Furthermore, Russia and a number of other producer and transit countries have never ratified this Treaty and instead continued to favour a bilateral relationship with individual countries.

Over the last few years, there have been a number of multilateral initiatives by the EU to strengthen energy relations with its neighbouring countries and regions. The most remarkable is the South-East Europe Energy Community Treaty, which was created in 2005.

(South-East Europe) Energy Community Treaty

The Energy Community has been a successful tool to create a stable regulatory and market framework by implementing most of the EU legislation in the energy, competition and environment fields. The Energy Community Treaty initially covered the Western Balkan countries and is currently being expanded to the Black Sea. Moldova, Turkey, Georgia and the Ukraine have become observers. Once they meet the relevant criteria on issues such as transparency, unbundling and guaranteeing access to energy, they could become members of the Treaty.

The accession of these countries would provide an important trigger to their energy sector reforms and establish an enlarged energy market based on common rules.

Although the discussions on security of supply are at an early stage, they have at least already started: The Energy Community Secretariat proposed in a concept paper of March 2009 to provide a special forum to deal with natural gas infrastructure questions related to the security of supply. It remains to be seen whether concrete provisions with regard to security of supply will be introduced.

Eastern Partnership

The overall political objective of this partnership is to accelerate political association and economic cooperation between the EU and these partner countries. It should be noted that the Eastern Partnership has both a bilateral – with each of the participating countries – and a multi-lateral agenda. In the area of energy security, it will establish a multilateral platform, which focuses on energy support and security measures and harmonisation of legislation.  Part of the bilateral agenda is the inclusion of “Energy interdependence” provisions in the respective Association Agreements. Despite the political focus of the Commission and the European Parliament on accelerating closer cooperation, the Eastern Partnership is still at a very early stage.

Baku Initiative

The Baku Initiative is a policy dialogue on energy and transport cooperation between the European Union and 12 countries of the Black Sea and Caspian region. It was established at the energy ministerial conference in Baku in 2004. The dialogue aims at facilitating the transportation of energy resources to the EU as well as supporting the creation of regional energy markets, thereby contributing to the development of mutual energy support and security mechanisms.

Other multilateral dialogues

In addition to these initiatives, the Euro-Mediterranean Partnership, which is formerly known as the Barcelona Process, contains as one of its priority projects the development of a solar energy plan in the Mediterranean region.

Furthermore, there is a regular energy dialogue with the OPEC since 2005. This dialogue has proven useful in particular during times of an energy crisis or price hikes and helps to restore stability in the markets.

Finally, Energy relations have also been enhanced with countries of the Gulf Cooperation Council, Latin America, ASEAN and ASEM.

Bilateral initiatives

In addition to these multilateral initiatives, the EU has signed a number of bilateral initiatives and strategic partnerships mainly in the context of the European Neighbourhood Policy (ENP) but also with Russia. With the exception of the agreement with Azerbaijan, the energy part of the bilateral agreements is rather short and focuses on political commitments. Only the agreement with Azerbaijan includes a number of provisions focusing on security of supply and security of energy transit networks.

The importance of speaking with a common voice for the EU in external energy policy can be seen with the ongoing negotiations for a new agreement with Russia to replace the existing Partnership and Cooperation Agreement. These negotiations have been ongoing since 2008 and have provide an opportunity to build up a genuine energy partnership based on the St. Petersburg G8 Declaration on Energy security and the principles of the Energy Charter Treaty, which include transparency, reciprocity and non-discrimination. Unfortunately, there has been only little progress towards finalising these negotiations.

In parallel, the EU-Russia energy dialogue, initiated in 2000, has focused on investment opportunities for foreign companies in Russia, which should help to upgrade and expand energy production and transportation infrastructure.

The strategic energy cooperation with the US, established in 2006, has become an important element of the bilateral EU-US relations and shown some positive results with regard to energy efficiency and the development of alternative energy resources.

In addition, to these initiatives, the EU has also established energy dialogues with China with a focus on energy efficiency and low-carbon technologies.

Over the past few years, specific Memoranda of Understanding on energy with five of EU’s key energy partners, namely Ukraine, Azerbaijan, Kazakhstan, Turkmenistan and Egypt have been signed. Negotiations with Algeria and Iraq are underway, and the Commission has signed joint declarations on energy with Jordan and Morocco.

These bilateral initiatives have certainly contributed to a deepening of EU’s partnerships with key energy suppliers, transit and consumer countries, thereby highlighting the energy interdependence and a sense of EU coherence in external energy relations. At the same time, bilateral deals between individual EU member states and third-country energy suppliers have continued to exist and are often contrary to the establishment of a coherent EU energy policy.

Promoting diversification of energy supplies

The recent energy crisis also highlighted the fact that diversification of its energy supplies is an important element in improving energy security within the EU. This comprises diversification in terms of supplier, supply source and transit route.

Diversification of energy supplies largely depends on new or upgraded infrastructure through better interconnection and interoperability of Europe’s energy networks within the EU and, in particular in the field of natural gas, on new gas pipeline and LNG projects. The Commission identified six priority energy projects in the Second Strategic Energy Review.

One of the six priority projects with the focus on stronger interconnection between the EU member states is the effective interconnection between the Baltic countries. The subsequent Baltic Energy Market Interconnection Plan has proceeded well with the establishment of a High Level Group in 2009 in order to draw up a concrete action plan. Other priority infrastructure projects include the establishment of a network of LNG stations particularly for the member states, which are completely dependent on a single gas supplier, and the development of a plan for the North Sea offshore grid.

Equally important for the diversification of natural gas supplies is the possibility for the import of non-Russian natural gas resources. In this respect, the development of a Southern gas corridor is of key priority. This Southern corridor will transport natural gas from the Caspian via the Black Sea region to the EU. In fact, this Southern Corridor consists of several projects: the Nabucco gas pipeline, the Georgia-Ukraine-EU gas pipeline (“White Stream”) and the interconnector between Turkey, Greece and Italy (ITGE) being the most important ones.

The Prague Summit of 8 May 2009 provided strong political support and concrete commitments for the development of the Southern Corridor, including the Trans-Caspian link.

Following the Prague Summit Bulgaria, Romania, Hungary and Austria as well as Turkey signed an intergovernmental agreement on 13 July 2009 to facilitate the construction of Nabucco, thereby bringing it one step closer to its execution stage. Nevertheless, concerns have remained as regards available natural gas resources to support the annual capacity of 31 billion cubic metres. It is foreseen that Nabucco will become operational in 2014 with an initial pipeline capacity of up to 8 billion cubic metres.

The joint Russian-Italian Gazprom-ENI project to build South Stream, an undersea pipeline across the Black Sea from Russian territory to Bulgaria and further to Southern and Central Europe, will contribute to energy diversification in terms of transit routes.  The same applies to North Stream, which will transport up to 55 billion cubic metres of natural gas from Russia to Germany via the Baltic Sea. While North Stream is due to become partly operational in 2011 and reach full capacity in 2012, the rather costly South Stream project is only foreseen to be completed until 2015.

In order to further promote infrastructure investment, the European Commission earmarked 2.3 billion euro in the “recovery package” of March 2009 to fund various energy projects in the European Union. The goal of the energy stimulus plan is to strengthen the EU energy infrastructure and diversify its energy sources. The recovery package is set to fund 43 various energy projects.

Ensuring implementation of efficient cooperation and solidarity mechanisms

The three-week gas crisis in January 2009 was a test case for solidarity among EU member states. Due to the level of solidarity among member states and some of the producing neighbouring countries – Norway, Algeria and Libya, increased their gas deliveries – most member states managed the crisis quite successfully. However, it became clear that further measures would be necessary to ensure that individual member states would be better prepared to withstand any future disruptions.

The EU’s approach was to improve the member states’ emergency mechanisms.  The new proposed Regulation on security of Gas Supply[14] foresees provisions aimed at more effectively managing the consequences of potential supply disruptions. This includes a clear definition of a ‘serious supply disruption’ – known as N-1, i.e. the shutdown of a major supply infrastructure or equivalent (e.g. import pipeline or production facility – and the establishment of systems to better monitor the developments of gas supply as well as of emergency procedures. Furthermore, close cooperation among member states during a crisis would become obligatory and the strengthened (EU) Gas Coordination Group consisting of senior officials of 25 member states (Malta and Cyprus are exempt), which was established in 2006, would contribute to better access to supply information and data.

The European Parliament’s Industry, Research and Energy Committee adopted its opinion in March 2010 and further strengthened the text by adding a requirement that the Commission would have to develop a long-term supply strategy. One year after the regulation becomes effective the Commission would have to present a report assessing factors such as Liquified Natural Gas installations, storage capacities and regional co-operation, including recommendations for improving preventive and emergency action plans. This opinion on the first reading is foreseen to be put to a plenary vote in May.

At the same time, the new legislation on Emergency Oil Stocks[15] obliges member states to maintain higher oil stocks by the end of 2012. They will need to keep stocks in the quantity of at least 90 days of average daily net imports or 61 days of average daily inland consumption, whichever is greater. One-third of these oil stocks must be readily available in the form of refined products. Furthermore, the stocks must be owned or controlled by the member states. In addition, the EU will be allowed to audit these reserves.

However, experts criticized that there was no legal obligation on the member states to provide support to each other in an emergency situation[16], [17]. They argued that the current legislation on gas, oil and electricity would not oblige member states to share information.  As an alternative, it was proposed to consider the possibility of a “Schengen-like energy policy, which would freely allow each Member State to enter or not into a new area of European common policy built on formerly rights and powers of Member States”.

Future Outlook

The EU has begun to acknowledge that energy policy should not only be an element of individual member states’ national security but an element of the EU’s external policy. Furthermore, growing European public and political concern regarding global climate change appears to have spurred European action to mitigate its energy dependence.

However, there continues to be different opinions on the appropriate diversification strategy and on how to deal with Russia.

Establishing a diversified network of secure energy suppliers will continue to be one of the major challenges. Although, Europe has large sources of available energy within a relatively small distance, these energy producing countries pose different levels of risk, ranging from political instability to questions of political reliability.

At the same time, long-term bilateral energy agreements, e.g. the Baltic pipeline agreement between Russia and Germany or the construction of the South Stream pipeline, have often been concluded without prior coordination with the Commission or member states. This undermines a common EU approach on external energy issues. Therefore, progress towards a common external energy security strategy will require a greater extent of coordination in the future.

At the same time, meeting the 20 per cent target of renewable energy production will require huge investments. Taking into consideration the global economic crisis, this presents a significant financial challenge for the EU and its member states as well as the private sector to come up with these funds.

Finally, the differences in national nuclear energy policies have prevented the EU from developing a common nuclear energy policy. While member states such as France and the United Kingdom have relied heavily on nuclear power, others have opposed it on the grounds of safety and the fact that it creates difficult waste disposal problems (e.g. Austria). Furthermore, Germany has committed itself to phasing out some of their older nuclear reactors in the near future without replacing them with new ones. It remains to be seen which role nuclear power will play in the energy mix in the future. Another challenge in the nuclear energy sector involves the complexity of funding given the substantial costs of putting a nuclear reactor on line.

Citations –  The overview text and information in this overview is sourced from the following documents prepared by the European Parliament in preparation for the Joint Parliamentary Meeting:

  1. Press Release of the European Parliament of 31st May 2010, REF 20100531IPR75273
  2. European Parliament prepared background notes on working group topics:
    1. ITRE_JPM_WG I
    4. Joint Parliamentary Meeting Draft Programme, Towards a European Energy Community for the 21st Century?

[1] Commission Green Paper of 29 November 2000 Towards a European strategy for the security of energy supply [COM(2000) 769 final – Not published in the Official Journal];

[2] For all data in section 2 see World Energy Outlook 2009, International Energy Agency;

[3] Source: Eurostat and Primes

[4] This means to reduce greenhouse gas emissions by 20 per cent, increase the share of renewables in energy consumption to 20 per cent, and improve energy efficiency by 20 per cent to be achieved by 2020.

[5] For details of these six priority actions see section 6;

[6] European Parliament’s Resolution of 3 February 2009 on the Second Strategic Energy Review;

[7] COM (2009) 361;

[8] This package consists of:  Proposal for a Council Regulation concerning the notification to the Commission of investment projects in energy infrastructure within the European Community and repealing Regulation (EC) No 736/96, COM(2009) 361Proposal for a Regulation concerning measures to safeguard security of gas supply and repealing Directive 2004/67/EC, COM(2009) 363;

[9] Regulation (EC) No 714/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity. Regulation (EC) No 715/2009 of the European Parliament and of the Council of 13 July 2009 on conditions for access to the natural gas transmission networks;

[10] Council Directive 2006/67/EC of 24 July 2006;

[11] Council Directive 2004/67/EC of 24 July 2004;

[12] Directive 2005/89/EC of 16 January 2006;

[13] Policy Proposals by Jacques Delors and Notre Europe: Towards a European Energy Community: A policy proposal (Study by Sami Andoura, Leigh Hancher and Marc Van der Woude);

[14] Proposal for a Regulation of the European Parliament and of the Council concerning measures to safeguard security of gas supply and repealing Directive 2004/67/EC, of 16 July 2009, COM/2009/363;

[15] Council Directive 2009/119/EC of 14 September 2009 imposing an obligation on Member States to maintain minimum stocks of crude oil and/or petroleum products;

[16] Policy Proposals by Jacques Delors and Notre Europe: Towards a European Energy Community: A policy proposal (Study by Sami Andoura, Leigh Hancher and Marc Van der Woude);

[17] Ahner, Nicole, Glachant, Jean-Michel and De Hauteclocque, Adrien, Legal Feasibility of Schengen-Like Agreements in European Energy Policy: The Cases of Nuclear Cooperation and Gas Security of Supply (March 17, 2010).

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