Energy Security Summit 2014
The Energy Security Summit - U.S. shale revolution and the crisis in Ukraine: A turning point for Europe's energy policy?
By Oliver Rolofs
The 2nd Energy Security Summit (ESS), hosted by Frankfurter Allgemeine Forum and the Munich Security Conference, was held on 27 and 28 May 2014 in Berlin. At the event under the patronage of German Federal Ministers for Foreign Affairs, Frank-Walter Steinmeier, and Economics, Sigmar Gabriel, national and international decision-makers discussed secure energy supply for Europe. The summit's agenda focused on the crisis in Ukraine and triggered a controversial debate.
Apart from the shale revolution that has emanated in the United States, the crisis in Ukraine has pushed energy policy, energy security and energy supply to the top of the agenda of national and international politics. Co-chaired by Ambassador Wolfgang Ischinger, the Chairman of the Munich Security Conference, and Günther Nonnenmacher, editor of the Frankfurter Allgemeinen Zeitung, the 2nd Energy Security Summit addressed questions around current energy and security policy developments and their geostrategic implications with regard to guaranteeing a sustainable European energy supply in the future. Participants at the ESS 2014 included E.U. Commissioner for Energy Günther Oettinger and Minister of Foreign Affairs Frank-Walter Steinmeier as well as top politicians and business representatives from Germany, Russia, Turkey, Ukraine and the United States, from nations depending on Russian gas like Poland, Lithuania or Romania, and from Near Eastern and North African countries with abundant energy supplies.
In Berlin, the current debate on Ukraine showed how tightly connected energy and security policy have become and to what extent energy-dependent Europe has become vulnerable. With the shift of power in Kiev and the overthrow of the former pro-Russian president Viktor Yanukovych, the former Soviet Republic has once again taken center stage for energy and geopolitical conflicts.
Russia had repeatedly threatened to stop the flow of gas to Ukraine if the Kiev government failed to settle its accounts by the beginning of June and accept the new, drastically increased post-shift of power gas price of U.S. $ 485. During Yanukovych's presidency, the Kremlin-controlled Russian Gazprom monopoly offered its gas for as little as U.S. $ 268 per cubic meter to Ukraine, whereas the most recent gas arrangement between China and Russia is estimated to range around U.S. $ 350. Should Russia stop exporting, it would probably affect the energy supply of the European Union. About one third of the E.U. nations' gas and oil supplies are coming from Russia, and about half of them are flowing through Ukrainian pipelines. So far, several attempts to settle the gas dispute between the E.U., Russia and Ukraine have failed.
E.U. Commissioner for Energy Günther Oettinger nevertheless displayed optimism at the Energy Security Summit feeling that the gas conflict between Ukraine and Russia will be solved. Yet, he also regarded Europe to be facing a potential crisis of secure energy supplies. In his speech, Oettinger urged Europe to take own action so as to reduce Europe's and Ukraine's dependence on Russian gas. This could be achieved by improving the infrastructure of the E.U. member states, by using energy more efficiently and enhancing domestic resources, or also by speeding up the construction of terminals for liquid gas from the Gulf states, for instance. The bottom line was that Europe needed to address these questions in unison to achieve a joint position.
Steinmeier: the crisis in Ukraine has made energy security take political center stage
The subsequent debate on energy-strategic power shifts in Central and Eastern Europe highlighted the particular implications Europe has to face with the crisis in Ukraine. "For some weeks now, energy security has stopped being an item on the medium- or long-term agenda but is an issue of immediate relevance," Minister of Foreign Affairs Frank-Walter Steinmeier stated in his keynote speech at the Energy Security Summit. "With Ukraine's crisis, the topic has taken political center stage." The E.U. was directly affected, Steinmeier said, since half of the Russian gas bound for Europe was transiting Ukraine. It depended on energy policy, too, whether it was possible to de-escalate the conflict. With Ukraine's and Russia's past gas crises in 2006 and 2009, talks had also been challenging but these conflicts permitted to be dealt with individually. The current crisis, however, implied consequences for Europe and beyond.
According to the chairman of the Russian State Duma's Energy Committee, Ivan Grachev, the ongoing gas dispute was even running the risk of becoming a major political issue. "Russia and Europe are getting to a point where the smallest divergence from standard rules could lead to a catastrophe," he warned in Berlin. Yet, by finding compromises in the debate, it was just as well possible "to make great things happen." Grachev objected to statements accusing Russia of using its energy exports to Europe as a political weapon. This has never been the case; Russia has always fulfilled its obligations, the Russian Duma member stated.
Foreign Affairs Minister Steinmeier later added that "simply for economic reasons" Russia was unlikely to have an interest in putting the country's credibility as an energy supplier at risk. "Even in the Cold War era, for many years we successfully managed to separate the energy supply sector from the major issues of conflicting political systems," he explained. With a view to the current crisis, Steinmeier added that Europe will remain able to take action provided the members speak with one voice. It was "consistent and right" to create a European energy union as the Polish Prime Minister Donald Tusk had demanded following the example of the European banking union. Polish Environment Minister Maciej Grabowski as well as Chairman of the German Bundestag Foreign Affairs Committee and former Minister for the Environment Nobert Röttgen supported this claim. "We don't have an actual gas market; we should work on that," Grabowski said. Security needed to become a much greater focus than it is now. According to Röttgen, Poland's initiative in support of an E.U. internal market was the "right thing" to do. A European gas market has started to form, "but the existence of a market alone will not grant security," Röttgen added. The crisis in Ukraine required Europe to become a political factor in terms of energy and foreign affairs. In addition, Europe needed to invest in Ukraine's energy security and supply channels. Russia's government was trying to "establish Russia's power by destabilizing Ukraine and bringing chaos to the country."
Jatsenyuk: "We want to play by the rules, not with them"
The Prime Minister of Ukraine, Arseniy Yatsenyuk, who spontaneously spoke at the Energy Security Summit“, put his opinion on Russia even more bluntly. He blamed Moscow for being exclusively responsible for the escalation in Eastern Ukraine. "If Russia wasn't part of the problem, we could solve it in one or two weeks,", Yatsenyuk emphasized. Russia's objective was to eliminate the Ukrainian state. To this end, Moscow was bringing "terrorists" to Ukraine and supporting them. Given the critical situation, the Ukrainian head of government announced his readiness to do anything to restore peace and stability; including to protect the Russian-speaking people in Eastern Ukraine, to promote the country's decentralization and to initiate a constitutional reform. Yatsenyuk's position on how to deal with Moscow in the future was this: "We are trying to maintain relations, not good ones but relations, with Russia. Addressing the relationship with Moscow, Georgia's Minister of Defense, Irakli Alasania, earlier mentioned: There is no alternative to toning down our words with respect to Russia," he said. It was the only way to establish sensible business relations.
Regarding the gas dispute with Russia, the Ukrainian minister president left no doubt that Kiev would refuse to pay a "political price" for gas imports from Russia. Ukraine had offered Moscow a "fair trade", but Moscow regarded gas to be a "political weapon" forcing Ukraine to pay twice its market price, Yatsenyuk emphasized. He announced taking Russia to the international court of arbitration in Stockholm if no compromise to solve the gas issue could be found. As a last resort, Ukraine was willing to join an E.U. common energy policy, so no state could use energy as a weapon. "We want to play by the rules, not with them," Yatsenyuk stressed.
It's all happening in Asia and the Americas
The crisis in Ukraine has given increased importance to new energy markets and alternative energy resources. A decisive aspect was the fact that the shale boom now happening in Australia, China or Argentina, besides the U.S., has produced new energy suppliers within Europe's reach prone to substantially enhance Europe's energy security.
Potential new oil and gas suppliers like Azerbaijan, Algeria or Iraqi Kurdistan have increasingly gained the attention of the European market. Algerian Minister of Energy and Mines Youcef Yousfi for instance explained his country was prepared to meet Europe's energy requirements. Algeria has one of the largest shale gas reserves worldwide. "We have always been a dependable exporter of energy for Europe," Yousfi claimed.
In a few years, the United States could also become a potential shale gas supplier Europe might look at. Provided the U.S. administration has granted seven export licenses by 2020, the country could export an annual 95 billion cubic meters of gas, Carlos Pascual, the State Department’s Special Envoy and Coordinator for International Energy Affairs, pointed out. It is not only as a future export commodity that shale gas is an increasingly important economic factor for Americans, having already boosted reindustrialization in the U.S. In 2020, the shale gas industry will be contributing U.S. $ 700 billion to the American gross domestic product and create 1.7 million jobs; these were the figures Alexander Weiss of McKinsey management consulting explained to the Energy Security Summit audience. This development will have impacts on Germany as a business location, warned Markus Kerber, CEO of the Federation of German Industries (BDI). Germany needed to wake up and reduce the cost of energy, he demanded. If not, money would leave the country. This statement was countered by Horst-Tore Land of TouGas Oilfield Solutions, who argued: "What happens in Germany has no global relevance." In his view of the future energy markets in the Far East, Asia had taken center stage long ago. Land added, however, that our climate's future depended on Asia as well. So it was necessary to help China, India and other countries with this issue.
In summary, the shale revolution and the growing geopolitical implications of energy supply on the global scale have produced new trends which will impact the global energy markets and business locations in a world of rapidly increasing energy demands.
These short- or long-term developments affect our European security interests in particular and will influence the industry's future energy supply as well as the changing international value chains, is the Energy Security Summit's unanimous bottom line. It is becoming more and more apparent that energy policy is one of the "core tasks of foreign and security policy," as Foreign Affairs Minister Steinmeier put it already in his first term of office. It all comes down to the fact that it is up to Europe's policy to draw the right conclusions from the future global energy scenario and the new choices of global energy sources in order to be on the safe side in terms of economics and security policy. So a top item on the agenda of the E.U. member states and the new European Commission should be a sustainable energy policy, ideally paired with a speedy return to a less tense dialog with Russia, which will probably remain an important supplier of energy for Europe in the long run.