EU plan to loosen Russia’s grip on energy

By Joshua Chaffin in Brussels

Published: November 13 2008 15:51 | Last updated: November 13 2008 22:49

The European Commission has proposed a new company to bring gas from central Asia to Europe via the Caspian Sea in a move likely to raise tensions at Friday’s meeting of EU and Russian leaders.

The Caspian route, which would require the construction of a new pipeline, would enable the EU to bypass ­Russia in order to access the resources of Kazakhstan and Turkmenistan, which last month announced it had ­discovered one of the world’s biggest gas fields.

The plan was launched as a centrepiece of an energy security plan that seeks to cut EU member states’ reliance on Russia.

The strategic energy review comes at a delicate time as the EU will on Friday try to restart talks with Russia over economic and energy agreements that were cancelled in the wake of its invasion of Georgia in August. It also comes after steep rises in energy prices, and internal squabbling over an EU climate package that would force member states to reduce greenhouse gas emissions by 20 per cent by 2020.

The EU’s strategic energy review also sets out plans for making buildings more energy efficient, bolstering emergency oil stocks, and connecting electricity from North Sea wind farms and Mediterranean solar panels to the European grid.

José Manuel Barroso, Commission president, said Europe risked “sleepwalking” into an energy crisis. “We have to address this urgently by increasing our energy efficiency and reducing our imports,” he said.

The proposals outline a network of pipelines that would carry gas from the Caspian region, including the Nabucco project, for a pipeline from eastern Turkey to Austria.

They also call for a new consortium, known as the Caspian Development Corporation, which would make a commitment to buy gas in the region, to encourage the development of new production, and invest in infrastructure, which is likely to include the trans-Caspian pipeline.

The CDC would bring in private sector companies, but would be backed by the European Investment Bank, the EU’s funding arm.

Its aim will be ultimately to bring 60bn-120bn cubic metres of gas per year to the EU – equivalent to 12-25 per cent of European consumption today.

The greatest obstacle to developing gas supply routes from the Caspian such as Nabucco has been the excessive reliance they place on gas from Azerbaijan, which may not be able to deliver the ambitious production growth plans it has set out, and is also being courted by Russia.

Iran and Iraq both have very large resources, but are unlikely to become significant gas exporters for the foreseeable future.

A pipeline across the ­Caspian would change the picture by opening up the resources of Turkmenistan and Kazakhstan.

Gurbanguly Berdymukhammedov, Turkmenistan’s president, has been responsive to overtures from western companies and officials, and the country has been using its increased negotiating power to raise the price at which it sells its gas to Gazprom, Russia’s state­controlled gas company. The price at which Gazprom purchases gas from Turkmenistan is still well below the price at which it sells gas to the EU, however.

Mr Barroso denied the Commission’s proposals were aimed at Russia, which supplies 42 per cent of Europe’s imported gas. “When it comes to energy security, our policy is not directed against any single country. It’s just a matter of being cautious,” he said.

Russia will be invited to use the proposed Caspian route to export its gas to the EU, said the Commission. Russia has opposed the idea of a trans-Caspian pipeline, and wants to increase its imports of gas from Turkmenistan and Kazakhstan.

Infrastructure improvements:

●connect Baltic states to gas and electricity networks of the EU

●develop southern corridor to supply gas from Caspian and Middle East to EU

●improve LNG terminals and storage capacity

●develop blueprint for North Sea offshore grid, to bring offshore wind energy to EU

●closer links between EU and Mediterranean for gas and solar networks

●more north-south links for central and eastern European gas transport

Copyright The Financial Times Limited 2008