EU intensifies efforts to solve energy strife

By Tony Barber in Brussels

Published: January 5 2009 19:19 | Last updated: January 5 2009 19:19

The European Union on Monday redoubled its efforts to resolve an energy dispute between Russia and Ukraine that risks exposing fresh differences among EU member states on policy towards Moscow and its neighbours.

An EU delegation led by Martin Riman, the Czech Republic’s industry minister, flew to Kiev for talks with Ukrainian officials, while another EU team of experts was due on Tuesday to confer with executives of Gazprom, the Russian gas monopoly.

European Commission officials say that, in contrast to a similar dispute that flared up at the start of 2006, the Russian-Ukrainian quarrel appears unlikely to pose a significant threat to energy supplies for European industries and consumers. “Levels of stocks are quite high,” one official said. “But since the EU is the main market for Russian gas, we’re putting on pressure to encourage both countries to go to the negotiating table.”

The row over Russia’s cut-off of gas supplies to Ukraine represents an early test of the ability of the Czech Republic, which assumed the EU’s rotating presidency from France on January 1, to demonstrate leadership on a sensitive foreign policy and energy security issue.

The Czech government’s initial reaction to the quarrel last weekend was to term it a “bilateral matter” and “business dispute” between Russia and Ukraine, and to state that the EU had no reason to get involved as a participant or arbiter.

This cautious approach was quickly changed to one of more active engagement as it became clear that EU member states such as Bulgaria, Greece and Romania were experiencing disruptions to gas supplies.

The EU’s largest importers of Russian gas are Germany and Italy, which account for 30 per cent and 17 per cent respectively of total EU gas imports from Russia. However, Germany and Italy are large economies with diversified sources of gas supply, and for them the latest Russian-Ukrainian dispute is no serious cause for alarm.

By contrast, countries such as Bulgaria, Estonia, Hungary, Latvia, Lithuania and Slovakia rely on Russia for nearly all their gas. As former Soviet satellites, their instinct tells them that they cannot afford complacency, even if they do not all receive Russian gas through Ukrainian pipelines. In this sense, the gas dispute serves to reveal how little has changed structurally since the end of the cold war in the size of Europe’s national gas markets and in their levels of dependence on Russia.

“When it comes to gas, the Iron Curtain still seems to cut Europe in two. In the western EU, markets are large but diversified. In the east, the markets are smaller but much more dependent on Russia,” says Pierre Noël, an energy specialist at the European Council on Foreign Relations.

This split is a key reason the Commission is keen to push ahead with the integration of energy markets. EU policymakers say one of Europe’s biggest problems is the fragmentation of its internal gas market, which lets Russia advance its interests by picking off individual states with tempting energy deals. Russia’s war with Georgia in August also concentrated EU minds on the need for more energy independence, with leaders such as Gordon Brown, the UK prime minister, warning that “no nation can be allowed to exert an energy stranglehold over Europe”.

Russian officials contend, however, that even during the cold war, the Kremlin never cut off energy supplies to Europe.