Is the EU finally serious about its energy future?

On November 13, the European Commission proposed the EU Energy Security and Solidarity Action Plan as part of its Second Strategic Energy Review. Three new proposals that stand out: 1) the construction of a European supergrid, connecting power from the wind farms of the North Sea all the way to the Baltics, 2) the construction of two new gas pipelines, connecting Caspian and African gas to the bloc (Nabucco included), and 3) a "Community Gas Ring", which would essentially allow for the pooling of European gas supplies in the event of supply disruptions (here's looking at you Russia). These measures would directly address import diversification (particularly in natural gas, and specifically away from Russia), security of supply issues, and fragmented national power grids.

Despite recycling a lot of old ideas, the new proposals make this a highly ambitious plan, and in my opinion, one that has absolutely no chance of being carried out in its entirety.

The first rule of European energy is that the national always trumps the regional interest. National regulatory and interest-group challenges to EU-wide liberalization in the energy sector are formidable, and to date have blocked any substantive effort towards a single European energy market. With energy prices falling, and the commercial ties between some of the EU's most powerful members (Germany, France) and Gazprom still deep, there is little chance that this strategic plan will be successful. The European Commission has valiantly fought to create a liberal, single European energy market for 30 years, but the European Council always waters down the compromise enough to preserve the status quo in certain national markets. (Germany, France) Thus, fragmentation persists.

One also has to question the commercial viability of the alternative pipelines proposed by the plan. The Nabucco project has been hopelessly mismanaged. Its commercial viability has been suspect from day one, as the Caspian suppliers it seeks to tap are strongly oriented towards the Russian market, and only Kazakhstan has seriously entertained diversification away from Russia. It is important to note that Gazprom is highly dependent on imported Caspian gas for re-export to the EU, and therefore would not go down without a fight to keep the gas flowing through Russia's borders. I find it difficult to foresee the construction of multiple southern pipelines in the near term.

Finally, the chance of a "communal gas ring" is more reasonable, but no easier politically. Under previous EU energy liberalization directives, member states were required to compel private storage facility operators to open these facilities to universal access. In practice, this occurred less than desired because there is little commercial incentive for the private operators (who by the way, are usually state-owned monopolies like GdF). The chance of one country stretching its own supplies in a time of crisis to assist another member state's shortfall seems unlikely.

Ok, time for the rosier outlook. I was extremely pleased to find a reference to the importance of fostering interdependence between the bloc and its external suppliers (again, that means you Russia). The EU desperately needs to find solutions to its rising import dependence in natural gas. Unfortunately, its own supplies are declining at a rapid pace. This means that the diversification of import sources is the key pillar of the bloc's long term energy security. But in the short to medium term, the EU needs Russia, and Russia needs the EU. A commitment by both parties to fostering a mutually beneficial and secure energy relationship would be a truly powerful development.