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    Competition the Key for European Energy Security


US Department of State Special Envoy and Coordinator for International Energy Affairs Carlos Pascual says that competition is key for European energy security.

by: Atlantic Council (Stephen Keil)

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Competition the Key for European Energy Security

Fresh from the US-EU Energy Council meeting in Brussels the day prior, US Department of State Special Envoy and Coordinator for International Energy Affairs Carlos Pascual shared his perspectives and prospective energy policies to a distinguished audience of industry leaders, policy makers, and media at the Atlantic Council.  The Ukraine Crisis has brought European energy security back into the spotlight, and he stressed a theme through his speech for Europe to capitalize: competition.

Pascual’s address focused on natural gas, noting that natural gas is a critical commodity in Europe’s energy equation. According to Pascual, competition is paramount, to give consumers choice and strength when evaluating a source of supply. US LNG exports to Europe has been popular in the Washington DC policy community, but Pascual noted that greater American gas production has already aided European energy security in the long term, by increasing the liquidity in gas markets. The United States has helped encourage a global trading system of competition that will enhance European energy security as a whole.

Pascual laid out a series of policy options for Europe. Through existing reverse-flow capabilities with Poland and Hungary, Ukraine can import around 3 bcm of natural gas.  If Slovakia can transit gas to Ukraine through a bypass for another 7 bcm, Ukraine can take in 10 bcm, or 20 percent of their energy demand, from non-Russian sources.  The increased competition changes the dynamics in the Ukraine-Russia relationship and further integrates Ukraine into European energy networks. However, Ukraine needs to be able to purchase the gas, and Pascual stressed the importance of the role of the IMF until structural changes are made.  Pascual stressed that Europe wants Russian gas, just competitively.  Russia can use the Ukraine crisis to look at their own dependence on European money with around 170 bcm exported to Europe compared to 15 bcm to Asia. Pascual insists that the reality of interdependence between Europe and Russia can be used to build up and reinforce competition. 

Understanding the long-term context of these options, Pascual discussed the prospects of Ukrainian domestic shale production that could increase their 20 bcm per year production by 30 percent.  While domestically sensitive, eliminating general gas subsidies to specific subsidies towards the low-income will allow Ukraine to generate a cash flow and improve energy efficiency. 

Ambassador Pascual concluded that efficiency measures could save 5 bcm, reverse-flow could bring in 10 bcm, and increased domestic production of another 5 bcm, bringing the total of increased natural gas to Ukraine from non-Russian sources to 20 bcm per year.  Pascual concluded that by 2020, Ukraine could be in a position to decide whether or not to import gas from Russia due to short-term policy steps and the overarching context of encouraging competition.

Pascual’s address laid out a series of policy options and understands that not one single policy will improve European energy security and reduce Ukrainian dependency. Ukraine has systemic problems to address domestically in their energy industry that only Ukraine can implement.  Pascual’s policy options still have their roadblocks. Commerciality often rules over the political, as evidenced by the selection of the Trans Adriatic pipeline, especially during the slow recovery of the European economy.  A stagnant European demand for natural gas could make the overarching policy goal of increasing competition difficult.  Nonetheless, Pascual’s presentation displayed the ambition of American and European energy leaders alike to improve European energy security in light of Ukraine and develop policies that will best serve the transatlantic community in whole.

Stephen Keil works for the Atlantic Council's Dinu Patriciu Eurasia Center.  His research interests include European energy security, the role of energy in Eurasia, and Turkish foreign policy and politics.