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Breaking free from Russia

Hydrocarbon Engineering,

According to Dr Frank Umbach of the World Review, Poland’s Donald Tusk has proposed creating an energy union with Europe in order to reduce dependence on Russia and ensure stable gas supplies and fair, market based gas prices.

Mr Tusk, who was the Polish Prime Minister at the time he made the proposal in March 2014, sees the energy union as a more effective way to achieve solidarity among the EU’s 28 members towards Moscow.

Russia’s individual gas prices for different EU customers reflects its powerful monopoly. Russia charges higher prices to countries that are more dependent and less diversified away from its energy giant Gazprom. The gas price also depends to what extent the European gas consumer is politically allied with Russian foreign and security policies and is part of Moscow’s energy foreign policy strategy. Umbach highlights that this uses gas dependency, gas infrastructure and gas prices as a political weapon to advance Russia’s geopolitical interests.

The proposed energy union would be focused around a joint purchasing body to secure gas supplies on behalf of all 28 EU member states. Associated key elements include infrastructure development and modernization to support diversification, law enforcement, improvement of EU security of supply mechanisms, an increase in the bargaining power of the EU and its members with external suppliers, increasing energy production in Europe and enhancing energy security in the EU’s neighbourhood.

According to Umbach,, Central and East European countries (CEE) are particularly exposed to gas supply risks with 80% of their Russian gas imports crossing Ukraine, and their overall high gas import dependency (between 60 – 100%) on Russia’s Gazprom. These countries pay, on average, 10 – 30% more for Russian gas than German and other western European customers.

Mr Tusk’s proposal seeks to override the Russian monopoly and restore free marker competition. Politically, the principle idea of an energy union is based on political solidarity and common economic interests. The more comprehensive Tusk proposal has been founded on six major pillars and principles to strengthen the common power of the EU:

  • Strengthening the bargaining power of member states and the EU in relation to external suppliers.
  • Strengthening solidarity mechanisms.
  • Fastening of common energy infrastructure.
  • Development of indigenous energy sources in the EU.
  • Diversification of energy supply by gas and oil.
  • Reinforcing the European energy community.

However, the idea of a single collective organisation buying Russian gas has been criticized by some European gas companies because it would not meet EU free market rules and competition law.

Umbach explains that the single purchasing body is not ideal in a liberalized gas market with economic freedom, but the EU is faced with a Russian gas pricing system which is not based on market logic or liberalized economic order. The Russian approach is a political weapon which the EU finds difficult to meet without common policy, Umbach holds.

Many other concrete ideas from the proposal have been advanced in the EU’s new comprehensive energy security strategy. The commission will analyse in more detail the ‘collective purchasing mechanism’ for buying gas from Russia, but selling it at auction. Most of the criticism has highlighted the lack of political solidarity in the European debate and that many Eu countries still put their own, often short sighted, national security interests above, and at the expense of, the entire 28 member block.

Adapted from a report by Emma McAleavey.

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