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The Warsaw Voice » Business » May 7, 2015
Central Europe Energy Partners
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Let’s Not Miss the Chance to Transform Europe’s Energy Sector
May 7, 2015   
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by Bogdan Janicki Central Europe Energy Partners

The most recent data shows that, in order to meet its energy needs, the European Union has to import 53 percent of all the energy it uses, at a cost of around 400 billion euros annually. This makes the EU the world’s largest energy importer. Five EU member states are 100 percent dependent on a single gas supplier, and 90 percent of all petroleum products consumed in the EU are imported. This has severe implications for European industry and its competitiveness.

Wholesale electricity prices in Europe are about 30 percent higher than in the United States, and wholesale gas prices are more than twice as high. The difference in price in relation to other economies affects the competitiveness of European industry, especially the most energy-intensive sectors. Of course, higher energy prices in the EU are in part due to the bloc’s smaller gas and oil deposits. The issue of Europe’s coal deposits is also the subject of difficult debate. But this is not the only reason why energy prices in the EU are higher than in the United States. The existing state of affairs is also the result of historical divisions and negligence in the area of European integration when it comes to energy.

Today’s European Union originated from the European Coal and Steel Community, which created a common coal and steel market in several Western European countries. So it could seem that integration in the field of energy should be the most advanced in the EU. But this is not the case. The European Union was built on four fundamental freedoms: freedom of movement of capital, people, services and goods. Paradoxically, this last freedom, at least in terms of the flow of energy raw materials—which are of key importance to any economy—is encountering difficulties related to infrastructure. These difficulties are slowly being removed, but such efforts are still not enough.

Only about 6 percent of all electricity in the European Union is sold via cross-border transactions. Removing customs duties is not enough for electricity or gas to be sold from one EU country to another. What is needed is an adequate power transmission infrastructure and oil and gas pipelines and terminals. What is also needed for the European energy market to be secure is transparency in contracts between individual countries, including gas contracts, and an understanding of the importance of solidarity throughout the EU in this strategic area. These efforts should result in a flexible choice of energy providers, a stronger negotiating position for Europe, increased price competition and a more efficient economy.

A unique opportunity for fundamental change

What John F. Kennedy said half a century ago is often cited in business circles. Kennedy remarked that, when written in Chinese, the word “crisis” is composed of two characters: one represents danger and the other represents opportunity. Often this is because that crisis necessitates changes or provides an opportunity to carry them out. Today, Europe’s geopolitical situation is extremely complex. An armed conflict is in progress across the EU’s borders in Ukraine and further afield in the Middle East: in Syria and Iraq. Far from stable are countries in North Africa, such as Libya and Egypt as well as Tunisia, which are equally close to Europe geographically and which were until recently seen as an oasis of peace and calm. The EU’s relations with Russia, which provides the bulk of Europe’s gas supplies, are strained.

There is every indication that this complex international situation has prompted the EU to tackle the idea of establishing an Energy Union as proposed by Donald Tusk in 2014. In February, the European Commission adopted a strategy for building an Energy Union and declared that its goal is to ensure that consumers—households and businesses—are provided with secure, stable, competitive and affordable energy supplies. Importantly, in a document adopted at the time, the Commission concluded that achieving this goal would require a fundamental transformation of the European energy sector.

In April, the Council of the European Union addressed the Energy Union package. It agreed on plans to accelerate the construction of infrastructure connections, full implementation and rigorous enforcement of legal concessions related to the construction of infrastructure in the energy sector and on efforts to ensure that contracts with external suppliers concluded by the EU comply with the bloc’s objectives.

Dangerous particularism

Despite pressure from Poland, the EU is not planning to establish an institution responsible for joint purchases of gas for all EU countries.

Instead, an intention has been expressed to “assess options for voluntary demand aggregation mechanisms in full compliance with WTO and EU competition rules.” But even this hardly groundbreaking formulation has raised vocal protests from some EU countries prompted by short-sighted and ill-conceived national interests. After all joint gas purchases would mean being able to negotiate from the position of a great European market and being able to secure price concessions benefiting the entire EU. In this situation, one should consider establishing an organization in Poland that would buy gas for EU member countries on a business basis.

The principle of solidarity postulated by Poland has been strongly weakened. The EU plans to scale down the use of fossil fuel resources, including coal and gas as well as oil, by 2030. Hopefully, this policy will be carried out in a pragmatic way, taking into account the current situation of individual member states, including Poland, in terms of coal.

This is a compromise that would create an incomplete Energy Union, and for the time being only at the level of declarations rather than deeds. However, it is necessary to do everything to make sure that at least these stipulations are applied in practice. Importantly, the way Brussels approaches European energy has changed. This approach has become more comprehensive, also covering the countries of Central Europe. This certainly means a better chance of building alternative channels for importing raw materials to Europe, such as the planned TANAP and TAP pipelines that will connect Turkey, Italy, Greece and Albania with the gas fields of Azerbaijan and Turkmenistan.

From the perspective of Poland and its region, support for the North-South Corridor project urged by Central European Energy Partners and the Atlantic Council may prove to be of key importance. The Corridor is designed to connect the European infrastructure network from ¦winouj¶cie and Klaipeda on the Baltic Sea all the way to the coast of Croatia, where an LNG terminal is planned on the island of Krk. This is about creating a network of gas, electricity and oil connections in this part of the continent, which is the most strongly dependent on monopolistic suppliers and at the same time far less integrated in the area of energy than the western part of the continent. In the past, gas and oil pipelines in Eastern Europe ran from east to west, connecting the Soviet Union with its satellite states.

International relations experts say that the European Union is an economic giant but a political dwarf. Let’s hope that the particularistic interests of individual countries torpedoing initiatives aimed at deeper integration in the area of energy will not diminish the economic stature of the European Union. Joint efforts by EU countries are highly desirable as this is a priority challenge for all of us.

Central Europe Energy Partners (CEEP) represents the interests of energy and energy-intensive companies from Central Europe in order to strengthen the region’s energy security as part of a common EU energy and energy security policy. CEEP is the first major body to represent the region at the EU level. It is an international non-profit association with its headquarters in Brussels and a branch in Berlin.

By combining its capabilities and experience and enhancing cooperation between energy and energy-intensive companies and research institutions, CEEP identifies and addresses common problems and proposes solutions, while facilitating successful implementation of the EU’s energy and energy security policy. Furthermore, CEEP takes an active part in the process of creating EU laws for the energy sector. Roughly 70 percent of these laws are determined at the European level.

CEEP currently has 25 members representing the energy sector, energy-intensive companies (dealing with coal, gas, oil, electricity generation and transmission, renewables, steel, chemicals, etc.), universities and scientific institutions. The organization covers Croatia, the Czech Republic, Lithuania, Poland, Slovakia, Romania, and Ukraine. Its member companies have over 50 billion euros in annual revenue and over 300,000 employees. CEEP’s nonprofit status underlines the organization’s independence and transparency as one of the most important stakeholders within the EU’s energy and energy security policy areas.
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