Energy union will become reality sooner or later
- Mr Huhtanen, can South Stream come out from the sticking point and is it possible for the Commission and the participating Member States in the project to find a solution in the coming months?
- I believe that an agreement on the South Stream project is definitely possible. It would need to see two important prerequisites. The first being that the project meets all EU internal market rules, especially the application of the EU Third Energy Package, competition and procurement procedures, as well as environmental legislation. The second prerequisite is that a reassessment needs to be made on a high political and expert level on how strategic this project is for Europe and how does it fit into our Energy Security plans for the future. My personal opinion is that South Stream, if built, should serve only as a project supplying gas to Europe, nothing more and nothing less. All other possible deals should be cancelled. Concerning the timeline, I guess that a decision and reassessment in the coming months is possible, however it will depend also on the actions of the future Commission and European Parliament and the responsiveness of member states in Central and Eastern Europe to potential concerns raised in Brussels.
- Against the backdrop of the current developments in Ukraine should South Stream pipeline construction be brought to a halt? Bulgaria was already criticised by the EU and the USA and suspended work on the pipeline.
- Europe needs Russian gas, the question is do we want it, and what could be the political price for Europe's neighbourhood? Seeing only the security argument, only the economic perspectives or the political implications of it will bring nothing but short-sighted decisions. As I commented, I believe the project needs a reassessment, taking into account all modalities.
Indeed the crisis in Ukraine has triggered momentum in the policy on energy security both in Europe and Russia. My view is that Europe should use this momentum to accelerate its emancipation from one main supplier of gas. This cannot, of course, happen overnight. Meanwhile, we need to act strategically - ensuring that projects offer possibilities for diversification in the long term and security of supplies in the short term. Diversification would mean diversification of suppliers, sources and routes. In its present form, South Stream offers only the diversification of routes.
The biggest advantage, and at the same time the biggest disadvantage of this project, is that it trespasses no third country. There is no doubt that having a direct link with the supplying country, Russia, reduces the danger of interruption of deliveries and increases energy security. However what would that mean for security in Europe's immediate neighbourhood? I am of course talking about Ukraine and the danger of circumventing it. I do not believe it would be correct to circumvent Ukraine in a moment when the country is being forced into instability. We should try to avoid the fact that gas is being used as a tool of foreign policy. Countries in Central and Eastern Europe have a perfect understanding of the situation of Ukrainians, better than anyone else in the EU.
As to the suspension of the project in Bulgaria, I don't think that the government suspended the project only due to friendly recommendations. Bulgaria was in fact facing an infringement procedure for not complying with EU legislation on this project. There are also other EU countries with vested interests in this project, which at least to me, shows that it was the Bulgarian government that went too far.
- How can cases of supply disruption be otherwise avoided through Ukraine transit routes for Bulgaria, Romania, Hungary and Greece, which are most exposed to risks?
- It is true that, at least in the short term, Europe will be dependent on Russian gas, some countries more than others, as is the case with the South-East European region. The solution to this comprises a variety of measures, some of which have already been party implemented, others are being developed. A particular measure is the enhancement of already existing pipelines so that they can deliver reverse flows, in case of problem with deliveries. This means that we need to increase the interaction between countries exposed to the risk of disruption and other countries in the EU. In the long term, the answer again boils down to diversification for reducing risks. In the same way which Russia is diversifying its base of customers, we need to diversify our base of suppliers. The positive aspect is that we have already begun work on interconnectors between countries, on building LNG terminals, and on providing greater reserve storage facilities which we could share in cases of emergency. Thus, I believe we are already a little bit better prepared than in 2009 when Europe was faced with an interruption of gas supplies. In addition, several member states have established trade relations with other suppliers, in other regions which should be explored further. Spain, for example, receives all its gas deliveries from non-Russian sources. Undoubtedly, it is true that for some countries, dependence on Russian gas reaches 90% and even 100%, however it is also important to see how big is the share of gas in the entire energy mix of a country and what alternatives are available. Renewables is one of these.
- In this respect how feasible is the idea of the Polish Prime Minister for an Energy Union?
- The idea of a European Energy union is something that will become a reality sooner or later. And the sooner we establish a working Energy union, the more cost-effective this will be. The proposal calls for the creation of mechanisms for commonly negotiating energy supplies by EU states, which will increase our bargaining power. It also speaks of effective mechanisms for 'gas solidarity' in the event of a crisis. Very realistically, the proposal puts infrastructural connection and interconnectivity at the centre of the debate. It provides a good balance between national competences and establishment of EU framework.
- In your view, can such a union help to keep the price of energy competitive for industry and affordable for citizens or is it to the contrary?
- There is no doubt that more competition and choice for consumers drives prices down on the internal market. Speaking about negotiating common purchasing prices for gas, I believe that a common mechanism will bring more competitive prices. Currently prices for some Central and Eastern European countries, for example, are irregular and this is to their disadvantage. Pulling our efforts together will produce larger bargaining power. After all, the principle of economies of scale is a language which any reasonable supplier will understand. The more essential and challenging question that remains is, of course, how to achieve one voice in negotiations and how to avoid backdoor deals?
- Europe's target to complete its internal energy market by 2014 is not achieved yet. What will be the price of this delay?
- The price comes primarily on the bill of European citizens - it will mean higher and more volatile prices. This is the same thing that we have seen in other network industries when they were not brought under the clear rules of the internal market. Take roaming as an example. Not completing the internal energy market means less independence of individual countries and a smaller degree of security of supplies. For the EU economy in general, not acting will mean a loss of competitiveness. European countries could continue deriving short-term benefits individually by making bilateral deals with big suppliers like Russia, until we are struck by another energy crisis. Or, they can push forward for more integration and find stable and sustainable solutions to the EU's energy needs. We have the necessity, we have the technological capabilities. We need to work on the institutional framework, the infrastructure and on the political will in order to reap the full benefits of an internal energy market.
- Is launching domestic production of shale gas an alternative for Europe? Many Member States consider that the risks to nature and human health are much bigger than any benefits.
- In accordance with the EU Treaties, each country has the right to exploit and choose their own energy sources and supplies. This holds true also for shale gas. We should respect the choice of countries that choose to exploit those reserves or not. The fact is that in difficult moments, countries start to look more and more to their own resources. I will not be surprised if some countries which initially banned it start turning their attention to fracking again. I will also not say anything new by stating that a proper environmental impact survey is necessary before using fracking, as well as assessment of the overall emissions that this technology involves.
- Some EU member countries continue to regulate energy prices. How does this affect investments in the sector in the longer term?
- This is yet another sign that integrated and interconnected energy market is needed. In the long term, regulating energy prices only harms this cause. It also harms consumers - subsidising the price of energy means that someone somewhere is paying for it or even worse, debts are being made. You also rightly point out that this affects investments and innovation in the sector, as not all actors are put on a level playing field. Furthermore, incumbents in the countries are given no incentive to explore new and more efficient ways for delivering energy - by investing in renewables and efficiency for example. Finally, it is of course necessary to react with measures of solidarity to certain consumers; however this should not turn into general disregard of the principles of competition.
- What are the prospects for LNG supplies from the United States?
- One of the problems we are facing currently is how to keep uninterrupted supplies. Russia has, on several occasions, including in the current crisis in Ukraine, undermined its image of a correct and straightforward supplier. I believe our transatlantic partners are a partner that we can rely on together with other sources of energy. Of course, the future supplies for LNG from the US would also depend on contractual conditions, prices, capacity etc. But in general 'yes', I see LNG supplies as part of the solution. Similar to renewables it will come with its price and realistically not before 2016-2018.