Thursday, March 04, 2010

Energy security in Europe

Central questions
From The Economist print edition

United in the cause of undermining Russian pipeline monopolies

DOES “Central Europe” exist? It depends on the political climate. Amid worries that France and Germany are stitching up the European Union’s decision-making, the Czech Republic, Hungary, Poland and Slovakia are reviving their ties and pushing shared ideas on energy security and relations with the east.

The alliance began in Visegrad, a Hungarian town, in 1991, when even the EU’s waiting-room seemed distant. Once dreams of joining Western clubs became reality, co-operation all but dissolved. New members shunned anything that made them seem different from the rest. Squabbles, most recently over the treatment of ethnic Hungarians in Slovakia, dominated Visegrad meetings. Some even suggested winding the club up.

Not any more. At a summit in Budapest on February 24th Visegrad showed signs of renewed life. The big shift is in Poland, where go-it-alone policies have given way to enthusiasm for working with the neighbours. Under the voting rules of the Nice treaty, in force until 2014, Visegrad countries have as many votes in the EU as France and Germany combined.

Next year Hungary and Poland will each have six months in the EU’s rotating presidency. Eurocrats in Brussels like to portray the rotating presidency as largely redundant now there is a permanent European Council president. The Poles and Hungarians are working closely together to disprove this. Hungary wants a “Danube strategy” to divert EU money and attention to the river basin. Poland supports this, in return for Hungarian backing for more EU aid to countries such as Georgia, Moldova and Belarus.

The group is gaining allies. “Visegrad-Plus” adds some neighbours, largely from the former Austro-Hungarian empire. Most of these (especially the core four) depend heavily on Russian gas and oil. These are typically costly and come from clapped-out fields along ageing pipelines through unreliable transit countries, with unwelcome political conditions attached.

One way to change this would be to turn the east-west gas pipelines into a grid, with interconnectors running north to south. New Hungarian pipelines to Romania and Croatia will be finished this year. A Czech-Polish connector will open in the summer of 2011. An EU-financed Bosnian-Serbian link will be announced on March 5th. A second idea is coastal terminals in Poland and Croatia to import liquefied natural gas by tanker from countries such as Qatar. The third plan is Nabucco, an ambitious pipeline to connect Caspian and Iraqi gasfields to Europe via Turkey.

Visegrad is also pushing for EU rules on mutual help in

energy crises. These could offer the region greater security. But big obstacles remain. One is Russia, which is intensifying its co-operation with friendly energy companies in France, Germany and Italy. On a trip to France, Russia’s president, Dmitry Medvedev, started formal talks on the sale of up to four Mistral-class warships, while France’s GDF Suez gained a 9% stake in the Nord Stream pipeline.

Russia also continues to push South Stream, a Russian-backed Black Sea pipeline. But it now has less backing than Nabucco. The new Croatian prime minister, Jadranka Kosor, visited Moscow this week and signed up to receive gas from South Stream. But Hungary and other countries have stiffened Croatian resistance to other Russian plans, such as the attempt to gain control of an oil pipeline from the Croatian coast to Hungary. That is a lifeline for Hungary’s energy company, MOL, which otherwise depends solely on oil from the east and is fighting attempts by a Russian company, Surgutneftegaz, to gain control.

The biggest problem is that energy security costs money. Gas interconnectors, for example, sound fine. But the extra competition they bring hits market share for companies used to cosy national monopolies. The Visegrad governments may gripe about west Europeans. But they have plenty to do on the home front.

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