Europe's Natural Gas Security of Supply: Policy Tools for Single-Supplied States

By Shaffer, Brenda | Energy Law Journal, July 1, 2015 | Go to article overview

Europe's Natural Gas Security of Supply: Policy Tools for Single-Supplied States


Shaffer, Brenda, Energy Law Journal


I. INTRODUCTION AND RESEARCH QUESTION

For the last two decades, policy makers in Washington and Brussels have devoted significant attention to the topic of European energy security. Policy attention has been especially intensified in response to the three natural gas supply crises related to Ukraine (2006, 2009, and 2014). In addition, European policy debates on its relations with its main suppliers have increased in light of the 2015 decision of the European Commission ("EC") to send a statement notifying Gazprom of its objections to alleged market abuse as part of the EC's ongoing investigation.1 Further fueling the policy debate is the fact that the contracts between Gazprom and a number of European Union consumer states are set to expire in the next one to three years. Thus, many of these states are crafting new natural gas policies due to their new options as well as constraints with the expiration of the existing supply contracts. In addition, the Third Energy Package implementation exemptions also expire in the next year to three years for a number of new EU members, and thus, these states will implement new policies governing their natural gas sectors by the end of the decade.

In assessing the degree of vulnerability of various European Union members to supply disruptions, many reports have focused on the percentage of Russian gas in a state's total natural gas consumption. Throughout each Ukraine-Russia crisis, Western media has been full of charts showing the relative portion of Russian supplied gas to each state in Europe, assuming those with high portions of Russian gas are particularly vulnerable. 2 However, ensuring security of supply of gas is much more complex than just diversity of supplies, and some states with multiple suppliers are relatively vulnerable, while those with one supplier can manage a high level of security of supply.

Furthermore, in assessing security of supply, it is important to also note that the relations between natural gas suppliers and consumers is nuanced and complex.3 While it is often perceived that a consumer of natural gas is dependent on its supplier, in the interplay of natural gas trade, the supplier does not necessarily possess leverage over the consumer. There are three forms of relationships between natural gas suppliers and consumers: (1) neither side is dependent on the gas trade; (2) one side is dependent -either the supplier or the consumer; or (3) the sides are interdependent in the gas trade, with its disruption causing strategic costs to both sides. 4 Interdependent gas trade is rare and is indicative of few of the gas trade relationships between European states and their external suppliers. However, it is important to note that in relationships when one side is dependent, it can be the supplier that is dependent on the market for essential revenue, while the market may not be dependent on the supplier's gas.

This article will examine the natural gas security of supply of a number of states in Europe that rely on a single supplier for all or most of their natural gas supplies. Security of natural gas supply is a state's capability to perform the vital functions of the state on a short-and medium-term basis (public security institutions such as military and police, minimal power generation and heat to homes and vital public institutions, level of energy supply that prevents harm to public safety) even when regular gas supplies are interrupted. 5 Accordingly, security of supply of natural gas does not necessarily entail the capacity to substitute disrupted gas supplies with alternative gas supplies, but ensuring that a variety of means (such as use of stored gas, fuel substitution, or emergency plans to shut down supplies to non-essential gas consumers) are in place to continue to insure that the vital functions can be performed. The article will assess the management and condition of these states' natural gas sectors and their effect on the states' security of supply, concluding with the subsequent lessons for energy security policies. …

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