The Black Sea and Romania – points of reference for the EU energy security
- Written by Laurentiu Rosoiu
Although important steps have been taken to achieve energy independence, the European Union (EU) still largely depends on Russian gas. The Central and Eastern European countries are even in a worse situation; some countries in the north and south of the EU are almost totally dependent on Russian gas. This makes the Black Sea an area around which all projects designed to address the European dependence problem revolve, whether from east to west or north to south, and Romania is a turning point of regional energy flows and a possible security provider to this EU border.
European countries import about two-thirds of its gas needs, although the European Union has taken significant steps towards reducing dependency both at European and regional level. Thus, in the 28 EU Member States, according to Eurostat statistics at the end of 2014, natural gas consumption amounted to 343,883 ktoe (thousands of tonnes of oil equivalent), volumetric equivalent of about 382 bcm (billion cubic meters); domestic output, however, was of only 117,986 ktoe (approx. 131 bcm), the difference being covered by imports, which, according to statistics, amounted to 320,253 ktoe (approx. 356 bcm) (see the table ‘Balance of consumption and imports in Europe’). But beyond the large amount of natural gas needed from import in order to meet consumption, even more important it is that most of the imports are made through pipelines that have Russia as sole supplier. Thus, according to figures from the most recent report by the BP specialists, “Statistical Review of World Energy 2015,” about 45% of the natural gas supplied to Europe through pipelines by the end of 2014 came from Russia; namely, 147 billion cubic meters out of the 327 billion cubic meters of natural gas reaching Europe via pipelines was Russian gas (see the table ‘Dependence on Russia’). “We import half of the gas consumption and we are highly dependent on external supply sources... This dependence on imports probably wouldn’t be a problem if we had a reasonable diversification of suppliers, but we are dependent on a single vendor, Russia, 40% of gas imports and a third of oil imports ... six Member States are 100% dependent on Russian gas imports, three of them depend on gas as a primary source to cover the energy needs,” said Frederico Tarantini, the European Commission representative, at the summit “Black Sea Oil & Gas” held last spring in Vienna, summarizing the complicated situation of the EU energy dependence on Russia, and at the same time expressing concerns at European level on the EU energy security. The situation of dependency recorded for the whole European Union is complicated, as highlighted by the European Commission, by the fact that some countries in Central, Eastern and South Eastern Europe are overwhelmingly dependent on gas imports (specifically on Russian gas). This can be seen in the table ‘Balance of consumption and imports in Europe’, which shows that most European countries have a negative balance of gas consumption, and that the countries of Central, Eastern and South-eastern Europe (CESEE) such as Austria, Poland, Slovakia, Slovenia, Hungary and Bulgaria are standing out in this regard; moreover, unlike Western Europe, the central region, especially the Eastern European region, are disadvantaged by the lack of necessary infrastructure for possible inter-region transfers. A major source of concern, however, is the difficult situation countries such as Latvia and Lithuania in northern EU are facing - EU Member States which are fully dependent on imports, or Bulgaria and Greece in the southern part of the Union - countries which import more than 90% of the consumed gas.
The situation is even more complicated by the fact that dependency is a problem for many other countries in the region. Even the non-member countries (having European aspirations or not) they are nevertheless so closely interconnected with other Member States that a possible domestic energy crisis may send negative effects to the neighbours, and could turn into a regional crisis which could generate problems throughout the Union. Hence, the region’s energy security, including for non-members, is placed on the list of EU’s major concerns. Among them we can mention: Ukraine (its potential risk of imbalances in the region need no explanations); Moldova – its EU aspirations are blocked by the strong Russian influence; Serbia - member state of the European Energy Community; and/or Turkey - a country in partnership for joining the EU for years and an extremely important economic and political partner for Europe.
On the same list there are all the European Energy Community Member States - an association between EU states and South-eastern Europe, which aims to create a market for electricity and gas between the EU and other countries. The basis of this association were laid through a memorandum signed in Athens in 2002, but was actually founded in 2005 and has begun operations on July 1, 2006. In addition to the EU Member States, the European Energy Community includes Albania, Bosnia, Croatia, Macedonia, Montenegro and Serbia and the UN Interim Administration Mission in Kosovo. In 2009, Ukraine’s and Moldova’s accession to the community was approved.
CESEE risks and steps
This reality of the CESEE area, given by some countries in the region are highly dependent on Russian gas, is therefore a risk-generating element not only for this part of Europe, but, as shown above, a generator of instability for the whole EU through the chain of possible unwanted consequences; this is even more valid now, in the volatile and tense geopolitical context of developments in the Black Sea region (on the status of Crimea and regarding the relations between Russia and Turkey); a context that underlines the urgent need to diversify the supply sources and the entry routes of natural gas in this part of Europe and in the EU’s energy system.
Thus, in order to meet these challenges and to accelerate the development of a natural gas market in the CESEE, in early 2015 Austria, Bulgaria, Croatia, Greece, Hungary, Italy, Romania, Slovakia and Slovenia have set up a joint working group at European level to implement cross-border and trans-European projects, for the diversification of gas supply and for implementing a common set of rules – as the most important components of this approach. It is to be noticed that within this context the activity of the working group members is organized in three subgroups focused on developing the projects that will enable the bidirectional interconnection on three main axes: a first axis (Southeast) to connect the Aegean Sea area to Ukraine; a second axis (Centre-East) is to connect the Black Sea to Central Europe; and the third axis (Adriatic), should make the connection between the Adriatic Sea and Ukraine. This initiative comes as an European response and to complement the results of various studies and analyses carried out by specialized agencies; studies and analyses that mostly highlight that connecting northern Europe to the southern states, and connecting the EEC to this route are the key to an European integrated single market for energy, and builds the necessary framework for developing a competitive environment.
“The Central European North-South Infrastructure Corridor is a key enabler for completing the European integration process by bolstering the connectivity, competitiveness and security of the EU-11 and the European Union overall. Successful implementation of the Corridor would be a historical milestone in European integration, yielding enormous political, economic and social benefits” states, for example, the Roland Berger specialists, one of the largest global consulting houses, in the report called “Paving the way for the European Central North-South Corridor Infrastructure” released at the end of 2015.
The Russian menace
In such a context, given the EU dependence on the Russian Federation, Russia’s position on the issue of gas supply security to the Black Sea and in Central, Eastern and South-Eastern European countries, is an instability factor for the CESEE countries in particular and for the EU on the whole. This is a reality revealed very clearly by the events in 2006 and in 2009, when Bulgaria, Croatia, Greece, Slovakia, Ukraine and other countries in the region had to face disruptions in gas supply in mid-winter.
This reality, however, is equally present as there is countless evidence that Moscow has not and would not hesitate to use natural gas as a tool in order to support and express its will and its political influence. Hungary - in the way it concluded and presented the agreement under which it has received a loan of USD 10 billion from Moscow (in exchange for the commitment to build a nuclear power plant with Russian technology) - is one of the latest and greatest illustrative examples in this regard. Another example, maybe a better one, about the way Russia currently uses its energy influence for political purposes is given by Moscow’s relations with Belarus and Armenia, countries which depend 100% on Russian gas. They pay significantly lower prices than the European countries, but they are Moscow’s most loyal allies! Unlike Bulgaria, who opposed the South Stream project, which also depends 100% on Russian gas – which pays one of the highest prices in Europe for the Russian natural gas imports.
Concluding, Russia is a player having the ability and the interest to influence the energy policy and security of neighbouring countries (mostly dependent on Russian gas). This is a risk factor in the process of the Black Sea militarization commenced with the annexation of Crimea; a process which brings back the CESEE region in a situation almost similar to the Cold War one, increasing the area’s energy security risks. It is a situation which has brought concern to Europe given that Russia already has a high level of influence and control on the existing transport route in the Baltic Sea, being the only supplier through the Nord Stream pipeline; this means that the blocking or gaining control over possible routes of natural gas from the Black Sea (in symmetry to Nord Stream) is a strategic goal higher than the normal level on the Moscow’s foreign agenda - and therefore, an element that must be counterbalanced by the EU.
The Black Sea, major interconnection junction
Seen from this perspective, the Black Sea turns into a junction of East-West and North-South axes for gas flows in the CESEE region, standing out as a hub with the potential to interconnect the energy routes (particularly natural gas!) between Europe, Russia, Central Asia and the Middle East. Moreover, the area has already proven its potential in this regard in terms of electricity transmission; this feature of ‘pivot’ for the EU energy policy in natural gas, which the Black Sea has, has been both directly and indirectly confirmed by Russia’s actions! Thus, after the war in Ukraine and the sanctions imposed by the West have made the South Stream project unfeasible in political terms, Russia has immediately returned with a proposal to replace it with the so-called Turkish Stream - a project with four pipelines through which Russian gas would be able to cross the Black Sea from Russia to the European part of Turkey. Turkish Stream was designed for a capacity of about 63 billion cubic meters per year and would replace the 14 billion cubic meters of gas that Russia supplies to Turkey via the trans-Balkan route crossing Ukraine; the remaining quantity was to be delivered to the Greek-Turkish border where Gazprom would have set up a hub for the southern and central European countries. The latest talks on the issue between Russia and Turkey took place in early 2015, but they were not finalized. Due to military and diplomatic disputes between the two countries, the project is unlikely to be implemented in the near future (see the map ‘Projects for natural gas transport routes in the Black Sea’). The positioning and the importance of the Black Sea, within the context of Europe’s need to diversify gas suppliers, are confirmed by the older White Stream project. A project promoted and supported by Ukraine since 2005, aimed at bringing gas through Georgia to Supsa port city, then, under the Black Sea, was to arrive in Constanta. The White Stream was managed by London-based company GUEU - White Stream Pipeline Company (the entities behind it were not known) and had, according to specialists, among other things, the intended role to break Turkey’s monopoly on the transit of natural gas from the Caspian Sea to Europe. The project was promoted in two versions, one of them bypassing the waters around the Crimean peninsula. None of the versions has reached a reasonable stage of implementation.
All the above mentioned projects, however, reveal the importance of the Black Sea as a transit area for all routes that can bring gas in this part of Europe, as an alternative to the Russian gas; and South Stream projects and Turkish Stream reveal Russia’s concern for the Black Sea and Kremlin’s interest to defend its market share in Europe, among others by blocking the competition and by discouraging investments in alternative projects; if we think of the failure of the Nabucco project, Russia’s efforts seem not to have been in vain so far.
The TANAP/TAP route
On the other hand, despite the tests and/or Moscow’s interests to undermine competing projects in the Black Sea basin, TANAP - Trans Anatolian Pipeline is increasingly foreshadowed, however, as a more likely competitor. TANAP is a pipeline which largely overlaps the deceased Nabucco route, passes through Turkey to Europe. The project was announced in November 2011, during the third edition of the ‘Black Sea Energy and Economic Forum’ held in Istanbul, in fact even being proposed as an alternative to Nabucco.
Having a projected capacity of 30 billion cubic meters a year, TANAP should carry gas from Azerbaijan, namely from the Shah Deniz II deposit - (estimated reserves of 991 bcm) from eastern to western Turkey. The TANAP consortium consists of SOCAR - the national oil and gas company in Azerbaijan (58%), Botaş – gas transmission operator in Turkey (30%) and the British company BP, which joined the project by acquiring 12% of it in March 2015 (see the map ‘Projects for natural gas transport routes in the Black Sea’).
The positive prospects on completion of this pipeline are strengthened by the fact that Europe is already working on its completing by building a European extension! Thus, on March 3, 2016, the European Commission approved the TAP project (Trans Adriatic Pipeline) as consistent with the European legal framework regarding state aid. TAP is the European part of the Southern Corridor for gas supply which is intended to connect the EU market to the deposits in Central Asia. With a projected capacity of about 10 bcm per year, TAP will take over the TANAP flows and bring to Europe the gas extracted from the Shah Deniz II deposit.
The TAP pipeline starts at the eastern border of Greece, where it joins TANAP, and transits Albania to Italy under the Adriatic Sea. The project company is TAP AG, a joint venture between several European companies and SOCAR with the following shares: BP (20%), SOCAR (20%), Snam S.p.A (20%), Fluxys (19%), Enagas (16%) and Axpo (5%). The project involves investments of about EUR 5.6 billion during five years, of which EUR 2.3 billion in Greece. The agreement between the parties stipulates that the fees for gas transmission through this pipeline will have a fixed procedure for the members of the consortium - which gives them an advantage over other prospective competitors.
The LNG option to diversify the supply sources
Also through the Black Sea and also for the gas from Azerbaijan is projected the AGRI route (Azerbaijan-Georgia-Romania Interconnector). This route is a maritime transport one and aims at bringing liquefied natural gas (LNG) to Europe. According to the project, the gas from Azerbaijan would be transported by pipeline to the terminals in the ports of Georgia for liquefaction, and from there, using a fleet of vessels of medium capacity, to transport it to Constanta, for regasification and introduction into the European system. The project involves therefore the presence of a liquefaction plant on the eastern shore of the Black Sea (in the terminal held by Azerbaijan in the Georgian Kulevi port) and a regasification plant in the port of Constanta. Although the equipment in Constanta is currently under construction, the plant for liquefaction in the Kulevi port faces uncertain prospects, according to Vagif Aliyev, the Head of SOCAR Investments Department, who told a local media agency in early January this year that there was no sufficiently developed consumer market for LNG in the region.
And yet, the project’s supporters argue that this is the fastest option to bring Azeri gas to Europe as an alternative to the Russian gas; in parallel, the critics bring to front, among other things, that the Kulevi port is closely neighbouring Abkhazia (an autonomous republic in north-western Georgia, which declared its independence, situated between the Black Sea and western Caucasus Mountains) – which is under Russian control, with troops stationed there. This raises questions about the security of the Azerbaijani terminal and of such route (see the map ‘Projects for natural gas transport routes in the Black Sea’).
For certain the Black Sea is of utmost importance to the European Union because it is a transit area for all projects to connect the EEC and the EU to an alternative source of gas. The Black Sea’s pivotal positioning comes together with a number of challenges: the one determined by the need to diversify the supply sources is perhaps the greatest; building a climate of competition between suppliers and ensuring proper management of environmental risks are equally important; the vulnerability of the various routes of natural gas to various forms of armed conflicts and/or terrorism is a challenge, becoming increasingly more worthy of consideration.
Given the above mentioned challenges, within the geopolitical context emerging from the situation in Crimea and the development of Russia-Turkey relations, the development of an appropriate infrastructure for transit and processing LNG may seem the best option. Firstly in terms of costs - below those for the construction of a pipeline, but the biggest advantages of the LNG option are related to the fact that it offers the possibility to obtain the highest degree of diversification in terms of suppliers.
This sets the premises for the birth of a really competitive environment, as Europe would open the Eastern gate of its energy system to suppliers from all over the world, which is “the key to energy security of the CESEE countries”, as claimed by analysts of the consulting company Roland Berger in the study “Paving the way for the Central European North-South Infrastructure Corridor”, mentioned above, which points out that diversification of suppliers and competition between them are actually the challenges EU should deal with priority.
Therefore, geographically positioned between Europe, Central Asia and the Middle East, the Black Sea is a pivot of European policy to increase its energy independence by diversifying suppliers. Concomitantly, through Romania and Bulgaria - the only EU countries bordering the Black Sea - its basin is an area of interest to the Union, more than just as the transit zone of alternative gas supply routes.
On the other hand, as an outpost of NATO and of the EU in this region (Turkey is only NATO member, while Bulgaria is too small and lacks the resources to play such a role), Romania is itself a relevant actor in the Black Sea area and can play the role of promoter and exponent of the Union’s energy policies in its eastern part. At the same time, as holding considerable natural resources, infrastructure and know-how in the energy field, it is a provider of energy security in this part of the Union, the most favourable area for the transit corridor to transport resources from the Caspian basin to the EU. Political stability, the solidity of foreign commitments and its situation of energy independence make Romania insensitive to Russia’s pressures and are elements that configures the position of ‘pivot’ of the region; the position’s importance was confirmed by the fact that the South Stream Russian project avoided Romania, drawing a detour through Bulgaria.
Unfortunately, after Nabucco’s cancellation, Romania plays a marginal role both regionally and at European level. The size of deposits discovered in the Black Sea and the existing natural resources, the strategic positioning on the route of Azeri gas, the know-how and the highly qualified labour force in the field, the existing national infrastructure and the ability to be a provider of energy stability to neighbours, and not least the financial soundness of the companies in this sector, are advantages to be exploited in the context of Europe’s need to create a new route to import natural gas.
A structured economic, politic and energy strategy, coupled with the adoption of a favourable tax framework may stimulate investors and can attract the big players in the field, part of a step to support Romania’s interests at European level and to promote the Black Sea basin as an area of interest for EU’s energy security so that Romania’s status of reference point in the region to turn into an element generating long-term benefits.