Oil workers adjust a pipe section at the turntable on a derrick during drilling operations in an oilfield in the village of Otrada, 150kms from Ufa, Russia (Photographer: Andrey Rudakov/Bloomberg)

Putin’s Pipeline Politics in Focus as EU Seeks to Cut Dependence

(Bloomberg) -- The first chill of Europe’s winter has barely descended and Brussels is turning to pipeline politics.

European Union energy ministers on Monday will tackle legislation seeking to expand the European Commission’s oversight of energy deals, require more contract disclosure by natural-gas companies and increase national cooperation during gas-supply emergencies. The move was prompted by Moscow’s intervention in Ukraine and by renewed concern that Russian gas deliveries to the EU through the Ukrainian transit network could be disrupted.

The push pits the 28-nation EU against Russian President Vladimir Putin. But the EU’s own national rivalries, which have flared in other arenas including refugees and the Greek debt crisis, may give Putin a helping hand in disrupting the goal of a common energy front to Russia.

“It isn’t easy for member states to cede power over energy policy and there are limits to EU actions in this field,” said Marco Giuli, an analyst at the European Policy Centre in Brussels. “Governments can be deeply entrenched in the commercial interests of their national champions and object to the EU messing with their strategic relations with external suppliers.”

Putin’s Pipeline Politics in Focus as EU Seeks to Cut Dependence

The EU is seeking to use its leverage as the world’s largest international trading bloc to reduce a 53 percent dependence on energy imports, including a reliance on Russia for 36 percent of gas imports.

Yet nowhere has the clash between the policy ambitions of the EU and the political constraints of its member countries been starker than in the field of energy. This highlights the risk that Europe’s energy ambitions will be checked by national capitals’ wariness of pooling more authority through the Brussels-based commission, the EU’s executive arm.

“There will be some new requirements and restrictions on EU countries, but the interference from the commission in the end is likely to be minimal,” said Elchin Mammadov, an energy analyst at Bloomberg Intelligence in London. “European energy solidarity will still be high on the agenda, but it’s likely to be driven by securing funding for cross-border interconnectors rather than meddling with commercial contracts.”

According to three officials who spoke on the condition of anonymity because the deliberations are confidential, the sticking points over the draft EU legislation include:

  • The scope of the governmental supply accords that would be subject to a commission legality check before they are signed
  • Nine geographical zones that the commission has proposed for deeper national cooperation during gas crises (with Germany, France and Italy leading the opposition to pre-determined emergency partners)
  • A “solidarity” clause that would require cross-border gas deliveries to needy consumers in the event of a supply disruption
  • The amount of additional contract information that gas companies would have to share with member-state authorities and the commission

The provision on extra contract details would apply to deals that have a duration of more than one year and that cover over 40 percent of annual gas consumption in an EU country. This could have an impact on a controversial Russia-led project known as Nord Stream 2, which Russian gas-export monopoly Gazprom PJSC is seeking to pursue with Germany-based EON SE, France’s Engie SA and other western European companies.

Putin’s Pipeline Politics in Focus as EU Seeks to Cut Dependence

The planned new pipeline would double the capacity of Nord Stream, which delivers Russian gas to Germany through the Baltic Sea. While Russian gas contracts currently cover less than 40 percent of Germany’s annual gas consumption, the situation could change if Nord Stream 2 overcomes legal hurdles and is constructed, according to the commission.

The commission has sounded skeptical notes about Nord Stream 2, saying it may undermine the bloc’s energy goals by increasing dependence on Russia.

In a role reversal reflecting memories of the Soviet Union and lingering suspicions of Russia, eastern European countries such as Poland -- traditional opponents of greater EU powers -- have urged the commission to be more active in scrutinizing the merits of the project, which has also raised eyebrows because it bypasses western-leaning Ukraine.

Ukraine, through which about 40 percent of Russia’s EU-bound gas flows, is the focus more immediately of shuttle diplomacy as commission energy chief Maros Sefcovic seeks to broker talks between Kiev and Moscow on winter-gas supplies.

After financial disputes between Russia and Ukraine disrupted deliveries to Europe during freezing weather in 2006 and 2009, the commission has helped to avert disruption threats by playing a mediating role over the past two years.

Putin’s hopes for pulling Russia out of its longest recession in two decades lies in higher oil prices and an end to sanctions imposed by the U.S. and the EU. U.S. President-Elect Donald Trump has said he would consider lifting those penalties, which are a response to Russia’s 2014 encroachment in Ukraine including the annexation of Crimea. Former French Prime Minister Francois Fillon, who is the front-runner in the country’s presidential election in April, has been critical of them.

In a reminder of the national interests at stake in European energy policy and the obstacles to deeper policy integration, the draft legislation being discussed on Monday fails to advance an idea that would do a lot in the short term to bolster the EU’s leverage vis-a-vis foreign suppliers: joint purchases of imports by companies in the bloc.

Asked in a Brussels corridor last week why this wasn’t being tackled, an EU diplomat working on the draft rules gave a shrug of the shoulders, smiled and said trying that would have created too many political and economic thorns.