Fallacies of the Third energy package

The Third Energy Package is something that the EU leadership wants Europeans to believe in. The European Commission paints a glowing picture of the new rules for the European market, which will allegedly help reduce gas prices and Europe has been discussing the package for more than three years now.

The Third Energy Package is something that the EU leadership wants Europeans to believe in. The European Commission paints a glowing picture of the new rules for the European market, which will allegedly help reduce gas prices and Europe has been discussing the package for more than three years now. Passed in September 2007, the document finally came into force in March 2011. EU countries were then given a year to arrange their internal laws in accordance with the document.

Brussels wants to convince Europeans that after the adoption of the Third energy package gas suppliers will scramble to compete with each other thus cause a drop in prices. However things are not so simple. The document stipulates the liberalization of gas supplier’s access to Europe’s gas transportation infrastructure, but by no means guarantees that large amounts of gas will enter the European System.

According to Brussels, the Third Energy Package significantly stipulates effective unbundling of energy production and supply interests from the network. This aims to prevent companies, which are involved both in transmission of energy resources and its production from using their privileged positions to prevent or obstruct the access of their competitors to the network. Unbundling requires the effective separation of transmission, production and supply and theoretically could boost competition.

In fact the result has been reducing profitability given that only energy giants are investing in the construction of gas pipelines. For their part, European regulators have tried to keep energy giants from building and maintaining gas pipelines, and instead urge cash-strapped firms to deal with the matter which really raises eye-brows given that the EU now desperately needs more gas pipelines in order to create a unified European gas-supply system.

Unlike Western European countries, which depend on several different gas suppliers, Eastern European states mainly count on Russian gas supplies. Lithuania, Latvia and Estonia are fully dependent on Russian gas, which is also in great demand in Slovakia, the Czech Republic, Bulgaria and Poland. Brussels believes that such a dependence damages the EU’s energy security, urging the creation of a single EU gas and electricity market by 2014 to rectify the situation. 2019 should see the creation of such a unified energy system in the EU, a plan that is estimated to be worth 71 billion Euros.

It is still unclear who will construct these gas pipelines, though. Wary of the Third energy package, world energy giants are understandably loath to invest in the construction of a gas transportation system given possible risks. On the other hand, outside investors will never start building a gas pipeline till they get guarantees of this pipeline being filled with gas. In this regard, clinching long-term transit contracts could certainly allay the potential investors’ concerns, but the European Commission has repeatedly warned against such documents, which it said allegedly damages the market’s liberal nature.

Brussels knows perfectly well that the Third energy project needs to be corrected. In a sign that it is ready to break the new rules, Brussels has already given the go-ahead to a string of major transportation projects, which are now being implemented in continental Europe. As a result, investors have gained the exclusive right to use half of the future energy facilities’ capacity. It is safe to assume, therefore, that in a bid to build more pipelines, the European Commission is poised to break the rules that were established by the European Commission itself.

In Moscow, energy expert Dmitry Abzalov points to the European Commission’s readiness to lure its potential partners into entering the European market. He said the following to the Voice of Russia: Both EU commissioners and the European Commission have repeatedly criticized Russia’s energy projects, Abzalov says, citing attempts to launch an array of the EU’s alternative projects, including the Nabucco gas pipeline. This project is problematic given the absence of guaranteed volumes of gas to fill it. Efforts are also being made to launch the Trans-Caspian gas pipeline, whose feasibility and efficiency are yet to be confirmed. The EU is trying to win an information war with Moscow so as to strengthen its position ahead of talks on gas prices for Europe, scheduled for this fall. And talking the construction of the Trans-Caspian gas pipeline is nothing but an attempt to put pressure on Moscow, Abzalov concludes.

Meanwhile, Brussels has given the green light to a slew of projects that are out of line with the Third energy package,  but is in sync with Russian energy giant Gazprom’s interests. These first of all include the OPAL gas pipeline with annual capacity of 36 billion cubic meters a year. It will connect the Nord Stream gas pipeline’s first leg with Eastern Europe through Wingas, a gas transportation network, established by Wintershall Holding AG, a subsidiary of BASF, and Gazprom. Wintershall owns one share more than 50 percent while Gazprom’s holds one share less. The OPAL project fully complies with the EU’s new philosophy since the pipeline contributes to the integration of Eastern Europe’s gas transportation networks into those of Western Europe. As for Wingas, it decided to invest in the OPAL project because of guaranteed supplies of the Nord Stream’s gas. Gazprom was allowed to reserve 75 percent of the OPAL pipeline’s capacities on a long-term basis in a move endorsed by the European regulator.

As for the non-transit NEL gas pipeline, it is yet to comply with the rules of the Third energy package. The pipeline is designed to connect Nord Stream with the gas transportation network of the Netherlands, Belgium, France and Britain. For this to happen, Dutch gas transportation company Gasunie earlier joined the Nord Stream project and now has a stake in the NEL pipeline.

Moscow proceeds from the assumption that technological pipelines related to the trans-border transportation systems should be seen by the EU as part of a unified European energy system, an option that was suggested by Moscow in February 2011. The EU, though, continues to find faults with the NEL project, which may well contribute to disruption of gas supplies to Europe at the end of the day.

This is one reason why Brussels should interact more with Russian investors, who are ready and willing to pump hefty sums into European gas transportation infrastructure which will maintain Europe’s energy security.