THE PROMISE OF GAS

The Promise of Gas
By Jens F. Laurson & George A. Pieler

In his inaugural address, President Obama observed that, "Each day brings further evidence that the way we use energy strengthens our adversaries". Tell it to Europe, Mr. President.

Russia has resumed delivering Gas to Europe—for now. The latest crisis, with dramatic visuals from freezing Bulgarians, is out of the headlines, but the issue is only becoming more important. Europe's future will be shaped, if not determined, by how soon Western politicians realize the need for a sound, non-ideological energy policy. All talk of—and lofty ideas about—a common foreign policy is but smoke and mirrors if Europe cannot generate with a common energy policy. Energy policy is foreign policy, and it has been for some years. Those who think they can separate foreign- and energy- policy fool themselves.

Russia, with barely rational (or plausible) pretenses regarding its dealing with the Ukraine, cuts off EU countries from essential gas supplies for political reasons. Russia's leadership is adept at arguing 'market forces' drive its actions, but even if they were less disingenuous, those arguments relate only to the Ukraine. That countries like Bulgaria, with low reserves, experience real suffering as a result is blamed on Kiev, as if Moscow were not the source of the gas-flow stoppage and as if Europe's coldest January in years had not been deliberately chosen for this showdown.

The causes for interrupting gas service are manifold, and the Ukraine paying market prices for the Russian share of its gas—on paper a perfectly sound proposition, even if it is politically motivated—is the least of them. Russia wants control of the pipelines, just as they managed to do in Belarus. Russia wants to discredit the Ukraine as unreliable in energy matters, thus forcing the Germans' hand to finally get the "Nordstream" pipeline built through the Baltic Sea, a pet project of Vladimir Putin and Nordstream Chair Gerhard Schroeder, also backed by Chancellor Merkel.

Russia certainly doesn't want the Nabucco pipeline built—it transects the Caucus but bypasses Russia itself, piping gas from the Caspian Sea. Lest we forget, Russia target-bombing just missed the Baku-Tblisi-Ceyhan pipeline in Georgia last August, sending a decisive message. Indeed scaring Europe off using Georgia as a pipeline route became a key Russian objective in the Georgian conflict. Bullying works, and as Russia grapples with plummeting oil and gas prices that threaten its economic viability, it's their cheapest foreign policy tool.

Russia may see this as their last hope for ensuring German dependence (and much of Europe's) on Russian gas. Threats to energy supply are Russia's greatest source of leverage over European (and NATO, EU) policy decisions, even if the price for gas drops further. In the latter case, a guaranteed buyer adds much needed stability and reduces the risk of further price pressure from competition. Ironically, lower gas prices also help Russia maintain its energy monopoly over Germany as cheap gas makes other, domestic and alternative energy sources too expensive to be attractive. Thus, Germany will fall further from the goal of a diverse, risk-sensible energy mix.

Germany's goal of a 20% 'alternative' energy mix is illusory, environmentally unsound (the destructive power of wind parks is still underestimated, and the huge, Greenpeace-backed, Weser hydropower plant in Bremen threatens to filter the European eel permanently out of the ecosystem), and economically irresponsible in a recession. (One cannot seriously debate putting a few dozen Euros back into the pockets of the consumers via tax-cuts or rebate schemes, while taking hundreds right back out through politically motivated hikes in energy prices). The much touted "green dividend" from ecological technologies is more of a "broken window" fallacy—wreck the existing energy infrastructure to manufacture Green Jobs. Alas, ça ce ne voit pas.

As a first measure, Europe should commit to the building of the Nabucco pipeline to introduce competition from Central Asia. The US should support Europe in this, but Secretary of State Hillary Clinton sends mixed signals, asking for "perfect understanding" among all parties before proceeding. Whether this is a wink to the Schroeder-Putin forces is unclear, but Schroeder was close to her husband and unequivocally endorsed Hillary's presidential bid.

Whatever the US does, Europe must diversify much further, consider following France in making nuclear energy an important part of the energy mix and a means to achieve Europe's ambitious carbon emission goals, and cut supply deals with as many non-Russian sources as possible. With low gas prices that could and should have Russia on the defensive, now would be a good time to act.

---

Jens F. Laurson is Editor- in Chief of the International Affairs Forum. George A. Pieler is a Senior Fellow with the Institute for Policy Innovation.