Friday, April 20, 2007

Thoughts on Energy Security

I'll be attending a conference in Europe on energy security and the trans-Atlantic relationship, and I thought I would prepare by brainstorming here on the blog--comments welcome.

The first thought is that we have no agreed definition of energy security. Is it obtaining the minimal amounts of energy so as to keep our major industries functioning? Or is it the maximalist view, a nearly unlimited supply at low cost? Is there a threshhold from which we should work--e.g. energy security means having firm guarantees as to 60 percent of our daily consumption? 75 percent? 90 percent?

The second is in terms of what constitutes price. Is price only to be understood in monetary terms (hard cash for energy)? Do energy sellers have the right to ask for non-monetary forms of payment (e.g. influence, support, quid pro quos in policy)? Again, where are lines to be drawn?

Does symbiosis between seller and buyer produce the greatest degree of security? Closer integration between buyer and seller? How much should we be willing to pay for redunancy in supply and capacity?

Finally, what about this scenario: Let's assume it is 2015. Let's assume Ukraine is now in NATO. Let's also postulate that as a result of military action some of the Caspian energy infrastructure has been damaged and is still non-functional. Let's also assume that the Baltic system and the Blue Stream lines are at full capacity and Russia has stopped shipping gas across Ukraine, Belarus, Poland, etc.

What happens if Russia stopped selling gas to east European countries and instead they had to get it from a German consortium (Russia shipping directly to Germany) or from a Turkish-Greek-Bulgarian-Romanian consortium (which might also be able to sell gas via Italy from Algeria)--and these middleman marked up the gas 20-30 percent? Would that constitute an energy security crisis (they are still getting gas, but paying a higher price for it)? Would the U.S. want to use NATO pressure to try and get Russia to sell gas directly? I ask because if you take seriously the comments a number of high profile U.S. senators have made over the past year, a Russian refusal to sell gas directly would constitute an aggressive act.

What are U.S. obligations to NATO allies in terms of their energy security? Basic access? Full access?

Comments welcome.

Nick, all good questions. You might though consider that there is a different between what analysts would consider and what politicians can deliver. Politicians are going to define energy security in very broad terms that encompass no pain for their constituents--which won't give you much guidance in how to choose priorities.
Nicholas Gvosdev:

It might perhaps be a useful exercise to turn the question round.

An issue which puzzles me is how far considerations of geography limit the extent to which Russia can move away from dependence on gas exports to Europe.

Another scenario for you. A successor to Putin sees Russia's future as lying in the East, in an energy alliance with the dynamic economies of Asia.

He asks his planners to conduct feasibility studies for the construction of new pipelines. The goal is to maximise the proportion of Russian gas exports that can be directed eastwards; while ensuring that there are no conceivable situations where dependence on European export markets could expose Russia to political pressure.

What do his planners tell him? Do they say that his goals are largely unfeasible, because too high a proportion of the country's gas deposits are in the wrong place? Do they say it is largely feasible, but at a very high cost? If so, what order of cost would be at issue, and can we envisage any future Russian administration paying it?

A fundamental issue in all this is how far we can regard energy relations between Europe and Russia as purely a matter of market economics. Insofar as we can, we can treat European energy security as a matter which can be insulated from the quality of political relationships with Russia. Insofar as we cannot, we are necessarily to a considerable degree in a mercantilist world, where economic considerations and political are necessarily intertwined.
Another point to bring up is whether energy projects pursued for security/political reasons (e.g. governments) need to be paid for by private odmpanies or whether governments should pay for expensive projects that can't be recouped from the marketplace. US pushed for BTC line for years but it wasn't built until BP felt there was enough oil to be shipped through it that would make economic sense (and higher oil prices helped too).
Do Iran, Iraq, Saudi Arbaia, Kuwait, Qatar, and Venezuela have a right to decide not to sell their oil?

What would the US, EU< Chinese, and Indian responses be?

If Central Europe has to pay German, Bulgarian, and Greek middlemen for Russian energy, they will bleat about "Russian Imperialism", and pay the middleman their price, or find a lower cost supplier if they can. Their energy supplies would still be available, and it would be up to them to do what independent countries do. That is, pay for their energy imports, along with the applicable tranport and other costs.

US pressure on Russia in this case? I'm afraid that Mr. Putin learned very well the lesson we taught Boris Yeltsin: Rely on the Americans for nothing, and they won't disappoint you. Give 'em a chance, and they'll screw you hard.

Mr. Putin has systematically eliminated the leverage we have on Russia, which is the fundamental reason the USG is upset with him. I'm sure Mr. Putin will be polite. He'll also refuse to do as we ask.

"An issue which puzzles me is how far considerations of geography limit the extent to which Russia can move away from dependence on gas exports to Europe."

Not very. The fact is, Russia has no need to sustain the present volume of energy exports. They could cut it in half, and still have a current account surplus, considering the world price per unit whould rise sharply on the news.

Fact is, the West needs Russia far more than Russia needs the West. The '90s taught Russians that the West dosen't care whether they live or die. The Russians are now in a position to reciprocate.
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