FUTURE OUTLOOK, FUTURE THREATS

“Nordic Baltic energy interdependence: futureoutlook” by

Mr Jakub M. Godzimirski, Research Professor at NUPI (NO)

Outline

• What is energy interdependence - the broad European picture

• Recent history of energy interdependence in the Baltic Sea region

• 2015 study on energy security in the Baltic Sea region (2012 data)

• What has changed since 2015?

• What to expect in the near future?

Economic interdependence: broad picture

EU-Russia energy interdependence

The EU shares in Russian oil, petroleum products and gas exports

Share of revenues generated by energy sector in the revenues of the Russian state budget and share of social and military/security spendings (Russian Ministry of Finance data quoted by RBK 2016)

Key energy data for BSR countries

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Denmark 31.01 18.96 -12.05 -38.86 -10.02 -0.66 9.36 -93.41 20.07 17.34 -2.73 -13.60

Estonia 3.55 5.09 1.54 43.38 1.68 1.16 -0.52 -30.95 5.17 5.52 0.35 6.77

Finland 15.89 17.24 1.35 8.50 21.21 15.54 -5.67 -26.73 38.09 33.3 -4.79 -12.58

Germany 136.01 123.38 -12.63 -9.29 215.76 199.56 -16.2 -7.51 348.04 312.53 -35.51 -10.20

Latvia 2.14 2.34 0.2 9.35 3.06 2.69 -0.37 -12.09 4.6 4.42 -0.18 -3.91

Lithuania 5.21 1.56 -3.65 -70.06 4.22 5.91 1.69 40.05 9.16 7.38 -1.78 -19.43

Norway 238.63 198.89 -39.74 -16.65 -210.84 -168.8 42.09 -19.96 27.66 29.19 1.53 5.53

Poland 78.81 71.43 -7.38 -9.36 13.54 30.92 17.38 128.36 91.74 97.85 6.11 6.66

Russia 1158.46 1331.6 173.15 14.95 -511.01 -564.9 -53.93 10.55 641.53 756.59 115.06 17.94

Sweden 35.09 36.18 1.09 3.11 20.31 15.36 -4.95 -24.37 53.94 50.16 -3.78 -7.01

Evolution of energy import dependence in the BSR

Energy mixes

Baltic states as importers of oil from Russia

Who depended on whom 2012BSR, Norway and Russia

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Lithuania 7 12.21 174.41 100 3.61 0 - -

Finland 35.48 18.77 52.89 100 5.55 1.25 3.5 0.86

Poland 101.22 40.38 39.89 85 11.94 1.31 1.29 0.91

Latvia 4.38 1.68 38.45 100 0.50 0 - -

Germany 317.12 74.39 23.46 36 21.99 30.30 9.55 20.85

Sweden 49.71 10.29 20.70 0 3.04 4.2 8.44 2.92

Denmark 18.75 2.12 11.33 0 0.63 3.27 17.44 2.25

Estonia 6.19 0.63 10.13 100 0.19 0 - -

Electricity trade in the Baltic Sea region 2013

Electricity connections 2016 (ENTSO)

Recent developments• Energy Union – greater co-ordination of the EU energy policy?

• NordStream 2 initiative and countermeasures

• LNG terminals• FSRU Klaipeda in Lithuania opened in 2014

• Gazprom’s initial offer was 19 euros/MWh (approximately 200 euros for 1,000 m3)• Statoil’s offer (renegotiated) was between 16 and 20 euros/MWh (approximately 169–211

euros for 1,000 m3.• The possibility to diversify gas supplies through the LNG terminal not only assures gas supplies but

is also a real, market-driven element of putting other suppliers – in this case Gazprom under pressure.

• LNG terminal in Swinoujscie, Poland opened in 2015• LNG supplies from Qatar, with new contract increasing the level of supplies signed in 2017

• New interconnectors, or the end of the ‘Baltic energy island’• Gas – GIPL • Electricity – SWEDLIT, LITPOL

Plans for the future• Climate – energy nexus?

• National, regional and European Energiewende?

• NordStream 2

• The Northern Gate / Baltic Pipe project• North-South Corridor

• Other LNG terminals• Second LNG/FSRU terminal in Poland?• LNG terminals in Latvia, Estonia and Finland?

• New interconnectors and reverse capacity in the region• Gas• Electricity

• Closing down of nuclear power plants in Germany by 2022

• New nuclear power plants in the region• Belarus• Russia• Finland• Poland• Lithuania

Reasons and targets for German Energiewende

Gas as a transition fuel especially in power generation sector?

Power generation until 2050

Russia and Norway as gas suppliers to the EU – import shares

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Russia 45,2 44,1 43,6 40,7 39,3 38,7 37,6 33 29,5 31,6 32 41,2 37,5

Norway 26,1 25,5 24,3 23,8 25,9 28,1 28,4 29,4 27,5 27,4 31,1 30 31,6

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What makes Norwegian gas a preferable solution for Europe and the Baltic Sea Region?

1. Norway shares norms and values with all members of the European Union and is de facto a European insider through its ‘membership’ in the EEA.

2. Norway is a predictable democracy and co-operation with Norway is therefore not bound with any strategic and political risks, not least due to the fact that Norwegian policy-makers have been consistently pursuing the policy of non-politicising their energy supplies.

3. Supplies of gas from Norway to Europe do not run the risk of disruption by transit countries as Norwegian gas reaches Europe directly.

4. Being a member of the transatlantic alliance Norway shares a strategic vision and concerns with all its European gas customers and is often viewed as a source of politically safe energy.

5. Geographical proximity to markets in the Baltic Sea Region

Instruments and tools in energy policy

Tools and instruments

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Subsidies x

Gas pipelines shuttoffs x x x

Pipeline explosions x x x

Constructing alternative transit pipelines x x x

Heated rhetoric x

Import bans x x

Cyber attacks x x x

Personal relationships x

Sophisticated PR campaigns x

Court cases x

Military saber rattling x x

• Judicial instruments prescribe desired behavior and setnorms and as such influence behaviour of actors bymaking them understand what is desired and acceptedand what is not. If they comply and play by the rules,actors can expect reward, if they don’t – they have toexpect a kind of punishment or sanction.

• Economic instruments aim to influence financialconsiderations of actors, providing economic incentives tothose who accommodate Russian interests and de-incentivizing those who could oppose realization ofRussian plans.

• Communicative instruments transfer knowledge for thepurpose of informing, persuading, convincing or tempting.These instruments can also be combined with and supportother types of instruments. They often create socialsupport and increase awareness.

• Infrastructural, physical instruments that can be used inorder to promote Russian interests can for instanceinclude construction of various elements of physicalenergy infrastructure or actions aimed at the existinginfrastructure in order to change its physical and marketparameters and render it either useful or useless to otheractors.

Egmond, C., Jonkers, R., & Kok, G. (2006). One Size Fits All?

Orttung, R. W., & Overland, I. (2011). A Limited Toolbox: Explaining the Constraints on Russia's Foreign Energy Policy. Journal of Eurasian Studies, 2(1), 74-85.

Communicative strategy: the Baltic Pipe vs NordStream2