Pumps, Pipelines, and Perceptions: The Existing Divide between European Energy

Security and Policy Rationality

David Dusseault

Eurasia Energy Group

Aleksanteri Institute

david.dusseault@helsinki.fi

Preliminary Questions

• What conditions underpin the current EU Russia energy relationship?

• What are the cost- benefit calculations?

• Who stands to benefit?

• What can be done?

Variation: Haves & Have-nots?

The Scope of the Issue

Interdependency: Actor Constraints1. Physical Constraints: uneven resource distribution, finiteness of natural

resources, existence of energy sector infrastructure, geography, climate, accessibility of resources;

2. Informational Constraints: elites do not posses full information regarding their resources or how to fully maximise their benefits accrued from natural resource wealth;

3. Financial Constraints: finite financial resources for investment and resource exploitation, commodity prices, market size;

4. Actor-based Constraints: number of competing actors, how actors perceive their interests and how they determine to develop their interests; and

5. Institutional Constraints: ability of state institutions to flexibly determine the rules of the game over time without marginalising actors or seeking rent.

Case One: Russia

Constraints Positive Negative

Physical Large reserves, Geography

Climate, Geography, Infrastructure

Informational Comprehensive sector strategy

Sector Maximisation Strategy Disagreement

Financial Structuralisation fund, high world commodity

price

Price dependency, market volatility, High

sector taxes

Actors Few actors, consistent with industry trend

State control, few outside investors,

Image

Institutional Consolidated control over industry

Lack of Investment Incentives, Closed

Sector

Case Two: Ukraine

Constraints Positive Negative

Physical Geography Lack of Infrastructure, Import dependence, domestic demand

Informational Comprehensive sector strategy?

Sector Maximisation Strategy?

Financial High world commodity price

Price dependency, market volatility, price

transparency

Actors Few actors, consistent with industry trend

Tentative privatisation

Institutional Consolidated control over industry

Lack of Investment Incentives, Closed

Sector

Case Three: The EUConstraints Positive Negative

Physical Existing developed trans., refining infrastructure

Geography, lack of significant reserves

Informational Defined needs and identified challenges in

energy sector

Politicisation & securitisation of energy

strategy

Financial Price Setter for Imported Hydrocarbons

High Commodity Price, Transportation costs

Actors Multi-actor, multi-interest

No coordinating body, incentives for

cooperative action

Institutional Diversified, competitive market

Bilateralism, Lack of comprehensive energy

strategy

Results

Cases Positive Negative

Russia Major Supplier; stable regime; substantial reserves; stable consolidated energy sector.

Infrastructure, investment, market access, image, geography, lack of incentives, strategy.

EU Attractive market, strategic partner, institutionally strong, incentive laden system.

Politicisation of energy sector, highly fractionalised, no coherent, comprehensive strategy.

Ukraine Large energy market, geographically strategic transit point.

Politically indeterminate, opaque market, import dependent, transit monopoly, rent seeker.

RecommendationsEurope must speak in terms of Energy Security with one voice:

•Reassessment of the definition of Energy “Security”;

•Establishment of internal energy regulatory framework;

•Movement towards a realistic, pragmatic, implementable external energy strategy; and

•Formulation of a specific EU Energy Policy directed at transit countries.