Addressing Emerging Energy Security Challenges In The Black Sea Region

Addressing Emerging Energy Security Challenges in the Black Sea Region

Razvan Buzatu, PhD, Alexandru Coita, PhD

Since 2004, when the first gas dispute between Russia and Belarus took place over the pricing, transit and distribution of gas to Europe, it became increasingly clear that security of supply via the traditional Eastern gas corridor was becoming increasingly vulnerable to geopolitical triggers. The subsequent energy crises of 2006, 2009, 2014, as well as the Russian aggression in Crimea and Eastern Ukraine, served to assert the need to identify and develop an alternative conduit for shipping hydrocarbon supplies through the Black Sea region.

This area is a vital transit hub for oil and gas originating in Central Asia and Russia, but also a potential route for Middle Eastern hydrocarbons. Reshaping the geography of supply routes by developing new pipeline projects remains fundamental for addressing energy security risks in the region. This should be complemented by measures aimed at injecting additional flexibility into policies of importing states, by means of gas interconnectors and LNG terminals, inter alia, and coordinated plans to secure critical infrastructure. Not least, an environment conducive to developing newly discovered domestic supplies could further cushion against the threat of an acute crisis arising from an environment of ongoing regional instability.

New Security Challenges

During the past decade, we witnessed the Black Sea region being host to a range of increasingly acute overlapping security developments, which served to generate an unprecedentedly tenuous and volatile environment. From the Russian actions aimed against Ukraine, to the rapidly deteriorating security environment in the Middle East, each challenge brings with it another layer of unpredictability in the energy security calculus of the region and, with it, of Europe as a whole.

While petroleum is a commodity traded on a global market that boasts significant depth and liquidity, supply dynamics of natural gas retain a highly regional fragmentation. For the European Union, this implies that gas supply is largely subject to a fixed landscape of East – West pipelines that emerged as a legacy of the Cold War. Traditionally, Russian and Central Asian gas has been pumped to EU customers via a pipeline system transiting Ukraine and Belarus. Nord Stream, an alternative project driven by Gazprom and aimed at servicing „premium” Russian customers such as Germany, has limited value in terms of alleviating European energy security concerns, especially for new members of the European Union. Indeed, under the current environment, imports transiting Ukraine still account for 82% of total Russian gas deliveries to the EU (2013 data).

The EU’s disproportionate dependency on one supplier – Russia – and one transit route – via Ukraine – has been highlighted as the single largest vulnerability of the Union’s energy security supply. Following the Russian invasion of Ukraine, addressing this issue acquired renewed urgency, as the 2014 instalment of an ongoing dispute over gas pricing and transit fees between Russia and Ukraine developed in an environment of uniquely acute level of bilateral tension.

While the danger of the Russian – Ukrainian dispute turning into total energy war with continental impact remains relevant even today, Moscow’s belligerent actions in Ukrainian territory served to fundamentally alter this country’s energy security. The Russian-backed separatist land grab in Eastern Ukraine worsened the country’s energy security, particularly by jeopardizing development of shale gas fields in the region, while scuttling Kiev’s plans to use coal as an alternative to gas supplies.

The Russian annexation of Crimea adds a new layer to an already severe array of challenges to regional energy security. Moscow’s actions in the Peninsula severely affected Ukrainian energy security by taking control of the offshore gas deposits located in the Crimean continental shelf, estimated at between 4 and 13 tcm. In addition, Russia laid claim to additional blocks of Ukrainian continental shelf and Exclusive Economic Zone, thus potentially impacting existing arrangements between Kiev and neighboring Romania. Additional spillover effects for the region may include higher investment risks for Romanian and Ukrainian offshore oil sector.

This new set of security challenges occurs against the general backdrop of a traditionally difficult energy dialogue between the European Union and Moscow. The two actors are driven by opposing views with regard to the ideal normative setup for energy diplomacy: while the European Union is keen on integrating Russia into its single market and rules-based regulatory framework (most prominently illustrated by the Energy Treaty), Moscow appreciates that an energy trade regime is contrary to its interests, as it restricts its ability to use energy exports as a tool for advancing its wider agenda. Following the introduction of EU economic sanctions against Russia, the energy relations between the two actors have been securitized to a degree where most regular channels are muted and trust levels are at an absolute low in recent memory.

Photo source: Reuters

Crisis Scenarios

In case of an energy crisis prompted by a Russian cut-off of its gas exports, the European Commission predicts an overall disruption to the European Union equal to 9 bcm, excepting supplies for Ukraine, as a worst case scenario. A separate study published in 2014 projected that a hypothetical complete gas cut-off from Russia in the month of January would result in a 23% supply shortfall in Central and Eastern European markets, resulting in a 37% gas price increase. A year-long embargo by Russia, whereby supply is reduced by 30%, would accordingly result in a 50% demand gap with catastrophic consequences on European economies.

While triggering a winter gas crisis clearly remains an option for Russia, enforcing a long-term embargo is a much less realistic scenario. Even though energy relations between Russia and the European Union are often portrayed as reflecting a European dependence on Russian gas, it can be argued that the two parties are actually subject to a state of co-dependence, with Russia’s welfare depending to a significant extent on its European customers. With a worsening economic outlook and a budget stretched thin due in large measure to depressed oil prices, Russia can hardly afford an embargo to Europe.

Still, Moscow’s strategic mindset places its perceived security interests above all else, which means that energy will remain, for the foreseeable future, a weapon in its arsenal. It can be argued that projects such as Nord Stream serve to transform energy into a weapon of high precision, targeting unruly states in Russia’s neighborhood while safeguarding the interests of its lucrative Western European business partners.

Response Toolbox

While facing multiple and substantial challenges, the energy security landscape of the Black Sea region can also provide a variety of opportunities to address current threats and vulnerabilities to the energy supply. The region is as much a source of threats and challenges as it is a generator of solutions to respond to this threats.

As an illustration of the above, deterioration of relations between Ankara and Moscow, while adding a distinct and problematic layer to the region’s constellation of security challenges, also serves to indirectly serve long-term regional energy security interests by enhancing the scope of EU – Turkey cooperation on mutual energy projects and postponing indefinitely Russian plans for the South Stream project.

Regional energy security challenges run deep and can be assumed to be here to stay for the foreseeable future. Nonetheless, supply risk can be managed via a mix of national policies and regional co-operation that draws on the opportunities the Black Sea region has to offer. This energy security toolbox includes:

Maintaining an investment environment conducive to timely development of new resources. This could be particularly relevant for Romania, a country that has of recent discovered offshore natural gas resources that can anchor its energy independence, while possibly allowing it to serve the role of a mini-balancer for the Southeast European region, acting as an additional supply source for the Western Balkans in case of an energy crisis.

Completing the network of interconnectors. This is of course primarily salient for the EU and Western Balkan countries. Completing market integration for this region would serve to remove bottlenecks and promote a more flexible and cooperative environment among countries on the Western shore of the Black Sea.

Taking sustained actions to moderate energy demand. This action is most relevant for Ukraine, a country with a notoriously inefficient energy system. A long-term energy efficiency plan, in line with EU best practices, could serve to drastically reduce the country’s dependence on Russian gas supplies.

Diversifying the energy mix. Different countries in the region can pursue available options for diversifying the energy mix. Besides solar and wind, which considered strictly in energy security terms, can generate as many problems as they solve, there are other options that states in the region can consider.

Use regional co-operation formats. The Black Sea region has no working regional co-operation formats. Smaller actors could benefit from a new co-operation framework that would also larger countries such as Ukraine and Turkey, with Russia potentially being invited to observe.

Diversifying sources and routes

All tools above can be used in addition to the ever-present mantra of diversification of sources and routes. Which is not to say that the latter does not remain the centerpiece of any energy security strategy, but that a viable approach should take into account that major transnational projects are slow to take off and often fall hostage to a volatile geopolitical environment.

With regards to potential alternative sources, tapping into Azeri and Central Asian resources is a longstanding goal of the European Union, but Brussels needs to pursue this more vigorously and be prepared to use a more muscular diplomacy to compete with Russia in its own near abroad. There is evidence that Baku and Ashgabat are looking for stronger EU political support in this area, in the absence of which they will demur in the face of Russian pressures.

Other potential suppliers include Iran, which boasts the world’s second largest gas reserves after Russia and has become a more credible partner in the wake of the nuclear deal. Iraq also has potential as a supplier but the security situation there remains a barrier in the face of any investment effort in export facilities.

Resources in the Mediterranean are another potential alternative for EU gas supplies. While Libya and Algeria are traditional suppliers of Southern European states, new offshore discoveries in Cyprus and Israel could turn into viable opportunities for Black Sea energy security over the medium to long term.

Finally, LNG remains an interesting option for highly isolated countries such as the Baltics, while retaining less appeal for other states better connected to existing physical infrastructure, due to its high upfront investment cost and enduring price differential as compared to pipeline gas.

Alternative transport routes have traditionally been the projects that garnered most publicity. However, in terms of energy security the results have been much below expectations, as illustrated by the demise of the Nabucco project. Currently, the Trans Anatolian Pipeline retains a central importance for Turkey and Europe alike and will provide the backbone for a natural gas highway linking potential sources in Central Asia, the Caucasus and Middle East to Europe. Including the Trans Caspian Pipeline in the framework of the TANAP project, while currently hampered by a host of factors, would be a major victory for EU diplomacy and one that could pave the way for a direct link between Central Asian gas resources and EU consumers. On the Western end of the TANAP project, the Trans Adriatic Pipeline (TAP) retains high importance for Southern Europe, whereas the completion of the Nabucco West project could serve to generate significant energy security synergies in the wider region, particularly if the planned Eastring project comes to fruition.

Concluding Remarks

Emerging security challenges in the Black Sea region generate significant risks to the supply safety of importing states. While the security environment will not sustain structural changes over the short to medium term, the threat constellation can nonetheless be managed by means of a toolbox that includes diversifying sources and routes, while actively pursuing relevant national policies that may be coordinated within a new or refreshed regional cooperation framework. Not least, activities such as intelligence gathering and analysis, as well as critical infrastructure protection, gain increasing salience and should be mainstreamed into the regional energy security calculus.