Conservatism, thoughtfulness and economy, state investments for salvation of big banks, all these methods have been so far applied as major tools to stabilize economic and financial markets, address crises, which caused a chain reaction of new risks threatening the EU. First of all, it is a social unrest and activation, as a consequence, of nationalistic and separatist mood inside of certain countries.
The success of the European skeptics in the European Parliament elections hit a serious blow on the foundation of the EU. Many people voted for the anti-European parties. In France, Marine Le Pen and her “National front” gained 25% of votes. The UK Independence Party gained 27% in Great Britain.
Post-crisis European disappointment in fundamental basis “unity in diversity” aroused a desire in Great Britain, the biggest global financial center which is not a part of the euro-zone, to leave the EU. However, Great Britain perfectly realizes what a strong impact of the possible collapse of the union it may feel.
Apart from this, the energy security crisis coming from the EU’s industrial policy in recent years and high prices for energy intensive production, all of it, with all ensuing consequences of reduction of the European economy competitiveness, may simply seem to be a child’s play compared with the situation that EU can find itself in case these vectors are aggravated.
Therefore, the consistency of the whole European Union depends on the way the new EU management apprehends the weak spots of the EU as a union, and the destructiveness of aggravation of these vectors. The response to these challenges is evident and lies on the surface. The EU must show itself and its market the unity of positions and response to major modern challenges, as well as investment self-sufficiency, investment attractiveness of leading segments of the economic growth, that would be energy, innovative, banking and industrial growth, all over its space. Otherwise, the fate of the top-urgent Pan-European gas project Nabucco, the first victim of failed unity of intentions and actions of the united Europe, will befall it. If Azerbaijan and Turkey did not make the historical decision about implementation of the TransAnatolian gas pipeline (TANAP) and further development of the whole Southern Corridor, the Nabucco related negotiations would be still continued.
The commissioning of a 1800km long TANAP pipeline 56 inches in diameter is fixed for mid of 2018. The major construction work is to be commenced in 2015. Its initial carrying capacity will total 16 bcm, and will reach 23 bcm and 31bcm in 2023 and 2026 respectively. 10 bcm out of 16 bcm of gas supplied at the first stage will flow to Europe. The rest 6 bcm will flow to Turkey. The TANAP gas pipeline is designed for transportation of Azeri gas, extracted within Shah Deniz Stage II, from the Georgian-Turkish border to the West of Turkey. The present shareholders of TANAP are SOCAR with 68%, Turkish BOTAS 20% and British BP 12%.
Apparently, a new president of the new European Commission team, assumed the office on November 1 of this year, Jean-Claude Juncker, who chose an American method for his electoral campaign, is a person far removed from boasting and ready to carry out a firm and pragmatic work. At least he himself tells about it: “It is a last chance commission”… we either will manage to unite the citizens of Europe in order to reduce the unemployment rate and pave the way for the youth or we will fall”, J.C.Juncker says.
As early as July he announced a plan to invest 100bln EUR per year into the European economy in upcoming three years. These will be both “state and private investments” and spent on “infrastructure, particularly on broadband and energy networks as well as on transport infrastructure in industrial centers; on education, researches and innovations; renewable energy”. Meanwhile, “new, viable and new work places creating projects which can restore the competitiveness of Europe need to be determined and promoted”, President of the European Commission says. As early as November J.C.Juncker presented an investment plan worth 21 bln EUR ($26 bln) which will be able to finance, along with private investments, projects worth 315 bln EUR ($390bln).
Noteworthy is that one of the most important innovations in the work of the new Cabinet of Juncker is the change of the working style. As early as September he warned future commissioners that they should prepare themselves for a “new collaborative working practice” and about his intention to break a “bunker mentality”. J.C.Juncker has, for the first time, offered to create 5 project teams out of the members of the European Commission, each to be headed by a field-oriented Vice President. Juncker himself, as well as first vice president Frans Timmermans and vice president for budget Kristalina Georgieva will not join any of these project teams. However, they will control them all: “Strong global actor”, “Tight energy union with a far-seeing climate change policy”, “Single digital communication market”, “Much deeper and fairer economic and monetary unions”, “New impulse for work, growth and investments”.
«Strong global actor»
EU’s High Representative for Foreign Affairs and Security Policy Federika Mogerini (has been holding this position since February of this year), who used to be a Minister of Foreign Affairs of Italy, has been assigned to manage the “Strong global partner” project team. Commission President Jean- Claude Juncker explained that the sense of creation of this team was the necessity “for being more effective in uniting Europe’s external action tools”. He called four such instruments: trade policy, aid aimed for development, engagement in international financial institutions, neighborhood policy, and emphasized that “they must be combined and activated on basis of the single logic”.
Four commissioners bearing responsibility for these instruments are in the team headed by Mogerini. They are Johaness Hahn from Austria (European policy of neighborhood and expansion is in his line), Cecilia Malmström from Sweden (trade), Neven Mimica from Croatia (international cooperation and development) and Christos Stylianides from Cyprus (humanitarian aid and crisis management).
In the opinion of Juncker, EU will need at least some of integrated defense forces in the long-term in order to become a “strong global actor”. So the president of the European Commission points that the Lisbon treaty (one of the basic documents of the EU, signed in 2007) provides an opportunity to those member-states, which wish it, to combine defense forces in the form of constant structured cooperation.
Energy union
The European Commission will attach major importance to the energy policy. A special Vice President for Energy Union has been appointed at the initiative of its president. He must head the project team formed out of the European Commission members and called “Resilient Energy Union with a Forward-Looking Climate Change Policy”. “The current geopolitical events made us recollect that Europe relies strongly on fuel and gas import. Therefore, I want to reform and reorganize Europe’s energy policy into a new European energy union”.
“We should combine our resources, our infrastructure and our negotiation forces in dialogue with other countries”. But creation of the union does not suffice since it has to be sustainable. “We must diversify our energy resources and reduce high energy dependence of certain of our member states. I want the European energy market to remain open for our neighbors. However, if the price for energy resources, supplied from East, turns out too expensive then Europe must quickly shift to other supply routes. We must be able to fully change energy flows when it is necessary”, new president of the European Commission asserts.
third energy package -
“Scarecrow” for producers
Slovakia’s representative Maros Sevcovic has been appointed a Vice President for Energy Union. Spaniard Miguel Arias Cañete became an EU Commissioner for Climate Action and Energy. It is noteworthy that US President Barack Obama also set US leadership on use of alternative energy sources, reduction of emissions and dependence on import as the major goal of his energy program. However, USA is preparing to become the biggest oil producer of the world as early as by 2017.
According to new forecasts, demand for “black gold” will reduce by 65,000 barrels per day in 2014 and total 92.6 mln barrels per day. According to IEA experts, the demand for oil at global markets will fall by 165,000 barrels per day and total 93.8 mln barrels per day in 2015.
According to long-term analysis of global energy trends, daily oil production in North America will exceed Near Eastern rate to the extent of 4:1 by 2020. Production in North America will have risen from 650 mln tonnes of oil equivalent (2009) by 390 mln tonnes of oil equivalent by 2030. This growth competes with a 430 mln tonnes of oil equivalent production increase in the Near East where oil production will be accelerated soon due to the production increase in Iraq. Growth of shale oil supply from North America is expected to reach its peak after 2020.
Tens of new fields have been discovered in the USA, where hundreds of big, medium and small producers work. Of course, smooth progression of events is impossible in the EU for geographical, demographic and a whole range of other reasons, however, the European Commission will follow the same principles in developing EU’s energy policy. The competition will keep having primacy in reformation of the energy and gas market. And despite the prices are high in the European market now, producers should not set hopes for medium and especially long term. Juncker will try to obtain their broader volatility toward the declining trend. The thing that will help him is the third energy package, which currently is more an obstacle for competition rather than a promotion since it restricts ambitions of new participants of the market as well as an access to the market for large gas volumes from new sources. We think that the third energy package needs serious analysis and certain gradation of directives, depending on the volumes of supplies, additional incentives from EU for attracting new gas market participants on basis of free commercial position, maximally possible depoliticization of gas relations, debureaucratization of this important for Europe sphere.
The third energy package approved in 2009 is aimed at liberalization of the electricity and gas market. The demand for ensuring unbundling in gas and electricity transportation systems, which means breaking of the producer-supplier-transporter-seller chain, became one of its important moments. Therefore, the package has turned into a “scarecrow” for vertically-integrated oil companies striving to control the whole chain of gas business starting from production on the well right up to delivery to stove burners. A number of countries (Lithuania, Slovenia, Estonia, Romania and Ireland) where investigation is carried out mainly due to the non-fulfillment of power industry related requirements of the third energy package has already under
Competition becomes more aggravated
SOCAR (State Oil Company of Azerbaijan), which has never been and does not plan to be a monopolist of the European market, has recently ended up in the crosshairs of the European bureaucrats. However, it is quite a self-sufficient business entity with big gas fields, seven oil-gas pipeline routes and capable to diversify its markets at any time. SOCAR’s deal on acquisition of 66% of shares of the Greek national gas transmission system operator DESFA took a little longer since it must have been approved as early as the second quarter of 2014. At present 35% of DESFA belongs to a publicly owned company Hellenic Petroleum while 31% directly to the government which will gain about 188 mln EUR from sale of its shares. The Commission was notified about this deal on October 1, 2014.
On December 31, 2013 Hellenic Republic Asset Development Fund (HRADF) approved a deal on acquisition of 66% of Greek DESFA by SOCAR for 400mln EUR. In December 2013 the State Oil Company of Azerbaijan signed an “Agreement on purchase and sale of shares and a Shareholder Agreement” with HRADF and Petroleum Company. SOCAR acquires 31% of DESFA from the government of Greece and 35% from Hellenic Petroleum SA. HRADF will hold the sold package of shares of the Greek company until the control over DESFA is passed to SOCAR. Sale of DEPA and operator of the Greek gas transportation system DESFA is considered as one of the key points of the Greek privatization program: Greece counts to receive up to $1.5 bln EUR from their sale.
According to the legislation of Greece and EU’s third energy directive, the European Commission must make a final conclusive approving decision on this deal until March 23, 2015. The commission revealed at the initial stage of market research that the company created as the result of mergence may obtain a chance and incentive to block the access for competing gas suppliers to the gas transportation network of Greece in order to lower competition in the Greek market of wholesale gas sale. The European Commission thinks that the firm, established by mergence, can restrict the access for its competitors to the gas transportation network of Greece, strategically limiting investments in future projects on expansion of import capacities including expansion of the LNG terminal and connection between TAP and DESFA network. Besides, when operating the gas transportation network a new firm may restrict gas flow to Greece, giving preference to SOCAR’s supplies to the detriment of competitors.
The European Commission told Caspian Energy News the other day that “the Commission in principle agrees with the certification decision but considers there is a need for additional funds in order to avoid potential risks for security of supply”.
Regardless of measures and funds, they probably will bear a limited character since a free gas market in the south and south-eastern part of EU is at initial stage of formation and it is impossible to stimulate it only with restrictions. Moreover, the competition is getting aggravated. Apart from the new Russian project (instead of closed South Stream) to Greece via Turkey (carrying capacity – 63 bcm per year), Israel offered the EU countries to invest in construction of the gas pipeline to be laid along the bed of the Mediterranean Sea toward Greece and Italy via Cyprus, i.e. to final destination points of TAP gas pipeline, a part of the Southern Corridor.
TAP will ensure transportation of natural gas, to be extracted within the framework of Stage II development of the giant Azeri Shah Deniz, to Europe. The pipeline, which is approx 870km long, will be linked with the TransAnatolian pipeline (TANAP) near the Turkish-Greek border in the city of Kapoy from where it heads to the south coast of Italy passing through Greece, Albania and the Adriatic Sea.
The route of TAP may facilitate gas supply to a number of south-east European states including Bulgaria, Albania, Bosnia and Herzegovina, Montenegro, Croatia and others. After reaching the Italian coast, TAP offers good opportunities for further transportation of Caspian gas to big European markets such as Germany, France, Great Britain, Switzerland and Austria.
Since first gas sale to Turkey and Georgia is scheduled for the end of 2018, the first supply of gas to Europe will start approx in a year, in 2019.
The share holders of TAP are SOCAR (20%), Statoil (20%), BP (20%), Fluxys (19%), Enagás (16%) and Axpo (5%).
The Israeli project will officially be presented to the European countries in December. As Israeli media reports, Cyprus, Greece and Italy have already supported the project of Israel. Two big blocks, Tamar field (estimated reserves reach over 280 bcm) and Leviathan (453 bcm), are currently under development in the Mediterranean shelf of Israel. Meanwhile, gas of Tamar field is meant and has been used since April 2013 only for domestic consumption. Only 40% of gas of Leviathan field is permitted to export. Prime Minister Benjamin Netanyahu stated as early as summer 2013, making long-lasting disputes about export quotas for private companies final. For now it is not known to what extent Israel and EU shall manage to combine restrictions of the domestic market and commercial profitability of export, and whether gas will flow in this direction. Therefore, the Southern Gas Corridor which links Azerbaijan, Turkey and EU, is nowadays the only project enabling diversification of export flows to the EU.
