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The Annual "Will Europe Freeze?" Month

Ah yes, it is that wonderful time of year. Fresh snow, college football bowl games in the US, a new year...and uncertainty surrounding European energy security. Some things never seem to change.

This year adds a few new wrinkles to the annual, "Will Europe Freeze?" month however. For the first time in years, the center of energy disruption does not appear to be the Ukrainian border. Ukraine has paid in full and on time for its use of Russian gas during 2009, and both Russia and Ukraine appear determined to avoid a gas war during an election year. So this year, the energy disputes have shifted north.

First, Belarus and Russia remained locked in heated (excuse the pun) negotiations about oil supply prices between the two countries. Russia has already cut oil supplies to Belarus once this week and many analysts expect further restrictions in the weeks to come. The clash feels all too familiar: Russia, frustrated with its neighbor's overtures to the West decides to throw its weight around in the energy sector to bring it to heel. Of course, the blame also resides with Belarus which has for years subsidized its economy through cheap energy from Russia. If the country truly wants to play on the international arena, it must now be prepared to pay market prices for its resources.

Second, Lithuania has been compelled to shut down its aging nuclear power plant on New Year's Eve, leaving it completely dependent on Russia for its energy supply. The closure was required by the European Union, but leaves Lithuanians feeling very nervous. Russia has already played its energy card in the Baltic, shutting down its oil pipeline to Lithuania in 2007. Energy supply form other EU countries remains extremely weak, and a dramatic increase in energy prices is very likely for this Baltic country already struggling through an extremely difficult recession.

Finally, the UK is approaching capacity limits as it struggles with an extremely cold winter. The Wall Street Journal is reporting today that Britain only has gas storage capacity equivalent to 4% of annual consumption, compared with over 100% storage in the US and 19% in Germany. And National Grid warned this week that supply will be tight in coming weeks.

None of the preceding events really come as a surprise. Despite that, Europe has again been caught off guard. The Spanish Presidency is trying to salvage a July Commission proposal regarding gas security and supply but countries continue to insist the Commission is overstepping its authority. And efforts to encourage greater infrastructure developments within Europe remain merely efforts. So what will it take to really see the development of a true European energy policy? In the US, it took two oil embargoes before the country started developing strategic reserves. And the price of oil reached $160 a barrel before consumer's behavior started to change.

Readers Pat and Pamela both suggested that the Atlantic Review analyze Russian and European energy policy in the upcoming year. This will certainly be an important topic, particularly in the first few months. But at first glance, little has changed. The Russian energy policy of 2010 seems identical to that of preceding years: throw its weight around in the natural resource arena to extract concessions in the political realm. And there still is no real European energy policy to discuss. Europe continues to shiver and simply hope the heat stays on.

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Pat Patterson on :

Maybe I'm having a senior moment but I only remember one oil embargo and the subsequent rush to more fuel efficent cars when in 73-74. While, I think, the other oil embargo(early 80's) was a flop in the US because prices were allowed to rise and no shortages were experienced. That embargo actually backfired on OPEC as they had no leverage as people in the US simply bought less gas. As to Russia it seems only logical, regadless of the government in place, that it charge prevailing prices. It seems natural that the citizens of one country might resent that they are subsidizing the economy of another country especially when the government funded pension fund pays a ridiculously low stipend.

Pat Patterson on :

I forgot to mention that the US has 160+ days of petroleum in reserve. Since that is an article one must subscribe too I can only guess what 100% capacity means except to conclude that it refers to available storage and not amount available for distribution.

Andrew Zvirzdin on :

Pat, Thanks for your comments. The two embargoes I refer to are 1967 and 1973, though certainly the '73 embargo was much more effective. The attempts by OPEC to control prices in the 1980s failed due largely to overproduction. Second, 100% capacity refers to natural gas storage, not oil capacity. Finally, I certainly agree with your analysis of Russia and its pricing policy. It seems to me that Russia should really consider carrots and sticks for regional influence other than subsidized pricing schemes.

Marie Claude on :

Well, seems that Russia, Iran, China are making a baby in our back together. http://www.atimes.com/atimes/Central_Asia/LA08Ag01.html So that means that thhe EU eastern Republics will have to comply or to cut some wood, Russia will not make anymore favored gaz prices to them (in the remembrance of the good ol times), as for Western EU countries too. I don't want that my tax money in EU pays their bills too, our energy independance we had to pay it, and it costed a lot, so, each new EU state will have to become mature, if they want to survive as mere states

Pamela on :

"I don't want that my tax money in EU pays their bills too, our energy independance we had to pay it, and it costed a lot, so, each new EU state will have to become mature, if they want to survive as mere states" Then you must be thrilled with the Common Agricultural Policy! But I agree/understand. France invested a great deal in nuclear power (is it still providing around 80% of your needs?). But if I'm not mistaken, the EU has imposed egregious conditions on nuke power development, so what do you expect countries to do? In the UK, the North Sea oil is running out (and they had to stop drilling at at least one site the other day due to the weather). Russia's policy won't change without incentives. Increased oil production from the Middle East in order to impact global supply/prices would be one but is probably not sustainable. And does nothing for natural gas supplies.

Marie Claude on :

"Then you must be thrilled with the Common Agricultural Policy!" you're kidding, of course, queen of England is the biggest benefciary with Prince of Monaco and the multinationale agro-alimentaires I'm not aware of the (new) EU conditions on civil nuclear energy, the use of nuclear for military uses is different check what I wrote about the subject here http://atlantic-community.org/index/articles/view/Eco-Business_through_Fear_Mongering#comments

Pamela on :

"you're kidding, of course, queen of England is the biggest benefciary with Prince of Monaco and the multinationale agro-alimentaires" Of course I'm kidding. If your blood pressure is ok, check out this site. http://farmsubsidy.org/ It's a good thing my hair has thinned with age, otherwise it would ignite. I followed your link and I think this is the comment you wanted me to read (just a bit of it) "civil enriched uranium can't be easily transformed into a military weapon, because of the sophistication of the process and the tiny result at the end." The link to the National Review article you provided is dead. I have a problem here. I'm not a physcist by any means but I was married to one and I still know a few - so I agree with you in principle, I can't argue with you on the facts - for one reason - it would be too much information on the internet. Yes, I know it's already out there for people who want to look it up, but my position is that they can look it up. In other news, I would like everyone to note: Marie Claude reads National Review. Her reputation is ruined forever.

Marie Claude on :

Pamela try this : [National Review Author Archive October 15, 2008 7:30 AM Going Nuclear A memo to John McCain. By William Tucker] otherwise, the link still works here (on my computer) http://article.nationalreview.com/?q=ZDIwMjVjMTIyZTQ1NTJhNjM1YzFmZmFmNWVkNDA4ZjE and yes I read NR sometimes, especially when articles are informations and not political propagandas (against the French) :lol: uh from your link : http://farmsubsidy.org/FR, so what's wrong in what I said ? almost big enterprises agro-alimentaires get subventions, and VIP like prince of monaco, average farmers get 50€ to 500€ per year Consider that France is the agricultural country of EU, a larger population than UK, Germany, etc... work on agriculture now I have been debating there about the subject http://www.atlantic-community.org/index/Open_Think_Tank_Article/Making_Europe's_Relationship_With_Obama_More_Than_a_Flirt as the "Times" article is out, I found its replication here http://spgb.blogspot.com/2005/03/paid-for-not-producing-food.html

Pamela on :

"so what's wrong in what I said ?" Absolutely NOTHING. I think the percentage of the EU budget that goes to CAP is obscene - about two years ago it was just over 40%, can't imagine what it is now. I hate the ag subsidies in the U.S. too. So much of it is really about environmental issues (protecting viewsheds and whatnot). I'm all for helping out producers when times get tough, but the market distortion the subsidies cause is grotesque. And don't even get me started on the Federal Milk Marketing Orders. There may be 2 people on the planet that understand it (hubby being one) - it's about as transparent as the tax code.

Marie Claude on :

"I'm all for helping out producers when times get tough, but the market distortion the subsidies cause is grotesque." me too, anyway this sytem of protections generates too much wastes, we don't need to get fruits, vegetables that aren't our seasonal produces, nether we need meat for each meal... this abondance is going to make us bankrupted, and make the other half of the planet to revolt

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