Russia crushes Europe's energy strategy - Georgia's role as secure transit point to Europe has been shattered

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ROME — Russia's adventure in Georgia has been described as a "warlet," a contained firing spree that wound up and down within a week. But to Europe's energy markets, it was the equivalent of wide-scale carpet bombing. With the North Sea oil and natural gas fields running out of puff, Europe, in particular the European Union, is more dependent than ever on imported energy. The biggest single supplier is Russia, whose pipelines snake across Ukraine, Belarus and Moldova before poking into central and western Europe.

Russia's energy supplies are cherished. Germany, France and Italy have almost no oil and gas of their own. Russia's Gazprom, the world's biggest gas company, supplies 40 per cent or more of Europe's gas imports. The company, controlled by the Russian state and led by Dmitry Medvedev before he became Russia's President, is the equivalent of a one-country gas OPEC. By 2020, Gazprom's exports to the EU are expected to rise by more than 50 per cent. The company is unafraid to wield its mighty power. For four days in 2006, it stopped supplying gas to the Ukrainian market because of a contract dispute.

Since keeping the lights on is the minimum requirement to stay elected, Europe's governments were doing two things. They were buying every molecule of Russian energy available and were working hard to ensure that Russia alone did not control the entire show. Enter Georgia. The pro-Western country became a convenient bit of non-Russian real estate on which to plunk pipelines to funnel non-Russian (and non-OPEC) oil and gas to the outside world. No fewer than three pipelines originating in Azerbaijan cross Georgian territory.

Thanks to Russia's invasion of Georgia on Aug. 8, Georgia's role as a secure energy transit point to Europe has been shattered. Suddenly the risk premiums on oil and gas pipelines that pass through Georgian soil went through the roof. So much for Europe's energy diversification plans. New, independent pipelines from Central Asia seem like a lost cause. With Georgia reined in, Moscow's grip on energy supplies to Europe must be close to complete.

What is Europe to do? Time for Diversification Plan B. A big part of the plan would have to see Europe turning the Mediterranean into mare nostrum - our sea - as the Romans called it in the empire years. The North African countries of Libya and Algeria, and Syria in the Eastern Med to a lesser extent, have vast, undeveloped oil and gas fields. Energy companies with an appetite for political risk have been pouring billions into these countries. One of them is Petro-Canada, which is already hauling 50,000 barrels of oil a day out of Libya and has targeted the country for significant growth. Algeria's gas reserves are mammoth. Last year, Italy and Algeria agreed to construct a 900-kilometre pipeline to take Algerian gas to Sardinia, then on to the Italian mainland. Other pipelines will have to be built. Speed is of the essence, because Gazprom's ambitions are boundless. Last month it offered to buy all of Libya's gas exports.

Medi- terranean gas cannot be the entire solution. Europe will have to rethink its nuclear strategy. Germany and Spain have committed to phase out nuclear power. Surely, that strategy will have to be reversed. Italy has no nuclear power plants. That will have to change, too. A few nuclear plants are under construction in Europe after a moratorium that began with the Chernobyl nuclear disaster in 1986. The number will have to soar if Europe is to take energy diversification seriously. Coal might make a big comeback, too, in spite of the horrendous amounts of soot and carbon dioxide produced by coal-fired electricity plants. Fortunes will have to be plowed into "clean coal" technology, which so far is more myth than reality.

Before the Georgian crisis, Europe seemed to be doing all the right things, with little Georgia at the centre of a sensible energy diversification plan. A column of Russian tanks wrecked that strategy in an instant. Europe is learning quickly that the only way to curtail Russia's energy control is to compete with it. A new energy war is about to begin.

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Photos courtesy of Jeremy Nicholl/Polaris, Dmitry Kostyukov-AFP/Getty Images, Mikhail Metzel-AP, and Chris Hondros-Getty Images

Original Source: globeandmail.com

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