US-EU energy strategy targets Russia and the long-term

AFP
US secretary of State John Kerry (L), flanked by High Representative of the European Union Catherine Ashton, shakes hands with EU commissioner for Energy Guenther Oettinger at the headquarters of the European Union in Brussels on April 2, 2014
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Brussels (AFP) - The United States stepped up its war of words over Russian gas on Wednesday, while warning its European allies not to count on American gas supplies in the short-term.

Speaking ahead of an energy meeting between the United States and the European Union in Brussels, US Secretary of State John Kerry said that no country should use energy supply as a "political weapon or an instrument for aggression."

No nation should use energy to stymie a people's aspirations," Kerry said, adding the United States and the EU were now working "in lockstep" to help Ukraine.

The comments at the US-EU Energy Council talks came a day after Russian-controlled gas supplier Gazprom heaped more pressure on the teetering Ukrainian economy by increasing gas prices by a third, in what EU officials said was "political pricing."

Ukraine will now pay $385.5 per 1,000 cubic metres of gas from the previous cut rate of $268.5.

In response to the pressure from Moscow, Kerry and his EU counterpart Catherine Ashton revealed plans for a root and branch review of the EU's dependance on Russian energy supplies and to help Ukraine diversify its gas sources.

The review follows a call by President Barack Obama during a visit to Brussels last week for Europe to reduce its energy dependency on Russia.

Ukraine consumes 50 billion cubic metres of gas a year, of which 20 billion are produced locally and 30 billion are piped in from Russia.

But more importantly, Ukraine's gas pipelines carry 65 of the 133 billion cubic metres used each year by the EU's 28 member-states, according to EU data.

Kerry and Ashton said developments in Ukraine had brought energy security concerns "to the fore" and that the United States and EU were now "considering new collaborative efforts to address these challenges."

One significant change is the expected arrival to the world market of US gas supplies, which have surged with the developement of shale gas in North America.

Once export licenses are approved, the United States "will supply more gas (to the global market) than all of Europe consumes today," Kerry said.

Yet a senior US administration official cautioned that the exports would offer little short-term relief to Russia-dependent European states, including Ukraine.

"It takes time -- we don't expect the first delivery of natural gas to take place before 2015," the official said, urging EU countries to take part in an "honest conversation" about energy needs.

-- The right price --

A challenge the EU faces is to put in place the infrastructure required to diversify supply sources and deny Gazprom, the Russian gas giant, the ability to dictate prices.

The EU's three Baltic states -- Estonia, Lithuania and Latvia -- are not connected to other EU gas pipelines, leaving them vulnerable to higher prices from Gazprom.

Lithuania pays between 30 and 40 percent more for Russian natural gas than the EU average, which a Baltic diplomat in Brussels said was retribution for the implementation of EU policies which Moscow had objected to.

Officials in Brussels said that the real impact of rapidly expanding US gas exports would be felt in a fall in global market prices, rather than any short-term supply of gas to Europe.

Yet bringing market gas prices to Ukraine hinges on beefing up gas networks and making them capable of 'reverse flows' -- piping it back up the line towards Ukraine and, eventually, the EU's eastern-most states.

While pipelines connecting Ukraine with Hungary and Poland are already capable of reverse flows, the technology is not yet in place for pipelines into Slovakia -- something which EU officials said could be achieved within six or eight months.

The modifications to the Slovakia pipeline could have a major impact on the EU's ability to supply Ukraine with energy, however they hinge on the willingness of the two Slovakia and Ukrainian companies responsible for the transport of gas to invest in the technology.

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