Major-power Competition in Energy Cooperation between Europe and Russia

Based on the pursuit of their respective economic interests and complementary supply and demand relationship, energy cooperation between Europe and Russia has been an important factor in the Russia-eu-us triangle. Europe and Russia will continue to maintain and develop their energy relations and avoid any breakdown in their ties, while the Russia-us rivalry for the European energy market will only be further intensified.

At present, the European Union, the United States and Russia are engaged in some political jousting over energy resourcing between Europe and Russia based on their different interests and geostrategic orientation. The US and Europe share similar geopolitical interests, while Europe and Russia share economic interests in energy cooperation, and this dichotomy will have a major impact on the evolving trilateral relations among the EU, the US and Russia. Therefore, it is necessary to deepen our analysis of the major-power contention in Eu-russia energy cooperation and study its influence and future trend.

The Progress of Eu-russia Energy Cooperation

Energy cooperation between the EU and Russia has been growing since the end of the Cold War and has reached a high level, yet some areas are still troubled by bottlenecks.

Energy trade develops rapidly but reaches a ceiling

During the Cold War, the former Soviet Union piped oil and gas to the Federal Republic of Germany, Italy, Austria, and other Western European countries. Since Russia joined the world economic system and turned to a resource-driven development mode following the conclusion of the Cold War, its energy trade with the EU has developed rapidly.

Dong Yifan is Assistant Research Fellow at the Institute of European Studies, China Institutes of Contemporary International Relations (CICIR).

In terms of the oil trade, the former Soviet Union in 1990 exported only 34.567 million tons of oil to the European Community (EEC), accounting for 6.4 percent of the EEC’S imports. Since then, Russia’s exports to the European Union have increased rapidly, reaching a peak of 192 million tons in 2006, 5.56 times the number in 1990, accounting for 31.2 percent of the EU’S oil import volume, while the EU’S total annual oil import only increased by 14.4 percent during this period. Since then, the total volume of EU oil imports and overall imports from Russia have both declined, with respective volumes of 150-166 million tons and 521565 million tons between 2014 and 2017, but Russia’s share was still between 27.6 and 30.4 percent, far ahead of Norway (11.2 percent), Kazakhstan (7 percent) and Saudi Arabia (6.3 percent).1 In terms of natural gas, the former Soviet Union exported 111.7 billion cubic meters of natural gas to the EEC in 1990, accounting for 56 percent of the EEC’S total import volume. Since then, Russia’s export of natural gas to the EU remained basically stable, between 95.3 billion and 136.2 billion cubic meters from 1991 to 2015, and in 2017 the volume soared to 163.2 billion cubic meters. However, during this period, the total volume of EU natural gas imports rocketed, reaching 477.8 billion cubic meters in 2017, 2.4 times that of 1990, while the market share of Russian natural gas dropped to 34.2 percent. This figure indicated that during this period, the growth of EU natural gas demand was mainly taken over by other countries, such as Norway, with its 107.26 billion cubic meters of natural gas exported to the EU in 2017, a market share of 22.4 percent, and thereby becoming a competitor with Russia in the EU’S energy supply.2 However, Russia remains the largest energy partner of the EU. In 1996, Russia replaced Saudi Arabia to become the EU’S largest oil import source. From 1990 to the present time, Russia has been the largest natural gas import source for the EU (EEC).

Energy connectivity continues to deepen

During the period of the Cold War, in order to transport oil to Germany and Central-eastern European countries, the former Soviet Union built the “Friendship” pipeline (1964) via Belarus, the “Brotherhood” natural gas pipeline (1968) via Ukraine, the “Soyuz” pipeline (1978), and the “Northern Lights” pipeline (1969) to pipe oil to Poland, Latvia, and Lithuania through Belarus and Ukraine. After the end of the Cold War, Russia and Europe continued to expand infrastructure connectivity in order to diversify oil and gas trade routes. In terms of oil facilities, Russia completed the Sukhodolyrodionov oil pipeline and the Baltic oil pipeline to its Baltic port in 2001 and 2002 respectively, and expanded them twice in 2003 and 2005, with a capacity of 50 million tons per year, which greatly enhanced Russia’s ability to supply oil to the EU by tankers.3 In the field of natural gas, Russia continues to push pipeline construction through countries other than Ukraine.

The Yamal-europe pipeline through Belarus was completed in 1997 and expanded in 2005. The “Blue Stream” pipeline was built in 2005 to supply gas to Romania and Bulgaria through Turkey. In 2011, the “Nord Stream” pipeline jointly built by Russia and Europe across the Gulf of Finland and the Baltic Sea to Germany was successfully completed. In 2007, Russia also planned to build a “South Stream” pipeline to supply gas to Greece, Italy, Austria and other countries across the Black Sea through Bulgaria. The project in Russia started in 2012, but it was abandoned in 2014 due to EU anti-monopoly regulations. In December 2014, Russia decided to explore the possibility of cooperation with Turkey and other countries to build the “Turkstream” pipeline, which runs to Turkey from Russia through the Black Sea, and then extends to Bulgaria, Serbia, Hungary, Austria and other Central and Eastern European countries. Russia and Turkey signed an agreement in October 2016 and initiated the construction of Turkstream in early 2017. The Turkish section was completed in November 2018, and the Serbian section was also 3 Feng Yujun, Eurasian Transformation: Geopolitics and Energy Security, China Social Sciences Press, 2019, pp.220-221.

started in August 2018. The much debated “Nord Stream 2” is an important effort made by Russia to diversify gas transmission to the EU. As an extension of “Nord Stream” between Europe and Russia, the project is expected to increase Russia’s direct gas supply capacity to Germany from 55 billion cubic meters per year to 110 billion cubic meters. In June 2015, Gazprom signed the “Nord Stream 2” contract with Shell of the Netherlands, EON of Germany and OMV of Austria. However, the contract failed to be approved due to Poland’s obstruction as well as the EU’S lengthy anti-monopoly review. In 2017, Nord Stream 2 AG, a subsidiary of Gazprom, signed another “Nord Stream 2” construction contract with five European energy companies. Each European enterprise invested €950 million in the project, which combined accounted for 50 percent of the total cost, with the rest funded by Gazprom.4 Since then, there have been objections from the US and the EU, yet Germany still insisted that “Nord Stream 2” was a purely commercial project and continued to promote it. Germany, Sweden and Finland successively approved the commencement of the project. In September 2018, “Nord Stream 2” was officially started. By October 2019, 83 percent of the project had been completed. The Danish government also approved the construction in its territorial sea in October 2019. The whole project is expected to be officially completed in 2020.

Mechanism for intergovernmental energy dialogue has stalled

Before the end of the Cold War, Europe lost no time in utilizing the opportunity Russia could provide for the future energy security of Europe and tried to set up a political framework for energy cooperation with Russia. With the initiative by former Prime Minister Ruud Lubbers of the Netherlands, 50 parties from the EEC, the OECD, and Central and Eastern European countries signed the draft agreement of a European Energy Charter in 1991, which became a multilateral mechanism to promote the liberalization of world energy trade and investment in the future. In 1994, in order to attract 4 The five companies are Uniper and Wintershall of Germany, Engie of France, OMV of Austria and the Royal Dutch Shell.

investment and technology from the West, Russia signed the Energy Charter Treaty based on the European Energy Charter, and the Treaty entered into force in 1998.5 Europe and Russia also established an energy dialogue mechanism at the bilateral level. At the Eu-russia Summit in October 2000, the two sides signed the energy strategic partnership agreement, and decided to establish the Eu-russia Energy Dialogue, putting forward the goals of promoting energy investment, expanding market access, building an energy security framework, and advancing energy conservation and environmental protection. In 2001, the two sides, led by department-level units of the energy sector, set up four working groups to discuss specific technical issues in the areas of energy strategy, infrastructure and technology, investment, and energy efficiency. Since then, the EU and Russia have carried out energy dialogues at irregular summits, successively establishing a joint technology center, carrying out working group consultations, setting up the Permanent Partnership Council (PPC) on Energy, issuing the Eu-russia Energy Efficiency Initiative, and founding the Eu-russia Gas Advisory Council, among other implementation mechanisms.

However, the energy coordination mechanism between Europe and Russia did not play out expected. The EU hoped to build the Energy Charter Treaty into a framework to protect the liberalization of global energy trade and investment and regulate energy cooperation between the two sides. Russia, on the other hand, believed that the liberalization of energy infrastructure, energy investment and trade proposed in the Treaty would weaken its important role in natural gas trade activities from Central Asia to Europe, and diminish the role of its state-owned energy enterprises in the national economy. Russia’s dissatisfaction over the EU’S restriction of Russian investment in energy enterprises and infrastructure in the name of anti-monopoly concerns, and Russia’s displeasure over the EU’S continual request for Russia to increase its openness for investment in the energy industry have resulted in Russia’s failure to have the Energy Charter

6 “Russia,” US Energy Information, https://www.eia.gov/international/analysis/country/rus; “Energy Policy of Russia,” https://en.wikipedia.org/wiki/energy_policy_of_russia.

7 “Russia (RUS) Exports, Imports, and Trade Partners,” Observatory of Economic Complexity, https:// oec.world/en/profile/country/rus.