Monday, March 02, 2015

The EU rules that undid South Stream

It would go too far to repeat the whole drama that led to the cancelling of the South Stream oil pipeline project by Russia. One thing however stands out: the EU objected against the pipeline on the basis of its "energy competition" rules that separate the ownership of the pipes from the ownership of the gas.

The EU adopts here the cloak of protecting the interests of the EU consumer. However, in fact it is doing the opposite. These rules look like designed by lobbyists for LNG suppliers.

Pipelines are a much cheaper way to transport gas than LNG ships. However, the investment for pipelines is more fixed. Russia needs to spend many billions of euro's to build a pipeline just to arrive at the border of the EU. That piece of pipe is useless at the moment the EU decides to buy elsewhere. So if Russia builds the pipeline to the EU border without control over the following pipes it becomes dependent on the pipeline owners. That dependency can easily be abused. Russia makes itself also vulnerable to political blackmail.

The official rationale of the EU for these rules is that Europe shouldn't become too dependent on one supplier. However, they clearly favor LNG suppliers that are mostly based in the Persian Gulf. This suggests that a lobby from the Gulf and from the US - that hopes to become a LNG exporter in the future - has achieved a big victory in Brussels.

The EU has now declared that it wants to be informed on gas deals of its member states and that it wants to introduce standard contract clauses “to ensure that the EU speaks with one voice in negotiations” for energy contracts.

It seems to me the fox guarding the chickens.

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