Governance of natural gas in the Eurepean Union : past, presence and future

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University of Amsterdam - Graduate School of Social Sciences

Governance of Natural Gas in the European Union

Past, Present and Future

MSc Thesis

Political Science: International Relations The Political Economy of Energy

Amsterdam, May 23rd, 2017

Author: Robert Ranke (10415947)

Supervisor: dr. M.P. (Mehdi) Amineh Second reader: dr. R.J. (Robin) Pistorius

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Abstract

Since the 1990s the domestic energy production of the European Union (EU) has been in continuous decline, while the energy consumption of the EU remained stable. This led to a significant increase in the import-dependency, from roughly 43% in 1990 towards little over 53% in 2014 (European Commission - DG Energy, 2016, p. 24). The import-dependency was especially problematic due to the lack of diversification, Russia was and still remains the main supplier of all fossil fuel energy sources. In the 1990s a common energy policy did not exist, Member States (MS) were on their own and the realization that the security of supply was becoming a greater theme over the coming decades initiated a change of perspective. The EU and its MS gradually realized that a common approach was necessary to counter the risks of the changing energy situation, in turn the EU energy governance changed significantly over time. The focus of this research is on the challenges concerning common natural gas policy that is created in the European Union as well as assessing how the EU strives towards a sustainable security of supply of natural gas.

This thesis performs a qualitative analysis. The methodological approach focuses on two aspects in general: first whether the EU is successful in constructing energy policy and an analysis of the role of various actors in this process – such as MS or market forces. Secondly an analysis of the outcome of such policy-making processes is performed, by addressing the strategies created including its effectiveness in terms of reaching the desired goals as well as the ability to translate the EU policy reality into a material reality. To study this properly a clear picture of the EU energy situation is painted in the first chapter including its evolution over time, followed by an analyses of the processes and functioning of the EU in the field of energy. This includes its products such as natural gas strategies and the Energy Union. Concerning the latter it is essential to assess whether the strategies that are drafted, have the ability to fulfil the goals stated in short- and long-term strategies such as diversification or increasing the security of supply sustainably. In order to do so, the potential of the regions and countries included in these strategies will be assessed as well, however these are limited to their role in the EU strategies with the exception of information to provide perspective such as energy situations or a scope of resources that are available.

In order to do so, various data sources are used. For statistical information, the ‘British Petroleum Statistical Review of World Energy June 2016’ and the ‘Energy Statistical Pocketbook 2016’ by the Directorate-General Energy of the European Commission are used extensively. Furthermore intensive literature studies contributed to this thesis as well as the necessary official documents of the European Union and European

Commission such as, but not limited to, the ‘Framework strategy on the Energy Union’; the ‘Energy Roadmap 2050’.

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This thesis concludes that energy policy within the European Union has evolved into a functioning governance framework that culminated in the creation of the Energy Union, that has the ability to construct common energy policy. Furthermore the EU has shown the ability to realize the strategies drafted by the Energy Union. Therefore it can counter challenges such as the security of supply and diversification (regarding natural gas) which are key issues for the EU. Problematic however is that while these strategies tackle goals of diversification and in turn do increase the security of supply, the

timeframe and capacity of these strategies still leave questions into the effectiveness of relieving dependency on Russia. Especially because the role of fossil fuels will still be significant over the coming decades. In the long-term strategy of the EU, the role of fossil fuels in 2050 will still be 45% and that will put more pressure on the EU to diversify and pursue a sustainable security of supply.

Another significant challenge stems from the shared authority over energy policy. This means that the policy-making still remains a multi-level process with MS having

significant power. This possibly limits the effectiveness or can impede the process due to e.g. conflicting interests. Furthermore the integration of EU policies may differ over MS, leading to diverging policies over differences of interpretation sometimes caused by market forces or interest groups.

Keywords: Natural gas, European Union, Energy governance, Energy strategy, Energy

security, Policy analysis.

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Acknowledgement

Studying the energy politics of the European Union, specifically concerning natural gas, has been a challenging, though nevertheless highly rewarding process. Writing this thesis has not been easy, however due to structure and the content of the research program called ‘The Political Economy of Energy’, it managed to keep me highly motivated and continuously eager to learn more and to improve my writing.

Completing this thesis would not have been able without the help of some people. First of all I would like to thank dr. M.P. Amineh for his tireless efforts in helping, guiding and troubleshooting me and all the other participants in the research program. Without his challenging targets, his well-structured program and his enthusiasm and ability to stimulate his students, this thesis would have been of a different quality. His feedback was vital in completing this thesis and ensuring that it keeps its focus. Secondly I like to thanks the second reader, dr. R.J. Pistorius, for his time and effort in assessing this thesis. Furthermore I would like extend my gratitude to my family, friends and girlfriend for their positive and unconditional support and their refreshing perspectives and questions about my thesis.

Robert Ranke June 23rd, 2017

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List of Tables and Figures

Tables

Table 1.1. Concepts and theories p. 21

Table 1.2. Variables p. 25

Table 1.3. Social entities and actors p. 26

Table 2.1. Proven resources by country ordered by size in percentages in 2015 p. 36 Table 3.1. Eastern European dependency on Russia in 2014 p. 52 Table 3.2. Western European dependency on Russia in 2014 p. 54

Figures

Figure A. Map of Europe p. 11

Figure B. Map of Caspian Sea region p. 12

Figure C. Map of Mediterranean region p. 13

Figure 1.1. Relationship between actors p. 25

Figure 2.1. Gross inland consumption in Mtoe (EU-28) in the period 1990-2014 p. 30 Figure 2.2. EU-28 energy production per energy source from 1990-2014 in Mtoe p. 32 Figure 2.3. Total EU-28 energy import dependency in percentages p. 34 Figure 2.4. EU-28 imports of natural gas in 2014 from non-EU suppliers p. 35 Figure 3.1. Ordinary Legislative Procedure p. 47 Figure 3.2. Final energy consumption of natural gas by sector p. 56

Figure 4.1. Route of the TANAP and TAP p. 66

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Maps

Figure A. Map of Europe

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Figure B. Map of Caspian Sea region

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Figure C. Map of Mediterranean region

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Chapter 1 Research design

The focus of this chapter is to outline the research design of the thesis. In doing so, essential topics such as the social relevance, the objectives and the research questions that are essential in this research are discussed and placed in the necessary theoretical framework.

This research focuses on the challenges concerning common natural gas policy that is created in the European Union (EU) as well as assessing how the EU strives towards a sustainable security of supply concerning natural gas.

Topics under study are among others the energy policy within the EU, how it has evolved over time, its current strategies and how Member States (MS) play a role in the EU energy governance. The EU domestic energy production is steadily in decline since 1990 (European Commission - DG Energy, 2016, p. 37), while at the same time the EU energy consumption did not undergo a similar change (ibid, p. 44). Consequently the import dependency of the EU has seen a rapid increase, from 43,1% for all fossil fuel energy sources combined in 1990 to a staggering 53,5% in 2014 (ibid, p. 24). For natural gas specifically, the increase is even higher, from 43,4% in 1990 to 67,4% in 2014 (ibid). This puts an increasing pressure on the EU and its MS in terms of security of supply.

How the EU reacted to this developing situation, will be analysed in this thesis. Likewise, the EU strategies and how these are drafted are under analysis. As well as who has authority, or can assert influence, over energy policy and how common strategies are realized in practice. What is especially important in this thesis is the capacity of the energy governance framework – and the Energy Union – to construct common internal and external natural gas strategies and the ability of the EU to realize these strategies. In essence these topics, specified to the case of natural gas, also appeal to a broader theme namely an Energy Union.

The research therefore will centre around the following main research question:

Has the European Union’s energy governance concerning natural gas proven to be successful in constructing an EU strategy and translating EU goals into (policy) reality on

both the national and the European level?

In order to answer this question properly, several sub-questions will be answered in various chapters. The sub-questions are:

1. How does the current energy situation of the European Union and its Member States look?

2. How has natural gas supply, consumption and reserves changed over time on the global, EU, and national level?

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3. How does the energy policy framework of the EU look?

4. What is the relation between Member States, market forces and the EU in energy policy-making?

5. What are the EU’s strategies to opening up natural gas supplies from the Caspian Sea, the Eastern Mediterranean and North Africa and are they able to fulfil the strategic goals of diversification and increased security of supply?

6. How does the EU assist Member States to implement the EU strategy? 7. How can the EU ensure compliance by all Member States?

8. Has the EU proved to be successful in steering towards changes in the domestic energy mix of Member States?

In essence this thesis analyses the functioning of the Energy Union, by assessing the construction of natural gas policy and how such policies and strategies are realized within the European Union and its Member States. By analysing this case, more specific challenges concerning further integration may come to light and create a more

compelling puzzle surrounding the possibilities and challenges of common natural gas policy as well as the functioning of the Energy Union. Furthermore the interaction between EU-MS-Market forces in the policy-making process are key to understand the governance framework in the field of energy. Analyses into the European Union’s multi-level governance framework concerning policy-making in the field of energy also seems to be lacking in current literature.

1.1. Literature review

1.1.1. Green paper (GP)

In the late 1990s the EU was becoming more and more concerned about its future energy demands and the manner in which it could protect themselves for and from an increasing import-dependency. At that time they coined the energy supply of the European Union one of its “structural weaknesses”. They called upon an active energy policy within the EU because of its growing dependency and the decrease in power it can assert and has in this field (European Commission, 2000, p. 2).

In the Green Paper (GP), the determination resonated to create a long-term energy policy which ensured “the uninterrupted physical availability of energy products on the market, at a price which is affordable for all consumers (private and industrial), while respecting environmental concerns and looking towards sustainable development” (ibid). The goal was to reduce the risks linked to an energy dependency.

In 2000 the EU already reserved room to increase the natural gas share in the total energy consumption at the cost of coal in the production of electricity for example for environmental reasons.

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This however merely replaces old concerns. When the role of natural gas is rapidly increased, this would replace one structural weakness with another (ibid, p. 44). Natural gas also needs to be imported. Another challenge that natural gas brings along is the pricing method. In the late 1990s it was fully linked to oil prices, which was justifiable when natural gas became a more important energy source. Nowadays this pricing method is undergoing increasing criticism (ibid). Currently we experience changes concerning the pricing, and especially see an increase of spot-pricing – even by

Gazprom. Unlike the hopes voiced by the EU in their GP that there may come an end to index-linking in favour of spot-pricing, which increases flexibility and competition on the market, oil-indexation of natural gas still existseven though it faces significant

competition (Theissen, 2014).

The EU was quite realistic in its GP in 2000, stating that the EU must take into account the one-third share Russia has in the world gas-reserves and therefore accepting some dependency on them, claiming that a “framework of partnership” would be an important step benefiting a stable security of supply. While the EU was realistic on the supply-side possibilities the EU has, the GP also stated that it is desirable to create new import routes via pipeline or LNG in order to diversify the market.

1.1.2. Security of supply

Creating a situation of sustainable supply security and decreasing the

import-dependency on a small number of actors, are also reasons for the EU to accelerate the search for new pathways through which the import of natural gas is possible. Not only because of the volumes of the global proven reserves, but also due to the great diversity of countries in which these reserves are situated and the influence and opportunities of new unconventional forms of gas, such as shale gas and Liquefied Natural Gas (LNG). This potential diversity of suppliers however is not yet cultivated, as can be seen by these statistics: in 2014 the import-dependency of the EU-28 concerning natural gas was 67,4%, the Russian share of all the gas imported by the EU-28 was a staggering 37,5% (European Commission - DG Energy, 2016, p. 26). Norway came in second with 31,6% of total natural gas imports followed from a far by number three Algeria with 12,3%. This shows that only a few suppliers, of which Russia is by far the most crucial, are

responsible for more than half of the total natural gas import. Important to note however, is that the potential diversity of natural gas suppliers is much greater and can potentially be cultivated. In following chapters, these options will be discussed in-depth.

While this dependency (concerning both total imports as well as on specific suppliers) of gas on first sight might seem off-putting, it is not much better regarding other energy sources: the overall import dependency in 2014 for petroleum products was even higher with 87,4% and for solid fuels it was 45,6% (European Commission - DG Energy, 2016, p. 24). Other fossil fuels however are characterized by a lower diversity of suppliers who have relatively high amounts of reserves: e.g. 7 countries (Canada, Venezuela, Iran,

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Iraq, Kuwait, Saudi Arabia and the United Arab Emirates) account for 73% of the proven global oil reserves (BP, 2016, p. 6).

We can therefore argue that there is a growing risk concerning the security of supply of energy, or as Doukas et al. (2011, p. 417) state: “European energy demand and import dependence continues to increase and primary energy sources are mainly used to cover European energy needs, making clear that the risks of energy security of supply and their minimization is a critical issue”.

The long-term strategies of the EU includes two essential goals: a higher share in the overall energy consumption for domestically produced renewable energy sources (RES) and a significantly higher energy efficiency (European Commission, 2016). Both goals imply a decrease of the overall dependency on fossil fuels and as a consequence on foreign suppliers. The dependency on fossil fuels and its suppliers will, at least for the short- and medium-term, still exist, as can be seen in the 2030 and 2050 roadmaps. The ambitious 2050 targets aim for a 55% share reserved for RES in the energy mix, still leaving 45% for fossil fuels. The transition towards gas must therefore be seen as a stepping stone towards higher domestic production of RES and decreased dependency on fossil fuels overall, while at the same time taking environmental risks of hard coal for example into account. It cannot be seen as a transition which on itself ensures a

sustainable security of supply because in the case of natural gas this is difficult due to the import-dependency and the distribution of global reserves (BP, 2016). This stepping stone does however offer options to ensure a more diversified security of supply

compared to the current situation via new pipeline investments opening up new import and transit paths and e.g. increased LNG import capacity (Holz, Richter, & Egging, 2013, p. i).

1.1.3. Current European situation

Currently the EU has set out clear targets to change their energy system radically. Three different, however related, energy strategies have been published which concern specific targets for specific timeframes: the short- (2020), medium- (2030) and long-term (2050). The short-term goals are known as the 20/20/20 strategy. These entail three goals: the increase of RES consumption by 20%, the increase of energy efficiency by 20% and the reduction of greenhouse gas (GHG) emissions by 20% (European Commission, 2016). The medium-term target further heightens these targets by respectively 27%, 27% and 40% and the long-term target is the reduction of GHG emissions by 80-95% below 1990 levels (European Commission, 2016, p. 1).

These targets are specific and primarily focused around decreasing the fossil fuel energy consumption and demand. While these targets do not specifically mention a transition towards natural gas in the meantime, specific policies and priorities mentioned to reach the targets can provide more clarity in the manner this transition is supposed to unfold.

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Important to note is that while the final targets do not reflect an increasing share of natural gas in the energy mix, the European Commission (2016, p. 12) did state in their strategies that “gas will be critical for the transformation of the energy system”. This reflects the importance and the role that is given to natural gas. These roadmaps

however open up more applications for natural gas, such as being a potential substitution for many coal and oil applications, e.g. in the power sector (European Commission, 2016, p. 12). The EU is clear that there is work to be done: the EU states that “natural gas will continue to play a key role in the EU’s energy mix … and gas can gain

importance as the back-up fuel for variable electricity generation” (European

Commission, 2016, p. 13). This is underlined by specific needs that the EU wishes to see fulfilled such as more diversified imports – both pipeline gas and LNG – while in the meantime improving the European gas network by becoming fully interconnected (ibid). This should ensure that natural gas will be an advantageous fit which is still competitive towards other fuel types within the European energy system.

1.1.4. Energy policy framework

In this thesis the policy framework as well as the broader legislative process of the EU regarding energy matters will be discussed in-depth. The reason is that there are many questions surrounding the functioning of the EU in policy-making, ranging from issues such as where the formal authority lies to propose or amend certain policies, or the influence independent MS have, to the manner in which influence can be exerted over the EU by market forces or other actors. Furthermore, over time much has changed within the EU concerning energy governance, the mandate has broadened and the Commission was able to adopt and implement proposals for an “Energy Union” that aimed to streamline European energy governance.

Where in the Treaty of Lisbon certain energy policy matters changed and “main aims” of policy were formalized (European Union, 2007, p. 176). These were primarily set with the establishment of an “internal market” for energy in the back of the EU’s mind. However, also clear limitations are noted in the Lisbon Treaty, such as the domestic energy mix or resources of MS and the influence the EU has over that.

1.1.5. On the Energy Union

Since the mid-2000s the European Commission (EC) has been steadily increasing their competencies in the internal and external – however the latter in a lesser fashion – dimensions of EU energy policy (Maltby, 2013, p. 435). This has been done by successfully framing problems within the energy market as problems which are best handled on the supranational level, such as the rising import dependency and the necessary diversification of supply. The supranational targets have been sparked after the Ukrainian crises brought the dependency of the EU on Russian gas to light,

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After the Third Energy Package in 2009 – aiming to further open the EU gas and

electricity markets -, it took some time before progress was made regarding further steps to integrate energy policy. It was in 2014 that the discussion sparked again when the Polish Prime Minister Donald Tusk argued in a published article to speed up further integration to “end Russia’s energy Stranglehold” (ibid, p. 377). He suggested that the EU needed to refocus from climate and environmental policy towards issues of supply security and solidarity between MS, which concern the Central and Eastern European countries (CEEC) more than the Western European countries. Tusk even proposed a six-dimensional plan focusing on: 1. Jointly negotiating energy contracts with Russia; 2. Solidarity mechanisms; 3. Building energy infrastructure; 4. Full use of the FF available; 5. Diversification of external suppliers; 6. Reinforcing the energy community (Austvik, 2016, p. 377).

Various politicians from the CEEC wanted this proposal to receive follow-up and in a way that happened, however in a slightly different form. The EU proposed an Energy Union that was focused on “secure, affordable, and climate-friendly energy for citizens and businesses” instead of addressing the worries of the CEEC. It had five dimensions: 1. Secure energy supplies; 2. Internal energy market improvements; 3. Energy efficiency increase; 4. Emissions reduction; 5. Research and innovation (ibid).

In essence the latter focused on improving the functioning of the single market without simultaneously addressing the worries of the CEEC, because such measures proposed by Tusk were removed. In 2016 when the so called Gas Package (EU, 2016) was

published, the worries of the CEEC were taken into account again: this added a solidarity mechanism between MS for crises, a regional policy mechanism instead of national-level policy and importantly it stipulated that contracts with external suppliers by companies should be notified to the MS and the EC if they are relevant to the supply security (Austvik, 2016, p. 378; EU, 2016).

Previous research however also found difficulties in further integrating the Energy Union. One important challenge concerning energy policy integration is that in the EU common principles are “usually implemented in a non-politicized regulatory progress and the convergence pressure and policy harmonization thought to follow on MS does not always lead to the same policy” (Austvik, 2016, p. 378). This follows from the heterogenous preferences that exist in the EU, both on the national and on the regional level. A further in-depth analysis of the functioning of, and gradual evolution into, the Energy Union, as well as a broader view on the governance framework including other involved actors and their influence will be discussed in chapters three and four.

1.2. Theoretical and conceptual framework

Several concepts will be analysed in this thesis, from the governance framework in existence in the EU to the interaction between EU, MS, and Market-forces towards the

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energy security of supply specified to natural gas. Not all concepts can be adequately assessed using the perspective of only one theory, therefore various approaches will be used to ensure tailored analyses. The overview can be seen in Table 1.1. This thesis will use these theories as a framework by which the various subjects are viewed. An

example is the governance framework in the European Union for which the Multi-Level Governance (MLG) theory argues that there are actors on various levels (the regional, national, supranational as well as governmental and non-governmental actors) that have influence on the policy-making process. While some theories address the EU as the primary force behind strategies and policy and exclude other entities, the theoretical framework provided by MLG offers the opportunity to include non-governmental entities in the process such as market forces.

Table 1.1. Concepts and theories

Subject Main theories used per subject

European Union governance framework Multi-level Governance & Transition Management

EU-MS-Market interaction Multi-level Governance & Transition Management

Energy security of supply Resource Scarcity Model

1.2.1. Resource Scarcity Model

The resource scarcity model is based on three types of scarcity; demand-induced

scarcity, supply-induced scarcity and structural scarcity (Amineh & Houweling, 2007, pp. 374-376).

Demand-induced scarcity is caused by the following three reasons: 1. Rising per capita income in high-income countries and late-industrializing countries; 2. Population growth in consuming countries; and 3. Technological change resulting in increased energy demand. In short this boils down to the following: more people equal a higher energy demand on the one hand and the rising income and subsequent living standards of some increase their demand further, on the other hand technological change leads to a higher energy demand overall.

Supply-induced Scarcity is caused by the simple reality of reserves being depleted. There is a finite amount of natural gas in the world, simply meaning that every kiloton that is extracted is one kiloton closer to zero reserves in the world. Market forces

determine the price and when there is less supply, though the demand increases, simple economic logic dictates that this drives up the worth of what is left. This supply-induced scarcity should be studied in its own right according to Amineh & Houweling (2007) because it may provoke a competition between major powers over reserves or territory where reserves are located. Or in other words, due to the importance of energy it may not only lead to an increase in price for fossil fuels, but different forms of action as well.

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Structural scarcity differs from the aforementioned however, because this is a supply-induced scarcity by “the deliberate action of a major power, by non-state actors such as major oil companies” or producer cartels such as the OPEC (Amineh & Houweling, 2007, p. 375).

This model however will undergo change. Not necessarily in terms of concepts, though in the dimensions of scarcity. Seeing that the nature of new renewable energy sources, such as wind or solar power, have an infinite reserve the nature of scarcity will change. The use or production of such resources demands a different type of resource: space and appropriate locations.

This however is not necessarily applicable to this research, though it does raises

questions on the changing nature of structural scarcity when natural gas will become the most prominent fossil fuel and the reliance of major powers on exporting it will become greater.

It is this model which will serve as the basis for the study into energy scarcity and energy security concerning the increased role of natural gas in the energy mix of the EU.

1.2.2. Multi-level governance

In this thesis MLG plays a central role, due to the fact that the role of both EU institutions as well as that of MS, non-central state authorities and NGOs are considered. Therefore it takes the full complexity of EU decision-making into account (Rosamond, 2007). MLG acknowledges both the nature of institutions of the EU together with the role that is played by the single nation state, and therefore the complexity of the EU decision making processes (Rosamond, 2007).

The origins of the idea of MLG date back to the early 1990s when it was proposed as a concept that is useful to understand some of the dynamics in decision-making within the EU (Piattoni, 2009, p. 165). Until that moment, neo-functionalism and

inter-governmentalism were the most prominent explanatory theories. The logic which characterized both theories was that if one could explain the creation and the drivers of further integration of the EU, one could subsequently explain the functioning of the EU and this logic was disputed by MLG (ibid). Marks (1993, as cited in Piattoni, 2009, p. 165), introduced the idea that not only institutions or market-forces were actors, but also actual people, with actual ideas on different levels played a role. He indicated three “different analytical levels”: 1. Political mobilization (politics); 2. Policy-making arrangements (policy); and 3. State structures (polity).

MLG also drew attention towards non-central state authorities and non-governmental organizations exerting power over, and stepping into the realm of the non-domestic political arena: the sub-national, national and supranational levels all interact and cross-over into each other’s distinct areas and all claim a share in policy-making (Piattoni,

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2009, p. 166). Especially the role of sub-national authorities or even simpler, actors different from national and supranational level is highlighted and receives

acknowledgement by MLG.

In my thesis this assumption of multi-level policy making is important. This is interesting and relevant in energy policy due to the lack of a centralized authority. Energy policy goals are partly set on the supranational level, in cooperation with the (sub-) national authorities and non-governmental interests which cross-over territorial boundaries. In the third chapter the framework of MLG will be used for an in-depth analysis into the EU policy-making process and into the role of various actors on multiple levels in this process, including its implications in the field of energy governance.

1.2.3. Transition management

The core elements of the Transition Management theory (TMT) are: long-term flexible visions serving as a framework for short-term agenda’s and action; systems-thinking because it spans over multiple domains, phases and levels; anticipating and adapting on future and historical visions; and a characteristic multi-actor approach (Loorbach, 2007, p. 81).

TMT is a multi-actor process, not only comprised of government-related parties, but also business organizations, societal parties, think tanks and intermediary organizations can and should participate. It however is not simply a process in which people can sign up, it consists of three key characteristics: only participants that adhere to specific roles, competences and ambition for innovation will be selected; the process focuses from the beginning on long-term process of sustainable development and rely on adaptation from all parties to those goals; and lastly the inherent goal of TMT is to stimulate transition in the societal system by keeping an eye on change and adapting to it, or in other words is actively trying to “destabilize a societal system”, for this approach small but firm support is needed in the beginning which can only be gradually broadened (Loorbach, 2007, p. 89).

1.2.4. Relation to research

In order to use these theories accordingly, it is important to first of all carefully assess the energy governance framework in existence in the EU with the perspectives of TMT and MLG. The next step is to determine whether the governance framework and policy-making process are in line with the essentials of TMT and whether the process

resembles the multi-level process MLG theory depicts. When this linkage between the governance framework and the natural gas strategies of the EU with the theory is concluded we can determine what challenges or opportunities are. Furthermore the theoretical perspective given by TMT and MLG can potentially provide a useful framework to give recommendation for future research.

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1.3. Hypotheses

Based on the literature study and the objectives of this research in answering the research questions, three hypothesis are drafted. The hypotheses address various essential aspects that are under research and will be tested by answering the various sub-questions. The hypotheses of this thesis are:

1. The energy policy goals concerning natural gas will not be met due to the lack of a unified EU energy policy.

2. The European Union is not able to further integrate internal and external energy policy

3. The EU will not be able to diversify the natural gas supply, decreasing the willingness of Member States to intensify the natural gas role in the energy mix.

1.4. Research Method and operationalization

The research method will be qualitative in its approach. It will be applied to give insight into the challenges of natural gas strategies in the EU and the broader picture of EU energy governance framework and its functioning. It will focus on the ability of the EU to translate the policy reality of natural gas strategies into a material reality and whether this is realistic. Furthermore it focuses on the (conflicting) interests of Member States in the process, the different levels on which policy is made – including the role

non-governmental parties – and the dependency relation between the EU and suppliers such as Russia and other resource rich countries (RRC). It will in doing so serve the

understanding of the current energy profile of the EU and how this is impacted by the strategies and consequently whether the strategies are even realistic or feasible.

This will be done using peer-reviewed journals (Energy, Energy Policy, Energy Sources, Geopolitics, Climate Policy, and so on), policy documents from both MS as well as the EU (e.g. Roadmaps 2020, 2030 & 2050). Also reports from the European Commission (EC) and others will be used such as, but not limited to, ‘A Framework Strategy for a Resilient Energy Union’ (2015), ‘Energy Challenges and Policy’ (2013), ‘on an EU strategy for liquefied natural gas and gas storage’.

Furthermore these analyses of overall trends in energy consumption, the share of energy sources et cetera which are necessary to underline various analysis will be based on statistics supplied by various sources. The primary statistics used are acquired from a multitude of institutions, however the most prominently used sources are the European Commission’s Directorate-General Energy ‘Energy Statistical Pocketbook 2016’

(European Commission - DG Energy, 2016) and British Petroleum’s ‘Statistical Review of World Energy June 2016’ (BP, 2016).

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Table 1.2. Variables

Dependent variables Independent variables

Policy-outcome EU level EU-actor behaviour (i.e. EU institutions) Policy-outcome Member State level National level-actor behaviour (i.e. Member

States)

Market forces behaviour (i.e. Key economic

sectors)

Energy dependency

As can be seen in the table 1.2., the relationship between the variables can be found in the behaviour of various actors and its impact on the dependent variables, namely the practical result, i.e. the policy outcome. The unit of analysis in this thesis will therefore be the threefold. It focuses on the interactions between European Union institutions,

Member States and other actors such as Market Forces on the national as well as the European level. Furthermore the eventual policy outcome will be under analysis, i.e. common European natural gas strategies.

The relation however between these actors is two-directional, while market forces can influence behaviour of institutions on the European level, it also goes the other way around. That is the difficulty in research into policy-making, because of the

multi-directional relation of influence and interaction it is highly difficult to pinpoint the origins. The relation between the actors is visualized in figure 1.1.

Figure 1.1. – Relationship between actors

In short, the difficulty in researching the actors present in the thesis is that in reality, many actors are both dependent and independent parties. Take the EU institutions for

EU-level behaviour EU Policy-outcome Market-level behaviour National-level behaviour

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example, while for example the Directorate-General Energy is ultimately an autonomous and independent actor formulating their own policy, before doing so they are possibly highly influenced by other actors.

1.4.1. Social entities and actors

In this thesis, the overall energy governance framework will be under analysis. However, this is a multi-level process with many actors involved. In table 1.3 an overview is given of some of the foremost important actors.

The key actors are the European Institutions such as the Commission and Parliament, as well as various MS. Other important actors are the RRCs, such as Russia, but also Algeria, Qatar and the Caspian littoral states. In various following chapters the appropriate actors will be elaborated on further.

Table 1.3. Social entities and actors

European Union institutions

Member States Key economic sectors Resource-rich

countries

European Commission

Germany Oil & Gas Russia

European Parliament France Households Norway Council of the EU Italy Industry Algeria Directorate-General

(DG) Energy

Eastern-EU region Services Qatar

European Investment Bank (EIB)

Netherlands Fishing, agriculture, forestry and non-specified

Libya European Environmental Agency (EEA) Transportation Nigeria 1.4.2. Definitions

Import definitions that return often in this thesis are:

- Security of energy supply: “commonly defined as availability of demanded energy volumes at a reasonable price” (Le Coq & Paltseva, 2009)

- Import dependency: “The ratio of the sum of net positive imports over all foreign suppliers to the domestic consumption of the respective energy in the country (/EU-28) considered” (ibid)

- Demand-induced Scarcity: the effect that the “per capita availability of oil and gas from a fixed stock will … begin to decrease” due to a rise in global consumption (Amineh & Houweling, 2007, p. 374).

- Supply-induced scarcity: this is caused simply due to decreasing stocks, supply- and demand-induced scarcity “in reality interact with each other” (ibid, p. 375).

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- Structural scarcity: this concerns a scarcity that is induced by “the deliberate action of a major power, by non-state actors such as major oil companies, or by producer cartels such as the Organization of Petroleum Exporting Countries (OPEC)” (ibid).

1.5. Structure of the thesis

The thesis is divided into four separate chapters, excluding this introductory chapter. The next chapter addresses the energy profile of the EU and of its MS. All energy sources are taken into account to paint the full picture of the energy situation, however natural gas will be discussed more thoroughly due to its role in this thesis. The chapter

furthermore addresses the changes that the EU has encountered over time in its energy profile.

In chapter 3, a closer look is taken into the policy-making process within the EU as well as the involved actors. The chapter consists of two sub-sections, one that merely looks at the EU energy governance structure, i.e. how is policy or are strategies drafted in the EU and by whom with what mandate. The evolution of these processes over time is also taken into account, as it is highly important that the broader framework in which the current governance structure was created is known. The second sub-section addresses conflicts between the various actors such as MS, but also market forces. This is

concluded by an overview of the most urgent conflicts of interest that exist within the EU and with an eye for the general process of energy policy formation.

In the fourth chapter the European Union’s strategy concerning natural gas will be analysed further. It will first discuss what various strategies of the EU actually entail and more importantly whether they are feasible in terms of reaching the goals. Addressing the feasibility also demands a deeper understanding of the supplying regions, therefore these regions will also be addressed as well as the infrastructural necessities. Secondly it will discuss the role of MS in the strategies and how the EU and MS implement these strategies. This is followed by a conclusion of the chapter in which the sub-questions are answered as well.

Finally in the fifth and concluding chapter, all the findings from the thesis are presented. The chapter addresses first the overall thesis, followed by the objectives and how the theory is used throughout the thesis. The chapter is then concluded by addressing the tested hypotheses as well as the findings on the main research question.

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Chapter 2 Energy situation and policy of the EU-28

The focus of this chapter is the energy situation of the European Union (EU) and its Member States (MS). By painting a clear picture of what the current situation is and how it has evolved over time, the context in which the research takes place will become clear. This research is put in the right perspective by addressing the energy consumption focussing especially on natural gas, the domestic production, the import and export of energy sources including the dependency on external suppliers and thus by elaborating on the energy scarcity.

Government responses such as emerging energy policy concerning the security of supply for example, are also included to create a full picture of the situation in which the EU and its MS find themselves.

By addressing these topics, two sub-questions will be discussed and answered, namely the following: 1. How does the current energy situation of the European Union and its Member States look? 2. How has natural gas supply, consumption and reserves changed over time on a global, EU, and national level?

The chapter is structured by first addressing the energy mix, with in-detail analyses of the domestic energy production and the import-dependency and how it evolved over time. After which the current energy suppliers and the resource rich countries are discussed in order to address what countries the EU depends on. This is followed by various policy responses of the EU over time, with a focus on responses that stem from questions surrounding the security of supply. Due to recent political changes in the EU, potential changes in the energy mix due to the Brexit will be discussed shortly. The chapter is concluded by a section that answers the sub-questions that are central to this chapter.

2.1. EU-28 energy mix

To understand the implications of the energy dependency in specific energy sources, it is important to first of all know the overall energy mix within the EU-28. Important to note is that in this part, only primary energy sources (which can be used directly, e.g. coal, oil, natural gas, the sun and wind) will be taken into account and secondary energy sources (which come from the transformation of primary energy sources, e.g. electricity which can come from electric plants transforming primary energy into electric energy) will not be taken into account.

In 1995 the EU-28 gross inland consumption was totalling 1.679,9 Mtoe (Million tons of oil equivalent), more than half came from petroleum and (petroleum sub-)products (39%) and natural gas (20%), solid fuels accounted for 22%, nuclear heat for 14% and

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By 2014 the energy mix changed quite significantly, especially for solid fuels (coal). The total primary energy used has dropped to 1.604,6 Mtoe and however the share dropped a bit, it still consisted for more than half out of petroleum (34,5%) and natural gas

(21,4%). The share of solid fuels dropped from 22% to 16,7% in 2014 and the share of renewables increased by 8% totalling 12,5%, nuclear heat remained the same at 14,1% however there was a newcomer: waste, that accounted for 0,8% of the total primary energy consumed (ibid). The change in energy mix from 1990 until 2014 in Mtoe can be seen below in figure 2.1.

Figure 2.1. Gross inland consumption in Mtoe (EU-28) in the period 1990-2014

source: European Commission - DG Energy, 2016, p. 44

The changes over time, as made visible in figure 2.1, pose some questions as to why big variations have occurred, such as the steep rise and subsequent decline of natural gas consumption from 2008 until 2011 or the long-term decline of solid fuels and petroleum and products. Eurostat (2017) offers some theories on these questions. Regarding the fluctuation of natural gas consumption from 2008 until 2011 they argue that possible explanations for the decline in 2008 can be the financial crisis followed by a rise in consumption after economic activity increased again. The last decline of consumption can stem from the uncertainty over the security of supply from Russia (ibid). Concerning the overall trend of declining consumption of solid fuels and petroleum and products and

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the simultaneous increase of natural gas, they argue that this may “reflect a move away from the most polluting fossil fuels” with short increases in consumption possibly

reflecting low oil prices (ibid).

Important in the energy mix however is to also address the inland production of the EU-28 and how this is spread across energy sources and across the MS to understand the broader energy situation within the EU-28.

2.1.1. EU-28 production per energy source

Within the EU-28 the total production of (fossil fuel) energy sources has been in structural decline from 1995 until now as can be seen in figure 2.2. Starting at 969,1 Mtoe in 1995, to 914.3 Mtoe in 2000 to 786,1 Mtoe in 2014 (European Commission – DG Energy, 2016, p. 174; ibid, p. 36). However the internal production is not an equal

representation of our own total consumption. Important to note is that by comparing the production composition with the consumption composition, the shares are based on different final numbers, e.g. nuclear energy production is relatively high within in the EU production mix, however the role of nuclear in the EU consumption mix is relatively low. In short, comparing these percentages is not possible. It merely means that the domestic energy production is comprised of a different mix of energy sources than the eventual consumption and therefore we cannot simply compare production with consumption. This however is useful to underline how the production does not relate properly to the

consumption and in case of fossil fuels the domestic production is even more dyer than when comparing total production.

If we take the year 2014, we see that the total production of the EU-28 was 786,1 Mtoe. Of the 786,1 Mtoe energy produced, 28.8%, or 226.1 Mtoe, concerned nuclear fuel. This clearly is a relatively higher number than the 13% share that nuclear heat has in the gross inland consumption. The internal production of solid fuels concerned 19,1% of the total production and is also relative higher than the share of inland consumption 17%. The natural gas production amounted to 14,9% of the total production and petroleum and products accounted for 10,7% of total produced energy. Leaving the production of

renewables with 24,9% of the total inland produced energy. It is clear that the overall domestic production of fossil fuels is relatively low compared to the fossil fuel

consumption in the EU-28.

Now we know how the inland production of the EU-28 looked in 2014, it is important to look into the shares of various countries in energy production to see who the winners and the losers are.

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Figure 2.2. – EU-28 energy production per energy source from 1990-2014 in Mtoe

source: European Commission – DG Energy, 2016, p. 37

Over 75% of all solid fuels produced in the EU-28 in 2014 are produced by three countries: the Czech Republic (11,29%), Germany (29,42%) and Poland (36,03%). Fifteen other EU countries share the remaining quarter of production (European Commission - DG Energy, 2016, p. 36).

The production of natural gas in the EU-28 is, likewise to the other fuels, primarily done by a handful of countries. In this case the Netherlands (42,94%), the UK (28,07%), Romania (7,48%), Germany (5,85%), Italy (5,00%) and Denmark (3,55%). The rest of the countries of the EU-28 share less than 8% of the total production (ibid).

Regarding petroleum and products, the division of production is even worse. The UK, which are leaving the EU, account for 48,54% of the total production of the EU. Followed by a fragmented landscape with the biggest producing country following being Germany at 10,11% and Denmark at 9,47%. The Netherlands (7,31%) and Italy (7,14%) are

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almost at the same production level and only Romania produces (5,01%) a significant amount. The rest of the EU-28 countries are producing only smaller amounts (ibid). The landscape for renewables is very fragmented and positive in that sense, ranging from the biggest producer, Germany (18,40%), to Italy (12,07%), France (10,73%), Estonia (9,19%) to Sweden (8,51%) and smaller producers. All countries produce

renewable energy, however the shares differ among the MS. These figures however are likely to change significantly due to the energy strategy to which the EU-28 countries have committed, the 20-20-20 targets.

In short, the inland production is not representative of the inland consumption. Furthermore, the total Mtoe of inland production is clearly below the gross inland

consumption and this difference has been growing steadily. Therefore we can clearly see a growing dependency over time on outside suppliers. What is even more apparent, is that when the inland production does not reflect the inland consumption in the slightest and the more important energy sources in the energy mix (petroleum and gas) are relatively underrepresented in the production share, the overall energy dependency is of an even bigger importance than it looks by the total production numbers. Furthermore, the inland production is also unequally divided over several countries, with a handful of countries standing out with great amounts of production of certain energy sources and others standing out in their overall dependency on other countries for all energy sources. This shows the need to dig deeper into the energy dependency of the EU-28.

2.1.2. EU-28 energy dependency

The energy dependency within the EU-28 has grown steadily for the last decades. In 1995 the import dependency of the EU-28 for natural gas was only 43.4%, however the rate of growth was high. Only five years later in 2000, the dependency would be 48.9%, in 2010 62.2% and in 2014 – the latest data available – it has risen to a staggering 67.4% (European Commission - DG Energy, 2016, p. 72). If we take 1995 as the

referencing year, an overall increase of 155.4% in natural gas dependency can be noted. There are as expected differences within the EU-28. There were net exporting countries in 2014 such as Denmark (-46.7%) and the Netherlands (-73.1%), but also highly

dependent countries such as Lithuania (103.8%), Slovakia (104.8%), Estonia (103.5%), France (103.6%) – dependencies over 100% are due to the need to build up stocks - Germany (89.8%) and Italy (89.7%) (ibid). While there are variations between MS, the average dependency as well as many separate cases, show a great dependency on foreign suppliers.

For other energy products the situation does not differ much, petroleum dependency is even higher for the EU-28 with an import dependency of 87.4% in 2014, 118% higher than the 1995 rates (European Commission - DG Energy, 2016, p. 70). Hard coal

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dependency of the EU-28 is 67.9% with a staggering increase in dependency of 228.6% as opposed to the 1995 dependency rate (ibid, p. 69). The reason for this dramatic increase in hard coal dependency comes from countries that became increasingly dependent on foreign suppliers, countries such as Poland that went from being a net exporter in 1995 (-31.7%) to being a net importer in 2014 (1.0%) and the United Kingdom that went from relatively low dependency in 1995 (21.8%) towards 86.8% dependency in 2014 (ibid). The solid fuels dependency – to which hard coal belongs – also grew by 212.6% in reference to the 1995 rates to an import dependency of 45.6% for the EU-28 (ibid, p. 68).

The long-term variations in total energy import dependency of the EU-28 can be found in figure 2.3, where this is both shown in percentages for all energy products together as well as split out to the various energy products.

Figure 2.3. Total EU-28 energy import dependency in percentages

source: European Commission - DG Energy, 2016, p. 24

One thing becomes quite clear by analysing the data: the EU-28 is highly dependent on external energy suppliers for all energy sources, natural gas included. This is one of the core challenges for the EU, seeing that according to the EU strategy for 2050, the share of fossil fuels will still be 45% in 2050 (European Commission, 2016, p. 8).

2.2. Energy suppliers

While we now accurately know how the energy mix of the EU-28 developed over time and what the current situation is concerning energy dependency, we need to address the suppliers that profit from this dependency.

The import dependency of the EU for natural gas, crude oil and solid fuels is biggest on Russia, with respectively 37.5%, 30.4% and 29.0% of all imported sources coming from them (European Commission - DG Energy, 2016, p. 76). However Norway is for both natural gas and crude oil the second biggest supplier with respectively 31.6% and 13.1% export. The solid fuels landscape is more balanced: Russia, Colombia and the United States are the biggest exporters with respectively 29.0%, 21.2% and 20.5% export to the EU-28.

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This thesis centres around natural gas and therefore it is important to look more closely at the import dependency of this type of energy, because the landscape of both resource rich countries as well as the current suppliers on the global level is more diversified. As mentioned the biggest exporting countries, making up a total of 69.1% of total

imports, are Russia and Norway. Algeria is the third supplier taking up 12.3% of the total imports. Qatar, that grew in the LNG market also increased its share as an exporting country to 6,9% of total EU imports. Figure 2.4. provides an overview of the biggest non-EU suppliers of natural gas to the non-EU-28 in 2014 are shown.

While Norway currently is still the second biggest non-EU supplier of natural gas, their reserves are relatively small. BP (2016, p. 20) estimated that their proven reserves will be depleted, at the current production rate, in the coming 15,9 years. Leaving the EU dependent on other suppliers. In comparison, the Russian reserves at their current production rate will last for 56,3 years.

Figure 2.4. EU-28 imports of natural gas in 2014 from non-EU suppliers

source: European Commission – DG Energy, 2016, p. 26

It is however also important to look at the proven reserves around the world, to see where potential suppliers are situated. Therefore in this section the resource rich

countries with the biggest proven reserved are mentioned. It is at this stage unnecessary to limit the overview to the currently important suppliers of the EU market.

There are several resource rich countries in the world that have significant amounts of proven natural gas reserves, these are (ordered by size; large > small) in table 2.1.

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Table 2.1. Proven resources by country ordered by size in percentages in 2015

Country Percentage of proven global resources

Iran 18,2% Russian Federation 17,3% Qatar 13,1% Turkmenistan 9,4% U.S.A. 5,6% Saudi Arabia 4,5% United Arab Emirates 3,3%

Venezuela 3,0%

Nigeria 2,7%

Algeria 2,4%

Iraq 2,0%

source: BP, 2016, p. 20

These countries are in possession of vast amounts of proven reserves. It can be noted that the main suppliers of the EU, with the exception of Norway which has a mere 1,0% of the global proven reserves, are also listed in this table. In future chapters the position of certain potential suppliers will be discussed.

What becomes immediately clear is that the countries in table 2.1 can be grouped in several regions; the Caspian Sea region (Iran, Russian Federation, Turkmenistan) Middle East (Iraq, Iran, Qatar, Saudi Arabia, UAE), Africa (Nigeria, Algeria) and two outliers namely the U.S.A. and Venezuela. Various regions will be discussed in-depth in chapter 4 due to their geographical importance and their roles in EU strategies.

2.3. Policy responses by EU-28 and its MS

In this section the early changes in energy policy strategy from the EU will be taken into account and elaborated upon. In this section however the general outlines of such strategies and commitments of government actors will be included. In the next chapters this will be analysed in more detail including how such strategies and long-term

roadmaps came to be.

2.3.1. Green Paper – “Towards a European strategy for the security of energy supply”

At the start of this millennium, the EU was faced with dramatic price increases of crude oil which made the weakness of the EU painfully clear. The weakness noted was the dependence of the EU on foreign supplies of energy and the role of oil as the “governing factor in the price of energy” (European Commission, 2000, p. 2). The notion was made that the EU should actively engage in creating energy policy, otherwise it would not be possible to battle the increasing energy dependency.

In 2000 the energy requirements were for 46.7% met by imported products (European Commission - DG Energy, 2016, p. 24) and they predicted that in the “next 20 to 30

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years” this would grow to 70% if nothing is done (European Commission, 2000, p. 2). This dramatic increase does not seem to be at the verge of occurring at this moment, neither has it already occurred if we look at the most recent statistics in figure 2.3, but there is a steady increase in energy dependency visible over the past decades. The EU however specifically stated that it is not necessarily the goal to “minimise the dependency”, or to “maximise energy self-sufficiency”, however the goal is to “reduce the risks linked to such dependence”. This means among others “balancing between and diversifying of the various sources of supply (by product and by geographical region)” (ibid, p. 2). The reason that minimising the dependency is not a goal in itself, follows from the simple reason that this will not be possible for fossil fuels due to the lack of proven reserves in MS. If we take a look at the proven reserves for oil, gas and coal, the EU countries possessed respectively 0,3%, 0,7% and 6,3% of the world proven reserves in 2015 (BP, 2016, pp. 6, 20, 30). This lack of proven fossil fuel reserves creates the dependency on foreign suppliers if the consumption of such energy sources remains high.

This led the EU to address the coming decades as a transitional period in which the MS should focus on issues such as big investments to both replace energy sources used at the moment while continuing meeting the energy demands, to address environmental concerns which existed already in the late 1990s and early 2000s. However a highly important notion made in the GP was that MS are independent in their approach vis-à-vis the domestic energy market and climate change. One can say that the completion of the European internal energy market implies that all EU countries impact each other in terms of security of supply though also economically, however this is not reflected in shared authority over energy governance and how policy is made. They concluded that it is “appropriate to analyse whether it is worthwhile conceiving a European energy policy from an angle other than that of the internal market, harmonisation, the environment or taxation”, in other words, a further integrated energy union (European Commission, 2000, p. 3).

The GP proposed some broad lines by which a long-term energy strategy should be formulated, which stem from the idea that security of supply is threatened by various kinds of risks (physical, economic, social and environmental risks) (European

Commission, 2000, p. 76). There are permanent physical disruptions such as the exhaustion of an energy source or temporal disruptions following from e.g. geopolitical crises or natural disasters or even strikes (ibid). Economic risks can be understood as for example fluctuations in pricing of energy products, which can lead to economic damage. Social risks refer in essence to the consequences of physical or economic risks: if prices will rise dramatically or production/supply by e.g. Russia will stop, it has highly damaging social consequences like for example the transport industry coming to a halt, or products will possibly not be manufactured or even households which cannot be heated anymore

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(ibid, p. 77). Thus the social risks are in essence a consequence from other kinds of risks. The last categorized risk concerns the impact of everything in the energy chain (production to consumption) on the environment, not only pollution or accidents such as methane leaks, but also grave climatic impact.

The EU already in 2000 uttered that all strategies and plans concerning energy, must take these four dimensions into account or otherwise are incomplete.

One of the overarching views in the GP is that the EU must replace their current reactive policy which is demand-oriented to an active supply-oriented policy approach (ibid). Other more specific recommendations include calling for a change in consumer

behaviour, e.g. via taxation measures which show a preference for more environmentally friendly consumption. Changing behaviour towards more environmentally friendly

business or behaviour is the essence of multiple recommendations, also in stimulating the development of new and renewable energy sources (EU, 2000, p. 4).

The risks the EU should keep in mind are now clear and some of the measures are clear. They follow two clear lines; on the one hand ‘controlling the growth of demand’ – e.g. energy taxes, completion internal market, energy saving schemes, new technologies and tackling an imbalance between modes of transport – and on the other hand ‘managing the supply dependence’ – e.g. new and renewable energy sources, preserving access to energy sources, maintaining competition in energy markets, ensuring external supplies and strengthening supply networks (ibid, pp. 82-90).

2.4. Potential changes due to the Brexit

Due to the recently started Brexit negotiations between the UK and the EU, there is much uncertainty about the change to come, most notably regarding the heavily

integrated electricity and gas supply markets (Pollitt, 2017, p. 2). It is highly difficult to tell what the consequences of a Brexit will be for both parties involved, mainly because the negotiations are about to start and nothing has been decided upon. This means only general remarks can be made of possible challenges and a factual decrease or increase of production, consumption and dependency figures for the EU-27 can be noted.

Regarding the UK’s production, consumption and dependency we can note that the EU will lose a significant energy producer when it comes to petroleum and products (roughly 48% of total EU-28 production) and gasses (roughly 28% of total EU-28 production). They even produce little over 7% of the nuclear energy within the EU (European Commission - DG Energy, 2016, p. 36).

We can therefore state that a significant amount of energy production will fall out of the EU’s sphere. However the UK is not a net exporter, since 2003 it is a “major importer of fossil fuels … and it also imports a moderate amount of electricity” (Pollitt, 2017, p. 1). What Pollitt (ibid, p. 3) notes as possible outcomes, in terms of damages for the UK, is

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that it will have limited consequences. Mainly because the re-export limitations on gas to the EU is likely to lower the price of gas within the UK, while at the same time the limited electricity imports (6%) which come mainly from France and the Netherlands are likely to be heightened disproportionally, though without big consequences due to the size of the imports (ibid).

What could be a troubling consequence is a likely increase of the the cost of

co-ordination between the EU and the UK and that this might delay further investments in interconnectivity or capacity growth between the two parties. According to Pollitt (ibid), there may as well be benefits of further integration of the energy market in the EU that the UK is likely to miss out on due.

Troublesome is that there is no way to tell how the negotiations concerning gas will end, due to the highly integrated energy system within the EU and the role the UK played in further integration (one of the drivers of integration) as well as the stage in which negotiations are at this moment.

2.5. Conclusion

In this section the findings will be summarized in order to directly answer the sub-questions mentioned in the introduction.

How does the current energy situation of the European Union and its Member States look?

In this chapter the ‘energy situation’ is discussed based on several different aspects of it. These are the energy mix, consumption, production, dependency and various suppliers. This is also necessary to answer the question in a structured manner.

The question demands highly factual answers, that is also the reason that there is little room for theorizing the reasons behind changes in the energy mix. That is content for further chapters, facts are the basis for this answer.

In the data on the EU-28 energy mix, we can clearly see that fossil fuels are still

dominant with petroleum, natural gas and solid fuels accounting for respectively 34,5%, 21,4% and 16,7%, totalling in 2014 at 72,6% (European Commission - DG Energy, 2016, p. 22). If we compare these figures to the 1995 figures, we see that the role of fossil fuels in the energy mix is in decline seeing it accounted for 79% (ibid). The role of natural gas however has been fluctuating in the energy mix, though the overall trend is an increase if we compare it to the 1995 level of 20%.

The EU furthermore has limited production capabilities, especially in the energy sources on which it relies most. Earlier in this chapter the decline of the overall energy production has been noted, from 1995 to 2000 and finally to 2014 the decline becomes apparent in the respective production numbers; 969,1 Mtoe, 914,3 Mtoe and 786,1 Mtoe. What