RESEARCH: Russian and Caspian hydrocarbons: energy supply stakes for the European Union. By Catherine Locatelli.

LEPII, Université de Grenoble, CNRS
BP 47, F-38040 Grenoble cedex 9
Email: catherine.locatelli@upmf-grenoble.fr
December 2008

Abstract
The crisis between Russia and Georgia in August 2008 highlights the fragility and instability of transporting gas from the Caspian and Central Asia to Europe via the “Caucasus transit corridor”. The feasibility of one of the EU’s possible strategies for diversifying its energy supplies might now be called into question. The aim of this article is to examine the new strategies that could emerge in the producing countries as well as those of international oil companies, and then look at what the consequences might be as far as the EU’s diversification
strategy is concerned.

The conflict between Russia and Georgia in August 2008 brought to the fore the questions of reliability and diversification of the EU’s natural gas supply sources. In the present context of gas market liberalisation in Europe, the stakes are significant for the EU. In particular, the current oligopoly of gas suppliers must be replaced with a market that is dominated by competition between several suppliers. Diversifying supply sources in this way would appear to be vital at a time when ensuring security of gas supplies has become an essential aspect of the EU’s energy policy (EU, 2006). These questions had already been of considerable concern during the dispute between Ukraine and Russia in 2006 over the price of gas supplied by Russia (Stern, 2006). Today, even though energy issues were not at the root of the conflict between Russia and Georgia, nor were they the focus of attention, the crisis nevertheless highlights the fragility and instability of transporting gas from the Caspian and Central Asia to Europe via the “Caucasus transit corridor”. This prompts us to ask whether the feasibility of one of the EU’s possible strategies for diversifying its energy supplies might now be called into question.

The instability of the transit countries in the Caucasus is likely to considerably change the behaviour of all the players in the energy market as well as the balance of power thus far established. These changes could concern producers in Central Asia but also the international oil companies involved in the development of hydrocarbon resources in the region, who might reconsider their export strategies in the light of the geopolitical uncertainties. Implicitly, export markets other than the EU are likely to interest these actors, markets of China, India or maybe quite simply Russia.

Clearly Russia’s policy with respect to its hydrocarbon resources, in particular where its socalled “near abroad” as well as the EU are concerned, will be a major issue and will determine a certain number of trade configurations in the region. For example, Russia could become a major importer of gas from Kazakhstan and Turkmenistan, thus entering into direct competition with Europe, as it tries to secure the Asian gas supply market for its own ends. The aim of this article is to examine the new strategies that could emerge in the producing countries as well as those of international oil companies, and then look at what theconsequences might be as far as the EU’s diversification strategy is concerned.

full text >>>