European Pipe Dreams Meet Chinese Pipelines

Europe’s disorganized approach to energy security once again threatens to leave its citizens out in the cold. After Russia and Belarus failed to agree on tariff rates for crude oil exports when the previous agreement expired on New Year’s Eve, Russia briefly cut off oil supplies to its smaller neighbor. This left Western Europe, which relies on Belarus to re-export much of its oil supply, facing the possibility of energy disruptions in the dead of winter. This dispute is just the latest example of how Europe is paying the price for its unwillingness to invest in new energy sources.

In mid-December, Chinese President Hu Jintao inaugurated a new gas pipeline between Turkmenistan and Xinjiang, China’s restive western province. Europeans took surprisingly little notice of the event — but they should have. Since the 2006 death of Turkmenistan’s isolationist dictator, Saparmurat Niyazov, Western policymakers have increasingly pinned their hopes on the country’s vast energy reserves as a way to break the European Union’s alarming dependence on Russia.

One year after the latest Russia-Ukraine energy dispute halted the flow of gas to countries across Europe, however, the European Union has taken surprisingly few concrete steps to diversify its energy imports. Meanwhile, strategic competitors like China are thinking bigger, acting bolder, and investing in places like Turkmenistan on a vastly greater scale. If Europe continues to dither, it might soon find that China has gained a decisive advantage in Central Asia.

In the immediate aftermath of the 2009 Russian gas crisis, European Commission President José Manuel Barroso promised a "coordinated response" to Europe’s energy woes. Since that time, the European Union has done precisely the opposite. It has created a patchwork of disjointed national regulations, increasing the potential for ever-escalating Russian influence in the energy sphere and severely limiting the European Commission’s ability to protect consumers from aggressive monopolies like Gazprom. When Surgutneftegas, an obscure Russian oil company with a murky ownership structure, attempted to purchase a controlling stake in Hungary’s MOL — one of Central Europe’s largest energy companies — for $1.8 billion, Brussels let the Hungarian government fend for itself. Similar scenarios have played out across the continent. European regulators may relish fighting American technology companies like Microsoft, but they have failed to fully protect EU citizens from invasive foreign energy monopolies.

Nevertheless, it is not all bad news for European energy security. For example, the Kremlin recently agreed to notify the European Union before it halted energy supplies in the future, and partners in the high-profile Nabucco pipeline — an alternative to Russia’s gas monopoly in Central Europe — have signed an intergovernmental agreement establishing common rules for the project. This was an important milestone for Nabucco, yet the final goal of reliable, long-term natural gas supplies remains elusive. Recently, Iraq has emerged as one potential supplier for Nabucco. However, this development only highlights the daunting commercial and political challenges facing the European Union. A European energy security plan that relies on war-torn and crisis-ridden Iraq for supplies does not appear particularly secure at all. In the meantime, China has quietly developed a multi-pronged investment strategy in Central Asia’s energy patch, becoming the second-largest market for East Caspian gas exports behind Russia. Since 2008, China has agreed to provide $17.9 billion in new loans and strategic investments in exchange for access to massive energy reserves in Turkmenistan and Kazakhstan. When it reaches full capacity in 2013, the pipeline that Hu inaugurated last month will transport 40 billion cubic meters of natural gas a year — almost twice the projected capacity of the Nabucco project, which remains on the drawing board. The mantra "happiness is multiple pipelines" has long been repeated by U.S. policymakers in support of European energy security, but officials may want to revise this principle. Central Asian pipelines are indeed proliferating, but the newest ones will be traveling east.

Unless Europeans are prepared to match the Chinese dollar for dollar (or rather, euro for yuan), EU policymakers need to develop alternatives to provide their citizens with meaningful energy security. As of now, Europe still has a number of viable strategic options.

The European Union needs to tackle its energy problems as a collective, instead of a haphazard collection of individual states only looking out for their short-term interest. Europe should develop an approach modeled off NATO’s collective security pact, where members — potentially including the United States — would agree to share reserves and help each other in the event of a future energy disruption. Nowhere is this more necessary than in Central Europe, which is most dependent on Russia. Brussels has provided countries with a variety of regulatory options, and Central European governments must ensure that they synchronize their laws to provide the strongest possible protection against foreign energy monopolies and predatory behavior in the marketplace. Finally, Europe must abandon its emphasis on pipelines and look for other options to diversify its energy supply. Liquid natural gas transported in tanker ships, for example, would allow Central European consumers greater access to the global market for energy, forcing Russia to compete alongside producers from Qatar and Nigeria.

Barroso was correct: Europe needs a more unified response to energy. However, rhetoric alone will not heat European homes and businesses during the next crisis. If the European Union is going to deliver more than pipe dreams, it will have to bring its policy in line with its ambitions.