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A conflict exists between the Western and Eastern member states

"Germany's dependency on Russian gas could seriously limit Europe's sovereignity," warned Donald Tusk last week. At first sight, the Polish prime minister's criticism could seem surprising, since Warsaw depends on Russia for up to 80% of its imports of gas (2012/AIE figures) - while only 38% of Berlin's gas imports are from Russia. However, these figures should be viewed relatively, as much in terms of their share in the energy mix as in financial and geopolitical terms. The German-Polish 'conflict' is also an example of the fracture between the Western and Eastern EU member states.

The Western countries, led by Germany, France and Italy (Spain, the UK and Belgium do not depend on Russian gas) long ago struck deals with Russia, which are regularly re-negotiated. These agreements, as German Chancellor Angela Merkel reminded Tusk, are not negotiated between countries but between EON, RWE and BASF and their Russian counterpart Gazprom. Nonetheless, these agreements are supported by governments, and indeed it was former German Chancellor Gerhard Schroder who initiated the construction of the North Stream pipeline under the Baltic Sea between Russia and Germany. This was an affront for Poland, which at the time had just joined the EU. Poland's then-foreign affairs minister called it the "Molotov-Ribbentrop pipeline". Since it would have been much cheaper to build pipelines crossing the new Central and Eastern European member states than it was to build North Stream, many observers in these countries saw the decision as a snub.

The main consequence of this decision is that Poland and other Central-Eastern European countries still depend almost exclusively on Russia for their gas supply. Poland essentially depends on coal for its energy consumption. Therefore, while it is 80% dependent on Gazprom for its gas, since gas only accounts for 13% of the country's energy mix, its dependency on Gazprom actually falls to 10% when viewed in this context. Ironically, Germany's dependency is also around 10%. The issue here is price. The Central-Eastern European countries currently cannot create competition between suppliers - hence the failure of Poland's 2009 attempt to import Norwegian gas.

For the Baltic countries, which are 100% dependent on Gazprom, as are Bulgaria and Slovakia, the situation is even more critical, which explains these countries' numerous projects - backed by the European Commission - to build factories for liquefied natural gas (LNG) in order, eventually, to import American shale gas. Since they are members of NATO, Washington has already made a commitment to supply them with gas if necessary, thereby resolving the medium-term situation. In the short term, they are waiting for the Commission's conclusions on the Gazprom-Lithuania case, with the latter being accused of abuse of its dominant market position.

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Publication:Europe Energy
Geographic Code:4EXRU
Date:Mar 26, 2014

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