Energy Research & Social Science 12 (2016) 27–49
Contents lists available at ScienceDirect
Energy Research & Social Science
journal homepage: www.elsevier.com/locate/erss
Review
Invisible but not indivisible: Russia, the European Union, and the
importance of “Hidden Governance”
Morena Skalamera
Geopolitics of Energy Project, Belfer Center for Science and International Affairs, Harvard Kennedy School, 1 Brattle Street, Office 518-B, United States
a r t i c l e i n f o
Article history:
Received 9 July 2015
Received in revised form
22 November 2015
Accepted 26 November 2015
Available online 22 December 2015
Keywords:
The EU
Russia
Hidden energy governance
Corporate actors
a b s t r a c t
Several scholars studying energy relations between Europe and Russia have grappled with the question
of why such fragmented governance architecture has emerged between these two actors. While this
question seems obsolete in the context of the current EU–Russian political impasse, it is, at the very
least, odd that despite the standoff, plans for the South Stream pipeline have until recently proceeded
almost apace.1
How has this been possible? It is now widely, albeit reluctantly, accepted that Europe
depends on Russia’s gas and that Russia, in its turn, cannot do without the lucrative EU market. While
this reality is basically indisputable, at the macro level this energy trade relationship has been marked
with controversies since the breakup of the Soviet Union.
Despite the frostiness at what I will call the macro-level, in the past decade, individual EU states and the
Kremlin have signed a handful of IGAs for joint pipeline development. Even more importantly, EU companies
have concluded a number of important deals with Gazprom: pipelines have been built together,
asset swaps concluded, and joint ventures implemented. All this has occurred against the background
of increasingly tense relations at the macro level. Therefore, the biggest dilemma when looking into the
black box of the EU-Russia gas relationship is how we might make sense of such a vast, multi-faceted,
and yet deeply fraught relationship, occurring at so many different levels with varying actors. This article
considers a number of political explanations for gas policy and shows that it is usually the economic
interests of big energy firms that frequently take precedence, although these are often ignored and hidden
as factors.
© 2015 Elsevier Ltd. All rights reserved.
Contents
1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
2. Explaining hidden energy governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3. How to make sense of the macro level? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
4. The neo-realist literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5. The liberal literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6. The constructivist literature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7. The case studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.1. The Southern Gas Corridor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
7.2. Russia’ s reluctance to adhere to the ECT and to renew the PCA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
E-mail addresses: morena skalamera@hks.harvard.edu,
m skalamera@hotmail.com
1
Most recently, Putin personally declared that Gazprom would abandon the
South Stream pipeline; it will build a large pipeline to Turkey instead with a possible
gas hub on the border with Greece. Insiders close to the Kremlin noted that even
Gazprom’s CEO Aleksei Miller had no prior knowledge of President Putin’s sudden
decision (Interview with Russian gas executive, May 2015, Moscow). The gas hub
by the Greek border could be used to supply Southern Europe if there is demand.
See for example, http://www.nytimes.com/2014/12/02/world/europe/russian-gas-
pipeline-turkey-south-stream.html.
http://dx.doi.org/10.1016/j.erss.2015.11.009
2214-6296/© 2015 Elsevier Ltd. All rights reserved.
28 M. Skalamera / Energy Research & Social Science 12 (2016) 27–49
7.3. The Third Energy Package . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.4. Gas Contract renegotiations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
8. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Acknowledgements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
1. Introduction
An extensive debate in the literature on EU-Russia energy relations
revolves around the following question: Given the high degree
of EU–Russia energy interdependence, why has such fragmented
governance architecture emerge between the two actors? More
specifically, the questions I pursue in this paper: Why is there no
binding energy-governance structure regulating this relationship?
Who are the main actors that have influenced such an outcome
and where do their interests lie? What are the key events and
developments that have influenced their priorities?
The paper endeavors to disentangle the complex, sophisticated
and multi-level dynamics at what I call:
• The macro level: energy cooperation between the EU and Russia.
• The meso level: the internal arm-wrestling between the European
governments and gas firms on one side, and of the European
Commission (EC) on the other.
• The hidden level: the ties between the European energy firms and
Gazprom, supported by the respective governments.
In examining these three crucial levels at which the EU-Russia
natural gas trade takes place, it is necessary to:
1 Identify the main actors at each level,
2 Re-think the way the main actors form their preferences when
pursuing their interests and
3 Test how, if at all, this impacts the legal formalization (or lack of
thereof) of the EU-Russia gas trade.
In order to make my conceptual point, I go back to the bedrock of
the assumptions undergirding the other explanations for the state
of EU-Russia gas trade in order to see how my concept contrasts
with their hypotheses. The first question is to identify where the
interests of the main actors lie. This article shows that, when it
comes to energy within the EU, the competing interests of member
states still outweigh shared interests; major national interests,
therefore, are not represented in the common EU energy institutions.
Nor, clearly, do they represent the current interests of crucial
Russian actors. However, the crucial finding is a positive causal
relationship between the centrality of the corporate actors in the
EU-Russia energy relationship, and these actors’ tendency to dismiss
legally binding energy governance structures.
The geopolitics of European energy has fundamentally commercial
origins. Hence, instead of looking at the “clash of identities” at
the macro-level, one should rather look to what I call the hidden
level; the level where corporate interests operate, and where the
actual outcomes of Eurasian gas trade and geopolitics are determined.
It is here, rather than at the EU–Russia macro level, that both
profit and identities matter. This is an area that Culpepper2 would
call ‘quiet politics’–a set of technical arrangements, which are too
complex for average citizens to understand and thus not an easy
topic to engage the public; issues revolving around energy pricing,
infrastructure, trade clauses and the like, that require a high level of
2
Culpepper ([19], p. 8).
technical knowledge to be fully grasped and therefore are often easily
susceptible to firms’ lobbying. This is the reign of energy firms
where not only profit considerations, but also conventions, identities,
and deep-seated beliefs do matter. As noted by Abdelal [4],
European energy firms respond to profit-related considerations and
have multiple institutional structures in place to help them channel
their will. These companies retain a huge influence in the decisionmaking
process involving EU–Russian gas cooperation and in many
cases are the decision-makers actively shaping the process.
My article relies on more than twenty in-depth semi-structured
qualitative research interviews, held in Brussels and Moscow, in
2012, 2014, and 2015. Interviews featured senior level energy
experts, gas executives, academics, EU and Russian officials
involved in EU–Russian institutional cooperation, as well as diplomats
from Russia and the EU. I used “snowball” sampling – personal
references and introductions from respondents we met – to identify
other potential respondents. Public figures – including appointed
and elected officials and well-known political observers – are
identified by name, except in cases where they asked to remain
anonymous. All other respondents, including energy industry insiders,
remain anonymous and are identified only by the nature of their
expertise.
2. Explaining hidden energy governance
In the gas governance, the hidden level involves issues that
apparently have low salience and that are not easily grasped by voters.
For example, voters certainly care about their monthly energy
bills, but the complexity of paradigm shifts in energy governance
occurring in Europe (in respect to long term contracts vs. short term
gas trading, or oil price indexation vs. hub-based pricing of natural
gas) dissuades both the media and politicians from investing
their own limited capital in convincing the layman to explore these
issues in detail.
The context in which these gas contracts operate is extremely
complex, which means that both journalists and political
entrepreneurs have difficulty convincing the general public to
become knowledgeable about their key elements. The governance
of natural gas, just as corporate control (which has been extensively
examined by Culpepper),3 is an ideal combination of circumstances
for energy managerial groups, to wield disproportionate political
influence, as they both understand and care about the issues of
natural gas trading. Moreover, when voters are faced with complex
matters, they frequently use short cuts or informational cues
to form an opinion. In the case of gas contracts, voters often get
the information directly from the energy companies’ managers,
whose hierarchy of objectives may be different than those of energy
consumers. For instance, while the consumers typically strive for
liberal, competitive energy markets, gas companies may put a
stronger emphasis on achieving energy security with “traditional”
tools such as long term contracts, or take or pay clauses, which for
gas executives are oftentimes still prioritized over achieving liberalized
and competitive gas markets. Despite the recent regulatory
changes in the EU gas market, geared toward more competition
and liberalization, the industry is still reluctant to fully embrace
3
Culpepper ([19], p. 9–11).
M. Skalamera / Energy Research & Social Science 12 (2016) 27–49 29
those changes. Especially in nations where energy companies are
still mainly state-owned, the links between the will of the corporate
sector and what political entrepreneurs see as necessary are
strong and direct. Where the energy industry is privately owned,
the government is freer from corporate intervention, but corporate
actors exert control and influence through lobbying, working
groups, and press framing. For several decades,4 many in Europe
(especially the regulators) wished essentially for natural gas markets
that would resemble oil markets: liquid, interconnected, and
dominated by spot pricing. But many European executives, together
with Gazprom, wondered if Europeans ought to be more careful
what they wished for. For example, in the current low oil price
environment, spot prices are gradually becoming more expensive
than oil-derived ones. In fact, in a world of lower oil-indexed prices,
Gazprom, who has the dominant market share in Europe, may
swing supply to manage the spot market at a level acceptable to
Russia.5
The tension between the political aspirations of governments
and the commercial objectives of the industry has been much more
nuanced than what is usually portrayed. There are inevitably some
points of disagreement between governments and energy firms;
however, businesses and governments in most cases work together
to address long-term challenges, policies, and investments. Most
interestingly, the actions that governments take are often informed
and guided by corporate preferences. Corporate actors bring managerial
expertise and money in order to secure the preference for
their own energy ties, which in turn have path-dependent characteristics
[24].
There is already a well-established discussion on EU–Russian
energy governance architecture came is so fragmented who yields
most influence in the two blocs’ gas trade. These two issues of
fragmentation and power, in turn, are considered in terms of the
relative power of the member states versus the energy companies
and versus that of the EU Community institutions (above all the
Commission). I will not review this long and lively debate, ranging
from Youngs [92] to Westpha [87], Locatelli and Boussena [51] and
Kuzemko [45]. My intention is rather to show that the loss of control
by member-state governments, has not necessarily curtailed
their capacity to act. Most importantly, I highlight the centrality of
the corporate sector in the EU–Russia gas trade (already argued by
Abdelal [4]. Provided that the key-actors in the EU-Russia energy
relationship are the heads of the big gas firms with their respective
governments, these players have no inherent interest in being
locked in multilateral institutions. At the hidden level, they often
mitigate the risk of investments through a business discourse built
on trust, and therefore, at the macro-level, support shallow governance
structures. As noted by Abdelal,6 initially firms on both sides
of the EU–Russia gas trade created flows of molecules and hard currency
by writing contracts that made the price of gas exogenous to
the behavior of either party; eventually they came to rely at least
as much on trust engendered by years of inter-firm cooperation.
These relationships allowed gas to flow, unhindered, throughout
the Cold War as well as during the collapse of the Russian state in
4
In Europe, after the adoption of the Single European Market (1985), the European
Commission (EC) undertook a process of gradual restructuring associated with
neoliberal ideas. In the early 1990s, the EC promoted a series of laws aimed at privatizing
previously public sectors of the economy, such as the energy sector. In gas, the
EC issued its first directive in 1998, in which core issues of harmonization (such as
access to pipelines, market opening and regulation) were still left to the judgment
of individual member states.
5
See: http://www.nohotair.co.uk/index.php/shale-gas-2014/224-gas/3228from-lower-oil-derived-spot-prices-in-europe-to-a-potential-price-war,
accessed
in March 2015.
6
Abdelal ([3], p. 16)
the 1990s and its later restoration. In fact, in Culpepper’s words,7
being able to set the debate at this hidden governmental level is
no silver bullet to ensure managerial victory, but is, rather, another
weapon in the energy companies’ powerful arsenal.
Indeed, when it comes to energy, factions in Europe have
changed their positions according to the issue at hand. This article
demonstrates that both Gazprom and the European firms have
skillfully exploited these divisions. For example, as regards oil
indexation (and take-or-pay clauses) we see the EC and the European
energy companies directly opposing Gazprom. But as regards
access to the European downstream gas market, Gazprom and the
EC are united against the European energy companies, which are
resistant. To make things even more complicated, as regards third
party access, Gazprom and the European energy companies have
changed their position to challenge the EC. Hence, EU–Russian
gas cooperation is much more complex and multilayered than it
appears at the surface. That is why all the major explanations
of the EU-Russia institutional impasse have proven unsatisfactory.
For example, Aalto [1,2] remarkable analyses of the different
dimensions of EU-Russia energy politics provide an excellent theoretical
account of all the energy interrelationships already in place,
the ways leading actors pursue their interests, and the resulting
outcomes. Aalto’s research however, does not help answer the fundamental
question guiding this inquiry: why didn’t the tight energy
interdependence between the EU and Russia result in legally binding
instruments ruling their energy relationship? Other insightful
studies stress the need for global governance structures to cope
with the rapidly changing and increasingly interdependent global
energy markets [84,24,16] but they do not provide persuasive
answers to why such structures have not already emerged.
On a more general level, classic realists emphasize the “security
dilemma,”8 liberal literature stresses the structural unsoundness
of the EU and the defects of an undemocratic Russia,9 and constructivist
scholars point out the identity gap between the two
partners. The closest position to my argument is the “moderate”
realist school, which recognizes the importance of the private sector,
and among these, the most sophisticated work is Abdelal’s
analysis of the private sector’s influence on energy policy outcomes
in the Eurasian gas trade. This article builds on Abdelal’s persuasive
intuition that it is actually gas firms, rather than governments’, that
produce political outcomes in the Eurasian gas trade. My work goes
on to examine the causal links between the centrality of energy
companies and the lack of binding governance structures regulating
the EU–Russia energy relationship.
Other scholarly work along these lines includes Locatelli and
Finon [49], and Locatelli and Boussena’s [52] analysis of firms’
behavior in the EU–Russia gas trade. Westphal’s work [88] also
identifies the interests of firms as significant drivers of change in
energy governance. In fact, these scholars, among others, already
clarified that gas firms drive political outcomes and that, in doing
so, they are motivated by profits. The novelty of this study lies in
linking the influence of the main actors (the big gas companies)
to the lack of binding governance structures in a comprehensive
way. In fact, no study to date analyses the lack of ad hoc legally
binding structures regulating the EU-Russia energy interdependence
from the analytical angle of an increased role of corporate
actors’ leverage and their reluctance to change the current struc-
7
Culpepper [19].
8
For an extensive analysis of the ¨energy security dilemma,¨see Monaghan [60]
Russia-EU Relations: an Emerging Energy Security Dilemma, in ¨The Power of Oil and
Gas¨edition of the Pro et Contra journal (volume 10, No. 2–3, 2006), the Carnegie
Moscow Center.
9
Especially the semi-authoritarian developments of President Putin’s second
term in office and his distrust of multilateral organizations.
30 M. Skalamera / Energy Research & Social Science 12 (2016) 27–49
tural arrangements. The article unfolds its argument in two steps.
First, it suggests that despite of the plethora of legally binding
rules that govern the EU’s relationship with Russia (such as contractual
provisions, BITs, WTO rules, the EU internal market rules,
and Russia’s national legislation), EU–Russia attempts to transform
mutually acceptable principles of energy trade into ad hoc
legal mechanisms, such as the ECT and the PCA, have failed. The
relationship soon thereafter entered a period of stagnation at the
macro-level. Second, unlike other analyses, this article finds that
the central influence of the industrial gas lobby on the decisionmaking
processes is the direct cause of the lack of such distinctive
types of binding governance structures. In turn, hidden companyto-company
contractual provisions provide the architecture and
axis points around which, amid parallel breakdown of consensus,
the wider EU-Russia macro-level system turns. This article provides
little empirical support for the liberal proposition that economic
interdependence paves the way for the flourishing of international
regimes, or in this case, binding energy governance structures.
Some of the great liberal analysts of world politics, such as
Koehane and Nye [40], Keohane [38,39], Ikenberry [35,36], and Ruggie
[75] put forth the proposition that ever increasing economic
interdependence creates the need for appropriate institutions to
facilitate trade by reducing uncertainty, lowering the transaction
costs, and setting commonly accepted rules and standards. In the
energy realm, too, reputable scholars such as Florini [23], Lesage
et al [46] and [82], further the proposition that energy interdependence,
ipso facto, fosters the desirability for a common umbrella
of rules. This is how they lay out the problem: such an active
energy cooperation necessitates an overarching structure regulating
investment and providing legal security for pipeline transit,
which would encompass all actors along the pipeline stream. Their
additional contention is that in a world of growing economic interdependence
the costs of brushing aside multilateral rules inevitably
rises. This article tests these liberal propositions and finds that
high economic interdependence does not necessarily spur the creation
of new international regimes. This is not so because the
EU’s espousal of democratic norms is blocked by Russia’s manifest
realpolitik objectives and old-fashioned modes of foreign policy at
the macro-level, as the liberals would have it. Evidence has already
accrued that indicates that on the existence of institutions the EU
side favors “demand—side explanations.” Insitutions are created by
those who stand to benefit from them [40,37] . In that sense, trade
and capital flows increase the demand for “good” institutions [18].
There is another approach to explain where institutions come from,
which emphasizes the “supply side”: institutions are the imposition
of foreign powers (e.g., the EU) and the adoption of imported
legal norms and rules. To a degree, Russia favors this explanation.
Given this state of affairs, liberal political scientist continue to
exhibit a normative longing for signs in Russia of a metamorphosis
towards the EU’s modus operandi. In sum, Moscow is allegedly
pressing for non-binding political declarations of a “strategic partnership,”
essentially confirming Russia’s status as a Great Power on
an equal plane with the EU, while limiting pressure over adherence
to common rules. The EU preference is for a series of more substantive
and complex agreements that could be concluded from time to
time for specific tasks (such as energy investment). Yet the problem
is that many in Russia lean towards a “low-cost” variant that
would not require any binding agreements, but that would provide
more visible statements on energy security. In sum, while the EU
has became the most advanced world’s bloc in pooling sovereignty,
Russia has been historically determined to guard both the principle
of self-determination and that of sovereignty.
But here is the provocation—is a liberal (rule of law) polity
featuring a democratic franchise a sine qua non for transnational
cooperation? We know that despite its political system, Russia aims
to join the international institutions that could further its interest,
such as the WTO. Russia does not inherently oppose multilateral
organizations due to its autocratic regime, but it selects those that
are perceived as advancing Russia’s national interest and, most
importantly, those that are pushed by the most important actors
in the system. In energy that actor is Gazprom.
In fact, I take a rational-choice approach to study the behavior
of the crucial actors on both sides of the energy interdependence
spectrum to argue that, at a hidden level, Gazprom’s prosperity
may be larger without clearly defined rules. Therefore, the latter
wants to protect its interests by preventing the emergence of
binding institutions. The same holds for EU companies. In sum,
this article proposes to look at the issue through a different pair
of lenses—given a decades-long, dense relationship, at the hidden
level, the corporate sector has other ways to solve possible coordination
problems.
Despite estimable contributions, the liberal approach mainly
focuses on why it has proven so difficult to forge binding energy
institutions between the EU and Russia. Unfairly, perhaps, the
question of whether such institutions are desirable and necessary
ventures far from the liberal approach. In fact, my approach further
differs from the liberal literature, in that it questions the desirability
of such institutional arrangements right from the outset,
rather than focusing overwhelmingly on the need to harmonize
the two sides’ institutional asymmetry [73]. My findings suggest a
tension between the pull towards “deepening” institutionalization
at the macro-level, and the interests of key players on both sides of
the energy relationship. Through extensive empirical evidence, the
article demonstrates that enhancing the multilateral aspect of the
relationship is not within the priorities of the key decision-makers.
For instance, the geopolitical tumult between Russia and Europe
over Ukraine has had a negligible effect on the EU’s corporate actors’
business strategies. Not only they have downgraded Donald Tusk’s
proposal to create a single European buyer for Russian gas, but in
the wake of the crisis they have also fostered an expansion of Nord
Stream, a Russian–German link through the Baltic Sea. The ‘gas
wars’ between Ukraine and Russia provide additional illustrative
examples. As noted by Yafimava [90], while in the aftermath of the
2006, the political mood in Europe regarding the reliability of Russian
supplies was that of extreme nervousness on the part of the
old member states, and an outright insecurity on the part of its new
member states, the prevalent attitude among major players of the
European gas industry, by contrast, was calm and even optimistic.
This is suggested by the fact that nearly all European gas buyers,
including E.ON Ruhrgas and Wingas (Germany), EDF (France),
OMV (Austria), and ENI (Italy), renewed their long-term contracts
with Gazprom between 2004 and 2006 for the subsequent
30 years.
By relaxing the assumption that interdependence is conducive
to legally binding international regimes, this article argues that
energy dialogue between the EU and Russia is to be achieved
rather through the coexistence of differentiated models, where
policy coordination becomes a central and desirable tool. Coordination
is desirable only as long as it respects the consolidation
of different national regulations, standards, and practices. In fact,
as a secondary point, the article holds that defining the rules of
interdependence is difficult between actors that have so different
immediate interests and different domestic institutional arrangements
(see Table 1). This gives us the reason for the lack of binding
governance structures between the EU and Russia: The de facto
existence of different jurisdictions is a response to the historical and
geographical developments in these regions. Hence regulations and
norms should strive to reflect national conditions and preferences.
Eliminating the transaction costs of cooperation through coordination
is desirable, but if national interests, tastes, or conditions lead
to different laws, the playing field of international energy trade will
not, and should not, be level.
M. Skalamera / Energy Research & Social Science 12 (2016) 27–49 31
Table 1
Institutional asymmetry between the EU and Russia.
Institutional domain The EU ideal Russia’s pattern
Property rights Private, enforces by the rule of law Private but govt authority occasionally overrides the law
Corporate governance Shareholder (“outsider”) control, protection of shareholder
rights
Insider control
Business-government relations Arms’ length, rules based Close interactions
Industrial organization Decentralized, competitive markets, with tough anti-trust
enforcement
Horizontal and vertical integration in production;
government-mandated cartels
Financial system Deregulated, securities based, with free entry. Prudential
supervision through regulatory oversight
Bank based, restricted entry, heavily controlled by the
government, directed lending, weak formal regulation
International capital flows “Prudently” free Restricted (until the 1990s)
Public ownership None in productive sectors Plenty in upstream industries
Source: compiled by the Author.
In sum, in contrast to Liberal Institutionalism’s optimism that
economic interdependence fosters the desirability for international
regimes, this article shows that there is no reason to believe that
energy interdependence is a sufficient condition either for the
emergence of shared governance structures or for adherence to
their rules.
3. How to make sense of the macro level?
Recent scholarship has yielded a number of explanations for the
inability or unwillingness of the EU and Russia to turn their energy
interdependence into legally binding governance structures at the
macro level.
Explanations have differed according to the lenses through
which one has examined the question; the differences being linked
to the ways the three major traditions in International Relations –
neo-realism, liberalism and constructivism – tackle broader issues
of world politics. In Table 2 I will summarize these approaches.
I argue that at the macro level, the constructivist approach offers
the most adequate lens to explain the main impediments to fruitful
cooperation. However, at the meso and at the hidden politics
levels—(where the national governments offer support to their
respective energy companies), this lens alone is not satisfactory.
For Locatelli and Boussena [52], the crucial question is whether the
international standards generated by the EU through the Energy
Charter Treaty (ECT) are consistent with Russia’s institutional environment.
In fact, as noted by Kuchins and Zevelev [43], for Russia,
the central debate today and going back at least two hundred years
revolves around the West: to what extent Western liberalism is
an appropriate model and how closely should Moscow ally with
certain actors in the West to achieve its goals. However, in contrast
to these scholars’ view of institutional dichotomy between
Europe and Russia, empirical findings detailed at length in this article
suggest a more nuanced picture. The crude juxtaposition of the
European system of governance based on a competitive economy
framed by the rule of law as opposed to the Russian system of asset
swapping is not the correct one, because there is an area of overlap,
constituted by the shared interests of the corporate sector on both
sides.
I will look at four issues to illustrate my point: the Southern Gas
corridor, Russia’s reluctance to adhere to the ECT and renew the
PCA, the so-called Third Energy Package, and the quest for removing
oil indexation and the relaxing of the take-or-pay clause in the contracts
with Gazprom. But let us first review the still ongoing debate
at what I call the macro level, which in this article is considered the
less decisive one.
4. The neo-realist literature
From a standpoint of political realism, there are certain things
that are built into the nature of world politics. States pursue their
national interests. In doing so they count on a relative “balance
of power” achieved with bilateral alliances and “power politics.”
The highest value is accorded to the preservation of sovereignty,
territorial integrity, and independence, while the most important
principle of international law is non-intervention. Security of
energy supply and security of demand are included in the sphere
of ‘high politics’, which pertains exclusively to states. In domains
of crucial national interest such as energy policy, international
institutions are regarded with suspicion. Therefore, arch-realist literature
has been quick in dismissing any chances of an EU–Russia
energy governance structure by arguing that states, which are considered
the main units of world politics, seek to enhance their
power at the expense of other states in a climate of low trust. Thus,
any advancement of one side is seen as a loss for the other, creating
a well-known security dilemma [60]. This means that any
increase in Europe’s security of supply is perceived to cause a
diminution of Russian security of demand. In this state of affairs
multilateral cooperation is seen as undesirable and impracticable.
In sum, the tight energy interdependence between the EU and
Russia is not sufficient produce legally binding governance structures
and, in turn, deter the two blocs from securitization in energy
relations.
Under conditions of high mutual dependency that are perceived
as alarming, the EU’s suddenly desperate drive to diversify forces
Russia, in response, to diversify away from the EU, which now
appears less dependable. The fear of both sides that the other might
diversify its imports/exports leads to a downward spiral of mistrust
and weakens the prospects for cooperative endeavors.
Given the irreconcilability of Russian and EU’s interests and
their mounting competition in the shared neighborhood, according
to this narrative, only very sporadic, low profile cooperation
is indeed attainable. Moreover, the risk of conflict is not avoided
merely in virtue of economic interdependence. In sum, given
the frantic efforts to diversify against one another, over time,
interdependence between Russia and the EU will inevitably be
reduced.
Yet I argue that this mutual diversification should not be considered
inevitable. Gazprom has been complaining heavily about
an EU that is requesting more gas supplies from Russia while at
the same time claiming that it wants to diversify away from Russia.
Gazprom’s interest is to secure long-term agreements with its main
European customers, guarantees for investments, and direct downstream
access to the attractive European market. True, in face of a
growing politicization of this relationship, Gazprom has responded
in kind by announcing a two-fold strategy that involves: diversifying
exports by increasing shares of liquefied natural gas (LNG),
and diversifiying export markets, primarily to Asia. In fact, the EU’s
increased diversification of supply with the goal of “more independence
from Russia” triggered decreased ‘security of demand’ for
the latter. Since the first Ukrainian-Russian gas war a process of
“securitization” of energy relations between Russia and the EU has
started, which has continued despite the current “gas glut” in the
EU, in line with the neo-realist view. In recent years Moscow did
32 M. Skalamera / Energy Research & Social Science 12 (2016) 27–49
Table 2
Existing explanations for the lack of EU-Russia energy governance structures.
Schools of
thought
Main concerns Reasons for the lack of energy governance structures
Realism 1.The “Security Dilemma”—a self-interested effort to maximize energy
security amid anarchy in world politics
1. Energy cooperation is a zero-sum game where the interests of producers
and consumers do not coincide and any gain of one results in a loss for the
other (Monaghan [60]).
2.The balancing of each other’s sphere of influence in the shared
neighborhood
3.The precedence of national interests and the gains made by domestic
companies
2. General distrust in the utility of multilateral structures of
governance—when it comes to issues of strategic importance the basic
unit of world politics is the state (Lesage et al [46] p.183).
Liberalism 1. The reluctance of the main member states to transfer energy
competencies to the EC
1. The EU does not speak with one voice in energy matters, which weakens
its leverage vis-à-vis Russia—an anomaly of the EU’s structure
(Schmidt-Felzmann [76], Helm [30] and Helén [29])
2. The bigger and smaller EU member states’ asymmetries in
interdependence with Russia
3. Russia’s reluctance to institutionalize the relationship legally with a
new PCA and the ECT
2. Russia is an assertive rising power unwilling to abide by the principles of
International law (Baran [9], Rosner [74], Umbach [80])
Constructivism 1. Clash of Identities that impedes commonly held views on
governance structures
1. The identity dilemmas of the EU as such worsen the prospects of a
shared identity between Russia and the EU (Belyi [13])
2. Incompatible views on leading norms, such as reciprocity,
sovereignty, and information sharing
2.Insufficient mobilization of the peripheries for a bottom-up, regional and
cross-border approaches to cooperation (Romanova [72], Morozov [62])
3. Due to this clash of paradigms, interdependence leads to discord
instead of cooperation
Source: compiled by the Author.
use pipeline politics to expand its share of Europe’s gas markets, to
retain a dominant position in the CIS markets, and to secure a place
among the great international powers. The EU, on the other hand,
was widely predisposed towards the export of economic and regulatory
norms, as tools in the pursuit of its own material interests
[26]. At the heart of this is a ‘security dilemma’ between the EU and
Russia, where ‘the actions of one [the EU], in trying to increase its
security, causes a reaction in the second [Russia], which in the end,
decreases the security of the first.’
Yet, the scale of mutual diversification is not even close to what
is feared by the “security dilemma” proponents. Russian gas still is
and will remain in demand. There are simply no viable alternatives
that can replace the EU’s sizable gas imports from Russia. Coincidentally,
the mixture of Vladimir Putin’s personal political style, his
conviction that natural resources are the means to restore Russia’s
economic (and political) strength,10 and the general growth in the
importance of executive power in Russia all fueled concerns about
Russia’s willingness to use “the gas weapon.” However, unlike some
other petro-states, Russia does not threaten the use of ‘the energy
weapon’ against Europe, its main customer. On the contrary, it takes
great pains to remind Europe that it has always been a reliable
energy supplier both during the Cold War and today (see [12,28].
Russia is aware that the European market is far too important to the
survival of the Russian state11 and that if challenged, the EU could
turn to other producers or alternative energy sources. The realists
argue that precisely because there are many “Europes” whose level
of dependency on Russia varies, decentralized, national decisionmaking
is more suited to accommodate these national differences.
Moreover, given that energy is a strategic good, states simply do not
tolerate a compromise of their sovereignty in this field ([46] p. 183).
In this view, states should have the freedom to maneuver instead
of being locked into large, multi-faceted bureaucracies and strin-
10
Energy was the topic of Putin’s doctoral dissertation, which he defended in 1996
at the St. Petersburg Mining Institute, arguing for state control of energy companies
and invoking limits to the rights of private owners.
11
Simply put, the Russian budget, and by consequence the sheer survival of the
Russian state depend heavily on the export of energy to the EU, much more than
any of the EU-28 states depends on Russian gas. Noël [63], for example, has argued
that Russia is in fact very much dependent on its gas exports to European countries,
while the EU relies on Russia only for 6.5% of its total primary energy (not just gas)
consumption.
gent transnational agreements. Moreover, the shared EU–Russian
Neighborhood remains a crucial terrain of geopolitical battle. Once
again, the recent Ukraine crisis confirms the validity of the neorealist
approach.
The main criticism of the neo-realist position is its failure to
recognize the predominance of the private sector in energy geopolitics
on both sides. Realists place states and their pursuit of power
at the center of empirical evaluation and, therefore, their analyses
of EU–Russian energy cooperation fail to see the importance of
non-state actors (such as Gazprom, the European “national champions”
and the other NOCs and IOCs). Although companies do exert
some influence by securing long-term preferential deals on broader
geopolitical aspects of energy security, energy companies are commonly
considered to follow, rather than to influence, the positions
of their respective governments (see [79,92]. In stark contrast, this
article argues that the current lax governance structure reflects
the preferences of the key actors in EU-Russia energy cooperation,
namely the big gas firms. In fact, this article sides with Abdelal
in his view that “A Realist account would identify neither the most
important agents nor their essential logics. Instead of states ’pursuing
security amidst anarchy, we find firms’ pursuing profit in the face
of uncertainty. The geopolitics of European energy has fundamentally
commercial and ideational origins.”12
5. The liberal literature
More moderate, but quite Eurocentric views have in the past
pointed to Russia’s autocratic regime and its resource nationalism
as the main obstacle to more fruitful cooperation. This situation,
so the argument goes, makes the Putin regime less conducive to
liberal trade and interdependence. Works arguing that stronger
central political guidance is required in Brussels in the face of forceful
Russian rhetoric continue to be widely read (e.g. Umbach [80],
Helén [29] and Schmidt-Felzmann [76]). The closure of so-called
“Fortress Europe” has been one such response to the Kremlin’s
growing assertiveness.
On the other side, more “objective” observers within the liberal
school stress that the EU has contributed to the strain, too. The EU,
12
Abdelal ([4], p. 2).
M. Skalamera / Energy Research & Social Science 12 (2016) 27–49 33
so the argument goes, has been historically weak because of its
notorious divisiveness, which is due to the bigger member states’
inexplicable skepticism that a truly common European energy policy
is in their best interest. This approach highlights the historical
differences in national energy mixes, showing how tricky it can be
to maintain a common stance in face of large differences between
the constituent parties. However, the problem could be solved if
member states accepted a common internal energy market and a
coherent external voice that would eliminate the actual structural
differences. The European Commission (EC) would take the lead in
speaking under the slogan of “one-for all.”
According to this view, the remedy for Europe’s inconsistencies
is to be found in delegating more powers to the supranational level.
This would be done by enhancing the EC’s strength and devising an
instrument to “speak with one voice”13 in energy matters, which
would in turn increase the EU’s leveraging power as a whole in relations
with Russia. The particular energy situation of each member
state would then cease to matter.14 For instance, this is how Pierre
Vimont, Secretary-General of the European External Action Service
sees the problem, “we are very far away from achieving a strong and
coherent position on what a common vision on “External Energy Policy”
should be. States want to retain their national sovereignty because
they think that by working on their own they have better leverage and
better deals. In the meantime, Russia plays putting one country against
the other.”15
Upon analysis, this approach is found to be flawed, but most
importantly, I think that even the resolution of Europe’s internal
divisions and a one-voice Europe would prove unsuccessful
in speaking with Russia at the macro level, for reasons that the
constructivist lens evinces. Europe’s diversity is the result of its
relationship with Russia, not the cause. Institutional diversity is so
persistent because of the very fact that the energy mixes, and thus
each member states’ level of dependence on Russia varies greatly.
In Europe, historically, energy has been a sector of the highest
national priority and different member states found different
strategies to manage their energy mixes. If there is no single EU
energy mix, the Commission’s advocated “convergence” is difficult
to assess: one might ask, convergence on what? No EU member
state displays the same economic political, historical, and cultural
background, and the geographic proximity or distance from Russia
makes their policies diverge. The different political and societal
incentives at home place the member states in vastly different
positions. For example, a country such as the Netherlands might
not focus on North Africa, but Italy, due to territorial proximity, is
more prone to do so. If, due to these geographic circumstances or
other incentives there is no convergence toward one homogeneous
European energy mix, then there should be no unified European
external energy policy dictated by Brussels. A European energy
policy is rather to be achieved through the coexistence of differentiated
models, where policy coordination becomes a central and
desirable tool. Hence, I would argue for shallow coordination that
corresponds better to the needs of a still pluralistic Europe. Shallow
energy integration promotes accountability of governments to
local concerns and is preferable, due to the sensitivity of the issues
of energy supply. An interconnected internal market for natural
gas16 would per se “Europeanize” bilateral relations with Russia,
as transmission operators, suppliers, and governments would have
13
See for example, ¨Speaking with one voice—the key to securing our energy interests
abroad,¨EU Press Release, Brussels, 07 September 2011, Accessible at: http://
europa.eu/rapid/press-release IP-11-1005 en.htm?locale=en.
14
Therefore, the EU states are encouraged to change their narrow definition of
national interest, by endorsing the EC’s benign influence.
15
Interview with the author, Harvard University, October 11, 2011.
16
Which is the self-proclaimed EC goal for the completion of an internal energy
market. One in which, indeed, the EC’s lead is beneficial and desirable, to be supto
take into account not only their own markets, but also that of
the EU as a whole. Yet the lack of connecting infrastructure within
Europe is still an impediment in the process of developing a unified
gas market, much more than the individual firms’ competition
to seek favorable deals with Russia. In fact, this paper holds that a
solution to EU energy security concerns lies in an overall EU-wide
integrated gas market rather than in common EU external energy
policy.
Many liberal observers have criticized the behavior of European
gas companies for their resistance to the completion of the internal
gas market [30], p. 38–39; [56]. In contrast, this article shows that
corporate actors are simply moved by self-interested profit considerations.
If retaining their special, long-standing relationships
with Russia secures them lower prices, the companies will do so
at the expense of solidarity among EU states. This economic realism
might clash with the EU’s multilateral approach, but instead
of encouraging EU’s leadership in external energy policy, it should
spur more solidarity-based mechanisms at the macro level. Potential
disruptions crises require the possibility of moving gas quickly
and efficiently among European states, which in turn requires interconnector
pipelines and the possibility to reverse gas flows in the
West-East direction. In recent years, a benign action of the EU has
revolved around increased infrastructure connectivity at the macro
level, along with the implementation of regulations on energy efficiency
and the use of renewable sources. As noted by Goldthau and
Sitter,17 the EU made significant strides in the use of regulatory
instruments to achieve foreign policy objectives, which in line with
Liberal arguments, confirms the strength of the EU policies at the
macro level. Two prominent steps to deal with gas supply threats
were establishing the European Network of Transmission System
Operators for Gas (ENTSOG) and the Agency for the Cooperation
of Energy Regulators (ACER). It remains to be seen whether ACER
ought to be given a strengthened mandate to establish gas market
regulations, including the power to overrule national regulators
on issues connected with security of supply and the operation of
cross-border transmission systems. A common regulatory framework
could in fact become the EU’s most potent negotiating tool,
as it would allow coordination at the EU level and the creation of
a more liquid gas market. In 2015 Brussels gave teeth to its rulings
by launching the so-called CESEC group,18 aimed at raising the
connectivity of the Balkans through a mosaic of existing and developing
interconnections. In the words of an European official, “the
Ukraine crisis highlighted all our weaknesses and built the necessary
momentum to make these changes happen. We now spent $
5,1 bn on connecting Europe; this may have dragged on if it wasn’t
for the Ukraine crisis. . .”19 With the expansion of the EU’s LNG
infrastructure more gas can be moved and swapped between member
states. Nevertheless, Brussels’ bark often has been greater than
its bite in terms of capability and effectiveness in taming the corporate
sector. As Klaus Welle, Secretary General of the European
Parliament observes, “Interconnecting Europe has caused very complex
disputes. Now a special, multi-billion gas infrastructure fund has
been launched. ” However, as Welle admits, “we are still not very
strong on making the corporate sector follow our legislation.”20
Most recently, despite the EU’s efforts to keep transit through
Ukraine a viable option, Gazprom and its European partners signed
a shareholders’ agreement on the Nord Stream-2 gas pipeline
ported by internal gas interconnectors and joint crisis mechanisms, in a spirit of
solidarity.
17
Goldthau and Sitter ¨Soft power with a hard edge: EU policy tools and energy
security. ¨Review of International Political Economy, 2015, 1–25.
18
http://europa.eu/rapid/press-release STATEMENT-15-4281 en.htm.
19
Official at the EU’s External Action Service, Interview with the author, Brussels,
Belgium, May 21, 2015.
20
Interview with the Author, Harvard University, October 3, 2011.
34 M. Skalamera / Energy Research & Social Science 12 (2016) 27–49
project,21 which once again, confirms the primacy of corporate
actors at the hidden level.
In sum, a liquid gas market would ensure EU-wide solidarity
by working out better emergency plans through the development
of new interconnectors and reverse flows, and by developing crisis
prevention mechanisms at the EU level, with the European
Commission acting as the vector for coordination [30]. Such an integrated
European gas market is at the very core of the EU energy
policy triangle of achieving security of supply, competitiveness,
and sustainability, given that it increases the competitiveness of
the energy markets and at the same time it strengthens security
of supply. However, despite what Liberals say, it is not attainable,
desirable, or even democratically justifiable for the EU leadership to
“speak with one voice” while a handful of external supplies, such as
Russia, act as oligopolies. Therefore it should not even be attempted.
6. The constructivist literature
With a higher level of sophistication, Constructivist theory calls
greater attention to the role of identity, norms, and culture in its
explanation for the EU–Russian predicament. I accept the value of
this theory at the macro level, and I will evince its main postulates.
Constructivists argue that there is a “clash of paradigms” in
the EU–Russian relationship [27,50], a consequence of the different
“framing” of the main norms accompanying energy trade. The
insufficient clarification of common standards poses an immense
challenge in negotiating binding multilateral and bilateral agreements,
such as the Energy Charter Treaty (ECT), as well as in the
continuation of the Partnership for Cooperation agreement (PCA).
In the 1990s Russia was “weak” and forced to be a “norm-taker”
[48]. The Russian energy sector was expected to “learn” from European
expertise. The learning revolved around economic liberalism
that included support for relatively unhampered energy markets
and the “spill-over” of European regulatory practices into the Russian
energy sector.22 The rapid decline of the Russian economy
and weak political development in the 1990s were all the more
reason why the EU approached Russia on the basis of an unequal
power relationship. For example, the ECT was crafted in the early
1990s on the initiative of the EU, with the purpose of fostering
the “governance of the pipelines” and extending European energy
policy to the rest of Eurasia. The Charter was signed in 1994 and
it incorporated 51 member states, replacing no less than 1275
bilateral investment treaties (BITs) with a single multilateral regulatory
framework, with especially notable provisions in the area of
investment protection.23 Its importance lay in that it was the only
multilateral framework for exchanges between producer, transit,
and consumer countries [86,90]. Despite that, the ECT did not sufficiently
reflect the interests and concerns of producers. This was in
fact the most proximate cause of Russia’s ultimate withdrawal: the
country simply did not see anything to gain from accepting ECT-like
discipline.24 The fact that the final decision to opt out came after the
possible verdict in the Yukos expropriation case stimulated a lively
scholarly debate on how Russia’s withdrawal could be of political
significance [81]. However, this quite overlooks the fact that none
21
Euractiv, Germany helps Russia bypass Ukraine via “Nord Stream-2”, September
4, 2015.
22
For literature on ¨spillover¨see for example, Haas, P.M Introduction: Epistemic Communities
and International Policy Coordination, International Organization, vol. 46,
no. 1, Knowledge, Power, and International Policy Coordination. (Winter, 1992), pp.
1–35.
23
See: The Energy Charter Treaty Secretariat website, www.encharter.org.
24
The United States, for example, did not sign the ECT because it does not
include the necessary clauses for a pre-investment climate and treats purely postinvestment
situations.
of big producing countries (e.g., the United States) or suppliers of
Europe (including Norway and Algeria) is a member of the ECT.
The fact that it was an EU initiative also meant that the EU
had a “first mover advantage” in defining its structure.25 Most
importantly, the ECT has been integrated into the EU’s acquis
communautaire.26 Despite its weakness, Russia firmly refused to
adopt several of the EU-sponsored rules, such as the ECT. Many
Western scholars pointed out that the ECT has been written with
a purely EU conception of how relations with Russia should be
organized [86,17]. In that context, the then President Medvedev
presented an alternative Treaty, the “Conceptual Approach to the
New Legal Framework for Energy Cooperation”,27 which from one
European diplomats’ perspective had “strong borrowings from
the ECT.”28 Medvedev’s concept complemented the ECT, including
improvements to the country’s unappealing business environment,
a stronger legal system, and more individual freedoms [17]. Despite
Westphal’s [86] persuasive point at the time that the renewal
of a constructive dialogue with Russia should begin from taking
Medvedev’s proposal more seriously, the latter has been greeted
with little enthusiasm in Brussels. The EU has shown no interest in
discussing the new ‘conceptual approach’ to energy cooperation,
and it has ignored ex-President Dmitri Medvedev’s proposals for a
general EU–Russia agreement on energy infrastructure.29 A strategy
group has been put in place in 2010 for the modernization of
the ECT, but for the EU the review process was simply a non-starter.
In the words of an EU diplomat: “A way to accommodate legitimate
Russian interests has to be found. Russia is now pushing for a completely
new Treaty. Yet replacing the ECT with a new legal framework
to accommodate Russia is very difficult. Why should the EU consider
dramatically changing a treaty codifying elementary rules to safeguard
energy investments and trade, which has been already ratified by 46
countries? The EU would incur in a huge reputational cost should
it step back now.”30 In the aftermath of Russia’s refusal to adopt
free-market legislation in the energy sector, despite the efforts to
keep the process formally ongoing, a large gap was created in the
EU–Russian dialogue. The EU struggled to find a new position on
Russia by incorporating some of the principles of the ECT into the
new PCA [63,92] but the Russians were firm in their refusal. Since
then, all alternative approaches involving a diplomatic solution to
modernize the ECT have largely failed.
One could argue that if Russia accepted the ECT and its controversial
Transit Protocol, the whole debate about the Southern
Corridor would have become superfluous and the EU–Russia energy
predicament would have been solved with less cash and political
battling. Yet instead of multilateral cooperation, Russia’s nascent
business model revolved around bilateral relations, in which it
could prevail over weaker partners and reward friends. The Kremlin
itself has not denied that energy is an important foreign policy
tool, although it responded vehemently to accusations that it uses
its energy abundance as a political weapon.31
The increase of oil prices starting after 1999 facilitated the Russian
economic recovery. In 2000 Putin took office and resuscitated
25
In fact, the ECT had been always regarded as ¨European, ¨which has been at times
its strength, at times its major weakness. After all, its headquarters are located in
Brussels, the EU funds more than 65% of the budget.
26
Which are the accumulated legal acts, and court decisions that constitute the
body of European Union law.
27
The five-page ¨Conceptual Approach to the New Legal Framework for Energy
Cooperation ¨was posted on President Medvedev’s official website.
28
European Diplomat at EEAS, Interview with the Author, May 2012, Brussels
29
See: EU readies ‘pragmatic’ answer to Putin’s energy agenda, December 18, 2012,
Euractiv.
30
European Diplomat at EEAS, Interview with the Author, May 2012, Brussels.
31
Mitrova, The Geopolitics of Russian Natural Gas, White Paper, Harvard University’s
Belfer Center and Rice University’s Baker Institute Center for Energy Studies,
February 2014, p.7 [59].
M. Skalamera / Energy Research & Social Science 12 (2016) 27–49 35
a strong state, thus ending the political chaos and economic turmoil
of the 1990s. Acutely aware of the importance of the energy
sector for Russia’s state budget, but also keen to restore Russia’s
“rightful place” in the world,32 President Putin began to restructure
the energy industries away from full privatization, setting
limits to foreign private capital.33 Henceforth, the direct influence,
or the “spillovers”, of the EU’s ideas into Russia began to be
seen as improper interference. The 2000 Foreign Policy Concept,
drafted under Putin’s supervision, already stated that ‘Russia must
be prepared to utilize all its available economic levers and resources to
uphold its national interests,’ with an obvious reference to the energy
resources [61]. In Putin’s view, this was a field where Russia had
competitive advantage over other world powers. Thus, preserving
its role as Europe’s main supplier while simultaneously developing
energy ties with China and other Asian countries was set as the
chief priority.34 In that setting, intellectual relationships with the
West became less welcome.
The EU was accused by Russia of acting as a “norm
entrepreneur,” pressing it to conform to its behavioral standards.
Russia was no longer willing to accept norms from the outside that
it did not help to craft, and wanted to show that the Western model
was not the only right one [62]. In Russia’s view, the West has
had a “first mover advantage” in defining concepts such as democracy,
sovereignty, and reciprocity. Putin claimed that Russia did not
reject entirely this model, but wanted to propose an alternative.
This resulted in the reversal of the trend toward democratization
that occurred through the 1990s, with the Kremlin now controlling
the appointments of governors and the upper house of parliament,
and consolidating control over most broadcast media [65,67].
Developments such as the imprisonment of Mikhail Khodorkovsky
alarmed European observers, who in the aftermath of the
2006 energy crisis with Ukraine began to highlight the risks of market
power resulting from Gazprom’s monopoly and the possibility
of the Kremlin’s playing the ‘gas weapon’ card as an instrument
of foreign policy. Most of the scholars that adopted this alarmist
tone, were also stressing the need to decrease the dependence
on Russia by diversifying gas supplies constructing new pipelines
directly from the Caucasus and Central Asia. This position was
strongly backed by the United States. Meanwhile, Russia responded
at times by threatening to re-route its exports towards the East,
or in a milder tone, by pointing out that a new understanding of
energy security was needed, one that goes beyond security of supply
and takes into consideration the interests of all participants in
the energy market [41]. By 2008, Russia declared diversification of
its energy supplies towards China, Japan, and South Korea as its top
priority [70].
Obviously enough, the expected privatization and liberalization
of the Russian energy sector did not materialize. Rather, the Kremlin
intervened and partially renationalized oil and gas resources to
develop a predominantly Russian-based industry. It orchestrated a
change in rules for parties and appointed Kremlin officials to corporate
leadership positions in gas, oil, rail, airline, shipping, and other
industries. With power thus centralized, President Putin rejected in
32
President Putin was quick to recognize the importance of energy as a strategic
tool, arguing that it is energy which ‘to a large extent determines Russia’s place in
World Politics. ’ See: Energy Strategy of Russian for the Period up to 2020, approved
by the Decree No.1234-p of August 28, 2003, issued by the Government of the Russian
Federation, Accessible at: http://ec.europa.eu/energy/russia/events/doc/2003
strategy 2020 en.pdf.
33
In 2000, Putin met with his country’s business leaders and said he would back
a proposal that would withdraw judicial investigation of the dubious privatizations
that took place throughout the 1990s and produced the so-called oligarchs. But, in
return he asked that these ¨oligarchs¨stay out of politics.
34
Russia still supplies around a quarter of Europe’s gas imports and despite the
current ‘gas glut’ in the long run gas imports are projected to stay stable.
hostile tones any external criticisms of Russia’s political system and
policy choices. Powerful insiders within the presidential administration
(such as the Kremlin’s chief ideologist Vladislav Surkov, and
Rosneft’s Igor Sechin) were now promoting a new vision for the
country, embodied in terms such as “sovereign democracy,” “financial
sovereignty,”35 “multipolarity in world politics” and “state
capitalism.”
Fully unprepared, the EU has struggled to find a common position
on Russia’s increasingly assertive stance on energy politics,
and at first resolved to continue with its EU-wide “market and
institutions” approach. Yet, in 2006, after the first Russia-Ukraine
crisis, this approach was widely criticized for not having provided
energy supply security. Many critics pointed out that Europe was
rather naively expecting that exporting regulations and economic
ultra-liberalism alone would provide for energy security [84,92,10].
Therefore, at the macro level, the liberal paradigm that prevailed in
the 1990s was getting slashed by a growing “regions and empire”
logic, a label that Van der Linde and Correlje [83]36 employed to
describe the newly-introduced neo-realist style of problem-solving
between Russia and the EU.
For instance, the political uproar surrounding a rumor that
Gazprom was interested in buying Centrica, of the UK, in February
2006 was indicative of the EU’s rather protectionist mindset at the
time, which had been formally enshrined in the 2008 Commission’s
“reciprocity clause,” dubbed as ‘the Gazprom clause.’37 That provision
forbade foreign-producing companies to own part of transit
and transmission companies’ stock, despite the EU’s liberalization
principles38 [22].
This closure in what was also dubbed “Fortress Europe”39 was
accompanied by an effort to defy the realities of interdependence
by elevating narrow definitions of national interest. To make things
even more complicated, while the European Commission and the
constituent member states at the supranational level were moving
hand-in-hand with the United States towards a harder and more
politicized stance towards Russia, at the hidden level, individual
member states were supporting their energy companies, which
continued to cultivate fruitful energy relations with Gazprom, in
line with European Commission’s own market paradigm.40 In sum,
35
The idea of sovereign democracy directly challenges the West’s idea of democracy
and human rights as a set of universal values and practices. This normative
concept helps Russia to put forth its own ¨democratic model¨in competition with the
West. The first aim is to give ideological foundation to Putin’s authoritarianism, and
then to export it to Russia’s neighbors. See, for instance Herd in Kanet, [33] p. 59 and
Light [47].
36
In a buyers’ market situation, consumers favor a liberalized system integrated
through ‘markets and institutions’ while in times of the sellers’ market an ‘empires
and regions’ scenario dominates, reflecting a fragmented global energy system dominated
by power politics [83].
37
The ¨third country clause,¨often dubbed the ¨anti-Gazprom clause ¨paved the way
for discriminatory and protectionist treatment as far as foreign investments are
concerned, despite the Energy Gas Directives.
38
Thus, it prevented foreign companies from acquiring energy assets in Europe
unless their home countries reciprocated.
39
Admittedly, Europe was somewhat forced to adapt to a more tense geopolitical
context after 9/11, but in gas relations towards its main supplier (i.e., Russia)
the switch has been quick and sudden; from somewhat extreme, ultra-liberal,
Washington-consensus-type policies Europe went to quite the opposite, with the EU
distancing itself from its own market principles and thus undermining its credibility
and legitimacy.
40
True, there were countries (and national energy companies) that welcomed this
change of political wind in Brussels and its distinctly hostile view of Russia. Notably,
countries such as Poland and the Baltic states (which rely on Russia for two-thirds
of all their gas consumption), have seen in Russia a potential threat to their political
independence and even territorial sovereignty, and relied on the US approach that
firmly opposes Russian assertiveness. However, Russia’s traditional customers and
¨Old ¨member states (i.e., Germany, France, Italy) have often distanced themselves
from such a stance and have sought to work in partnership with Moscow, warning
that by promoting engagement with post-Soviet Eurasia largely through integration
initiatives that are de facto closed to Russia, the United States and Brussels have
36 M. Skalamera / Energy Research & Social Science 12 (2016) 27–49
at the supranational level, the stronger role of national governments
coincided with the phase of low-trust divisive globalization,
where governments were taking more decisive and active roles.
But oftentimes, at the hidden-level these very same governments
were acting as supporters of their respective companies (or national
champions) in their dealings with Gazprom.
Predictably, after the two Ukrainian crises (2006 and 2009),
the EU–Russia institutional macro-dialogue had slowly but inexorably
wound down and prospects for its recovery are slim. The
ECT, for example, lost its institutional strength after it failed its
main test: addressing the two Ukraine–Russian energy wars [90].41
The Russian side, too, highlighted that the inaction on part of the
political leaders of the Energy Charter Secretariat before and during
the Russia-Ukraine gas conflicts undermined the credibility of the
Treaty [41]. At last, the ECT became less relevant due to the new
gas transit-avoidance geography (that began with the construction
of Nord Stream), which was promoted by key European companies
together with Gazprom.
In sum, in the 1990s, it was believed that the EU-Russia dialogue
would result in growing similarity between the two. Yet to
achieve this, Russia was implicitly expected to “transition” to Western
standards, which would have reinforced cooperation. Thus, so
the thinking goes, everybody would have benefited in the long run.
However, from 2000 onwards, the incompatible EU-Russia narratives
at the macro-level have hampered these efforts. Indeed,
adjusting the ‘rules of the game’ to match both sides became a fertile
source of contention Locatelli [50], Bressand [17], Yet, the EU simply
has difficulties articulating a position towards this new dominant
neighbor and offering incentives that do not include the export of
Brussels’ criteria, norms, and rules. This is why deep commercial
interconnectedness is accompanied by a very weak institutional
system. Table 3 illustrates some the main issues discussed thus far.
To be sure, overall, EU–Russian energy interdependence is managed
with a dense web of relationships, but with no binding
energy-governance structure. Therefore, somewhat paradoxically,
despite the plethora of high-level meetings and summits, uncertainty
pervades EU–Russian energy politics. In general, this article
praises Constructivist theories and shares the opinion that norms
do indeed matter a great deal at the EU-Russia macro level. In
Locatelli’s [50] words: “The Russian state ’ s growing role in the hydrocarbons
industry, exerted through various state-controlled companies,
through the imposition of tougher conditions of access but also through
the introduction of some form of competition, can be seen as an attempt
to introduce an alternative organizational model more consistent with
the country’s institutional environment.”42 Nevertheless, these perspectives
fail to capture, or at very least, fully explain, instances in
which, at the meso and hidden level, in the midst of the large identity
gap created by the Russo–Ukrainian crisis (in January 2006), individual
gas companies (supported by the respective member states)
did not think twice about negotiating new contracts with Gazprom,
without fears of having to accept long-term commitments.43 As
(often unintentionally) forced Russia to make zero-sum choices. Most importantly,
the older member states were wary about alienating Moscow on energy policy.
These are the member states with the energy companies, which this article treats
as key.
41
As noted by Yafimava [90], the failure to use the ECT to prevent, resolve, or
at least assess the 2009 crisis has further undermined the instrument and made it
less relevant to future disputes. The perception of the Treaty as a weak instrument
during the crisis further undermined its legitimacy in the view of all the contracting
parties, including the EU’s member states and the corporate energy sector.
42
In e-mail correspondence with the Author, October 2012.
43
While in the aftermath of the 2006 Russia-Ukraine gas crisis, relations at the
macro level were hitting one of their lowest points, all major European gas buyers,
including German E.ON Ruhrgas, WIEH and WINGAS, French EDF, Austrian OMV,
and Italian ENI renewed their long-term contracts (LTSCs) with Gazprom. The fact
that these LTSCs were prolonged well before their expiry date suggests that the
eloquently described by Yafimava [90], the long-term contracts
that the EU Majors renewed with Gazprom in 2006—before their
expiry and despite (or, because) political tensions created by the
Russo–Ukrainian crisis in January 2006, bear witness to the autonomy
and bargaining power of these big companies. For instance, in
November 2006, ENI and Gazprom signed a strategic partnership,
which envisaged a commitment to jointly develop projects in the
entire gas chain for the next thirty years.44 There were instances
when, in the midst of the worst political stagnation, EU companies
initiated joint ventures and large-scale pipeline projects in collaboration
with Gazprom. In July 2011, Gazprom announced a strategic
partnership with the German utility RWE, just a month after one
of the coldest EU–Russia Summits (June, 2011).45 In contrast, the
prevalent attitude among major players of the European gas industry
was calm and even optimistic. The history of the EU–Russia
energy relationship is full of such seemingly puzzling examples.
Moreover, in the 1970s the “normative gap” did not hinder a
successful energy relationship between the Soviet Union and individual
member states, at a time when “ideological irreconcilability”
should have prevented such contacts from the outset.46 Despite an
even wider ideological divide, multi-decade contracts were signed,
starting in the 1970s, between the Soviet Union and Austria, France,
Italy, Finland, West Germany, and Sweden. If anything, changes
in the international environment after the collapse of the Soviet
Union have induced a closer notion of European and Russian identity
that transcends traditional ideological boundaries. Hence, how
do we explain a relationship that has been characterized both by
conflicting patterns at the EU–Russian macro level and fruitful
bilateral dealings at the company level?
Overall, at the macro level, the EU–Russia case demonstrates
that, contrary to neo-liberal theories holding that high levels of economic
interdependence enhance the need for predictable rules and
standards as they lower the costs of cooperating, when a plethora
of norms and identities do not match, mutual dependence causes
serious impasses, rather than cooperation. In fact, when a multitude
of disputed interests converge with high stakes for all involved,
interdependence can lead to conflicting patterns. Another example
of this logic would be the financial interconnectedness between
China and the United States, which, amid very different institutional
landscapes, in the final analysis leads to discord at the macro
level.
Yet, while accounting for the deadlock at the macro level, the
discourse on identities and values sheds only a partial light on
EU–Russian energy cooperation. For the reasons described in detail
in the next sections, the European Commission is challenged not
only by the Russian reluctance to adhere to its rules and norms, but
also, and most importantly, resistance stems from internal dynamics
inherent in Europe, i.e. the energy firms as well as individual
countries that benefit from the status quo. In fact, the tension
between the EU and Russia is subtle.
renewals took place at the request of the European gas companies, probably precisely
because of the 2006 Ukraine crisis, where the EU buyers wanted to prevent
a potential reaction of the Commission against Gazprom’s activity in the European
market ([90], p. 100).
44
ENI’s Press Release, ¨Eni and Gazprom sign strategic agreement¨available
at: http://eni.com/en IT/media/press-releases/2006/11/Eni and Gazprom sign
strategic 14.11.2006.shtml, Accessed in June 2013.
45
For a more detailed discussion see: Makarychev and Sergunin [53] EU-Russia:
Divergent logics of communication, CEPS Policy Brief, no. 244, 17 June 2011 .
46
Instead, the first supply contract for Russian natural gas with a West European
company was signed with OMV in 1968. In the same year, an agreement covering
supplies of gas to East Germany was concluded. The first Russian gas flowed
to West Germany on May 1, 1973. A year later, in 1974, Italy launched the first
gas pipeline originating from the USSR. Ever since, Russia has continuously supplied
these markets, which along with France became its most lucrative markets for
natural gas.
M. Skalamera / Energy Research & Social Science 12 (2016) 27–49 37
Table 3
Constructivist key Reasons for the lack of EU-Russia energy governance structures.
Norms Sovereignty Reciprocity principle Information sharing Interdependence
EU Liberal democracy - Diffuse reciprocity
- Market and rules-based
governance but directed
towards the export of the
“acquis commaunataire ”
- Transparent, accountable,
and free exchange of
information
- Pluralist channels of
information provision
- Interdependence enhances
reciprocity and learning
among countries and actors
- Interdependence constrains
a nation’s ability to
undertake autonomous
policy initiatives
Russia Sovereign democracy - Quid-pro-quo reciprocity
based on equality in power
- Based on swaps of assets of
similar market value or
utility
- Independence from external
influences
- State control of strategic
information
- Provision of selected
information
- ‘Responsible
interdependence’
- Guarding state interests in
energy requires concerted
political action
Source: Own analysis, based on secondary data and interviews.
In order to fully implement its regulatory agenda, Brussels
will need to overcome not only Gazprom’s resistance, but also
the hindrance of key European energy firms, which indeed are
the main and most shrewd lobbyists47 within the EU. Just like
Gazprom, these firms oppose higher levels of institutional integration
between the EU and Russia, and fear being institutionally
locked into interdependence. These crucial actors, along with
Gazprom, have benefited from the status quo. Thus, to say that the
EU is a unitary actor promoting a certain organizational model that
is resolutely rejected by Gazprom is not a valid criticism per se.
With this in mind, we now turn to the illustrative cases.
7. The case studies
The aim of this article is to construct a strong explanatory model
of the key players’ behavior, while illustrating and testing the main
hypotheses in the literature and adding my hypothesis about the
centrality of energy firms and their profit motives. A comprehensive
empirical analysis of EU–Russian energy cooperation requires
a time frame of approximately 25 years in order to adequately grasp
the “paradigm shifts” that have taken place. However, the period
between 2000 and 2010 will be particularly important48 to understanding
why such a high degree of interdependence has not led to
‘more institutions.’
Starting from 2000, the EU–Russia energy relationship has been
characterized both by conflicting patterns at the macro level and
fruitful bilateral dealings between Russia and single member states
and companies at the hidden level. The case studies focus on all
three levels. First, I examine the macro level . Parties to these
relationships are the EU and Russia, national governments, and
gas industries. Second, I look at the national, meso level where
countries and gas companies develop energy policies and strategies
that put them at odds with the EU. Third, a hidden level will be
analyzed, with an emphasis on long-standing, intimate, companyto-company
ties, which enhance this level’s strategic importance.
47
For example, within the Energy Charter Secretariat in 2004 an Industry Advisory
Panel was put in place with members comprised of all the big gas (and oil) utilities
in Europe. Within the EU-Russia energy dialogue, a Gas Advisory Council was
founded, which is a platform for dialogue on issues of common interests, and consists
mainly of representatives of the leading EU and Russian gas companies. Not to
mention that some companies such as the Italian ENI, have their Delegations to the
European Union. For more information: http://ec.europa.eu/energy/international/
russia/dialogue/dialogue en.htm, http://www.encharter.org/index.php?id=23, and
http://www.eni.com/en BE/eni-belgium/eni-profile/eni-profile.shtml.
48
Because formal energy relations with Russia commenced in 2000 within the
EU-Russia Energy Dialogue, in a period of high-energy prices and peculiar political
changes in Russia.
In this case, bilateral frameworks and bilateral contractual arrangements
come into play.
The article also takes into consideration the broader impact
of external factors such as recent technological developments in
energy. The impact of such exogenous factors has been little predicted,
let alone understood, in the energy policy literature. For
example, neither the effects of the economic recession (which
in large part explain the 2010–2012 gas glut in Europe) nor the
groundbreaking technological developments in shale gas exploration
were foreseen.49 Therefore, more research on exogenous
factors and how they impact the Eurasian gas business is certainly
worthwhile.
7.1. The Southern Gas Corridor
The Southern Gas Corridor is the case that best illustrates the
complex interplay between the three levels described, where the
biggest conflict stems primarily from the tensions between:
1 The European Commission and Russia
2 The European Commission and Europe’s national gas giants
(backed by their respective governments) and Gazprom (backed
by the Kremlin).
The previous section stressed that a lack of harmonized “rules of
the game” at the macro-level exacerbates discord despite obvious
energy interdependence. In some cases, it even stimulates the two
sides to non-cooperative solutions in order to increase their respective
“security of supply” and “security of demand.” One example of
this ‘securitization’ drive at the macro-level is the Nabucco pipeline
and Gazprom’s response, South Stream. Many have interpreted the
Southern Corridor as the epitome of the fact that geopolitics is “back
in” and that energy is not ‘just another commodity.’ The European
Union as a whole and Russia are clearly adversaries in the race for
the Southern Corridor. However, there is another level, one in which
49
While ¨easy¨oil and gas may be quite exploited globally, today we can be confident
that there is no shortage in hydrocarbons on the horizon. Thanks to the
breakthroughs of horizontal drilling, fracking in tight rocks, and many other new
innovations, the perceived shortage of reserves was defied. In gas, these new technologies
brought immense new supplies of gas on the market and lowered the
American price for gas to an unprecedented level. In oil, the new techniques discredited
the theories of ¨peak oil,¨and have more recently acted on the price front,
too. In other words these new technologies have developed techniques that are
now, under certain circumstances, able to put a downward pressure on the price of
oil. Oil prices continued to rise in the 2010s, although Maugeri’s [55] study foresaw
a collapse in oil prices in this decade.
38 M. Skalamera / Energy Research & Social Science 12 (2016) 27–49
specific geography and national politics have slowed the exit of the
state, but have also shown that the real, albeit quiet, protagonists
are the energy firms. It is at this level that Russia and specific European
partners are not adversaries. On the contrary, they are often
strategic partners united by trust and a shared corporate etiquette.
At the macro-level the Southern Gas corridor symbolizes that
efforts for legal formalization of the EU and Russia’s energy relationship
failed, resulting in a gradual political drifting apart of
the two neighbors. Instead of a shared “governance of existing
Eurasian pipelines,” various new pipeline projects such as
South Stream, Nord Stream, Nabucco, and several smaller projects,
respond to the ‘securitization’50 that started in the early 2000s
and are tangible proof of the ECT’s failure to address energy security
concerns across Eurasia in a multilateral (and much cheaper)
way.
At the surface, the battle over the Southern Gas Corridor’s
pipelines seems to indicate a classical zero-sum philosophy and
mentality, in which one party’s gains result only from equivalent
losses or concessions by the other party. But the Southern gas corridor
is more, and less. It is a multilayered, variegated economic
competition for profits to be gained from privileged access to the
southeastern quarter of the European energy market, where both
strategic concerns and profit rationale play a role. But much of this
pattern simply reflects the multi-level, intertwined dynamics that I
have illustrated through my analytical framework at the beginning.
After the Russian–Ukrainian gas conflict in January 2006, energy
security had re-emerged in European foreign policy agendas. The
EU’s active diplomatic efforts of these years are well documented
in the European Green Paper “A European Strategy for Sustainable,
Competitive and Secure Energy” in March 2006,51 the First Strategic
Review (in 2007) “An Energy Policy for Europe ” and the Second
Strategic Review in November 2008,52 where the EU stressed the
importance of energy solidarity among member states through the
adoption of a collective “crisis management” strategy against possible
disruptions. These objectives were to be achieved through a
liberalized “liquid” gas market, the possibility for pipelines to operate
in “reverse flow,” more gas storage, and increased cross-border
gas trading within the EU.53
Despite these admirable goals, the path towards a common
internal gas market has been fraught with obstacles. The measures
to ensure “resilience” [58,91] through an unbundling of the
ownership of production and transportation capacities met with
resistance from Russia and European gas firms. The owners of the
pipelines resist these measures because they might attract competition.
In this context, it is understandable why the path towards
a common internal gas market has been accompanied by the EU’s
strong backing of the Southern Gas Corridor as part of a new ‘Energy
Silk Road’ between Europe and the Caspian region, independent
of Russia. In the aftermath of the first Russo-Ukrainian crisis the
50
The concept of securitization as defined by Buzan and Weaver and more generally
by the Copenhagen school, best captures what happened in EU–Russian energy
relations at the macro level since 2006. According to Buzan and Weaver, securitization
in energy issues ought to be portrayed negatively, because it is almost never
successful. Because it is carried out at the international level it usually results only
in politicization (Buzan, Weaver, Wilde, 1998. p. 71). Securitization is seen as a failure
to deal with issues as normal politics, therefore de-securitization should be a
preferred option when it comes to energy (energy security itself can be seen as a
part of what Buzan et al. call the environmental sector within their relatively new
concept of wider understanding of security, see f. e. Buzan, Weaver, Wilde 1998:
71–94). In this sense, de-securitization refers to the shifting of the issue out of the
existential mode back into the normal political sphere.
51
See http://ec.europa.eu/energy/strategies/2006/2006 03 green paper energy
en.htm.
52
See http://ec.europa.eu/energy/strategies/2008/2008 11 ser2 en.htm.
53
See Article 100 I of the new Lisbon Treaty: http://europa.eu/lisbon treaty/
glance/index en.htm
narrative at the macro-level in the EU had been all about diversification.
This was considered indispensable for increasing energy
security, since Russia allegedly was an unreliable supplier, and
one that could use the “energy weapon” against Europe, its main
customer. In more reasonable views, diversification was seen as
necessary because of European skepticism about Russia’s ability
to provide enough gas for the growing needs of the EU economy
(which was indeed growing at the time). This skepticism was based
on Gazprom’s risky, Kremlin-backed strategy to secure foreign
markets and strategically lock up reserves, which has apparently
pushed the company to its financial limits [24,32]. Essentially, for
these reasons, the Nabucco pipeline became the cornerstone of the
EU’s strategy to tackle the impending ‘Russian risk.’ Nabucco was
designed as a 3900 km pipeline from Turkey to Austria via Bulgaria
and Hungary that would deliver up to 31 billion cubic meters
(bcm) of gas to Europe per year and would cost roughly 8 billion
Euros.54 Russia responded to these attempts to “push Gazprom out
of Europe” by announcing a ‘transit avoidance’ pipeline that would
diminish the “Ukraine risk.” To that end, Gazprom and the Italian
ENI signed an MoU on the construction of an offshore gas pipeline,
South Stream, in the Black Sea,55 in addition to their collaboration
over Blue Stream.
This bilateral agreement received much criticism from several
member states, some of whom later signed on to the project. In
2009, a new Russo–Ukrainian gas dispute exploded in the middle
of the winter, in addition to the already controversial 2006 crisis.
This time, the dispute lasted several weeks and was the first time
that Gazprom completely halted the flow of gas into Ukraine.56
Proponents of both Nabucco and South Stream used the crisis as an
argument in support of their own project [5].
At the macro level, in the spring 2007, Nabucco was granted
the highest political priority, as laid down in the guidelines for
trans-European energy networks (TEN-E).57 To bring Nabucco to
life the EU allocated $200 million from its own budget, which
provided sufficient finance to carry the project through all the preliminary
feasibility and detailed engineering study phases [71].
Although this may not seem a large sum, considering that the
EU budget amounts to only about 1% of the member states’ total
GDP, it was quite significant. As documented by Kusznir [44], the
Nabucco consortium also received 4 billion Euros from European
banks: 2 billion of which came from the European Investment
Bank, 1.2 billion from the European Bank for Reconstruction and
Development, and 800 million Euros from the International Finance
Corporation. Moreover, relying on a mandate of the then EU-27
states, the European Commission was strongly involved in the talks
between the Nabucco consortium and the potential suppliers. It
was the first time that the Commission was given such authority
in regards to an energy infrastructure project. As noted byPirani
([69], p. 100), the proponents of the Nabucco line could hardly
have asked for a stronger political backing to be sent to the Shah
54
See, http://www.nabucco-pipeline.com/portal/page/portal/en/company main/
about us, Accessed in December 2012.
55
See, http://www.south-stream.info/en/pipeline/route/.
56
For an analytically rigorous assessment of the dynamics between the EU and
Russia, we need to take into consideration the risk that gas could be piped through
transit countries, especially Ukraine. In the context of transit, fruitful contributions
in which the relationship between Russia-transit countries [8], and Russia-the transit
countries-the EU Yafimava, 2012 have been major objects of analysis, offer more
detail. This section sketches the challenges that transit posits and the implications
for the EU and Russia’s relationship, but it explicitly abstains from going into detailed
assessment of the responsibility for the gas disruptions. Suffice it to say here that at
the time, formally, West European governments declined to take sides and rather
apportioned blame to both sides for their shady dealings, insensitivity to European
concerns, and downright incompetence [54].
57
See Kusznir, J. The Nabucco Gas pipeline project and its Impact on EU energy policy
in the south Caucasus, Caucasus Analytical Digest No. 33, 12 December 2011, p. 10.
M. Skalamera / Energy Research & Social Science 12 (2016) 27–49 39
Deniz consortium.58 But the main actors in the process, energy
companies both from the potential supplier countries and from
the consumer countries, did not participate by splitting the risks.
Thus, the EU’s reinforced efforts to forge an energy relationship
with Turkmenistan, with high-profile visits of Energy Commissioner
Oettinger and Commission President Barroso to Ashgabat,
turned out to be in vain. The realization of how difficult the process
is without serious motivation from the corporate sector came
in August 2012, when the EU Energy Commissioner Gunther Oettinger,
having certified that Turkey was on board, visited Ashgabat
to talk to president Berdymukhammedov, but was not received.59
In pursuing support Nabucco encountered several difficulties,
the main one being the question of its resource base. There was
simply not enough gas available to justify such a huge pipeline
(31 bcm). But also, on the supply side, Europe did not need such
a large pipeline, having slipped into economic recession in 2008.
However, the less favorable the economics looked, the more the
European Commission tried harder to be a broker of Nabucco for the
EU as a whole (a position that changed in 2011–2012 amid realization
that, given that the economics simply did not work, the illusion
of the original Nabucco coming to life could not be protracted any
longer). Predictably, the EU’s efforts to line up a coalition in favor
of Nabucco failed. But the fragility of the Nabucco coalition was not
due to the absence of convergent interests inside of the EU; most
crucially, it was the dubious economic rationale for the pipeline
that ultimately destroyed it. In an attempt to fudge these inconsistencies,
starting in 2011, the Commission suggested its ‘neutral’
position on the Southern Corridor-related matters.
In the words of an EU’s top civil servant: “We do not support any
particular pipeline-project. Nabucco didn ’ t have the needed volumes,
so other alternatives are now discussed. Having said that, we strongly
support at least one project that will be able to satisfy the criteria
of capacity requirements, dedicated infrastructure, transparency, and
scalability. The final decision has to be a commercial one.”60
Although the mixed effects of an unprecedented economic
recession, the advancement of the EU’s Third Energy Package, and
the availability of new gas supplies due to the shale gas revolution
in the US, froze gas demand and signaled profound changes in the
EU gas markets, the pipeline coalitions on both sides (i.e., Nabucco
and South Stream) ignored these developments and proceeded
regardless, granting an ever-increasing priority to their preferred
projects. Yet, there is a substantial difference in the two coalitions.
While Gazprom can afford such policies, due to a unique and symbiotic
overlap of Gazprom’s corporate interests with the Kremlin’s
goals,61 Nabucco had to stay profitable in order to get built, which
58
Moreover, the project benefitted from the exemption of third-party access for
half of the pipeline’s capacity (in Austria, Bulgaria, Hungary, and Romania), in contrast
to South Stream. During this time the European Commission was officially
shifting into a ’Nabucco neutral’ position, given the evident difficulty in reaching
the initial gas input for the pipeline. Therefore, not only has the European Commission
supported the pipeline, both politically and financially, but also in doing
so it has stretched well beyond its legitimate powers, while failing to abide by the
obvious limitations of its energy diplomacy.
59 ¨Turkmenistan Snubs EU Over Trans Caspian Pipeline¨, NefteCompass, 20
September 2012, quoted in Pirani ([69], p. 101).
60
Interview with the author, May 2012, DG Energy, Brussels, May 2, 2012. Interviews
were conducted with heads of businesses, high officials both in Russia and the
EU and influential energy experts. Due to the sensitivity of the information, most of
the information obtained during interviews was ‘non-attributable.’
61
The fusion of Russia’s external agenda and gas strategy has reached such a degree
that it is almost impossible to establish whether it is foreign policy that serves
Gazprom’s interests, or whether Gazprom is an instrument for restoring Russia’s
¨greatness,¨but suffice it to say that the interests of Gazprom and the Russian state
are profoundly linked. Energy policy is a domain of strategic importance both for
the Kremlin and Gazprom, and the crucial question whether there is a symbiotic
coherence between the two has attracted increasing academic attention (see among
others [79,28,14,21].
made Nabucco less commercially attractive for private investors.
Gazprom had the necessary gas, deep pockets, and a top down
approach to be able to pass the cost on to consumers. To a degree,
the high cost of new gas export infrastructures could have a negative
effect on Gazprom’s ability to generate profit on the domestic
market.62 However, as a state-owned company, Gazprom could
count on political support in exerting pressure for its preferred
solution to the Southern Corridor question (i.e., South Stream),
while maintaining a dominant position in the Russian gas market.
All that is not possible with EU-sponsored projects, where
investment decisions based on political calculations (i.e., Nabucco)
inevitably tend to fail. In a market economy, an unsound business
proposition simply has trouble finding the needed financial
investment to sustain it.63 And, as stressed before, the EU is not
a geostrategic actor per se, able to further a foreign policy goal
corresponding to the ‘common good’ of 28 member states.64
As a result, by 2008 all the countries of the Nabucco Consortium
were leaning toward South Stream, with Serbia, Slovenia,
Austria, Bulgaria and Greece welcoming the project as a significant
additional route that would enhance the EU’s energy security.65
Hungary, a country that initially fully supported Nabucco made an
impressive u-turn toward South Stream. Thus, by mid-2009 the
most vulnerable East European countries, precisely those for which
the Nabucco pipeline was promoted as indispensable i.e., Bulgaria,
Hungary and Serbia,66 all agreed to play an instrumental role in the
construction of South Stream, further undermining Nabucco.
Moreover, the very same bilateral pact between Gazprom and
ENI that received much criticism was enlarged, with a great deal
of controversy, in 2009 to welcome EDF, a French company, and
in 2011 the German BASF, all of which boosted the credentials of
South Stream as a European project. Actually, it was quite an easy
game for Gazprom to deter the interest of Nabucco’s investors; The
investors only had to see that South Stream offered not only a more
rapid construction schedule but also defined supplies of (Russian)
gas, all of which Nabucco did not have. Thus, the French and German
firms jumped on board with the Italian–Russian plan for the
offshore part of the pipeline. Plus, as already noted, an increasing
number national companies in Eastern Europe were eager to join
South Stream in the attempt to protect their respective interests.
To be sure, Russia’s role in undermining Nabucco was not negligible.
After the death of the Turkmen isolationist leader Saparmurat
Niyazov,67 Gazprom had been prepared to offer sizable increases
in the price paid for Turkmen gas in order to secure gas supplies
62
It is the epitome of Russia’s risky strategy to invest more in the construction
of strategic pipelines than in its own infrastructure or storage capacity. Gazprom
has generally sought ownership of downstream assets to ensure European outlets
for its gas, instead of tackling its stagnating domestic exploration projects, which
are necessary to make up for falling production. And in fact, recent studies suggest
the possibility that Gazprom, which is becoming more reliant on production from
remote and relatively expensive fields, may soon fail to produce enough gas to meet
its own domestic and export demand (see [24,34].
63
Because it has to guarantee profit to shareholders and banks right from the
outset.
64
It is important to note that liberal-style denunciations of Nabucco’s geopolitical
fiasco as being due to an incoherent and nonchalant approach on part of the EU
should not discount the limits of an EU-led foreign policy.
65
Simply by circumventing Ukraine.
66
Countries such as Bulgaria, Greece, Slovenia, and Hungary all rely on Gazprom
for more than 50% of their gas imports.
67
Throughout the 2000s Russia relied on two techniques to block European diversification
and keep the status quo in the Caspian region: (1) Gazprom bought Central
Asian gas at one price, transited it to Europe, and sold it for a higher price; or, (2)
Gazprom bought cheaper Central Asian gas for domestic Russian consumption and
saved its own gas for higher priced exports to Europe. Up until 2009, with demand
for gas booming and seemingly unstoppable, Gazprom counted on imports of large
volumes of gas from Central Asia as its own production stagnated. Without it, it was
believed that the Russian giant might have not been able to honor its export contracts
and meet the growing domestic demand. All that changed with the European
40 M. Skalamera / Energy Research & Social Science 12 (2016) 27–49
for the domestic market and to discourage Turkmenistan from
non-Russian pipeline projects, especially aiming to head-off any
possibility of Turkmenistan committing supplies to Nabucco. Europeans
were also unimpressed by Gazprom’s purchase of gas from
Azerbaijan, which it clearly did not need, with the apparent objective
of reducing the supply available to the Southern Corridor. As
noted by Stern ([77,78], p.99), the Russian side had a far greater
familiarity with most of the potential Southern Corridor suppliers
than did most European stakeholders and could therefore defend
its interests from a position of strength. While Moscow’s efforts
to secure the largest share of the cake for itself were undeniably in
line with its geopolitical realism, the EC’s meddling in the Southern
Corridor too was, starkly in contrast with its own multilateralism
at the EU level.
Nonetheless, what made Nabucco an unviable proposition is
simply the fact that political factors are of far less importance than
business rationale in pipeline construction. Nabucco, did not fail
because of insufficient political will and unity, which was on the
contrary unprecedented for such an infrastructural project, but
rather because of Nabucco’s irreparable economic flaws and the
fact that its coalition did not feature the main European players:
EDF, ENI, and Wintershall.
Therefore, in light of my analytical framework, it is important
to look “deeper” in order to answer the question: was it really in
everyone’s interest within Europe to advance the Nabucco plan? Who
would have been the winners and who the losers of such a pipeline?
Most crucially, where did the dominant actors stand?
Many have thought that if the Nabucco project failed, South
Stream would have been abandoned. This did not happen (until the
recent unexpected decision to scrap the project),68 because South
Stream was mainly conceived with the purpose of cutting Ukraine
out and was, therefore, the epitome of Gazprom’s eagerness to
remain the key player in the European gas market.69
While Gazprom restlessly stressed that South Stream was not
meant to outcompete the other Southern Gas Corridor projects, its
target markets were roughly the same as Nabucco’s. As acquiescently
pointed out by a European diplomat, “There is no outright
competition since South Stream is mostly promoted to circumvent
Ukraine and hence it does not guarantee new sources. Investors though,
don ’ t see it that way. They remain risk averse in the current gas glut.”70
Gazprom had always claimed that South Stream would not bring
new volumes of gas to the EU, and would only redirect already contracted
volumes. But it was bizarre, at the very least, that Gazprom
was prepared to invest so much money for the shipment of old
gas through a new pipeline. This seems to point to Gazprom’s
hidden interests as the real cause of their actions. Moves such as
securing markets instead of enhancing product quality or output
and marginalizing competitors by controlling market access and
infrastructure fulfill the criteria of a textbook monopoly rather than
point to politicized motives [24].71 The Kremlin, on the other hand,
backed a strong expansion course of its state-owned monopoly,
because its own survival depends on the revenues that Gazprom
(and Rosneft) are able to generate on the foreign markets. However,
the strategy to seek ownership of downstream assets to ensure outrecession
in 2008. Suddenly, Gazprom had excess supply and did not need Central
Asian gas to cover its commitments in Europe.
68
See note 55 on page 24.
69
The EU has always feared that as Gazprom gains interests in downstream assets
as well as controls upstream supplies, its market power will grow at the expense of
EU’s consumers.
70
Interview with the author, May 2012.
71
Gazprom’s strategy of increasing its vertical integration and marketing its gas
directly to the consumers is sensible and perfectly in line with a monopoly’s behavior.
This is a purely rational move by a market actor aiming at exclusive delivery to
a profitable market ([24], p. 33).
lets for gas is distinctively Gazprom’s, and has been declared risky
even by the Russian government, amid stagnating domestic exploration
and production projects, which are needed to make up for
falling domestic output.
In addition to the declared objective of definitively eliminating
the risk of Ukrainian gas transit (despite the unsoundness of this
project from a wider economic perspective),72 there may have been
hidden corporate insiders within Gazprom who were interested in
building a project of such dimensions. These insiders, due to the
symbiotic relationship between Gazprom and the Kremlin, managed
to sell Putin on the necessity of the project. The costlier the
project is, the greater the potential profits made by these insiders.
Despite such a reality, the increased importance of internal power
bargains, not to mention personal favors involving money in the
Russian decision-making processes, has been continuously underestimated
by Western experts ([20], p. 207). The difference both
in principle and in substance with the Nabucco project is that, in
order to look feasible, the latter had to guarantee an acceptable rate
of return right from the outset and contrarily to Gazprom, it could
not transfer the financial burden on to consumers.
Hence, in contrast to authors that refer to Gazprom as a mere
proxy of the Kremlin [9], or, as ‘synonymous’ with the Kremlin
[47], or even the more moderate literature arguing that while
business is important, the Kremlin is the head and Gazprom is
the hand in achieving strategic goals decided on by the government
[92,79,66,10], it seems right to agree with Grigoriev [28]
and Demakova and Godzimirski [21], in their view that Russia’s
approach in gas trade largely mirrors Gazprom’s own interests. As
the case on the ‘third energy package’ illustrates, Russian statecapitalism
creates fewer constraints to Gazprom than regulations
in a competitive market economy do with the European companies.
To a certain extent, Gazprom is free to do almost anything to boost
its profits and fill state coffers. Admittedly, during the 2000s the
company was facing two often-incompatible tasks: aligning with
the state’s geopolitical interests and boosting profits. For example,
Gazprom viewed the discounted prices that the CIS countries were
paying on the grounds of their status as ‘zones of privileged interests’
as inadmissible, and thus it has pushed for a market-based
relationship with the whole FSU.73 Gazprom’s insistence on higher
prices in the ‘near abroad’ coincided with substantial uncertainties
over its sales to European markets, which were increasingly looking
for other sources of gas, meaning that their commercial viability
would need to be underpinned by domestic (and CIS countries)
sales74 to guarantee a minimum rate of return ([31] p.15).
It suffices here to say that Gazprom’s will prevailed over the government.
If we take a more nuanced view of their relationship, we
recognize that Gazprom has often clashed with the government
in the pursuit of its economic interests, which were not always
aligned with the state’s political design.75 Yet, it is clear that a
project such as South Stream was conceivable thanks to a unique
symbiosis between Gazprom and the Russian state’s leadership.76
72
The EU’s economic recession lowered gas demand, in turn triggering a ‘gas bubble’,
which put a question mark over the economic rationale of building 63 bcm of
new capacity in addition to the already existing one.
73
For more a detailed analysis on the quid pro quos with Ukraine and the other
CIS see [68].
74
As of 2011, Gazprom still accounted for 70 per cent of domestic Russia’s consumption,
although the shares of Non-Gazprom producers were rapidly growing
([31], p. 2).
75
Since the subsidized prices in the CIS and in Russia itself were undermining the
firm’s profitability, they were gradually adjusted. Of course, Gazprom would prefer
a faster adjustment [28].
76
It seemed that the political value of transit risk reduction, plus the economic
value of remaining the only pipeline supplier to Europe, compounded with the profit
motive of some Gazprom’s insiders (interested in promoting a huge project, whose
cost would be then passed on to consumers) were seen as justifying the investment.
M. Skalamera / Energy Research & Social Science 12 (2016) 27–49 41
This raises the question of why foreign partners are willing to
invest in Gazprom-sponsored projects?
Western companies, indeed, are eager to invest in upstream gas
projects in Russia, and so they find it difficult to resist an invitation
from Gazprom ([77,78], p. 78.) For instance, the Gazprom-ENI
50-50 agreement on South Stream, signed in 2006, was part of a
massive quid pro quo that expanded Gazprom’s access to the Italian
end-use market, in exchange for a long-term gas contract [41].
In 2011, when the big German company RWE was left seriously
out of money, Gazprom offered a discount in exchange for a strategic
partnership with RWE that would expand Gazprom’s access to
the German market (European Energy Review, 2011). The arrangements
between Gazprom and the European companies are based on
a quid pro quo concept of reciprocity, while at the macro level, the
EC lobbies for diffuse reciprocity, based on common rules and values
[13].77 The Russian notion of reciprocity is “specific.” In energy,
that essentially means swapping assets of similar market value or
utility [51]. For example, in 2009, the German utility company E.On
AG has gained a stake in the Iuzhno-Russkoe natural gas venture
under an asset swap deal with Gazprom.78 In 2010 Gazprom and
ENI finalized their asset swap in Libya.79 And again, in 2012 the German
group Wintershall, agreed to swap parts of its oil and gas fields
in the North Sea for a stake in a Siberian field owned by Gazprom.80
Such business deals are entangled in a traditional web of bilateral
ties between Russia, Germany, France, and Italy.
The failure of the Nabucco proposal shows that the EU as a whole
has a substantially different relationship with Russia than the European
energy firms, who are backed by sovereign EU states. The
Southern Gas Corridor is well suited to shed light on this two-tiered
relationship between Europe and Russia: on one level there are the
fruitful business alliances of Gazprom and the European gas giants
such as Gaz de France, Wintershall and ENI. On the second level
there is a mostly ineffective working relationship between Russia
and the EU. In this dynamic, the sovereign states play mainly supportive
roles. Political support is welcome, especially when dealing
with giant counterparts such as Gazprom (and Russia). But the
Southern Gas Corridor demonstrates that the key corporate influence
on Eurasian energy policy is indeed well documented. In this
respect, the case study finds an inverse relationship between the
intensification of the ‘battle of the pipelines’ and the likelihood for
the EU and Russia to form multilateral rules-based partnerships.
7.2. Russia’ s reluctance to adhere to the ECT and to renew the
PCA
The Partnership and Cooperation Agreement (PCA) with Russia
was signed in June 1994 but entered into force only in 1997. The
PCA was set up to enhance the political dialogue between Russia
and the EU. The ambition was to promote democracy, trade, and
legal convergence. Yet the first PCA is a product of the 1990s [87]
when ‘policy convergence with Russia’ essentially meant Russia’s
alignment with EU values and institutions. Within the PCA, energy
is dealt within Article 65, and indirectly in Article 12, which refers to
the freedom of transit.81 The agreement covered a ten-year period
77
Belyi’s study displays great theoretical sophistication in showing that, given
the EU-Russia conflict of interests and principles, ¨negative reciprocity¨becomes an
inherent factor of international practice and hence a norm in EU–Russia gas trade.
78
Gazprom Press Release, Gazprom and E.ON close asset swap deal, October 30, 2009
79
Ria Novosti, Gazprom agrees asset swap with ENI to join Libya’s oilfield project,
April 12, 2010.
80
Bloomberg, Gazprom Offered New Assets by Wintershall in Siberian Swap, Jun 6,
2012.
81
European Commission, Summaries of EU Legislation: http://europa.eu/
legislation summaries/external relations/relations with third countries/eastern
europe and central asia/r17002 en.html, Accessed in September 2012.
that expired in 2007, but anticipated automatic extension until the
conclusion of a new agreement. Negotiations over the follow-up
began in July 2008, but were suspended one month later because
of the war in Georgia. They resumed next year, but both sides were
disappointed with the slow progress of negotiations.82 The question
of what type of agreement should replace the old PCA became
an increasing point of contention.
The years 2000-2007, after Putin’s rise to power marked
a considerable change in Russian state identity [11]. The first
PCA substantially reflects Europe’s optimistic belief that Russia
would rapidly adopt Western (or, more precisely, European) values
regarding human rights, the rule of law, democracy, and free
markets. Yet when negotiations about the renewal were held, Russia’s
political stability had been restored and energy prices were
at their highest peak. As a result, Russia wanted a more “equal
partnership.”83
At a macro level, negotiations on extending or replacing the
PCA have been held up by “normative” objections. The EU was
pressing for a relationship based on adherence to common values
while an increasingly autocratic Russia was torn between deepening
the cooperation with the EU, and guaranteeing “high” Russian
sovereignty and freedom of action. This divergence resulted in the
emergence of different ideas, ranging from a minimalist (i.e., Russian)
approach to an ambitious (i.e., EU) vision of the new PCA
[54].
Many scholars pointed out that conflicting normative views and
psychological factors continued to plague ongoing talks on the new
PCA. For example, Article 55 implied approximation of Russia’s legislation
with the acquis.84 Also, the document stipulated the respect
of human rights, a market economy and democracy as its general
principles. However, the EU’s general focus on complex, often lowlevel
projects was seen as at odds with Russia’s preference for less
substantive but more visible statements. In short, Moscow thought
to have discarded the PCA because of its form, because the same
instrument was offered to all former Soviet states [6], and because
Russia would have preferred if the new PCA granted the Russia the
status of a strategic partner with Europe (see [86,54].
While these scholars’ explanations have analytical utility, they
only tell part of the story, and not the crucial one. At a hidden level,
Moscow’s objections to the new PCA did not stem from a rejection
of the EU’s norms and principles, but rather from objective
calculations of national interest. The EU was hoping that Russia
would accept the incorporation of some of the ECT principles in the
post-PCA agreement, in return for a free trade agreement (FTA).
But Moscow had little interest in better EU market access: threequarters
of its exports to the EU consist of raw materials, which
are hardly affected by trade rules anyway. EU tariffs on Russian
goods are already rather low and energy, which makes up the bulk
of Russian sales to the EU, passes tariff-free. Thus, an FTA offer, in
return for Russia signing on to bilateral, binding rules on energy
trade, transit, and investment, was simply not seen as sufficiently
82
Currently the ¨old¨PCA continues automatically because neither side took any
steps to renew it.
83
The second set of concerns was linked to Russia’s disappointment after the EU’s
2004 and 2007 enlargements, which left Russia frustrated. In Moscow’s view, its
concerns on critical issues (Kaliningrad transit, the Russian minorities in Latvia
and Estonia) were not taken sufficiently into account. Amid Russian complaints
the EU responded curtly; ¨unless the PCA was applied to the EU-25 without precondition
or distinction by 1 May 2004, Russian–EU relations would be seriously
affected. ¨Russian concerns are set out in a report, ‘The Effect of the EU Enlargement
on Russia’s Economy’, Moscow, 2004: Quoted in Light [47].
84
See Art 1. ¨The Parties recognize that an important condition for strengthening
the economic links between Russia and the Community is the approximation
of legislation. Russia shall endeavor to ensure that its legislation will be gradually
made compatible with that of the Community.¨http://eur-lex.europa.eu/LexUriServ/
LexUriServ.do?uri=CELEX:21997A1128(01):EN:NOT.
42 M. Skalamera / Energy Research & Social Science 12 (2016) 27–49
attractive by Russia. Instead, the latter was busy developing its own
FTAs with the CIS countries, where Russia aspired to an economic
and political sphere of influence. In fact, in June 2012, Putin added
insult to injury by making clear that his country cannot advance
negotiations on a new PCA unless Brussels formalizes relations with
the so-called “Common Economic Space”—its Customs Union with
Belarus and Kazakhstan. In 2012 an EU official said “Russia highlights
that it is a sovereign country with independent decisions. Yet, our
FTA offer is not easily compatible with the Customs Union ”, adding,
“currently we are in a fairly vague state of affairs.”85
Ever since, non-tariff barriers and approximation of legislation
became a critical point of contention. Russia has shown no intention
of accepting a deep and comprehensive FTA with the EU as
long as it entails approximation with the EU’s acquis . The reasons
are straightforward: as already mentioned, energy, which makes
up the bulk of Russian sales to the EU, passes tariff-free. Thus, the
gains of a deep FTA with the EU do not outweigh the cost of amending
its regulatory structure and being locked in a legally binding
agreement that would limit Gazprom’s freedom of action.
Similarly, the EU spent years trying to get Moscow to abide by
the provisions of the Energy Charter Treaty (ECT), which would
compel Russia to open up its hydrocarbon reserves and pipelines
to foreign commercial involvement. Moscow, on the other hand,
signed the ECT and applied its rules on a provisional basis, but
never ratified it. For years, Russian officials complained that the ECT
was outdated and favored consumers. At last, in August 2009, then
Prime Minister Vladimir Putin signed an order withdrawing from
the Treaty [81]. Broadly unsatisfied with accepting a system of laws
that it did not help to craft, and which it considered highly disadvantageous
for producers, Moscow came up with the idea of a new
global energy regulation system. In the aftermath of the January
2009 crisis, President Medvedev tabled an alternative to the ECT:
‘the Conceptual Approach to the New Legal Framework for Energy
Cooperation.’86
Again, at the macro level, Russia lamented the EU’s aim to expand
its value system and laws through cross-border gas value chains,
stretching from the EU to gas producing countries. In Russia’s view,
the EU’s first directives, which had obviously been tailored without
Russian participation were ‘exported’ through the ECT [42]. Russia
increasingly pointed to the one-sidedness of the treaty and its
failure to address Russia’s concerns.
In an effort to go beyond the macro level, this article holds that
the non–ratification of the ECT is above all in Gazprom’s interest. In
2011, Gazprom still accounted for 70% of Russia’s domestic consumption,
although the shares of non-Gazprom producers were
growing ([31], p.2). It is often forgotten that Russia, unlike any
other major energy exporting country, is one of the world’s leading
energy consumers. Russia is the world’s second largest consumer
of natural gas, and accounts for 54% of Gazprom’s annual sales.87
Yet, given that the domestic market is heavily subsidized, the
main sources of Gazprom’s hard currency are the EU countries.
In the 2000s, when both the domestic and the EU markets were
booming while Gazprom’s production growth was virtually zero,
Gazprom had troubles meeting its delivery commitments both at
home and in Europe. The resolution lay in an interesting escamo-
85
Interview with the author, European External Action Service, Brussels, May 3,
2012
86
At the end of April 2009, then President Medvedev said that Russia feels the
need to provide its own legal basis for the relationships with energy consumers and
transit countries. The new document was posted on Medvedev’s official website,
but right from the outset met with skepticism within the EU. In the view of an EU
official, ¨it is pretty comprehensive, including strong borrowings from the ECT. The slight
ambiguity is on its legal nature; it was transmitted as a draft legal text resembling the
ECT, but with many provisions clearly in producers’ interests.”
87
See: http://www.gazprom.com/about/marketing.
tage. Gazprom started to increase the volumes of gas it bought from
Central Asia. The strategy consisted in importing Turkmen gas for
the domestic market, while Siberian gas was sent to Europe. That
is why Russian diplomacy in Turkmenistan was so active, and Russia
even increased the price it paid for Turkmen gas just to keep
this indispensable country on board. This allowed Gazprom to be
the intermediary and, at least until 2009,88 the sole buyer of Turkmen
gas, which it received for relatively cheap and then resold for
much more in the EU market, or kept for domestic consumption.
Therefore, Gazprom’s strong lobbying was arguably the main reason
for Russia’s rejection of the ECT. As already noted by Milov
([57], p. 92) Gazprom never actually tried to hide its intention to
capture Turkmen gas through its transit monopoly, and has openly
denied the right of European consumers to conclude direct gaspurchase
contracts with Turkmenistan. This has been the primary
(and probably the only) cause of Russia’s refusal to ratify the ECT
and its Transit Protocol89; Gazprom had always defended its right
to exert the transit monopoly over Turkmenistan and arbitrarily
decide on Turkmenistan’s access to international gas markets. Yet
there is another important factor missing from this analysis. EU
companies, which are the main drivers of the EU’s energy-related
unity and disunity, also favor non-ECT ways of managing potential
risks in their business relations with Russia. Typically, European
firms choose to mitigate risks with measures such as joint ventures/asset
swaps and diversification of supply sources and routes,
which ensure “resilience” (with gas storage, interconnectors, etc.).
Gazprom manages the demand side with diversification of export
markets, mergers and acquisitions [85]. Therefore, the European
companies and Gazprom are united in opposing the ECT.
To be sure, EU companies would benefit if Gazprom opened up
its pipelines. However, Gazprom’s traditional friends within the
EU are already rewarded with cheaper prices for gas (compared
to other European counterparts), and thus have everything to lose
from spoiling the atmosphere with Gazprom. They are wary about
any radical moves that might upset Gazprom. As documented by
Youngs [92] p. 39) a number of member states reject the notion
of transparency and information sharing with the EU on the bilateral
deals they conclude. That is hardly surprising, considering that
Gazprom likes to strike deals country-by-country, which enables
it to reward friends and punish enemies. Germany, for example
pays among the lowest gas prices in Europe. Lithuania, on the other
hand, which has pushed ahead with unbundling and had strong EU
support for it, now has almost the highest gas prices in Europe.
The intuition is simple: consumer countries do indeed have an
incentive to contract supply on a bilateral basis and renounce EU
or ECT-based rules, because that enables them to secure the best
deals.90 As Barkanov [11], p. 360) argues, on certain questions EU
business actors are sympathetic to Russia’s policy. Thus, within the
EU, a corporate-driven version of balance of power prevails. Consequently,
for key EU energy companies backed by their respective
governments, the European angle is secondary, and instead they
prefer explicit modes of realpolitik in the pursuit of profit [4].
88
When the massive Turkmenistan–China gas pipeline was inaugurated.
89
Article 7, Transit, ECT.
90
Energy companies that receive preferential prices and have different gas tariffs
might be unenthusiastic about provisions such as Article 29 of the ECT, which
stipulates: “Each signatory to this Treaty, and each state or Regional Economic Integration
Organization acceding to this Treaty, shall on the date of its signature or of its
deposit of its instrument of accession provide to the Secretariat a list of all tariff rates
and other charges levied on Energy Materials and Products at the time of importation
or exportation, notifying the level of such rates and charges applied on such date of
signature or deposit. Any changes to such rates or other charges shall be notified to
the Secretariat, which shall inform the Contracting Parties of such changes.” Or, for
example, Article 3 which stipulates, “an efficient functioning of market mechanisms
including market-oriented price formation and a fuller reflection of environmental costs
and benefits.”
M. Skalamera / Energy Research & Social Science 12 (2016) 27–49 43
Largely to fill the legal vacuum that emerged following Russia’s
non-ratification of the ECT, an EU-Russia energy dialogue was put
in place.91 However, the energy dialogue is, as the name implies, a
non-legally binding consultative mechanism. Throughout its existence,
it reflected the growing mistrust between the EU and Russia
at the macro level. Its launch in 2000 was marked by political optimism,
when the Prodi Plan foresaw the doubling of Russian gas
imports to the EU [89]. According to this plan, the EU would use
its political influence to channel foreign investment in the Russian
upstream and provide technical assistance for the exploitation of
gas reserves. In return, Russia would guarantee secure supplies of
gas, in view of an ever-closer common energy space. Yet, Russian
energy nationalism was growing in parallel with the soaring price
of hydrocarbons, and by the mid-2000s, Russia was less prone to
accept any formal integration. Once again, at the macro level the
dialogue reflected two different approaches. Brussels assumed that
the dialogue would essentially facilitate investment in the Russian
energy sector and allow European companies unrestrained
access to Russia’s pipeline network. Furthermore, the EU approach
consisted in linking energy security to climate and environmental
protection. Russia, on the other hand, aimed at maintaining its dominant
position in the European gas market, as well as Gazprom’s
monopoly structure and long-term oil indexed supply contracts.
Both sides were disappointed. When gas prices increased Russia
reintroduced steady state-control over the oil and gas industries,
and Gazprom’s monopoly of the pipelines was only reinforced with
a law on the pipelines in 2006.92 Nevertheless, the EU had a significant
victory within the Energy Dialogue when it succeeded in
abolishing the restrictive ‘destination clauses’ in Russian long-term
contracts [74]. For Russia, the main results were the agreements
that no quantitative restrictions would be placed on the EU’s
imports on fossil fuels. Moreover, within the Dialogue, a Gas Advisory
Council was founded93; a platform for dialogue on issues of
common interests that consists of representatives of the leading
EU and Russian gas companies and of experts from the Russian and
European academic research organizations. Before the seizure of
Crimea, gas contracts renegotiations94 were among the most contentious
issues disputed at the Advisory Council. Moreover, Russia
feared that the EU’s ambitious decarbonization targets would have
a negative impact on its gas exports, making this a significant topic
of dialogue. Whether, when, and how these different views can be
reconciled at a macro level remains a thorny question. In the blunter
words of a Russian energy insider: “There has been an overly long,
unsuccessful negotiating process, and hardly anyone in Russia believes
that a satisfactory working formula can be found. The EU is not offering
anything attractive and these summits are largely symbolic. Outcomes
are expected and predetermined long before the actual meetings.”95
The Ukraine crisis polarized the two positions even further with
the EU now seizing the moment to advance with its Energy Union96
91
The Energy Dialogue was launched in the occasion of the 6th EU-Russia Summit
(Paris, October 30, 2000).
92
On 20 July 2006 the federal law ¨On Gas Export¨approved by the state Duma
granted Gazprom exclusive rights to export natural gas: Law of Russian Federation
of 18 July 2006, N. 117. In addition, Russia adopted two other Laws, with the apparent
aim at getting state control over investments into natural resources: the Strategic
Investment Law 123 and the Subsoil Law 124 (Law of Russian Federation of 29 April
2008 N 57—AP, and Law of Russian Federation of 03 March 1995 N 27—AP, amended
18 July 2008 N 120—AP).
93
For more information: http://ec.europa.eu/energy/international/russia/
dialogue/dialogue en.htm.
94
Due to fundamental changes in the global gas markets that put pressure on the
indexation structures.
95
Phone-Interview with the author, October 2012.
96
The energy union strategy will be divided into five pillars (Ensuring security of
supply; Building a single internal energy market; Raising energy efficiency; Decarbonizing
national economies; Promoting research and innovation) and will give
and to push for reform and influence in Ukraine, and with Gazprom
becoming even more intransigent on Ukrainian transit. In turn,
the two sides’ dialogue froze and this, in turn, impeded the ability
to work on preexistent issues (like the Third Energy Package,
the EU’s anti-trust case against Gazprom for market abuse through
country-by-country pricing, and the wrangling over the exemption
for the OPAL pipeline) through the Gas Advisory Council and other
diplomatic channels.97
Meanwhile, the European corporate sector responded negatively
to the EU’s aspirations to put teeth in its external energy
policy. Through Eurogas,98 the European gas sector has recently
increased its activity, fearing that the Energy Union measures have
been trying to squeeze natural gas out of the EU energy market.
Moreover, controversies generated by the gas disruptions and
(most recently), the geopolitical predicament over Ukraine did
not significantly complicate the EU companies’ fruitful relationship
with Gazprom.99 The three major recent deals with some of
Europe’s biggest energy companies, which Gazprom clinched at the
Eastern Economic Forum in Vladivostok in early September 2015,
underscore that point.100 One of the most important is the deal
between Gazprom and its European corporate partners to expand
the Nord Stream gas pipeline, but there is also the revival of a
lucrative asset swap between Gazprom and Wintershall—a German
subsidiary of BASF—a deal that will effectively transfer 100%
of the company’s gas trading business, as well as a 50% stake in
exploration and production activities in the North Sea to its Russian
partner, in return for a 25% share in block development of
Russia’s Achimov deposits in the Urengoskoye region. BASF had
abandoned that swap arrangement in December 2014 because
of the geopolitical consequences of Russia’s invasion of eastern
Ukraine and its annexation of Crimea. The deals confirm the extent
to which Russia is determined to end Ukraine’s role as the major
transit route for Russian gas to Europe. But most importantly, the
asset swap and other deals show that European companies are
loath to abandon Russia and that the latter’s pivot to Asia will
likely not be as quick and lucrative as the Russians have hoped
for—with Europe remaining the most reliable, lucrative, and the
most painfully essential market for Russian gas.101
7.3. The Third Energy Package
At the macro level, today the conflict between the EU and Russia
is focused primarily on the implications of the “Third Energy
Package.” This touches upon the very core of the EU–Russian deadlock
at the visible, grand level. Moscow’s aim is to distance itself
from the EU institutional model, and to promote a legal framework
that is consistent with Russia’s institutional choices. For example,
Gazprom’s strategy for the European market is based first and forenew
impetus to existing legislation. Moreover, the G7 Energy Ministerial meeting in
Hamburg has identified the support of most vulnerable countries, including Ukraine,
as one of its top four areas of joint action. See: https://ec.europa.eu/energy/sites/
ener/files/documents/BMWi%20Papier G7 12 5 2015 e final.pdf.
97
European Commission’s DG Energy top civil servant—Interview with the author,
Brussels, May 2015, Brussels; Gazprom Export’s executive—Interview with the
author, Moscow, June 2015.
98
The natural gas trade association Eurogas is a crucial lobbying player at the
EU. Eurogas represents the gas sector interests at the EU institutions and, as such,
participates in the Madrid Gas Regulatory Forum, the Gas Coordination Group, the
Citizens Energy Forum and other stakeholder groups. Eurogas: www.eurogas.org.
99
Although, admittedly, in December 2014, with the Ukraine crisis in
full swing, Gazprom and BASF canceled their multibillion dollars energy
asset swap: http://www.bloomberg.com/news/articles/2014-12-18/gazprom-deal-
to-swap-assets-with-basf-ends-as-relations-sour.
100
Euractiv, ¨Slovak PM calls Nord Stream expansion deal ‘a betrayal,’ September
11, 2015.
101
Dempsey, J. Europe’s Energy Companies Go Back to Business With Russia,
Carnegie Europe, September 7, 2015.
44 M. Skalamera / Energy Research & Social Science 12 (2016) 27–49
most on vertical integration in the downstream segment backed by
the national legislation on hydrocarbons. This goes directly against
the vision adopted by the European Commission, which is based on
a competitive system regulated by its acquis communautaire .
On its end, the EC has developed a trilateral approach to energy
security that aims to respond to the so-called triangle of competitiveness,
environmental protection, and security of supplies, all
of which the Commission intends to tackle simultaneously. These
ambitious goals are comprised of three pillars: diversification (to
address security of supply),102 liberalization (to enhance competitiveness),
and sustainable development. It is worth noting that the
latter is by far the most advanced aspect of the EU’s triangle. It is the
policy domain where the EU has full powers.103 The same is true
for competitiveness. Here the role of the DG Comp is crucial. DG
Comp is one of the politically most powerful directorates of the EC,
largely responsible for the energy directives packages such as the
Third Energy Package. The latter requires a full divestment of the
transmission networks from the vertically integrated gas and electricity
companies.104 Far-reaching unbundling of ownership (the
separation of gas supply from transportation services) is the most
controversial aspect of this legislation.
The transition to this new system has raised a great deal of problems
for Gazprom. It puts barriers on Gazprom’s movements in the
EU’s downstream markets by pushing for unbundling of the ownership
of production and transportation capacities. It also includes a
provision, the so-called ‘Gazprom provision’ in the 2008 Gas directive,
forbidding foreign-producing companies from owning part of
transit and transmission companies’ stock. According to Gazprom’s
statements, some of the rules of the Third Energy Package could
severely limit Russia’s investments in Europe, directly calling into
question Gazprom’s business model. Putin himself has denounced
this legislation because it requires Gazprom to give third-party
access to its pipelines (especially South Stream), while simultaneously
granting full political support and an exemption from this
legislation to TAP, which aims to diversify gas supplies from sources
other than Russia. Although the Third Energy Package also allows
Gazprom to supply gas directly to EU customers (without the intermediation
of major European utilities), the implications of this law
are far more negative for its business model. The most important
issue relates to the difficulty of securing markets, and thus potentially
increasing the costs of its gas extraction and transportation.
Many energy experts, such as Locatelli [50], Bressand [17] and De
Jong (2012), have argued that the rules of the Third Energy Package,
which are at the heart of the current controversy, should be reexamined
with suppliers.
But most crucially, the European energy firms are united with
Gazprom in resenting these measures. The Third Energy Package’s
complete internal liberalization, combined with stringent climate
regulation and mature energy markets, forced European energy
companies to adapt to the new reality, too.
In the late 2000s an increasing gap was created between
the European energy security interests embodied in the Third
Energy Package and the European energy companies’ interests.
Indeed, European companies’ executives were warning against
over-regulation. When formerly monopolized markets are privatized,
the old monopolies generally retain a very high market
102
That said, it must be admitted that external energy policy still remains a
national– rather than EU–prerogative.
103
In line with the general objectives of the EU’s efficiency policy, the EU aims to
reduce Russia’s energy intensity and thereby guarantee the availability of future gas
supplies to the EU ([15], p.74). In this respect, the EU has real powers and Russia is
very keen to work on the issue within the EU-Russia Roadmap to 2050. For more
details see http://ec.europa.eu/energy/international/russia/press en.htm.
104
European Commission: http://ec.europa.eu/energy/gas electricity/legislation/
legislation en.htm, Accessed in October 2012.
share in their home market. This means that opportunities to grow
through market expansion are limited and hence other growth
strategies must be found [85]. Moreover, the European market has
reached the maturity stage (i.e., growth rates have declined), which
leaves the EU energy companies with two basic growth opportuni-
ties.
The first one is growing in new markets, in other words,
becoming European, rather than national, companies. Cross-border
expansion of these firms (together with broadening the scope of
products) is often the answer to these dilemmas. This trend has led
to a number of mergers and acquisitions in the European energy
landscape. First, several major companies directed their growth
strategy toward the east. Enel, RWE, and E.ON in particular have
focused on growth in Central and Eastern Europe and Russia. Second,
the “green agenda” offers new opportunities for growth.105
Third, concerns about security of supply and market integration
offer opportunities for companies to invest in gas storage, LNG
terminals, interconnectors and long distance gas corridors.
Thus, Gazprom has not been the only actor challenged by the
EU’s Third Energy Directive. The unbundling of production, transit,
and distribution operations has been resisted by major European
utilities, too. However, in contrast to external energy policy (i.e., the
Southern Gas Corridor), which is still primarily inter-governmental
in character, competition legislation falls under the most supranational
of the EU’s policy-making.
This battle with the EU’s energy legislation has been one of the
biggest impediments to South Stream, and one of the main challenges
to Gazprom. The Russian authorities are still hoping that
the EU will support the project, above all by giving South Stream
Trans-European Network (TEN-E) status, which would exempt it
from the rules on third-party access and the separation of gas trading
from gas network operations. Gazprom is seeking the help
of German, French and Italian corporate partners to achieve this.
With the help of these friends, Russia hopes to lobby the European
institutions to change their course. However, the German government
in particular refuses to discuss certain issues directly with
Moscow or Gazprom. The Russia–EU format is preferred in this
domain, where the EC’s direct competency is undisputed. Thus far,
the EC has proved reluctant to give priority status to the Gazpromfavored
pipelines, although Nabucco West, a scaled down version
of Nabucco (now out of the race) had these permits. The European
Commission simply does not see South Stream as a means
to improve the European Union’s energy security, mainly because
the gas would come from Russia, already Europe’s main external
supplier of gas.
Moreover, on several occasions, the European Commission indicated
that it had not seen any blueprint for the South Steam
project, and that it was “not possible” to build pipelines without
having conducted a proper environmental impact assessment,
as required under EU legislation.106 And yet, at first, save these
couple of environmental permits, the final investment decision
seemed to have been made. Moscow’s determination was such
that Gazprom had invested several billion dollars on large volumes
of steel pipe and teams of engineers who were poised to
start construction. Suddenly, however, Putin made an announcement
that the construction of South Stream would be stopped, on
December 1, 2014. Until that moment, government officials and
Gazprom executives were insisting that construction on the off-
105
Renewables, energy efficiency services, nuclear power, grids, and carbon capture
and storage are the major fields where investments are needed. The remarkable
growth of the German ¨green industry¨is illustrative of this point.
106
See, EU puzzled by South Stream acceleration, Euractiv, October 30, 2012 and EU
readies ‘pragmatic’ answer to Putin’s energy agenda, Euractiv, December 18, 2012.
M. Skalamera / Energy Research & Social Science 12 (2016) 27–49 45
shore section of the project was due to begin within months,107
amid European Commission’s “third-party access” concerns and an
anti-trust investigation.
Especially in the current situation of raising tensions at the EURussia
level, Gazprom officials have taken great pains to remind
the EU that energy security is a ‘two way street,’ with Putin himself
meeting with European energy executives and officials to
discuss possible amendments to the rules that Russia considers
‘discriminatory.’108 But Putin’s unexpected decision to scrap the
South Stream pipeline clearly demonstrates that the Third Energy
Package is here to stay.109 Notwithstanding the reservations of a
handful of European major utilities (with the support of respective
member states) and of Gazprom itself, the European regulator has
demonstrated that the liberalization of the European gas market is
an unstoppable process, for all market participants.
In the debate over the Third Energy Package, it is hard to disambiguate
fact and opinion and doing so requires careful study.
At the macro level the challenge also lies in harmonizing rules,
with the underlying risk of imposing ill-fitting rules on both sides.
But at the meso and hidden levels, the problems are between the
EU as a regulatory entrepreneur and energy companies (both the
European ones and Gazprom) that try to resist the EU-imposed
rules. For example, some European countries have still not yet fully
transposed the EU gas directives to their national systems. In that
respect, the EU is fully within its rights to continue dismantling
the national gas ‘bastions’ [7] and start, as it has already done,
infringement proceedings against EU states, while also prosecuting
EU energy companies for breach of the competition rules.
The Third Energy Package will remain the epicenter of the controversies
that hamper cooperation at the macro level for the
foreseeable future. But in addition to this debate, it is necessary
to examine the changing contractual structures in Europe, with
price renegotiations and arbitration cases, which since 2012, created
enormous problems for Gazprom.
7.4. Gas Contract renegotiations
When European demand crashed post-2008, many European
import companies struggled to meet their contractual minimum
take-or-pay (ToP) volumes.
In 2012 the spot prices for gas at European hubs collapsed, as did
spot prices for liquefied gas on world markets. Indeed, the prices for
gas at European hubs fell below the oil-indexed prices for piped gas
from Russia, for the first time in memory. The result was disastrous
for Gazprom’s customers. They were obliged by take-or-pay clauses
in their contracts with Gazprom to purchase gas that they did not
need at prices that were significantly above those that prevailed on
the spot markets.
The impact of this tectonic change was even worse for Gazprom,
because of the significance of the European gas market for its revenues,
and thus it was bad for the stability of the Russian state as
107
See: http://www.ft.com/intl/cms/s/0/10f5bb96-795c-11e4-a57d-
00144feabdc0.html#axzz3KmoIjlwX.
108
See, Putin slams Barroso: ‘You know you are wrong, you’re guilty’, Euractiv,
December 21, 2012, updated 03 January 2013.
109
The current rift between Russia and the West that erupted over Ukraine
influences all these interactions at all three levels I have been analyzing. This is
undoubtedly the most dramatic crisis in Russia’s relationship with the West, since
the breakup of the Soviet Union. This article was at an advanced stage of production
by the time the decision to abandon the South Stream pipeline was made and the
readers should note that the text has not been thoroughly amended to take account
of the new development. However, the basic dynamics between the macro, meso
and hidden levels are not critically altered by such events. The only thing we can
be confident of is that as the macro level gains prominence, due to the increasingly
hostile relations between Russia and the West, some interests typically articulated
at the meso and hidden levels may be put on hold.
well. A number of European companies started demanding both
reductions in contractual take-or-pay volumes, and reductions in
prices. Gazprom adapted, reluctantly, to the EU’s counterparts’
demands to breach or amend these contracts.
In this case, the EC, which has been calling to amend these longterm
contracts for decades on the grounds that they hindered free
competition, with vocal support from European gas utilities. In its
haste to take advantage of these events, in 2012 the EC expressed an
ambition to monitor, and in the longer run negotiate, energy deals
on behalf of the EU member states and other countries. If implemented,
this measure would make the EC an arbiter of member
states’ external energy policies, which this article considers impractical
and undemocratic.110 In the frustrated words of a Gazprom
representative: “We understand that now gas contracts can be challenged
or even canceled by the European Commission, an actor that
has no commercial responsibility. We currently don ’ t know who is
our counterpart, neither whether the transfer of responsibility from the
national governments to the EC has already happened. We don ’ t know
. . . We assume that there is still a struggle between the member states
and the EC.”111 Be that as it may, a number of contract renegotiations
and in some cases international arbitration cases occurred because
the European companies tied to Gazprom’s contracts were now losing
money. Because their residential and industrial customers paid
prices for gas that were tied to the spot prices on the hubs, these
firms were losing money buying piped gas from Gazprom without
any ability to pass along the price difference.
At the macro level, the contract renegotiations were seen just
as another example of the EU-Russia clash in values, in which the
EU vision based on a competitive market is incompatible with Russia’s
norms and values. In the words of a EU official: “Gas pricing
is something that Gazprom has to adapt. Russia says the EU rules discourage
Gazprom from investing in pipelines and gas storage facilities
while they grant others access to EU’s infrastructure. Some legitimate
concerns regarding investment protection will be examined. However,
when operating within the EU, Gazprom and the Russian government
will have to respect the EU laws.”112
Yet this quite overlooks the fact that the request for the breaching
of existing contracts came from the EU side, and that for forty
years Russia has not been alone in promoting vertically integrated
business alliances and asset swaps. These accords were concluded
in collaboration with the European ‘champions’ such as Gaz de
France, ENI and E.ON. The wave of renegotiations and the mutual
discontent regarding gas prices and volumes in the last few years
has slightly shaken the forty-five-years long honeymoon between
Gazprom and these gas giants. Nevertheless, it would be mistaken
to infer from this evidence that the European gas utilities support
increasing the EC’s acquiring powers over external energy
policy. Core European energy companies (supported by individual
member states) do not want to damage their relations with
Gazprom and would rather mediate a mutually acceptable solution,
as was done in the arbitration case between E.on and Gazprom.113
The EU companies warn against the dangers of an EU that is well
regulated, but “left in the cold.” Despite large challenges in the
European market, Gazprom and its main customers have resilient
commercial ties, demonstrated by the EU companies’ readiness to
jointly develop pipeline projects, invest in storage capabilities, and
110
The role of the EC is limited by the very peculiar design of the European Union,
which prevents the EU from acting legitimately as a broker of the ¨common interest¨in
foreign policy. Therefore, the EU is better advised to stay in the ‘soft power’ vein
when it comes to external energy policy.
111
Interview with the author, October 2012.
112
European Commission’s DG Energy top civil servant—Interview with the author,
May 2012, Brussels.
113
See: http://www.eon.com/en/media/news/press-releases/2012/7/3/eon-
reaches-settlement-and-raises-group-outlook-for-2010.html.
46 M. Skalamera / Energy Research & Social Science 12 (2016) 27–49
build and operate gas-fired power plants (i.e. Gazprom and RWE’s
joint venture).114 The continuation of these projects has proven
that price renegotiations and the EU Commission’s antitrust raids
have not profoundly shaken the well-consolidated partnerships
between Gazprom and these big European gas companies.115
As this article has shown, the European corporate sector has,
until recently, favored asset swapping and bilateral relations as
much as its Russian counterpart.116 In fact, here lies the hidden
dynamic, which deserves to be highlighted: presenting it as a
dichotomy between the large system of values and interests of
the EU on one side, and the Russian normative ‘package’ on the
other, does not do justice to the multi-level ties between Russia
and the EU. Therefore we need a more subtle differentiation. Until
recently, the battle has been chiefly between the interests of both
Gazprom and the big gas giants within the EU, and the EU’s liberalization
agenda. More recently, these firms having started to
suffer huge losses and have partially changed their view, but have
not repudiated long-term contracts as such.117 With Russia, the
companies want to make sure that long-term contracts are still
kept as the guarantors of the EU’s energy security. In the words
of Jean-Franc¸ ois Cirelli, President of natural gas trade association
Eurogas, “The vast majority of the Eurogas membership still favors
long-term contracts because security of supply is the first priority for
a gas company and long-term contracts are well-suited for that. But
clearly the market is going to have to change towards a gradual decoupling
of oil and gas prices.”118 In spite of the recent difficulties with
gas contract renegotiations, these relationships are developing substantially.
The way Gazprom and its main partners in the EU relate
to each other after more than forty years of successful cooperation
is through an established political discourse based on trust,
which partly explains the absence of clearly defined rules. In other
words, the relationships among these companies assume features
of limited reciprocity, which allows them to cooperate without
being locked in regulatory agreements (i.e. PCA and ECT). Thus, in
Western Europe, commercial contracts did and still do constitute
the only bilateral commercial framework within which commercial
terms and conditions of Russian supplies to the European markets
can be agreed [90].119 In turn, European gas executives,120 depend-
114
Financial Times, ¨RWE extends joint venture talks with Gazprom¨, October 6, 2011.
115
For a more detailed discussion on this topic see: Riley, A. Commission v.
Gazprom: The antitrust clash of the decade? CEPS Policy Brief, No. 285, 31 October
2012.
116
See, for instance, the very recent controversial asset swap between Gazprom
and the German chemical company BASF in November 2012, despite the rules of
the EU’s Third Energy Package. For more information: ¨BASF and Gazprom agree on
asset swap ¨Kyiv Post, November 14, 2012.
117
Traditionally, both the European companies and Gazprom have preferred the socalled
Groningen model of gas trading to safeguard the needed long-term relations,
which, as Gazprom is keen to point out these days, was not invented by Russia, but by
the Netherlands at the beginning of the last century. Its major features are: (1) longterm
contracts, with a pricing formula linking gas to oil; (2) regular price reviews
(including both recalculation prices level under existing formulas, and reviews of
the formula itself); (3) net-back to delivery point (which means deduction of the
transportation costs); (4) minimum delivery and take obligations (take-or-pay provisions
- TOP); (5) protection from price arbitrage to the detriment of the exporter
(so-called ¨destination clauses¨), [42].
118 ¨We need a decarbonization policy that favors gas¨, Interview: Jean-Franc¸ ois
Cirelli on change of the European gas industry, by Sonja van Renssen, European
Energy Review, April 2012.
119
When trading with relatively politically vulnerable states, such as the western
CIS countries, Russia had tried to supplement the commercial contracts by intergovernmental
long-term agreements, which would guarantee necessary gas supplies for
consumers and a return of investments for the producers. On the contrary, the commercial
contracts between the consumers in Western Europe and Gazprom were
not underpinned by these political clauses.
120
See for example former ENI’s CEO Scaroni, speaking in Houston: ¨Any commercial
dispute between Ukraine and Russia can and has resulted in supply interruptions,
bringing Eastern European member states to their knees. This situation is obviously
sub-optimal, and there are new pipelines in the works, which aim to bring gas
ent on cheap Russian gas, are quick to characterize Gazprom’s gas
disputes with Ukraine as commercial ones and defend Russia’s
record as a reliable supplier.
In fact, there is a strong path dependency in relations at the
company level, which is hard (and costly) to leave [24]. One good
example of this is the cooperation and asset swap that the German
giant BASF finalized with Gazprom in November 2012, amid
the EU’s antitrust probes against Gazprom.121 Indeed, highly relevant
to Gazprom’s price renegotiations and arbitrations – although
not directly connected with them – is DG Comp’s investigation into
Gazprom’s sales to eight Central and East European countries (for
suspected anti-competitive behavior, including over-charging customers
and blocking rival suppliers). At first, in September 2012,
at the macro level Russia reacted particularly irritably to the European
Commission’s antitrust probes. A decree signed by president
Putin blocked “strategic” firms from co-operating with foreign
investigations without government permission.122 But at the same
time, at the hidden level, Gazprom has been trying to settle the
case by putting forward concessions since then. It has, however,
resisted regulatory pressure to change its pricing practices in Eastern
Europe, which is the main concern of the EU regulators.
At this writing, a growing discord and tension characterizes the
most interdependent dimension of EU–Russian relations. Energy
relations are imbued with emotional and political considerations
that defy economic logic. In the years to come, European and Russian
interests are destined to clash even more at the macro level,
resulting in a relaxing of the EU and Russia’s interdependence and,
by consequence, an even more fragmented institutional landscape
between the two blocs. The increasingly hybrid pricing model, featuring
both oil indexation and ‘spot’ pricing, has been accompanied
by largely uncertain governance structures. Both policy-makers
and businesses will find it challenging to skillfully navigate in this
increasingly hybrid, fragmented Eurasian gas market environment,
caught between state dirigisme and market liberalism [25]. Such a
regional gas market environment will, nonetheless, be dominated
by policy outcomes driven by corporate actors, as the recent Nord
Stream expansion deal and the revival of a lucrative asset swap
between Gazprom and Wintershall demonstrate.
8. Conclusions
The two related questions of this study are: Why, given the high
degree of mutual dependency, has there been such fragmented
governance architecture between Russia and the EU? More specifically,
why do the EU and Russia lack legally binding instruments
to govern their energy relationship? The absence of a core shared
governance architecture devolved into a system where several
rival poles push for their preferred practices (on issues such as
investment, gas pricing, and gas transit). Each pole has its strategic
partners, special relationships, and economic and political realms
of influence. In such a fragmented system of relationships, energy
companies are the most powerful actors. They exert decisive influence
on the EU-Russia governance architecture. The recent Ukraine
crisis and its destabilizing energy-related ramifications—the most
severe since the EU–Russia energy dialogue was established—are an
especially stark demonstration of the tensions and contradictions
built into the system. The empirical analysis, however, was based
into Europe through alternative routes. In the southern corridor, Eni, together with
Gazprom, is fully committed to the development of South Stream [. . .], https://www.
eni.com/en IT/attachments/media/news/speech Scaroni%20.pdf, p. 4.
121 ¨BASF and Gazprom agree on asset swap ¨Kyiv Post, November 14, 2012.
122
The ¨Decree on Strategic Companies¨stipulates that any negotiations on gas
prices and the contractual terms now have to be approved by the Russian
government directly. See: http://www.gazprom.com/f/posts/89/747450/gazprom-
questions-eng-2011-06.pdf.
M. Skalamera / Energy Research & Social Science 12 (2016) 27–49 47
on the data detailed at length in the four case studies, in addition
to the application of the conceptual framework based on three levels
of analysis, starting with the identification of the main actors, a
subsequent the discussion of their interests, and finally, the consequences
of their interest formation on the degree of formalization
of the EU–Russia energy relationship. The application of this theoretical
framework has yielded to a number of findings about the
centrality of the business sector, the multi-level, multi-actor, and
private-public dynamics in the gas sector, and the ways these affect
energy governance between the EU and Russia. A narrow focus on
nation-states, that is, the meso level, or only on the macro level,
would have not revealed this interlinked web of relationships.
In sum, this article finds that companies face substantial complexity
within the EU market design, in which they must shape
their strategies both at a national level and decide on their overall
approach. Meanwhile, member states, despite their arrangements
at the intergovernmental level, still zealously guard against the
EU’s excessive interference with their foreign policy goals. Yet in
energy, governments mainly act as supporters of their own national
companies, who remain the pivotal actors in defining energy policy
preferences with external partners, such as Russia. In fact, in
key member states (i.e., Germany, France, Italy), energy security
seems to be interpreted as maximizing their respective energy
companies’ market-shares and corporate strategy, with a lack of a
comprehensive “national” strategic vision. Just as the energy companies
that they support, these governments oppose some of the
EC’s regulatory actions, especially the ones that result from the EU’s
liberalization drive. Obviously energy companies’ interests and the
governments’ interests do not always converge, but today the main
rivalry seems to be unfolding between the member states and
the EC, and not between the member states and corporate actors.
Since the creation of the EU, member states have consistently
expressed a preference for intergovernmental over supranational
policy-making in the energy field. For example, until recently, in
the gas trade with Russia, the member states, together with the gas
companies, opposed the DG Comp’s banning of long-term contracts
that for decades have been essential to infrastructure development.
In the rapidly evolving interregional gas markets, with three
main regional markets with different prices, both consumer and
producer countries resist being locked in to agreements that would
limit their ability to look for more attractive possibilities in the
medium term.123 Gazprom does not want to be locked in to any
agreement that would limit its pipeline monopoly and the possibility
of buying Central Asian gas, or to export both to the European
markets and the attractive Asian markets. The EU companies do not
want to be locked in long-term agreements that limit their capacity
to buy gas on the “spot” market. If you are a Russian supplier
sitting on an excessive supply of natural gas you need security of
supply to develop expensive upstream projects. Thus, you have no
incentive to allow “third party access” through your pipelines. The
status quo, besides tying Europe’s lucrative gas market closely to
Russia, allows for a gradual expansion towards the dynamic Asian
gas markets. If you are an EU consumer, it is not in your interest
123
There is a lively debate on the question of where institutions come from. Some
theories emphasize the supply side: institutions are the imposition by foreign powers
(i.e., the EU) and the adoption of imported legal norms and rules. Unsurprisingly,
Russia favors this explanation. In this article the theory of institutional lock-in is
added as an interesting perspective. Different societies choose different laws or
social practices that reflect their needs and concerns. In a globalized world, it is challenging
to come up with deep transnational governance structures that respond to
the needs and concerns of all the players included, because in general actors do not
want to be locked in to binding structures unless they reflect their own priorities.
Furthermore, like-minded Western countries are progressively losing their ability
to set the essential rules and maintain them for the entire system, due to the current
process of global power rebalancing and a ‘rise of the rest.’
to have in place a system obliging you to buy expensive Russian
gas, especially when cheaper gas is available on the spot markets.
When it comes to investment protection, my study corroborates
the findings that the companies themselves are the main actors in
finding strategies to mitigate risk. Large investments in pipelines
are no longer the result of state-to-state agreements, but increasingly
rely on firm-to-firm contracts (sometimes backed by state to
state agreements).
Typically, European firms choose to mitigate the risks with
measures such as joint ventures, asset swaps, diversification of
supply sources and routes, and by ensuring “resilience” (with gas
storage, interconnectors, etc.). Gazprom manages the demand side
with a planned diversification of export markets, mergers, and
acquisitions [85]. The dominant actors, i.e., the business elites, have
simply no interest in being tied to a common governance system,
for reasons rooted in self-interest. Most of these situations
reflect ‘mixed-motive games,’ characterized by a combination of
conflicting and complementary interests. However, this article has
endeavored to demonstrate that at least at the meso and hidden levels,
where European energy companies and Gazprom dominate, the
quest for cooperation has outweighed disagreements at the macro
level.
Today, energy markets in Europe and Eurasia are in the midst
of a revolutionary transformation in practices and contract structures.
These are likely to have increasing influence on the decisions
that companies make. The last years’ liberalization of gas contracts
has shown how dynamic changes can occur in established markets,
leading to changes in global patterns of supply, prices and views of
energy security. Yet at the hidden level, in a period of transition many
European gas executives highlight the advantages of being strongly
linked to the government and to key gas suppliers, such as Russia.
In the process, they challenge the free market model underpinning
the regulators’ strategies.
Indeed, in recent years, Gazprom and the European energy companies
have cooperated fruitfully outside the institutional domain
on a quid-pro-quo basis, such as the one made known in 2006
between ENI and Gazprom that resulted in the decision to build
South Stream. To back such efforts, individual EU countries have
gradually distanced themselves from support for robust multilateral
governance structures, to give stronger preference to bilateral
energy arrangements.
An in-depth analysis through four case studies illustrates that
the main objectives in EU–Russian energy cooperation are the
maximization of national welfare and private profit. Among the
two, maximization of private profit is the strongest force. While
these two objectives often go hand in hand, they do not always
converge.124 Nevertheless, there is an important point of convergence;
both member states and energy firms oppose the idea of
ceding energy sovereignty to Brussels. Companies, which are the
key actors, are wary of the European Commission managing external
energy policy. In fact, this article argues that if the EC wants
to take a more coherent stand, it will have to rethink its role and
find a good balance between laissez-faire and improper intervention.
From the perspective adopted in this article, the relationships
between the energy firms (the dominant actors on both sides of
the EU-Russia interdependent energy relationship) are aimed at
expanding mutually beneficial economic ties, and only secondarily
at developing shared governance structures. Both sides simply prefer
to retain free hands. As intelligently noted by Douglass North,
124
See for instance, the internal conflict between Gazprom and the Russian government
over the ‘dual pricing’ of natural gas, which means that gas is sold at a
much lower price to domestic consumers (and some CIS countries) than on the
export market. Gazprom is constantly lobbying to raise these domestic prices, but
the government is cautious due to its use of natural gas as a "social shock absorber."
48 M. Skalamera / Energy Research & Social Science 12 (2016) 27–49
“institutions do not emerge spontaneously to create and nurture
the market but reflect the interests of those players in a position to
put them in place.”125
This article has detailed both the limits of the narrow neo-realist
lens (for being too dismissive of the profit motive, which indeed
drives the multi-level dynamics between the EU and Russia) and
evinced the reductive explanatory power of the broad family of
neo-liberal explanations (that attribute the deadlock in EU–Russian
governance to the EU’s inability to ‘speak with one voice’ and/or the
unsoundness of the Putin’s regime). Through different case studies,
it has demonstrated that commercial considerations made by corporate
actors at a hidden level are the main obstacles to binding
governance frameworks. Theoretically, it responded to an analytical
gap in the IR literature and a weakness in the IPE literature
by taking into consideration the variety of business-government
relations that prevail in international politics.
Acknowledgements
The Geopolitics of Energy Fellowship at the Belfer Center supported
this research. The author gratefully acknowledges Harvard
Kennedy School’s support.
References
[1] P. Aalto, The EU-Russian Energy Dialogue, Ashgate, 2008.
[2] P. Aalto, Russia’s Energy Policies: National, Interregional and Global Levels,
Edward Elgar Publishing, Cheltemham, 2012.
[3] Abdelal, R., The Multinational Firm and Geopolitics: Europe, Russia, and the
Gas Revolution, Working Paper (2014, October).
[4] R. Abdelal, The Profits of Power: Commerce and Realpolitik in Eurasia,
Harvard Business School, 2011, Working Paper (November).
[5] R.E. Abdelal, S. Tarontsi, Energy Security in Europe (B): The Southern Corridor,
Harvard Business School Supplement, 2011, pp. 033–711 (April).
[6] A. Aslund, The Russian Economy: More than Just Energy? Peterson Institute
for International Economics, 2009.
[7] Baev, P.K., Øverland I., The South Stream versus Nabucco pipeline race:
Geopolitical and economic (ir) rationales and political stakes in mega-project,
working paper (2010, September).
[8] M. Balmaceda, Energy Dependency, Politics and Corruption in the Former
Soviet Union, Routledge, London, 2008.
[9] Z. Baran, EU Energy Security: Time to End Russian Leverage Wash. Q. 30 (4)
(2007) 131–144.
[10] K. Barysch, Should the Nabucco pipeline project be shelved? Policy Brief,
Centre for European Reform, 2010, May.
[11] Boris Barkanov, Mercantilist Development in Russia: The Legitimacy of State
Power, State Identity, and the Energy Charter Regime (1990–2010, PhD
Thesis, University Of California, Berkeley, 2011.
[12] M. Belova, The Southern corridor—not without Russia, in: K. Linke, M. Vietor
(Eds.), Beyond Turkey, Friedrich-Ebert-Stiftung, 2010.
[13] A.V. Belyi, Reciprocity as a factor of the energy investment regimes in the
EU—Russia energy relations, J. World Energy Law Bus. 2 (2) (2009).
[14] M. Bilgin, Energy security and Russia’s gas strategy: The symbiotic
relationship between the state and firms, Communist Post-Communist Stud.
44 (2011) 119–127.
[16] A. Bressand, The Future of producer–consumer cooperation: a policy
perspective, in: A. Goldthau, J.M. Witte (Eds.), Global Energy Governance: The
New Rules of the Game, Global Public Policy Institute, Berlin, 2010, pp.
269–284 (Chapter 13).
[17] A. Bressand, European Integration and the Development of a European
External Energy Policy in Eurasia, GPPi Policy Paper Series No.7, 2010.
[18] R.N. Cooper, Economic Interdependence and Coordination of Economic
Policies in Economic Policy in an Interdependent World: Essays in World
Economics, Cooper R.N. Cambridge, Mass., 1986.
[19] P. Culpepper, Quiet Politics and Business Power, Cambridge University Press,
2011.
[20] A. Dellecker, T. Gomart, Russian Energy Security and Foreign Policy,
Routledge, 2011.
[21] K. Demakova, J.M. Godzimirski, et al., Russian external energy strategy:
Opportunities and constraints, in: C. Kuzemko (Ed.), Dynamics of Energy
Governance in Europe and Russia, Palgrave Macmillan, 2012, pp. 149–168
(Chapter 7).
125
Douglass North, Institutions, The Journal of Economic Perspectives, vol. 5, no. 1,
(Winter, 1991), pp. 97–112.
[22] D. Finon, The EU foreign gas policy of transit corridors: autopsy of the
stillborn Nabucco project, OPEC Energy Rev. (March) (2011).
[23] A. Florini, Global Governance and Energy, in: C. Pascual, J. Elkind (Eds.),
Energy Security: Economics, Politics, Strategies and Implications, Brookings
Institution Press, Washington, D.C, 2010, pp. 149–181 (Chapter 7).
[24] A. Goldthau, Energy diplomacy in trade and investment of oil and gas, in: A.
Goldthau, J.M. Witte (Eds.), Global Energy Governance: The New Rules of the
Game, Global Public Policy Institute, Berlin, 2010, pp. 25–48 (Chapter 2).
[25] A. Goldthau, From the state to the market and back: policy implications of
changing energy paradigms, Global Policy 3 (2) (2012).
[26] A. Goldthau, N. Sitter, Soft power with a hard edge: EU policy tools and energy
security, Rev. Int. Political Econ. 2015 (2015) 1–25.
[27] T. Gomart, EU-Russia Relations Toward a Way Out of Depression, the Center
for Strategic and International Studies (CSIS), 2008 (July).
[28] L. Grigoriev, Russia, Gazprom and the CAC: interests and relations, in: A.
Dellecker, T. Gomart (Eds.), Russian Energy Security and Foreign Policy,
Routledge, 147-169, 2011 (Chapter 9).
[29] H. Helén, The EUés energy security dilemma with Russia, POLIS J. 4 (2010).
[30] Helm, D., The Russian Dimension and Europe’s External Energy Policy, (2007).
Available at <http://www.dieterhelm.co.uk/sites/default/files/Russian
dimension.pdf>.
[31] J. Henderson, Domestic Gas Prices in Russia—Towards Export Netback, The
Oxford Institute for Energy Studies, 2011 (November).
[32] J. Henderson, Is a Russian Domestic Gas Bubble Emerging? The Oxford
Institute for Energy Studies, 2012 (March).
[33] G.P. Herd, Russian modernization pathways: foreign policy implications, in:
R.E. Kanet (Ed.), Russian Foreign Policy in the 21st Century, Palgrave
Macmillan, 59-75, 2010 (Chapter 3).
[34] M. Hulbert, Why South Stream is the beginning of the end of Gazprom’s
dominance—a tale of two Gazproms Eur. Energy Rev. (November) (2012).
[35] J.G. Ikenberry, The rise of China and the future of the west subtitle: can the
liberal system survive? Foreign Aff. (January/February) (2008).
[36] J.G. Ikenberry, The future of the liberal world order—internationalism after
America, Foreign Aff. (May/June) (2011).
[37] J.G. Ikenberry, Liberal Leviathan: The Origins, Crisis, and Transformation of
the American World Order, Princeton University Press, 2012.
[38] R. Keohane, After Hegemony: Cooperation and Discord in the World Political
Economy, Princeton University Press, 1984.
[39] R. Keohane, International institutions: Can interdependence work? Foreign
Policy (1998), Spring.
[40] R. Keohane, J.S. Nye, Power and Interdependence, Fourth Edition, Longman,
Boston, 2011.
[41] A. Konoplyanik, Why Is Russia Opting Out of the Energy Charter?, vol. 56,
International Affairs, 2010, 2.
[42] A. Konoplyanik, Russian gas at European energy market: why adaptation is
inevitable, Energy Strategy Rev. 1 (2012).
[43] A. Kuchins, I. Zevelev, Russia’s contested national identity and foreign policy,
in: H.R. Nau, D.M. Ollapally (Eds.), Worldviews of Aspiring Powers: Domestic
Foreign Policy Debates in China, India, Iran, Japan, and Russia, New York,
Oxford University Press, USA, 2012, pp. 181–209 (Chapter 6).
[44] J. Kusznir, The Nabucco Gas pipeline project and its Impact on EU energy
policy in the south Caucasus, Caucasus Analytical Digest No. 33, 2011.
[45] C. Kuzemko, Ideas, power, and change: explaining EU-Russia energy relations,
J. Eur. Public Policy 21 (1) (2014) 58–75.
[46] D. Lesage, T. Van de Graaf, K. Westphal, Global Energy Governance in a
Multipolar World, Ashgate, 2010.
[47] M. Light, Keynote article: Russia and the EU: strategic partners or strategic
rivals? JCMS 46 (2008) 7–27, Annual Review.
[48] K. Liuhto, The EU-Russia gas connection: Pipes, politics and problems,
Electronic Publications of Pan-European Institute, 2009.
[49] C. Locatelli, D. Finon, Russian and European gas interdependence: could
contractual trade channel geopolitics? Energy Policy 36 (2007) 423–442.
[50] C. Locatelli, Russian and caspian hydrocarbons: energy supply stakes for the
European Union, Eur.-Asia Stud. 62 (6) (2010) 959–971.
[51] C. Locatelli, S. Boussena, Gas market developments and their effect on
relations between Russia and the EU, OPEC Energy Rev. (March) (2011).
[52] C. Locatelli, S. Boussena, Energy institutional and organizational changes in
EU and Russia, Cahier de Rech. (2012) 163–192.
[53] A. Makarychev, A. Sergunin, EU-Russia: Divergent Logics of Communication,
CEPS Policy Brief, 2011, June, No. 244.
[54] J. Mankoff, Russian Foreign Policy—The Return of Great Power Politics,
Rowman & Littlefield, 2011.
[55] L. Maugeri, Oil: The Next Revolution—The Unprecedented upsurge of Oil
Production capacity and what it means for the World, Belfer Center for Science
and International Affairs, Harvard University, 2012 (Discussion Paper).
[56] F. McGowan, Can the European Union’s market liberalism ensure energy
security in a time of ‘economic nationalism?’, J. Contemp. Eur. Res. 4 (2)
(2008) 90–106.
[57] V. Milov, Ups and downs of the Russia-Turkmenistan relationship, in: A.
Dellecker, T. Gomart (Eds.), Russian Energy Security and Foreign Policy,
Routledge, 2011, pp. 89–106 (Chapter 5).
[58] T. Mitrova, Integration of Gas Markets and Security of Gas Supply and
Demand, Energy Research Institute, Russian Academy of Sciences, 2010.
[59] T. Mitrova, The Geopolitics of Russian Natural Gas, White Paper, Harvard
University’s Belfer Center and Rice University’s Baker Institute Center for
Energy Studies, 2014, pp. 7 (February).
M. Skalamera / Energy Research & Social Science 12 (2016) 27–49 49
[60] A. Monaghan, Russia-EU relations: an emerging energy security dilemma The
Power of Oil and Gas edition of the Pro et Contra journal, vol. 10, No. 2–3, the
Carnegie Moscow Center, 2006.
[61] J. Morales, Russia as an energy great power: consequences for EU energy
security, in: A. Marquina (Ed.), Energy Security: Visions from Asia and Europe,
Palgrave Macmillan, 2008, pp. 24–33 (Chapter 2).
[62] V. Morozov, Energy dialogue and the future of Russia: politics and economics
in the struggle for Europe, in: P. Aalto (Ed.), The EU-Russian Energy Dialogue,
Ashgate, 2008, pp. 43–61 (Chapter 3).
[63] P. Noël, Beyond Dependence: How to Deal with Russian Gas, European
Council on Foreign Relations, 2008.
[65] R.W. Orttung, et al., Energy and state societies relations: socio-political
aspects of Russia ’ s energy wealth, in: R. Perovic (Ed.), Russian Energy Power
and Foreign Relations: Implications for Conflict and Cooperation, Routledge,
2009, pp. 51–70 (Chapter 3).
[66] I. Øverland, et al., Shtokman and Russia’s arctic petroleum frontier, in:
Orttung (Ed.), Russia’s Energy Sector between Politics and Business, Working
Papers of the Research Centre for East European Studies, Bremen, 2008,
February, No. 92, p. 45.
[67] C. Pascual, J. Elkind, Energy Security: Economics, Politics, Strategies and
Implications, Brookings Institution Press, Washington, D.C, 2010.
[68] S. Pirani, J. Stern, K. Yafimava, The April 2010 Russo-Ukrainian gas agreement
and its implications for Europe, the Oxford Institute for Energy Studies, 2010
(June).
[69] S. Pirani, Central Asian and Caspian Gas Production and the Constraints on
Export, the Oxford Institute for Energy Studies, 2012.
[70] N. Poussenkova, et al., All Quiet on the Eastern Front. . ., in: Orttung (Ed.),
Russia’s Energy Sector between Politics and Business, Working Paper,
Bremen, 2008, February (92), p. 50.
[71] J. Roberts, After the war: the Southern Corridor, in: A. Dellecker, T. Gomart
(Eds.), Russian Energy Security and Foreign Policy, Routledge, 2011, pp.
170–187 (Chapter 10).
[72] T. Romanova, Energy Dialogue from strategic partnership to the regional level
in the northern dimension, in: P. Aalto (Ed.), The EU-Russian Energy Dialogue,
Ashgate, 2008, pp. 63–91 (Chapter 4).
[73] T. Romanova, Russian energy in the EU market: bolstered institutions and
their effects, Energy Policy (2014).
[74] K. Rosner, The European Union: on energy, disunity, in: G. Luft, A. Korin (Eds.),
Energy Security Challenges for the 21st Century, Greenwood Publishing
Group, 2009, pp. 160–175 (Chapter 11).
[75] J.G. Ruggie, International regimes, transactions and change: embedded
liberalism in the postwar economic order, Int. Organ. 36 (1982), 2.
[76] A. Schmidt-Felzmann, All for one: EU member states and the Union’s common
policy towards the Russian Federation, J.Contemp. Eur. Stud. 16 (August (2))
(2008) 169–187.
[77] J. Stern, The Impact of European regulation and policy, in: Henderson, Pirani
(Eds.), The Russian Gas Matrix, The Oxford Institute for Energy Studies, 2014
(Chapter 4), p. 99.
[78] J. Stern, Russian responses to commercial change in European gas markets, in:
Henderson, Pirani (Eds.), The Russian Gas Matrix, The Oxford Institute for
Energy Studies, 2014 (Chapter 3), p. 78.
[79] S.L. Tkachenko, Actors in Russia’s energy policy towards the EU, in: P. Aalto
(Ed.), The EU-Russian Energy Dialogue, Ashgate, 2008 (Chapter 8).
[80] F. Umbach, Global energy security and the implications for the EU, Energy
Policy 38 (2010) 1229–1240.
[81] C. Van Agt, Tabula Russia Escape from the Energy Charter Treaty, CIEP Brief.
Pap. (2009).
[82] T. Van de Graaf, The Politics and Institutions of Global Energy Governance,
Palgrave Macmillan, 2013.
[83] C. Van der Linde, A. Correlje, Energy supply security and geopolitics: a
European perspective, Energy Policy 34 (2006) 532–543.
[84] C. Van der Linde, Turning a Weakness into Strength. A Smart External Energy
Policy for Europe, IFRI, 2008, April.
[85] C. Van der Linde, Energy Company Strategies in the Dynamic EU Energy
Market (1995–2007), CIEP, 2010.
[86] K. Westphal, Russian Gas, Ukrainian Pipelines and European Supply
Security-Lessons of the 2009 Controversies, SWP Research Paper, Berlin, 2009.
[87] K. Westphal, Energy in an era of unprecedented uncertainty: international
energy governance in the face of macroeconomic, geopolitical, and systemic
challenges, in: Koranyi (Ed.), Transatlantic Energy Futures, Center for
Transatlantic Relations, Washington, DC, 2011, pp. 1–26 (Chapter 1).
[88] K. Westphal, The Four Great Challenges for the European Gas
Market—Analysis, Longman, Boston, 2012.
[89] K. Westphal, R. Dickel, EU-Russia Gas Relations—How to Manage new
uncertainties and unbalances, SWP Comments, 2012, pp. 12.
[90] K. Yafimava, The Transit Dimension of EU Energy Security: Russian Gas
Transit Across Ukraine, Belarus, and Moldova, The Oxford Institute for Energy
Studies, 2011.
[91] D. Yergin, There will be oil, Wall Street J. (2011).
[92] R. Youngs, Energy Security: Europe’s New Foreign Policy Challenge,
Routledge, 2009.