The Meaning of the Energy Community Treaty for the European Union, South-Eastern Europe and Turkey: From Supply Security Question to Co-operation

Arzu YORKAN
07 May 2010
A- A A+

The Energy Community Treaty and EU’s Energy Policy: The Energy Community Treaty is a legally binding agreement which is entered into force in July 2006. The Treaty was signed by the European Community and all Southeastern European countries. However, Turkey is an observer since November 2006. The Energy Community Treaty has double-edged goals, for the EU on the one hand, for the South-eastern European countries and Turkey on the other.

 

The European Union’s energy policy has three key elements: competitiveness, supply security and sustainability, all of which are interrelated. The Energy Community Treaty is a significant tool for the EU to achieve these policy areas, specifically competitiveness in its single energy market, and enhancing its supply security.

 

The Energy Community Treaty and Supply Security of the EU

As being the largest energy importer in the world market with limited domestic production and being dependent on a few external producers, the European Union needs to diversify its suppliers and routes. The main supplier of the EU is Russia. The current gas disputes between Russia and Ukraine have revealed that the EU should find new alternative suppliers and alternative transit routes. That is the strategy of the EU for diversification. Caspian basin, Central Asia, the Middle East, and the Mediterranean are the major players in this strategy as alternative producers for the EU while southeastern countries of Europe are the main transit actors, specifically Turkey. That is one goal of the EU beyond the Energy Community Treaty. (deepening co-operation with those producers and transit countries)  

 

The Energy Community Treaty and Single Energy Market of the EU

The diversification strategy of the EU is coincided with its aim of creating a fully integrated internal energy market. In order to have a completed integrated single energy market at the Community level, at the beginning, the EU has aimed at connecting the seperated electricity and gas sectors of all its members into its internal energy market. Currently, the Union tries to integrate the energy markets of South-eastern Europe to its single market. That is what the Energy Community Treaty is doing. What means an integrated energy market for the EU? Through interconnected natural gas pipelines and electricity transmission lines, the single market of the EU could have more flexibility and competitiveness which provides the market with effective function, and hence a vibrant industry and economy.

 

South-Eastern Europe (SEE) and the Energy Community Treaty

Energy Situation in the SEE

Romania is the largest consumer in the region, and an important producer of natural gas, oil and coal as well. Croatia has also significant natural gas production in the region. Both of them can meet only 80 per cent of their natural gas demand, still the rest is coming from outside. Apart form both countries, the production of oil and gas is limited in the SEE region. However, most of their primary energy consumption is constituted by coal – except Romania and Greece, in the first one coal comes as the third one and in the second country coal comes as the second among others. Moreover, many markets in the region such as Greece, Serbia, Bosnia-Herzegovina, Macedonia and Kosovo depend heavily on lignite for their electricity generation. While Bosnia and Herzegovina, Croatia and Montenegro have significant hydropower capacity, Albania generates almost all of its electricity from hydropower plants. Romania and Bulgaria have nuclear power plants, by the way. Approximately, 50 percent of consumpted fossil fuels comes from outside: Russia, which is currently the major supplier of oil and the dominant supplier of natural gas in the region.

 

Main Energy Challenges in the SEE

- There is no any common energy policy: individual states are pursuing their own national energy policies. In addition, the reigon has no any longer-term energy strategy.
- Energy infrastructures in the region are fragile, specifically in the Western Balkan countries. During the war of 1990s most of the energy systems of the region were damaged. This fragility is also coming from their age. The elements of energy infrastructures in the region is considerably old, which cause inefficiency in the energy sectors of the SEE countries.
- Reforms for their energy markets and regulation are urgently needed.
- More than 16 per cent of people in Western Balkan are suffered from energy poverty, the IEA estimates so. They really do not have access to sufficient energy services – energy poverty.
- Most of the countries in the region have high carbon intensity due to their heavy dependence on lignite – environmental challenge.
- Domestic production of hydrocarbons does not meet the total consumption of the region – high import dependency.
- Storage capacity for gas and oil is not sufficient. As it is known, during the last Russia-Ukraina gas crisis, most of the Southeastern countries remained without gas.

 

All these problems, especially, growing import dependence, are big concerns for their supply security. In sum;
- upgrading the old and destroyed infrastructures,
- constructing new transmission lines and pipelines for oil and gas transport,
- meeting significant investments,
- improving energy efficiency,
- increasing use of renewables,
- strengthening policies and programs to manage their import dependency, specifically through diversification,
- implementing market reforms,
- establishing fully independent and empowered regulators,
- developing emergency oil and gas stocks are urgently needed in the region.
All those remedies would enhance energy security and hence provide the region with a more sustainable energy future.

 

What can be a role that the Energy Community Treaty plays in those policy recommendations?

The aim of the Energy Community Treaty is to establish a fully integrated energy market in the region of the South-eastern Europe, compatible with the same market rules and standards of the EU’s single energy market. The Treaty also offers a framework for attracting investment in energy infrastructures of the region, integration with the EU’s internal energy market, enhancing competition, improving the environmental situation, and enhancing the security of supply. With having these market reforms and integration, the region can build a sustainable, reliable and an efficient energy market. In order to have such an energy market, the SEE countries have committed themselves to implement the EU Legislation provided by the Energy Community Treaty on the subjects of electricity, gas, renewables, environment and competiton. Currently, the countries are implementing these rules.

 

The South Eastern European Countries and EU’s Diversification Strategy

While the Energy Community Treaty provides the region with integration and market reforms, the South-eastern European countries play a crucial role for the EU, especially in the coming years. The EU is trying to get access to the energy resources of the Caspian region, Central Asia and the Middle East. In this case, Southeast Europe has been identified as an important transit region for delivering their resources to central and western Europe. So, the Energy Community here is considered as a significant geopolitical opportunity to diversify energy routes for the EU and reduce its dependence on a few suppliers, specifically Russia. However, most of the existing and proposed oil and natural gas pipelines are passing through Turkey’s territory.

 

Turkey and the EU’s Diversification Plan Through the Energy Community

The Caspian basin and Central Asian regions are considered main suppliers to the Commission’s diversification plans, where Turkey emerges as a key actor. Currently, there are some pipelines that deliver natural gas of the Caspian and Central Asian to the EU energy market by passing through Turkish territory such as Turkey-Greece Pipeline, Baku-Tbilisi-Erzurum (BTE) Pipeline. In the context of oil, Baku-Tbilisi-Ceyhan (BTC) pipeline plays a crucial role for transfering oil of Caspian to the West, including the European markets. However, Turkey is not serving its role with only those pipelines but there are many other upcoming projects that will carry hydrocarbons through Turkey’s geography, some of which are under construction, and some of which have been proposed. They are as followes: East-West Corridor:  Turkey-Greece-Italy Gas Pipeline (Under Construction), Nabucco Gas Pipeline (Projected) Trans-Caspian Gas Pipeline (Projected); Kazakh Oil-expansion to BTC (Projected); Turkmenistan–Iran–Turkey Gas Pipeline (Projected); and Iraqi-Turkey Europe Gas Pipeline (Projected), and North-South Corridor: Samsun-Ceyhan Bypass Oil Pipeline (Projected); Burgas-Alexandroupolis Oil Pipeline-Bypass for straits (Projected); Samsun-Ceyhan Gas Pipeline (Projected); Turkey-Israel Oil/Gas Pipeline (Projected), Egypt-Turkey Natural Gas Pipeline (Projected). Among them, Nabucco is the main project that will play a key role for  diversification strategy of the EU, and will largely break Russian monopoly. All these current and forthcoming projects have emphasized Turkey’s potential as a major energy transit country and Balkan region as well (because some of those pipelines are also passing the Balkan countries, such as Greece, Bulgaria, Romania). Thanks to those enumerated pipelines, the EU could reach energy sources of the Caspian basin, Central Asian, the Middle East and North African countries.

 

The geography of Turkey does not only enable to be a transit hub for hydrocarbons, but also for electricity. Turkey has significant potential to carry electricity from the Caspian, Central Asia and Middle East to the EU market. Currently, Turkey is trying to interconnect the electricity transmission lines of this region to its domestic lines. With being interconnected to the Balkan countries, Turkey can carry electricity from those regions to the EU passing the Balkans, and can allow cross-border electricity trade. That is also the importance of Southeast Europe to the western and central Europe. In brief, both Turkey and the Southeastern European countries are playing a major role for the diversification and integration strategies of the EU, hence contributing to its supply security.

 


Turkey and the Southeastern European Countries

Geographically being connected, Turkey and the SEE have long-standing historical and cultural relations. In the region, being NATO member and having a secure system with democracy, Turkey can provide stability and security to the Balkans, thus security to energy supplies of the region. Turkey has a growing and vibrant energy market and has accomplished several significant reforms within its market that would be compatible with the EU internal energy market standards, including the Energy Community acquis. Some significant progress in restructuring and liberalizing the Turkish electricity and gas markets are as follows: an independent regulator, the Energy Market Regulatory Authority (EMRA) has been established to be in charge of regulation and supervision of the electricity, gas, petroleum and LPG markets. The Law on the Utilization of Renewable Energy Sources for the Purposes of Generating Electricity has been adopted in 2005 for promoting electricity production from the renewable energy sources. With the Petroleum and LPG Market Laws adopted in 2005, competition oriented mechanisms has been put into place. Finally, in May 2007, the Energy Efficiency Law was enacted, which aims at increasing the efficiency in the use of energy resources, preventing waste, mitigating the burden of energy costs on the economy, and protecting the environment. In sum, with improving its gas and electricity inerconnections with its neighbours, increasing its throughput capacity, and promoting its energy market standards compatible with the EU’s ones, having more flexible and competitive market within electricity and gas sectors by the coming years, Turkey can play a significant role to facilitate the fully establishment of the Energy Community in South East Europe, and thus to strengthen security of supplies for the EU.

 

Mutual Benefits of the Energy Community for the EU, the SEE and Turkey: Co-operation

1. The Treaty provides for the EU energy interconnections with South East Europe, and through the region to the Middle East, Caspian region, Central Asian and the Mediterranean.  Hence, the EU would have new alternative suppliers and energy routes for diversification and integration of its energy market, and through this the Union would be closer to the most of world-proven hydrocarbon reserves. On the other hand, the Southeast Europe and Turkey can diversify their resources with this diversification plan of the EU.
2. Through those interconnections, the EU will have a fully integrated single energy market, which provides more competitiveness for its consumers. On the other hand, this integration brings Turkey and the SEE an efficient and stable markets with having the principles of the Energy Community Treaty. And also technical and financial assistance to modernize energy infrastructures of the SEE through the Energy Community.
3. The Energy Community Treaty can reduce energy dependency of the EU, the SEE region and Turkey to Russia, which is playing a dominant role in all their gas and oil markets.
4. The Energy Community will enhance security of energy supplies of all three parties through diversification, integration and reducing import dependency.
5. The Energy Community Treaty would provide an institutional framework for co-operation between the EU and SEE, and between the EU and Turkey as well.

 

In sum, the mutual benefits of the Energy Community Treaty have created an energy interdependence among all three parts – the EU, the SEE countries and Turkey –  hence a need for co-operation.

 

Note: This comment was produced from the author’s speech presented at an “International Conference of European Energy Policy”, organized by Heinrich Böll Stiftung, 16-17 March, 2010, Berlin. 

Back to Top