Order Code RL33636
The European Union’s
Energy Security Challenges
Updated January 26, 2007
Paul Belkin
Analyst in European Affairs
Foreign Affairs, Defense and Trade Division
Vince L. Morelli
Analyst in European Affairs
Foreign Affairs, Defense and Trade Division

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The European Union’s Energy Security Challenges
Summary
Recent increases in energy prices and a steady escalation in global energy
demand — expected to rise by nearly 60% over the next 20 years — have led U.S.
policy-makers to engage in a wide ranging debate over how best to address the
country’s future energy requirements. Similarly, energy security has become a policy
priority for the European Union (EU) and its 27 member states.
Together, the United States and Europe represent the world’s largest energy
market. Although they produce approximately 23% of the world’s energy, they
consume almost 40% of the world’s supply. The member states of the EU account
for approximately 18% of global oil consumption and consume 19% of gas produced.
Today, the EU imports about 50% of its energy needs. Barring significant
changes, the European Commission (Commission) expects this figure to rise to 65%
by 2030. Approximately half of the EU’s imported energy in the form of oil and
natural gas comes from Russia. Europe’s growing dependence on Russian energy has
fueled speculation that Moscow will use the “energy weapon” to try to influence
future foreign or economic policy in Europe.
In March 2006, the European Commission released a “Green Paper” detailing
the continent’s energy challenges and outlining broad policy options for a
comprehensive EU-wide energy security strategy. In a January 2007 follow-up to the
Green Paper, the Commission unveiled a series of more specific policy actions that
it is expected to officially recommend to EU member states at the European Council
summit in March 2007.
The United States and Europe have steadily increased the transatlantic energy
dialogue on issues such as collective energy security, energy efficiency and
alternative energy sources. Leaders on both sides of the Atlantic have expressed a
desire to increase U.S.-EU cooperation in the world energy market (for example, in
the area of liquified natural gas) and on forging coordinated policies with regard to
Russia and politically unstable regions that are home to substantial energy supplies.
As uncertainties surrounding global energy supply and demand persist, energy
security issues are likely to gain importance in the 110th Congress. Members of the
Democratic Leadership have signaled their intention to introduce legislation aimed
at increasing energy independence and energy security and reducing carbon
emissions. Several legislative proposals currently under consideration envision
carbon emission trading schemes similar to those used in Europe today.
This report examines some of Europe’s critical energy challenges and EU efforts
to coordinate a common European energy strategy. It also includes an overview of
broader transatlantic energy security cooperation. This report will be updated as
needed. For additional information, see CRS Report RS22378, Russia’s Cutoff of
Natural Gas to Ukraine: Context and Implications, by Jim Nichol, Steven Woehrel,
and Bernard Gelb and CRS Report RS22409, NATO and Energy Security, by Paul
Gallis.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Context of Europe’s Energy Security Debate . . . . . . . . . . . . . . . . . . . . . . . . . 3
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Turning Point . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
European Energy Consumption: By the Numbers . . . . . . . . . . . . . . . . . . . . . 6
The European Commission Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Commission Proposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The “Green Paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
An Energy Policy for Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Challenge 1: An External Policy for Energy Security . . . . . . . . . . . . . . . . . . 9
Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Caspian Region/Black Sea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Middle East/North Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Norway . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
External Strategy Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Challenge 2: Promoting Indigenous Energy Supply . . . . . . . . . . . . . . . . . . 20
Nuclear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Coal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Renewable Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Challenge 3: Providing Energy Security through An Internal
Energy Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Energy Interconnection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Storage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
TEN-E Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Energy Security In The Transatlantic Context . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
List of Figures
Figure 1. EU Energy Consumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Figure 2. EU Electricity Generation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
List of Tables
Table 1. Imported Gas and Gas from Russia . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

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The European Union’s
Energy Security Challenges
Introduction
Although the European Union’s (EU) 27 member states have ceded some
sovereignty (or competency) to the EU’s institutional structure, energy policy remains
primarily the responsibility of the member states. Decisions regarding long-term oil
or gas purchases, the development and improvement of energy-related infrastructure,
the use of particular energy fuels or the development of alternative fuels and
technologies continue to be taken by individual member states.
Despite the lack of a common European energy policy, the European
Commission has used its authority to pursue internal market competition and
environment and consumer protection policies to increase its influence over member
states’ energy policies. However, most observers consider the continued preference
of individual members states to make energy-related decisions without consulting
with or assessing the impacts on other member states to be a severe impediment to
the Commission’s efforts to coordinate common goals and approaches for the Union
as a whole. This is particularly true in the areas of gas and electricity market reform
and in external relations with energy producing countries. Member state tendencies
to exercise unilateral authority in these areas and growing concern that a lack of
coordination is increasing the risks posed by Europe’s energy dependence have
spurred debate within Europe over whether the EU should assume more authority in
developing and implementing a common European approach to energy policy.
The proposed Treaty on a European Constitution would elevate energy policy
to a “shared” competency, meaning that although the EU could not unilaterally
implement energy policy, it could exert more influence than it currently does over a
broader array of decision-making. The Constitution has yet to be ratified by all EU
members, and most observers agree it is unlikely that it will be passed in its current
form. However, EU member states have demonstrated an increasing willingness to
discuss energy policy at the European level and are expected to focus on the issue at
an EU summit in March 2007.
Europe’s renewed interest in energy security has been influenced by both
internal and external factors. Steadily rising energy prices, declining European
energy production and a fragmented internal energy market have contributed to
anxieties over Europe’s ability to meet future energy demand. The strain on global
demand exerted by the emerging economies of countries such as China and India,
persistent instability in energy producing regions, the threat of terrorist strikes against
energy infrastructure, and Russia’s apparent willingness to use its energy power for

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CRS-2
political ends, are all raising concerns in Europe over how to address external
influences that could affect future energy requirements.1
Collectively, EU member states import half of their energy needs. Barring
significant policy changes, this figure is expected to rise to 65% by 2030.2 Today,
oil, natural gas, and coal account for 80% of the energy consumed in the EU.
Europe’s energy imports come primarily from Russia and the Middle East,
where approximately 70% of global oil and gas supplies originate. Yet, the Middle
East region is fraught with war, terrorism and politically unstable regimes. Iraq’s oil
production has not reached pre-war levels, and there is fear that terrorist groups
could target pipelines and production facilities throughout the region. Iran has
threatened to cut back oil production if forced to abandon its nuclear power program.
With regard to Russia, recent political and economic behavior exhibited by Moscow
has raised the dual specter of reliability and “energy politics.”
High demand has also raised questions regarding the future availability of global
oil and gas reserves. Although significant shortages are not projected for the next
several decades, uncertainties over future exploration and production in areas such
as Russia and the Middle East have raised concerns about long-term supply
availability. The International Energy Agency (IEA) estimates that close to $16
trillion in new investments may be needed over the next 30 years to meet future
global energy demand.3
All of these issues have led Europeans to begin to plan more seriously for their
energy future and to make energy policy a higher priority within the European Union.
The 109th Congress took an interest in U.S.-European relations with respect to
energy security issues by holding several hearings on the subject and addressing the
issue in a variety of transatlantic parliamentary forums.4 As uncertainties
surrounding global energy supply and demand persist, issues pertaining to U.S.,
European and global energy security are likely to gain importance in the 110th
Congress. Senator Richard Lugar, former Chairman and current Ranking Member
of the Senate Committee on Foreign Relations, raised the possibility of a more
1 Jos Van Gennip, Energy Security, NATO Parliamentary Assembly paper, 2006.
2 See Energy Overview, Council of the European Commission, June 2006; An Energy Policy
for Europe, Communication From the Commission to the European Council and the
European Parliament. COM(2007) 1. Jan. 10, 2007.
3 See International Energy Agency (IEA), World Energy Investment Outlook, 2005.
4 In May 2006, Subcommittees of the House Government Reform Committee held a joint
hearing entitled “Russian Energy Policy and Its Challenges to Western Policymakers.” In
late June, the Senate Foreign Relations Committee held a hearing on the “Future of Russia”
in which energy policy was extensively discussed. Finally, in July 2006, the Middle East
and Central Asia Subcommittee of the House International Relations Committee held a
hearing entitled “Energy and Security Issues in Central Asia.” Each of these hearings
touched on Europe’s energy challenges. In addition, the NATO Parliamentary Assembly and
the Transatlantic Legislators’ Dialogue has kept the issue of energy security and U.S.-EU
cooperation on the agenda.

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proactive role for NATO in energy security matters at NATO’s summit in Riga,
Latvia in November 2006. Members of the Democratic Leadership in the 110th
Congress have signaled their intention to introduce legislation aimed at increasing
energy independence and energy security and reducing carbon emissions. Several
legislative proposals currently under consideration envision carbon trading schemes
similar to those currently in use in Europe.
The Context of Europe’s Energy Security Debate
Background
European concern regarding the security of its energy supplies was first
prompted by the Arab oil embargo of the early 1970s. Specifically, the embargo
highlighted three main issues. First, it exposed a need for increased collaboration
among European countries and between Europe and the energy producing world with
regard to energy policy. Second, it became clear that mechanisms for increased
coordination in the event of future supply disruptions were essential. Third,
consensus emerged that Europe should prepare strategies intended to prevent it from
becoming the victim of future attempts by exporting nations to use energy as a
political or economic weapon.5 The 1974 creation of the International Energy
Agency (IEA), which has become Europe’s primary instrument for monitoring and
analyzing world energy markets, was one response to the embargo. In addition,
European countries sought to develop strategies to diversify energy supply.
After the embargo, European countries began to identify Russia and other
Eurasian countries as potential energy suppliers. At the time, Soviet Russia was
beginning to realize its energy producing potential but required major investments
in its energy sector. The prospect of future cooperation in the energy field began to
play a key role in European perspectives on developing relations with Soviet Russia.
In 1991, the European Union launched the Energy Charter Declaration, an
initiative intended to promote energy cooperation and diversify Europe’s energy
supply.6 The Declaration gave way to the 1994 Energy Charter Treaty that entered
into legal force in 1998 and established a framework of rules and agreements to
promote international energy cooperation. To date, 51 countries and the EU have
signed or acceded to the Treaty.7 The Treaty seeks to create a level playing field of
rules regarding the promotion of foreign energy investments; free trade in energy
materials, products and equipment; freedom of energy transit through pipelines and
5 Daniel Yergin, “Ensuring Energy Security,” Foreign Affairs, March/April 2006.
6 For more detailed information on the Treaty see An Introduction to the Energy Charter
Treaty. The Energy Charter Organization. At [http://www.encharter.org]. Accessed Jan.
18, 2007.
7 Although the United States signed the 1991 Energy Charter Declaration, it has not signed
the Energy Charter Treaty, so it retains the status of observer to the Charter process. U.S.
officials have cited a preference to pursue energy-related matters on a bilateral basis.

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grids; promoting energy efficiency; and providing mechanisms for addressing
disputes.8
Since the signing of the Energy Charter Treaty, the European Commission has
used its existing competency in competition and environment and consumer
protection policy to attempt to shape a European energy policy in a variety of ways.
These include promoting an internal gas and electricity market, encouraging the
development of alternative energy supplies, and, in cooperation with the office of the
High Representative for Common Foreign and Security Policy, pursuing a more
cooperative approach to external relations with current and future energy suppliers.
Turning Point
Despite the aforementioned initiatives to integrate European energy security
policy, member states continue to retain primary policy-making authority. However,
a 2005 German-Russian gas pipeline agreement and more recent Russian
manipulation of gas and oil flows to the European market have sparked a newfound
sense of urgency among European leaders regarding the need for a more coordinated
strategy.
In 2005, Germany and Russia agreed to build a gas pipeline connecting the
countries under the Baltic Sea. While Germany maintains that the pipeline will
represent a significant enhancement of German and therefore European energy supply
and security, EU member states Poland and Lithuania have protested the decision.
They counter that by running the pipeline under sea so it bypasses both countries and
failing to coordinate with EU neighbors when negotiating with Russia, Germany’s
actions pose a threat to their and broader European energy security.9 Furthermore,
prominent Swedish officials have voiced concerns that the pipeline will provide
Russia with a platform to increase both military surveillance and its military presence
in the strategically important Baltic Sea.10 The German-Russian agreement and
subsequent responses from Poland, Lithuania, and more recently, Sweden, have
reignited calls for a more coordinated European energy strategy.
As internal strife over the German pipeline decision continues, disputes between
Russia and Ukraine and Russia and Belarus have heightened the call for more EU-
wide coordination. In late 2005, Russia notified the Ukrainian government of a
significant price increase in natural gas flowing to Ukraine. Officials in Kiev
protested and accused Russia of attempting to destabilize the pro-western
government of President Viktor Yushchenko. Though the price dispute did not
directly involve Europe, the December 31, 2005, decision by Russia’s gas monopoly,
Gazprom, to temporarily suspend Ukraine’s gas supply also interrupted supply to
European countries. Within hours of the gas shut off, several countries in Europe
including Austria, Italy, Poland, Slovakia and Germany, reported drops in their own
8 An Introduction to the Energy Charter Treaty, Op. Cit.
9 “Polish Press Slams Germany’s Schroeder over Gas Pipeline Deal,” Agence France-
Presse, Dec. 12, 2005.
10 “Sweden Afraid of Russian Spooks,” Spiegel Online. Nov. 15, 2006.

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pipeline pressure by as much as 30%.11 The gas crisis lasted only a few days, and
after Russia and Ukraine reached an agreement on gas prices, gas was flowing again.
An almost identical dispute between Russia and Belarus with similar
consequences for European countries, particularly Germany, occurred in early
January 2007. This time, the Russian oil pipeline operator Transneft shut down its
Druzhba oil pipeline that crosses Belarus and through which Germany receives 20%
of its oil imports. Germany and the EU sharply rebuked Russia’s decision, and
Russia resumed oil delivery after three days of price negotiations with Belarus.
The Russia-Ukraine and Russia-Belarus gas and oil crises have been
characterized by many European observers as “wake up” calls exposing Europe’s
energy security vulnerability even to unintended supply disruptions. More
importantly, however, the crises raised the dual questions of Russia’s reliability as
an energy partner and Moscow’s willingness to use its energy power as a political
weapon. In an article assessing the Russia-Ukraine gas crisis, Jonathan Stern asks
“what security lessons should Europe take away from the crisis...,” and answers by
saying, “it is not wise for any country or region to become overly dependent on a
single supplier or supply route... and that even disputes which do not directly involve
third countries can affect those countries in the event of a problem between a supplier
and a customer which is also a transit country.”12
In response, European leaders have called for concerted action on EU energy
policy, particularly with regard to supply security. Germany, which holds the rotating
EU presidency for the first half of 2007, has made the quest for a more cohesive
policy a priority of its half-year presidency, and energy will be the focus of the EU’s
March Summit. However, rather than spur a complete rethinking of European energy
policy, the increased political attention has brought a higher profile to existing
Commission initiatives and proposals, which had previously received limited
political backing. Even before the Russia-Ukraine crisis made front-page headlines,
EU Energy Commissioner Andris Piebalgs in October 2005 stated that he felt it was
time for Europe to “undertake a major review of European energy policy...” to
determine if “... current policies correctly balance the EU’s core objectives of
competitiveness, security of supply and sustainable development.”13 It was at this
forum that Piebalgs announced the Commission’s intention to write a “Green Paper”
addressing these issues.
11 See “Q&A: Ukraine Gas Row,” BBC News, January 4, 2006; and CRS Report RS22378,
Russia’s Cutoff of Natural Gas to Ukraine: Context and Implications, by Jim Nichol, Steven
Woehrel, and Bernard A. Gelb.
12 Jonathan Stern, “The Russian-Ukranian Gas Crisis of January 2006,” Oxford Institute for
Energy Studies, January 2006.
13 Andris Piebalgs, speech before the European Fossil Fuels Forum, Oct. 19, 2005.

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European Energy Consumption: By the Numbers
The EU’s 27 member states account for approximately 17% of the world’s total
energy consumption.14 In 2005, about 80% of the energy consumed within the EU
was from fossil fuels. The following chart provides an overview of the EU’s energy
consumption by fuel source.
Figure 1. EU Energy Consumption
EU-27 Energy Mix - 2004
Oil
36.8%
Solar
Other
0.04%
Hydro
0.1%
1.5%
Wind
0.3%
Solid fuels
Biomass
Renewables
18.2%
and waste
6.4%
4.2%
Nuclear
14.4%
Geothermal
0.3%
Gas
24.0%
Source: European Commission DG TREN, Eurostat; Commission Staff Working
Document SEC(2007)12
According to the European Commission, EU member states import
approximately half of their oil and gas supplies. If current trends continue, import
dependence could rise to 65% by 2030.15 Russia, Norway, the Middle East, and
North Africa are the largest suppliers of EU energy. In 2004, Russia accounted for
26% of the EU’s oil imports and 29% of natural gas imports.16
Forecasters predict that natural gas consumption in the EU will double over the
next 25 years, and gas has rapidly become Europe’s fuel of choice for power
generation. European natural gas consumption currently represents 17% of world
consumption. Today, EU member states and Norway account for just over half of the
EU’s natural gas supply. The other half is imported primarily from the Russian
Federation (29%) and Algeria (13%). European gas imports are expected to reach
14 Country Analysis Briefs: European Union, Energy Information Administration, January
2006.
15 “An Energy Policy for Europe,” Op. Cit.
16 “EU Energy Policy Data,” European Commission Staff Working Document, Jan. 10, 2007.
Commission Document SEC(2007)12.

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slightly over 80% by 2030.17 Several EU member states are totally dependent on
Russian natural gas for their domestic energy consumption. The following chart
illustrates the levels of dependency on Russian natural gas in selected nations of the
EU.
Table 1. Imported Gas and Gas from Russia
Dependence on
Total Gas Consumed,
Country
Imported Gas, 2005
Imported from Russia
Austria
88%
74%
Czech Republic
98%
70%
Estonia
100%
100%
France
98%
26%
Finland
100%
100%
Germany
81%
39%
Italy
85%
30%
Poland
70%
50%
Source: International Energy Agency; Eurostat; British Petroleum.
The EU’s increasing dependence on energy imports, especially with respect to
Russian natural gas, has raised serious questions regarding its long-term security of
supply, the need to diversify Europe’s sources of supply, and the requirement that the
EU develop both a broad common internal energy policy and an external energy
strategy to deal with Russia and other regions of the world where Europe may turn
for future energy supplies.
The European Commission Response18
Events surrounding the Russia-Ukraine and recent Russia-Belarus oil and gas
crises have brought heightened public and political attention to Europe’s growing
energy dependence and the vulnerability of its energy supplies to external political
events. In 2006, the European Commission revived its calls for a more cohesive
European energy strategy, bringing energy security to the forefront of Europe’s
anticipated energy policy debate. In February 2006, Jose Manuel Barroso, President
of the European Commission, speaking at Georgetown University stated: “there are
few greater geopolitical challenges confronting us today than energy...we can no
longer take secure and affordable energy supplies for granted...global energy demand
17 Ibid.
18 The European Commission is the EU’s executive and holds the sole right of legislative
initiative. However, in many policy-making areas, the Commission remains primarily an
administrative body serving the representatives of national governments, which make up
the EU’s main decision-making body, the Council of Ministers,. For more information see
CRS Report RS21372, The European Union: Questions and Answers, by Kristin Archick.

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is rapidly increasing...so it is uncertain how future demand will be met, and at what
cost to our economies and the environment.”19
Commission Proposals
The “Green Paper.” In March 2006, the European Commission released an
outline for a comprehensive European energy strategy in the form of a so-called
“Green Paper” entitled, “A European Strategy for Sustainable, Competitive and
Secure Energy.”20 The paper called on member states to complete the process of
opening their energy markets, dismantle protectionist policies, and create a single
European electricity and gas market by mid-2007. Other priorities included measures
to encourage an efficient “mix” of energy fuels to foster an integrated approach to
climate change, to develop new energy efficient technologies, and to create a
coherent external energy policy, especially regarding Russia. During their March
2006 European Council meeting, EU heads of state gave qualified support to the
Green Paper, calling for a prioritized Action Plan to be adopted at its 2007 spring
meeting.
An Energy Policy for Europe. In early January 2007, responding to the call
for an EU Action Plan, the Commission released a series of specific policy proposals
designed to meet the broader objectives outlined in the 2006 Green Paper.21 The
January recommendations focus on the three interconnected goals previously
endorsed by European leaders: increasing energy security; enhancing sustainability;
and fostering competition in Europe’s internal energy market. The Commission
places particular emphasis on the link between energy security and an EU-wide
reduction in carbon emissions. European heads of state are expected to consider the
Commission’s most recent proposals at their March 2007 EU summit.
In the area of security, the January 2007 policy recommendations urge member
states to further incorporate energy supply objectives into an enhanced European
foreign policy. Specifically, the Commission highlights the need to strengthen
existing and seek further multilateral energy agreements, including a post-Kyoto
Protocol carbon emissions framework, a bolstered Energy Charter Treaty, the
internationalization of a carbon emissions trading scheme currently in practice within
the EU, and increased promotion of renewable energy technologies. In an effort to
diversify supply, the Commission calls on member states to enhance dialogue with
key energy producer and transit countries, singling out Central Asia, Caspian Sea
sources, and the Black Sea area. In addition, it calls for the formation of a European
energy dialogue with African countries of strategic importance. With regards to
Russia, the proposed energy policy highlights the need to institutionalize a common
commitment to market principles enshrined in the Energy Charter Treaty and the
19 “Speaking with a Common Voice: Energy Policy for the 21st Century,” Jose Manuel
Barroso, Georgetown University, Feb. 9, 2006.
20 See EU Energy Directorate General at [http://www.ec.europa.eu/energy]. Accessed Jan.
20, 2007.
21 The proposals, presented as an “Energy Policy for Europe,” are available at
[http://ec.europa.eu/energy/energy_policy/index_en.htm]. Accessed Jan. 20, 2007.

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need for secure and reliable fossil fuel transit routes in a new EU-Russia Partnership
and Cooperation Agreement. Finally, the Commission envisions an enhanced
dialogue between major consumer countries, focusing on the need for European-U.S.
cooperation on promoting free energy markets, energy efficiency, regulatory
frameworks, and research.
In the area of sustainability, the Commission proposes a 20% EU-wide
reduction in carbon emissions compared with 1990 levels by 2020. It also urges EU
member states to seek international agreement on a 30% reduction target by 2020 in
a Post-Kyoto Protocol carbon emissions treaty. To attain these goals, the
Commission envisions a 50% increase in EU-spending on carbon technology over
the next seven years and a series of measures to increase the use of biofuels and other
renewable energy sources and to improve EU-wide energy efficiency by 20% by
2020.
Most observers consider the European Commission’s call to increase
competition within and among traditionally protected European energy markets to be
its most controversial initiative. Here, the Commission highlights the need to reduce
the power of state-owned energy companies by forcing them to split up ownership
of generation and distribution businesses. Some member governments have signaled
opposition to this proposal, prompting some experts to predict a compromise
agreement that would allow the continued operation of national energy industries but
subject them to oversight from an independent European regulatory body.
Although European leaders increasingly pay lip-service to the need for enhanced
energy cooperation, observers emphasize the need for improved coordination
between EU institutions (Council, Commission, Parliament) and among the member
states before a successful common approach can be realized. From this perspective,
the success of am EU energy strategy will depend on the ability of member states to
frame common objectives in addressing three fundamental challenges. First, how to
develop strong partnerships with energy producing and transit regions; second, how
to use existing indigenous energy resources while seeking to curb overall
consumption; and third, how to establish an internal system to provide dependable
and secure energy supplies to all of Europe.
Challenge 1: An External Policy for Energy Security
Growing energy demand within the EU’s 27 member states is mirrored in
regions throughout the world.22 Growth in China and India has added considerably
to global demand, as has rising population growth and economic modernization in
Latin America, Africa, and even the energy-rich Middle East. In the face of this
strain on limited supplies, Europeans must compete for existing and new energy
sources.
Most experts agree that without a significant effort to diversify, future increases
in gas imports will be supplied predominantly by Russia. Taking the projections of
22 The European Commission estimates that European electricity demand alone is growing
by 1.5% annually. See “An Energy Policy for Europe,” Op. Cit.

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European energy consumption and supply into account, it becomes clear that the
most important energy security challenge facing the EU over the next 20 years will
be Europe’s ability to diversify the sources of its energy imports and the modes of
transit that will bring those supplies to Europe.
In June 2006, the European Council endorsed the Commission’s call to include
energy security as a part of the Union’s Common Foreign and Security Policy
(CFSP), stating that “The development of a coherent and focused external EU energy
policy, drawing on the full range of EU internal and external policies, would enhance
the collective external energy security of the Union.”23 In its endorsement, the
Council made it clear that individual member states had the right to pursue their own
external relations in securing energy supplies. However, the Council argued that the
EU may in a better position to determine what leverage could be used to advance the
collective interests of the Union as a whole.
Diversification of supply is considered essential to Europe’s future energy
security. The bulk of the world’s energy resources, located in Russia, the Caspian
region, the Middle East and North Africa, are all well within the economic reach of
the European Union. In fact, Europe already receives energy supplies from each of
these regions. Several EU member states, however, have expressed alarm over
Europe’s growing dependence on Russia and have suggested the EU turn its attention
to securing more supplies of gas and oil from these other regions. The key for Europe
is to determine the equilibrium point for supply from each geographic region and
how to best manage relations with the governments in those regions that control the
energy resources. By strengthening relations with these other regions, the EU opens
additional options for its external energy strategy.
Russia. Russia is a major player in world energy markets. In 2004, its 1,700
trillion cubic feet (tcf) of natural gas reserves were the largest of any country, making
it both the world’s largest gas producer and exporter. Russia is also the world’s
second largest oil exporter.24
The EU, on the other hand, needs reliable energy supplies to support European
economic growth. Russia’s resources and proximity to Europe make an EU-Russian
energy partnership a necessity. Indeed, managing relations with Moscow has become
the EU’s top energy security priority. This relationship was formalized in 2000 with
the creation of the EU-Russia Energy Dialogue. The results of the Dialogue have
been mixed. At the last meeting in May 2006, the sides were unable to resolve
differences regarding supply security and investments in each others energy sectors.
Compounding Europe’s dilemma is the fact that 100% of Russian gas flowing to the
EU is controlled by the state-owned energy enterprise, Gazprom. Though many
observers remain skeptical regarding Russian President Vladimir Putin’s willingness
to make commitments being sought by the EU, both Putin and EU leadership have
23 “An External Policy to Serve Europe’s Energy Interests,” Office of the High
Representative, European Council, June 2006. Document S160/06.
24 For additional information on Russia’s energy situation see CRS Report RS22378,
Russia’s Cutoff of Natural Gas to Ukraine: Context and Implications, by Jim Nichol,
Steven Woehrel, and Bernard A. Gelb.

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CRS-11
announced their intention to negotiate a renewed Russia-EU partnership agreement
with a significant energy component during Germany’s EU presidency in the first
half of 2007.25 On the other hand, Russia’s continued refusal to ratify the Energy
Charter Treaty that guarantees open competition throughout the energy sector, and
its reluctance to adhere to the EU’s competition and anti-monopoly rules, are
considered by many to have been major factors in the failure of scheduled partnership
talks in late 2006. The willingness of either side to compromise on these issues
during 2007 partnership talks will likely be a key factor in future EU-Russian
relations.
Most observers contend that Putin views Russia’s vast energy resources as a tool
to regain Russia’s stature as a major force in global affairs.26 Thus, he sees energy
as an important political force as much as it is the force driving Russia’s economic
development. Experts believe that Russia seeks to control as much of Europe’s
energy infrastructure as possible in return for its delivery of reliable energy supplies.
Moscow knows that if the EU is successful in creating a Europe-wide single market
for electricity and gas, which is discussed later in this report, “it will be presented
with opportunities to become part of the world’s largest and most integrated energy
market right on its border.”27 According to Daniel Yergin, “Putin believes that energy
security is about [Russia’s] retaking control of the ‘commanding heights’ of the
energy industry and extending that control downstream...”28
Energy’s political importance is evident in the fact that the two major Russian
energy giants, Gazprom and Rosneft, have close ties to the Kremlin and, in particular,
to President Putin himself. Rosneft is led by a close associate and former KGB
colleague of Putin. Gazprom is run by Alexy Miller, a close Putin ally, and Dimitry
Medvedev, Russia’s First Deputy Prime Minister who, according to some, is being
groomed by Putin to become his successor in 2008 when Putin is due to step down
as President. Gazprom dominates the Russian gas sector and controls Russia’s export
pipelines.
On the investment side, analysts also see Russia playing the political card. The
International Energy Agency estimates that the Russian gas sector will require
upwards of $10 billion in annual investment to meet future global demands. The EU
has urged Russia to provide European energy companies the opportunity to invest in
the total range of the energy sector from oil and gas fields to the pipeline system.
Thus far, Russia has refused to meet EU demands and in turn, has warned the EU not
to attempt to block Gazprom’s plans to buy or invest in Europe’s energy sector.
25 “Merkel calls for Improved EU-Russia Energy Ties,” Deutsche Welle, Jan. 21 2007.
26 “Russian Energy Policy and its Challenges to Western Policy Affairs,” Keith Smith,
Center for Strategic and International Studies, testimony before the Congress, May 16, 2006.
27 “Russia-EU Relations: An Emerging Energy Security Dilemma,” Andrew Monagham,
Russia Research Network, London, 2006.
28 “What Does Energy Security Really Mean?,” Daniel Yergin, Wall Street Journal, July 11,
2006.

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Brushing aside the EU’s policies regarding competition and monopoly practices,
as well as the Energy Charter, Gazprom CEO Miller told EU Ambassadors in a not
so veiled attempt to exert its energy-driven influence that “attempts to limit
Gazprom’s activities in the European market...will not produce good results...it is no
coincidence that competition for energy resources is growing...and it should not be
forgotten that we [Gazprom] are actively seeking new markets such as China...”29
Russia’s reluctance to agree to EU terms for open and competitive markets has
led many in the EU to express concern over Russia’s political reliability as a long-
term supplier. Nonetheless, Russia’s recent decision to build the new Baltic Sea
pipeline to Germany, its development of the large Shtokman gas field in the Barents
Sea, the recent purchase of gas storage facilities in Hungary from Germany and its
continuing interest in the British energy market all confirm the fact that Moscow
understands that Europe will continue to play an important role in Russia’s long-term
global political and economic strategy.
However, just as Russia seeks to exploit European dependencies, Europe’s
understanding of Russia’s dependence on Europe as a stable customer and an eager
investor in Russia’s economy presents the EU with several options in managing
energy relations with Russia.
First, Some analysts believe Russia cannot develop its vast energy reserves
without capital and technological investment from the west. However, many
question how far EU member states will agree to push Russia (and Gazprom) to
adopt the EU’s principles of competition, open its energy sector to outside
investment, and ratify the Energy Charter. Some believe that
without such demands for concessions, Europe will ultimately find its energy security
largely under Russian control.
A second issue involves the EU’s ability to influence the attitudes and actions
of its 27 member states as it tries to establish a coherent policy toward Russia. This
question may be the most problematic for the EU. Even as EU leadership in Brussels
moves forward with its ideas on a common external energy strategy, several member
states have pursued bilateral energy deals with Russia that will increase their
dependence on Russia for years to come.
Both Germany and Italy, the largest importers of Russian gas, have negotiated
long-term deals with Russia to lock in future gas supplies. For Germany and a few
others, “Russia’s role as a key supplier of oil and gas makes Putin a vital strategic
partner who cannot be ignored or antagonized.”30 Such deals are not limited to the
major energy consumers. Slovenia and Belgium have entered into negotiations with
Gazprom to build a pipeline across the former and to enter the gas distribution market
in the latter. Hungary’s oil and gas company, Mol, has joined with Gazprom to
29 Gasprom CEO Miller in a speech to EU Ambassadors in Brussels as reported by the BBC
News, April 4, 2006.
30 “Russia: More Awkward, But Still Indispensable,” William Drozdiak, European Affairs,
Spring/Summer 2006.

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CRS-13
extend Gazprom’s Blue Stream pipeline across the Black Sea through the Balkans
into Hungary.
These examples of individual member states dealing with Russia have drawn
harsh criticism from other member states, such as Poland and the Baltic states. They
have warned their European colleagues not to cut energy deals that will give Russia
an undue and possibly dangerous amount of political influence over European
decision-making. Many of these nations understand that Europe’s dependence on
Russian energy is likely to last no matter what alternatives are included in an EU
energy policy. But they also feel Europe does not gain real security by becoming
more dependent on Russia. In fact, the growing presence of Gazprom throughout the
European energy market has led many to worry about the EU’s ability to develop an
energy policy insulated from Gazprom’s influence.31 In a July speech, Romania’s
President Basescu went so far as to warn that “Europe’s dependence on Russian gas
monopoly Gazprom ...could be the biggest threat to the region since the former
Soviet Union’s army.”32
Critics of Europe’s growing dependence on Russian energy, especially on gas,
point out that the 2005-2006 Ukrainian and early 2007 Belarusian gas and oil crises
were not isolated examples of Russia’s use of energy as a foreign policy tool. As
Ambassador Keith Smith has suggested, Russia’s practice of purchasing gas from
the Central Asian Republics is designed to deny the west the ability to buy less
expensive gas from other sources. He also points out that Russia’s decisions to halt
shipments of oil from Kazakhstan to Lithuania through Russian oil pipelines was an
expression of displeasure with Lithuanian policy.33
Several nations are attempting to diversify their energy supplies but are
concerned that Gazprom could use its influence to block EU decisions on alternative
energy initiatives that would lower Europe’s dependence on Russia or that would
compete against Gazprom’s interests. For instance, the Russia-Hungary pipeline
agreement will compete with the EU-endorsed Nabucco pipeline which would bring
gas from the Caspian region and Iran to Europe via Turkey and the Balkans.
Critics of Gazprom activities, such as Vladimir Socor, believe that Gazprom’s
strategy is to “establish permanent control of the [Hungary/Balkans] markets before
Caspian gas can reach them through the proposed Nabucco pipeline...”34 In moving
ahead with this deal, critics believe Gazprom will try to convince other nations that
agreed to fund the Nabucco pipeline to withdraw their commitments and rely on the
Russia-Hungary pipeline instead.
31 Comments provided through discussions with representatives of several European member
states.
32 Traian Basescu, President of Romania in a speech to the Jamestown Foundation in
Washington, D.C. July 2006.
33 “Security Implications of Russian Energy Policy,” Keith Smith, Policy Brief, Center for
European Policy Studies, January 2006.
34 “Gazprom Broadens, Deepens Inroads Into European Union’s Internal Markets, Transport
Systems,” Vladimir Socor, Eurasia Dailey Monitor, March 21, 2006.

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The energy situation with Russia is not dire. Russia will continue to be Europe’s
primary energy supplier for the long-term, and healthy Russian-European relations
remain a priority on both sides. However, some member states indicate a growing
desire to resist increased cooperation with Russia. If a common external EU energy
security policy is to emerge, two options may be considered. First, Europe may move
to curb its dependence on Russian energy by increasing its diversification to other
regions without threatening Russia’s own market security in Europe. In doing so,
Europe might ask if there is a point at which Russia could decide that the EU’s
commitment to diversification no longer makes it financially attractive for Russia to
continue to invest in new supplies destined for the European market. Second, Europe
may attempt to adapt the behavior and practices of Gazprom as it becomes more of
a dominant energy player in Europe. Thus far, few European countries have
demonstrated restraint in seeking bilateral deals with the Russian monopoly that
would do just that. If this continues, Europe could risk having Gazprom interfere
more and more in its internal political decision-making. To avoid this, the European
Union will likely continue to apply pressure on Gazprom to play by Europe’s rules
on competition and work to change Gazprom’s corporate mentality by allowing
European firms to invest in Russia’s gas industry.
Caspian Region/Black Sea. Consideration of an EU energy supply
diversification strategy will likely place more emphasis on the Caspian and Black Sea
regions. Indeed, the EU’s January 2007 energy policy paper recommends
strengthening the EU’s so-called Neighborhood Policy with these areas.
The Caspian Sea in central Asia is bordered by Azerbaijan, Iran, Kazakhstan,
Russia and Turkmenistan. After the collapse of the Soviet Union, the international
community took an active interest in the region because of the potential oil and gas
reserves thought to be located in at least six identified hydrocarbon fields beneath the
Caspian Sea.
Presently, the Caspian Sea region is a significant, but not major, supplier of
crude oil to world markets The untapped reserves held by four of these nations
might offer Europe an opportunity to move away from increased dependence on
Russian energy. Estimates of the Caspian Sea region’s proven oil reserves range
between 40 and 50 billion barrels. Production levels in 2005 were estimated to be
around 2 million barrels per day. The Caspian Sea region’s natural gas reserves are
estimated at 232 trillion cubic feet (Tcf). Natural gas production in 2004 was
approximately 5 Tcf.
Europe’s formal interest in the energy resources of the region dates back to 1995
with the creation of the Interstate Oil and Gas Transport to Europe program (Inogate),
This EU initiative (currently with 21 member countries) was designed to promote the
construction of regional pipeline systems in order to facilitate the transport of oil and
gas to Europe.35 This was followed by another EU proposal, the “Baku Initiative,”
which was launched in November 2004 with the participation of the European
Commission and the Black Sea and Caspian littoral states. The Baku Initiative was
35 A more detailed account of the activities of Inogate is available from its website at
[http://www.inogate.org].

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designed to facilitate the progressive integration of the energy markets of the region
into the EU market as well as the transportation of the extensive Caspian oil and gas
resources towards Europe.
At the time Inogate was formed, Russia dominated both oil and gas production
and distribution in the region. Since most of the countries involved are landlocked,
their oil and gas had to be transported via pipelines. Reflecting Soviet era dictates
and infrastructure, nearly all Caspian crude oil traveled north or west via pipeline to
or through Russia to European markets. Some oil also went by tanker through the
Bosporus straits to Western European markets via the Mediterranean. Natural gas
transportation was tied to pipelines traveling mainly north or west through Russia and
its monopoly pipeline system — Gazprom. This has provided Russia with the market
power to dictate, in part, the price it is willing to pay for the oil or gas, to set transit
fees on Caspian energy shipped through its transportation network, and to determine
in some cases how much, if any, it is willing to transport. This latter point was
evident in 2005 when Russia’s oil pipeline company, Transneft, refused to allow oil
from Kazakhstan to be shipped through its pipeline system to Lithuania for refining.
The Caspian region nations thus have incentives to develop alternatives to routes
through Russia to reach European and other markets and provide leverage in
negotiating transit fees on shipments that do go through the Russian pipeline
system.36
Changing the region’s energy flow from the existing North-South axis to an
East-West axis toward Europe is integral to the development goals of these newly
independent states and Europe’s energy strategy. Currently, the region relies on three
big pipeline projects which will reduce the region’s dependence on Russia. The
Caspian Pipeline Consortium (CPC) project connects Kazakhstan’s Caspian Sea area
oil deposits with Russia’s Black Sea port of Novorossiysk. Oil loaded at
Novorossiysk is then taken by tanker to world markets via the congested Bosporus
Straits.37
The Baku-Tbilisi-Ceyhan oil pipeline (BTC), which opened in July 2006,
exports oil from Azerbaijan and up to 600,000 bl/d from Kazakhstan along a 1,040-
mile route from Baku, Azerbaijan via Georgia to the Turkish Mediterranean port of
Ceyhan. This will allow oil to bypass the Bosporus Straits.
The South Caucasus Pipeline (SCP), a new gas pipeline venture completed in
December 2006, runs parallel to the BTC oil pipeline for most of its route before
connecting to the Turkish energy infrastructure and on to Europe via a transit pipeline
through Greece.
In addition to these pipelines already in service, several additional projects in
Europe could be involved.
36 For additional information see CRS Report RS21190, Caspian Oil and Gas: Production
and Prospects, by Bernard A. Gelb.
37 Additional analysis of the Caspian region can be found at, “Country Analysis Brief:
Caspian Sea,” Energy Information Administration, U.S. Department of Energy, 2005.

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One option for additional oil transport would be to upgrade the existing oil
pipeline which runs from Baku in Azerbaijan to Supsa in Georgia. That line could
be extended under the Black Sea or the oil could be loaded onto tankers and shipped
to Odessa, Ukraine. The oil could then be pumped through the Odessa-Brody
pipeline into Poland. Some, including the Poles, have suggested that the Brody line
be extended to northern Poland and possibly into the Baltic states for use at the
Mazeikai refinery in Lithuania.
On the gas front, two additional projects offer important options for Europe.
One, the Trans-Caspian pipeline, is intended to bring additional gas from the Caspian
to Georgia and across the Black Sea to Romania and the Balkans. The other pipeline,
Nabucco, is scheduled to be built in 2008 and would carry gas through Turkey into
Bulgaria and on to Austria. This project has the financial backing of several
European nations and the endorsement of the EU. Both pipelines have been opposed
by Russia, and Gazprom is trying to peel off the support of at least Hungary by
offering an alternative service.
There can be no doubt that the energy resources of the Caspian Sea region can
offer Europe a viable alternative source of energy supply. However, the full
realization of the energy potential of the region could be impeded by several factors.
One issue that continues to raise questions regarding regional stability is the
unresolved legal status of the Caspian Sea. Despite a number of efforts, so far only
Azerbaijan, Kazakhstan, and Russia among the littoral states have reached agreement
on delineating ownership of the Sea’s resources or their rights of development. The
EU could offer its legal assistance to help resolve outstanding issues.
A second issue is the ability of the EU to work to ensure the long-term political
stability of the region. The conflict between Azerbaijan and Armenia over Nagorno-
Karabaugh leaves the BTC and the future SCP pipelines vulnerable to sabotage.
Internal political strife involving Georgia and its two breakaway regions also
threatens future pipelines through that country. Continued political uncertainty in
Ukraine and growing Iranian influence in the southern Caucasus could deter future
long-term investment by the private sector. However, the January 2007 entry of
Romania and Bulgaria into the European Union and the EU’s special relationship
with Turkey should help keep the Black Sea region settled.
A third issue involves the willingness of the EU to compete with Russia for
political and economic influence in the region and to prevent Gazprom from closing
off the Caspian market, or at least the Central Asian part of the region, to Europe and
its private sector. Russia’s higher priced gas exports to Europe depend on Gazprom’s
ability to control gas exports from Kazakhstan and Turkmenistan. This dependency
is expected to increase over the next 7-10 years until Russia’s huge gas fields in the
Barents Sea come on line.38 According to some, although Gazprom was unable to
prevent the BTC pipeline from being completed, Gazprom intends to continue to
press the countries around the Black and Caspian Sea regions to agree to gas supply
and transit arrangements that satisfy the company’s goals of channeling lower-cost
38 Keith Smith, Op. Cit.

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CRS-17
Central Asian gas to Russian customers and protecting its lucrative European
market.39 Gazprom has already locked-up much of Turkmenistan’s gas in a 25-year
contract and is pursuing a similar strategy toward Kazakhstan.
The final issue revolves around whether Europe is the optimal market for
Caspian oil and natural gas. Oil demand over the next 10 to 15 years in Europe is
expected to grow by little more than 1 million bl/d. Oil exports eastward, on the other
hand, could serve Asian markets, where demand for oil is expected to grow by
roughly 10 million bl/d over the next 15 years.40 In fact, China, which opened an oil
pipeline to Kazakhstan in 2005, sees Kazakhstan as a major source of oil for the long
term.
The Caspian region will continue to be an important source of energy
production for the foreseeable future, especially if the estimates of its reserves,
particularly its gas reserves, are accurate. Thus, the region can contribute to the
diversification of oil and gas supplies to Europe, which will add to Europe’s energy
security. Taking full advantage of this potential will require a strong commitment on
the part of the EU to encourage the private sector to take the financial risks associated
with securing a share of the Caspian energy market for Europe and to set forth an
external strategy that is fully prepared to address the dynamics of the entire region.
For some, “a credible energy [strategy] needs to demonstrate that the EU means
business in the Caspian/Black Sea regions. Brussels must include energy supply and
transit as high priorities... for the region.41
Middle East/North Africa. The EU’s desire to seek alternative sources of
energy in order to lessen Europe’s dependence on Russia confirms the need
expressed by many in Europe that relations with the Middle East and North Africa
require a stronger political and economic commitment.
The Persian Gulf countries (Bahrain, Iran, Iraq, Kuwait, Qatar, Saudi Arabia,
and the United Arab Emirates) hold approximately 715 billion barrels (bb) of proven
oil reserves, representing over half (57%) of the world’s oil reserves. The region
produces about 31% of the world’s oil. It is estimated that by 2020, the Persian Gulf
region will produce about 35 million barrels of oil per day.42 In addition, Libya is
estimated to hold 40bb and Algeria 12bb. In addition to its oil capacity, the Persian
Gulf region holds an estimated 2,400 trillion cubic feet (tcf) of natural gas reserves,
representing 45% of the world total gas. Algeria is estimated to hold (161tcf), and
Libya (52tcf).43
39 “Energy Supplies to Eurasia and Implications for U.S. Energy Security,” Zeyno Baran,
testimony before the Senate Foreign Relations Committee, September 2005.
40 CRS Report RS21190, Op. Cit.
41 “What Role for the Black Sea Region in the European Union’s Energy Strategy,” Eurasia
Dailey Monitor, March 3, 2006.
42 For additional information see “Persian Gulf Oil and Gas Exports Fact Sheet,” Energy
Information Administration, U.S. Department of Energy.
43 See Statistical Review of World Energy, British Petroleum (BP), June 2006.

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Europe already depends on the Middle East/North Africa region for close to
30% of its oil imports and approximately 15% of its piped gas. In 2005, Europe
imported approximately 3.1million b/day of oil from the region. The largest portion
of that oil comes from Saudi Arabia followed by Libya and Iran.44 Europe’s primary
supplier of natural gas has been Algeria, via two pipelines that enter Europe through
Italy and Spain. A smaller amount comes from Libya via pipelines to Italy. Two
additional gas pipelines from Algeria to Spain and Italy are under construction.
Perhaps the most important development for Europe in this region has been the
growing availability of liquified natural gas (LNG). Today, Europe accounts for
approximately 8% of the world’s total consumption of LNG. Spain and Italy are the
primary importers of LNG. Europe’s LNG infrastructure of terminals and re-
gasification facilities is relatively modern especially along the Mediterranean coast.
Italy is currently engaged in a partnership with British Gas to build a modern facility
in the port of Brindisi and has a plan for up to ten additional facilities. The principal
suppliers of LNG to Europe include Algeria, Egypt, Oman and Qatar. Algeria is the
world’s third largest exporter of LNG, with almost all of its gas (25b cubic meters)
going to Europe. Recently, the Algerian national oil company, Sonatrach, signed a
20-year LNG supply contract with the Spanish power company Endessa.45
LNG has also become a major factor in the development of gas exports from the
Persian Gulf. Although nations such as Qatar, Oman and the United Arab Emerites
have produced LNG for the Asian market, European energy companies have begun
to express more of an interest in purchasing LNG from the Gulf as well. With vast
amounts of gas reserves the Gulf states are positioned to meet a portion of Europe’s
future demand.
European relations with the states of the Persian Gulf and North Africa have
steadily improved over the years. EU relations with North Africa were formalized in
1995 with the creation of the Euro-Mediterranean Energy Partnership. The EU has
also created the EU-Gulf Cooperation Council (GCC) Dialogue with the states of the
Persian Gulf and has initiated a formal dialogue with the nations of OPEC. European
energy companies have also become more involved in the Middle East.
The potential for growth in Europe’s energy diversification strategy with respect
to the Middle East and North Africa is significant. However, European competition
with Asia and North America and long-term political instability throughout the
region will likely temper the degree to which Europe seeks to increase its reliance on
the region. Nevertheless, as with the Caspian region, if the EU is serious about
lowering its dependency on any one source, it must turn more and more to the Middle
East. Parenthetically, Europe’s growing interest in energy resources in North Africa
has not gone unnoticed by Russia and Gazprom. Just as in the Caspian region,
Russia appears to be bolstering its efforts to enter Europe’s energy plans. In March
2006, President Putin, along with Gazprom officials, traveled to Algeria to discuss
Russian participation in Algeria’s future oil and gas projects, including its LNG
export markets. It appears that because Russia intends to make Europe a major
44 “EU Energy Policy Data,” Op. Cit.
45 As reported by Lloyd’s List, May 25, 2006.

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market for LNG produced from its Shtockman gas field in the Barents Sea, Russia
wants to be in a position to influence Algeria’s future role as a major supplier of
energy to Europe.
Norway. Norway, a non-EU member state, is the second-largest exporter of
natural gas to the EU, behind Russia. Norway exported, via pipeline, approximately
2.0tcf of natural gas to the EU in 2004, representing 17% of European gas
consumption. Germany (25%), France (30%), and the United Kingdom (30%) are the
largest consumers of Norwegian gas exports.46
Norway had 73.6 trillion cubic feet (Tcf) of proven natural gas reserves as of
January 2005. The North Sea holds the majority of these reserves, but there are also
significant quantities in the Norwegian and Barents Seas. Norway is the eighth-
largest natural gas producer in the world, producing 2.59 Tcf in 2003.47 The United
States Geological Survey has estimated that almost 25% of the globe’s yet to be
discovered resources are located in the Arctic region. Norway’s recently opened
Snohvit gas field along with Russia’s field at Shtockman will make the Barents Sea
a new European energy region.
According to industry estimates, Norway had 8.5 billion barrels of proven oil
reserves as of January 2005, the largest in Western Europe. The bulk of Norway’s oil
production occurs in the North Sea, with smaller amounts in the Norwegian Sea. In
2005, Norway’s oil production averaged 2.95 million bl/d. As North Sea fields
continue to mature, Norwegian oil production will likely remain steady for several
more years and then begin to decline. There is some hope that new developments in
the Barents Sea will offset some of this decline. The largest single recipient of
Norway’s oil exports is the United Kingdom, which imports around 814,000 bl/d
from Norway, or 34% of Norway’s total exports. Other significant destinations
include the Netherlands and Germany.
Norway’s entry into the LNG export market opens a new opportunity for the EU
to work with its northern neighbor on energy security issues. Norway’s energy giant,
Statoil, plans to construct the first large-scale LNG export terminal in Europe, with
connections to the Snohvit project. Although the initial LNG production from the
Snohvit project has been committed to the United States, follow-on production and
future fields in the Barents Sea could be shipped to facilities in Europe. The EU has
recognized the growing importance of Norway in Europe’s energy security debate
and has expressed interest in “facilitating Norway’s efforts to develop resources in
the high north of Europe.”48 Individual European nations have also recognized
Norway’s potential future role in providing secure energy. Poland, along with the
Baltic states, has already begun discussing with industry the construction of an LNG
46 “The High North-Top of the Agenda,” Jonas Store, Minister of Foreign Affairs, Norway
in a speech at the Center for Strategic and International Studies, Washington, D.C., June
2006; “EU Energy Policy Data,” Op. Cit.
47 Energy Information Administration.
48 European Commission Green Paper, Op. Cit.

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terminal along the Polish coast to receive LNG from Norway for transport to other
parts of Europe.
External Strategy Conclusion. Establishing a diversified network of secure
energy suppliers has become one of the foremost challenges facing the nations of
Europe and its Union. In one sense, Europe is fortunate to have such large sources
of available energy within a relatively small geographical space. However, like other
countries, Europe faces the fact that for the foreseeable future, those energy
producing nations pose different levels of risk, ranging from outright political
instability to more subtle questions of political reliability and long term intentions.
The EU, through its Common Foreign and Security Policy (CFSP), can continue
to work on the political stability and security of Europe’s energy suppliers by offering
stronger foreign and trade relations. However, perspectives on energy security policy
differ among the 27 member states themselves and between the states and the
European Commission. Long-term bilateral energy agreements such as the Baltic
pipeline agreement between Russia and Germany, and LNG contracts signed between
Spain and France and Algeria, are examples of member states unilaterally addressing
their own energy supply security needs. These decisions may or may not take
broader Union security into account. But, bilateral agreements between member
states and Russia, Algeria, the Middle East or the Caspian producers could become
more commonplace unless the European Commission can effectively convince
member states that the continued uncoordinated practice of bilateral energy policies
may not bring long-term energy security to the Union as a whole, especially if the
member states gravitate to only one energy supplier.
One analysis of the European Union’s dilemma on forming a common energy
policy concluded: “ if member states revert to national approaches, including energy
related foreign policy making, this strategy may not only interfere with EU energy
policy, it could also effect broader EU foreign and security policy... this implies that
the EU has no alternative but to develop a coherent energy security policy...”49 For
many, the European Commission’s proposals that serious consideration be given to
a common European energy policy makes sense. Nonetheless, progress towards a
common external energy security strategy tied to the EU’s CFSP appears to require
far more coordination than has been demonstrated heretofore.
Challenge 2: Promoting Indigenous Energy Supply
Europe’s dependence on imported energy, especially gas, will continue to grow.
Commission estimates suggest that if nothing is done to address energy dependence,
Europe will import 65% of its energy requirements by 2030.50 A 2003 Oxford
Analytica paper prepared in 2003 reviewing the impact of the European
Commission’s drive to open Europe’s energy markets suggested that “liberalization
tends to favor lower capital cost commitments (as opposed to the longer-term
49 “Energy Supply Security and Geopolitics: A European Perspective,” Aad Correlje and
Coby van der Linde, Energy Policy, 34, 2006.
50 “AN Energy Policy for Europe,” Op. Cit.

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investments). The major beneficiary of liberalization has been natural gas...”51 The
report implies that because of its competitive price and the lower investment cost to
deliver gas as opposed to oil or renewable fuels, market forces would encourage
nations to switch to gas. The paper concludes that this “has serious implications for
energy security due to increased reliance on a fuel which is increasingly secured from
outside the EU”.52
Thus, while efforts to develop a strong and coherent external energy policy
toward energy producing and transit regions remain a top European priority, the EU
must look inward to determine how its dependence on imported energy can be
mitigated through the availability of indigenous energy supply, the efficient use of
energy and the development of alternative energy supplies, including a strategy for
renewable energy. Indeed, the Commission’s January 2007 call for a European
energy policy recommends ambitious targets for the development of cleaner and
renewable energy sources and increased energy efficiency over the coming decades.
Roughly 60% of power generation throughout the EU in 2005 was produced by
either nuclear energy or the burning of coal. The following chart illustrates the break
down of power generation by fuel.
Figure 2. EU Electricity Generation
EU Electricity Generation by Source -2005
Renewables
15%
Nuclear
31%
Natural Gas
19%
Oil
Coal
5%
30%
Source: IEA.
The mix of these different fuels as a source of electrical generation varies greatly
among the 27 member states. Each national government or national energy company
decides what mix of energy will actually be utilized. Those decisions are often based
on availability of a fuel or its price. In France, for instance, nuclear power accounts
for over 70% of all electrical generation, while in Poland and the Czech Republic
coal is the dominant fuel. Member state decisions on the mix of energy for power
generation will also be driven by Europe’s commitment to the environment and its
51 “European Union: Energy Market Poses Policy Challenges,” Oxford Analytica, August
2003.
52 Oxford Analytica, Op. Cit.

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obligations under the Kyoto Protocol. Under the 1997 Protocol, the EU is obligated
to reduce its carbon emissions by 8% from its 1990 levels by 2012.
Current EU President Germany has said that forging international agreement on
a post-2012 carbon emissions target should be a priority in 2007, and the
Commission’s January 2007 recommendations call for the EU to seek a 30%
reduction from 1990 levels by 2020 in its negotiations. Barring international
agreement, the Commission calls on member states to reduce emissions by 20% from
1990 levels by 2020. To the extent Europe intends to meet these targets, decisions
regarding the energy mix utilized by the member states will be important.
Nuclear. Nuclear power accounts for roughly one-third of Europe’s overall
electrical generation. There are approximately 175 nuclear reactors in operation in
Europe today. Some nations such as France, Finland, Sweden and the UK rely
heavily on nuclear power. Nuclear energy is considered clean energy and viewed by
many as posing little danger to the environment. Others oppose nuclear power on the
grounds that it is dangerous and creates a difficult waste disposal problem. Several
countries such as Germany and Spain have committed to phasing out all of their
nuclear reactors over the next several years and replacing those with gas powered
facilities, although a few of those countries are rethinking their decisions or are at
least looking at extending the timetable for the phase out. By contrast, other countries
such as the United Kingdom, Finland and Lithuania have decided to add new
reactors. Given the substantial costs of putting a nuclear reactor on line and the
controversial nature of nuclear waste, it is unlikely that Europe will see a resurgence
of new nuclear reactors in nations where nuclear power does not already play a role.
At best, those nations that already utilize nuclear power will either replace or upgrade
existing reactors.
One promising alternative for the future could be found in the International
Thermonuclear Experimental Reactor (ITER) program. The EU has joined the United
States and several other nations in an effort to produce electrical power from nuclear
fusion which unlike current nuclear power does not generate dangerous waste. The
first facility will be constructed in France but the first results of the program are not
expected for at least 15-20 years.
Coal. Just over one-third of the total electricity generated in Europe is coal
fired. Coal is plentiful in Europe with proven reserves of close to 40 billion tons.53
However, coal burning is a major source of carbon dioxide emissions. A European
Commission Directive put into force years ago could force many coal fired plants to
shut down unless they install clean burning technology. That technology, although
expensive, does exist and can capture 80-90% of the carbon (CO2) by -products of
burning coal. While several electricity producers in a few countries which currently
rely on coal for power generation, such as Spain (22%), Germany (52%), the UK
(35%) and the Czech Republic (62%), have indicated an interest in upgrading their
generation facilities with new clean coal technology, none of the European countries
has adopted this technology on a broad commercial basis.
53 Coal Market Outlook, European Commission, 2005.

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Coal is likely to remain a source of fuel for energy production for the
foreseeable future in those countries where it already plays a role. Germany, for
instance, has plans to build eight new coal burning facilities. But, for the long term,
the ability of member states to meet their commitments to lowering carbon
emissions, the potential for using renewable energy, the price of natural gas, and the
cost of installing clean coal burning technologies will likely dictate whether coal can
remain a viable alternative energy source for Europe.
Renewable Energy. Hydro, wind, solar and bio-mass energy currently
account for just under 7% of Europe’s total energy consumption and 15% of its
electricity generation. Although some see Europe as fairly energy efficient today, the
EU has set targets to reduce carbon emissions by mandating that 12% of total
European energy consumption be fueled by renewable energy sources by 2010 . The
EU has asked each member state to set its own target for the use of renewable energy
in order to help achieve the overall EU target. Some countries, like Austria (78%)
and Sweden (60%), have set ambitious targets, while others, such as the United
Kingdom (10%) and Ireland (4%), are less ambitious.54 The EU has also committed
to having biofuels account for 5.75% of all petroleum and diesel by 2010.
Nonetheless, noting that the renewable share of total energy consumed in the EU is
unlikely to exceed 10% by 2010, the European Commission has called on member
states to agree to a 20% reduction target by 2020 at the EU’s March 2007 summit.
Although EU-wide support for renewable energy is strong, individual member
states’ renewable energy portfolios vary. For instance, Austria and Latvia promote
hydro power, while the Czech Republic and Portugal have committed financial
support to large solar energy facilities. Germany, Sweden and the UK support major
wind farms along their coasts. Bio-mass and bio-fuel programs are becoming more
attractive. In December 2005, the European Commission adopted an “action plan”
designed to increase the use of energy from forestry, agriculture and waste materials.
Although bio-fuels are more expensive to produce, their use is increasing especially
in the transport sector. However, bio-mass and bio-fuel programs represent only a
fraction of electricity production in Europe and the future for these programs will
depend on cost of production and whether the EU or member states are willing to
subsidize their development on a large scale. In its January 2007 proposal, the
Commission proposes a 2007 EU legislative measure to increase investment in these
sectors.
With the encouragement and financial support of the European Commission,
each EU member state has committed itself to developing programs to support the
use of renewable energy. Long-term support for the increased use of these
alternatives, however, will depend on the future price of imported gas, whether that
price will make public or private investment in renewable energy more cost attractive
and whether the electricity produced from these sources can be efficiently and cost-
effectively integrated into Europe’s internal electricity market. These decisions will
depend on the EU’s willingness to increase its financial stake in the development of
renewable sources on a Europe-wide basis. However, it is unclear at this time
54 “Renewable Energy Targets for 2010,” International Energy Agency, World Energy
Outlook, 2004.

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whether the use of renewable energy will provide a significant alternative to the use
of oil, gas or coal for peak electrical generation or heating throughout Europe in the
foreseeable future.
Challenge 3: Providing Energy Security through
An Internal Energy Market
Developing stable and reliable external energy partnerships and encouraging the
development and use of alternative energy supplies, including safe nuclear power,
clean coal and renewable energy, will likely help meet Europe’s energy security
goals. A third challenge for the EU is to develop a comprehensive and efficient
Europe-wide internal market for gas and electricity transmission and distribution
regardless of the source of the energy supply.
To address this particular challenge the European Commission considers the
completion of the internal energy market a major priority of the proposed EU energy
policy.55 The concept of a ‘single market,’ which would remove barriers to trade and
allow the free movement of capital, services and labor throughout the EU, first
emerged in 1985 under then Commission President Jacques Delors. The debate over
extending that concept to a “liberalized” internal energy market debuted in 1989 and
culminated in two ‘Directives’ issued by the Commission in 1996 and 1998
respectively and updated in 2003.56 The goal of the Directives was a fully open and
competitive energy market.
The Directives had four objectives: (1) to implement the single market for
energy by promoting competition and efficiency in the production and delivery of
electricity and gas; (2) to lower prices and give all EU customers the opportunity to
choose their energy supplier by 2007; (3) to help improve the environment; and (4)
to enhance energy security. To accomplish these, the EU and its member states will
have to agree on a clear set of guidelines as to who owns, controls, regulates and has
access to the electrical energy grids, pipelines and emergency energy storage
facilities.
Since implementation of the gas and electric Directives, many EU member
states have opened their markets at varying speeds and have demonstrated a mixed
record of achievement. Part of the reason for the slow pace of market liberalization
in some nations has been due to an unenthusiastic commitment from many
governments and their energy industries. Most member states regard energy policy
as too important to their own economic development and thus have to proceed at a
pace each state is comfortable with. In Europe, nationalized industries have, for the
most part, provided stability in the energy market. Because of their dominant
positions, they have been viewed as essential industries by some of their respective
governments. The EU’s imposition of the Energy Directives threatened to change the
55 “Green Paper, A European Strategy for Sustainable, Competitive and Secure Energy,”
European Commission, Brussels, March 8, 2006; “An Energy Policy for Europe,” Op. Cit.
56 See Directives 2003/54/EC and 2003/55/EC of the European Parliament and Council
2003, European Commission website [http://www.eurunion.org].

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CRS-25
secure position many of these industries had enjoyed. In reaction, some national
governments have taken measures to try to protect their industries, even while
subscribing to the theory of open market competition.57
This problem was highlighted in November 2005 when Energy Commissioner
Piebalgs stated that “cross-border competition is not sufficiently developed... [due
to] the failure of member states to implement the Directives on time or with
sufficient determination.”58
Energy Interconnection. As a liberalized European energy market
progresses, the issue of energy security for EU member states will likely turn to the
internal market’s ability to deliver energy supplies to Europe’s citizens through the
interconnection of pipelines and electricity grids and to provide infrastructure
security and emergency supply.
The EU’s energy security strategy continues to focus on the need for increased
gas and electricity interconnection between member states. In 2005, only about 10%
of the currently installed electrical generation capacity of Europe could be delivered
across national borders. The European power transmission grid is divided into seven
regional “pools” which, according to the Commission, are only weakly connected.
Cross-border energy exchanges have increased recently. For example, in July 2006,
the French electricity sector purchased additional power from Germany to offset the
demand in France brought on by a heat wave. Although there are examples of the
system working, especially in regions such as the Nordic pool, many contend that
Europe’s recent experiences with a wave of blackouts were caused by weak links in
Europe’s power grids, poor coordination between national and regional power
markets, insufficient generation capacity and the lack of electricity transmission
capacity that limits the exchange of power among member states. Interconnections
between grids increase grid and distribution reliability. As such, a priority for the EU
will continue to be to encourage investors to support the construction of more
commercially competitive interconnections in order to create an integrated electricity
market with cross-border electricity exchange. The EU will also promote greater
interconnection between Europe’s existing gas, oil, and new LNG pipeline systems.
With Bulgaria and Romania having entered the Union in January 2007 and other
nations in the Balkans region anticipating membership, the Commission has seen a
need to extend the concept of a single electricity and gas market to Southeast Europe.
A treaty establishing the Energy Community was signed in October 2005. This
Treaty aims to extend the EU internal energy market to the South East Europe
region. The main goals are to create a stable regulatory market framework capable
of attracting investment; to improve the environmental situation and to develop
electricity and gas market competition on a broader geographical scale. It is also
intended to help stabilize a region through which new sources of energy are likely to
transit.
57 For additional information see CRS Report RS22468, Europe: Rising Economic
Nationalism?, by Raymond J. Ahearn.
58 “Energy: Member States Must Do More,” Press statement of Commissioner Piebalgs,
Nov. 15, 2005.

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Storage. Another important dimension in the strategy to provide energy
security will be Europe’s ability to react to the loss of energy supply either through
a short-term disruption caused, for instance, by a technical failure, or an act of
terrorism, or to a longer-term disruption caused by an economic or political event in
either a producer or transit nation. In either case, the EU’s energy security strategy
could focus on the adequacy of energy storage capacity and the ability to share that
stored energy in times of emergency. Europe has a strategic petroleum reserve, which
was activated in anticipation of possible oil shortages when Hurricane Katrina hit the
United States. On the other hand, there is no such reserve for natural gas. There are
over 100 gas storage facilities identified throughout Europe and while some EU
member states are serious about maintaining strategic storage for gas, others maintain
partially filled reserves depending on projected seasonal demand. The EU is working
to find a way to oblige owners of storage facilities to meet a minimum level of
emergency supply.
A major issue with the storage requirement is access. Many nations consider
energy storage facilities as security assets and are reluctant to open them to other
member states in times of emergency. The Commission believes this issue of
‘solidarity’ is critical to the overall energy security of all member states and has
insisted that available supplies be shared within the Union when needed. Any future
EU-led energy security strategy would have to include a minimum level of oil and
gas stocks to meet any type of disruption, an agreed upon plan for member state
contributions to the storage requirements and an emergency withdrawal and
distribution scheme.
TEN-E Program. Stronger linkage of power transmission from a variety of
energy sources would represent a significant advancement of Europe’s energy
security. The mechanism the EU uses to promote gas and electricity interconnection
between EU member states is known as the Trans-European Energy Network (Ten-
E). The Ten-E framework accomplishes two objectives. First, it promotes increased
coordination and exchange of information between member states on energy supply
and demand. Second, it identifies and supports projects that will boost cross-border
gas and electricity connections. Currently, 42 projects with cross-border transmission
goals have been proposed for funding through the Ten-E budget and other sources
such as the European Investment Bank. The EU expects to spend around 25 million
euro on projects such as a France-Belgium, a Poland-Lithuania and Poland-Germany
electricity connection. They also support an undersea cable connecting the UK with
the Netherlands and an Italy-Slovenia connection. Ten-E has also helped promote the
North European Pipeline (Norway-Denmark-Sweden) and the Medgas pipeline
(Algeria-Spain-France) as priority projects.
As stated in the recent Commission proposals, while progress has been made,
the internal European market for electricity and gas is not complete. Despite the
continued apprehensions among some member states and the numerous obstacles yet
to be overcome, the Commission contends that by increasing competition, a more
open energy market will diversify supply, thereby mitigating the effects of individual
dependencies and bolstering EU-wide energy security. Indeed, analysts contend that
open markets and competition can guarantee a certain level of security if competitive
forces are successful in providing energy from a variety of sources. In a 2004 paper,
Giacomo Luciani, referring to the European gas market, suggests that as long as only

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two sources of energy (Russia and Algeria) continue to dominate gas imports to
Europe, it is unlikely that real competition can exist, and that increasing dependence
on established suppliers is incompatible with competition.59 Nevertheless, the idea
of an internal market has been around for a long time and the Commission continues
to advocate its completion as a policy priority.
Assessment
Most EU member states have long held that energy policy should remain the
primary responsibility of the states themselves. However, Europe’s growing reliance
on imported, especially Russian, energy supplies coupled with recent Russian
manipulation of energy flows to Ukraine, Moldova and Belarus have forced
European countries not only to re-think energy as an element of individual national
security but as an element of the EU’s Common Foreign and Security Policy (CFSP).
As such, more European member states appear to support the Commission’s view
that enhanced energy policy cooperation is sensible and can be achieved without
surrendering total control to EU institutions. In 2006, the EU member states agreed
in principle to pursue options toward creating a common energy policy for Europe
and endorsed the principles of the Commission’s Green Paper. Although member
states are not due to entertain the Commission’s more specific January 2007
recommendations until March 2007, events surrounding Russia’s recent oil dispute
with Belarus and a growing European consensus regarding the need to reduce carbon
emissions indicate that European leaders may endorse further integration.
Some skeptics doubt the ability of EU member states to ultimately come to
agreement on a host of energy-related issues. Open and competitive energy markets
are desired, but protection of national energy industries still prevails in several key
nations, including Germany, France and Spain. Some countries that have reluctantly
agreed to open their energy sectors to more competition appear unenthusiastic about
turning regulatory decisions over to Commission bureaucrats in Brussels. Finally,
there is still disagreement on how to deal with Russia and on an appropriate
diversification strategy.
In its January 2007 proposals for a European energy policy, the European
Commission recommends an array of actions to increase energy security,
sustainability, and competition in Europe’s energy sector. Despite likely objections
to individual aspects of the proposals, particularly with regard to Europe’s internal
energy market, the use of nuclear energy, and relations with Russia, it appears that
energy security will continue to become more of a shared responsibility. In terms of
increasing competition in the internal market, experts predict that member states will
look to endorse a compromise proposal allowing the continued operation of national
energy industries but subjecting them to oversight from an independent regulatory
body that would also oversee the operation of electricity and gas flows, the pricing
of energy, and the development and operation of LNG facilities.
59 Giacomo Luciani, “Security of Supply for Natural Gas Markets,” Indes Working Paper,
Center for European Policy Studies, March 2004.

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The EU appears likely to increase its role in coordinating and financing the
development of renewable energy and the storage and use of emergency energy
supplies. Although member states and their energy industries appear likely to retain
absolute authority in determining which energy mix makes the most sense for
individual countries, the EU stands to play a larger role in determining power grid
interconnection arrangements and energy infrastructure investment levels. Finally,
most of the decisions regarding supply sources and contract terms will likely remain
the competence of the member states and their energy sectors.
Energy policy is also becoming an increasingly important element of the EU’s
Common Foreign and Security Policy. Enhanced energy dialogues with Russia and
other energy producing and transit regions are being pursued in a more open and
coordinated manner between the Office of the High Representative and the individual
member states, and the Commission has outlined specific foreign policy goals with
regards to multilateral treaties and an expansion of the EU’s Neighborhood Policy.
Nonetheless, foreign policy continues, first and foremost, to be determined by
national governments. The outcome of EU efforts to reach consensus on a renewed
partnership agreement with Russia during the first half of 2007 should provide a
useful indication of the prospects for future energy and foreign policy integration.
Energy Security In The Transatlantic Context
Over the past 55 years, relations between the United States and the EU have
steadily broadened and deepened so that today, they remain inextricably linked.
Nowhere has transatlantic integration manifested itself more than in the economic
relationship between the United States and the European Union. This economic
partnership has been described by many as the single most important influence on
worldwide economic growth, prosperity and trade.60 Within the deepening
transatlantic economic relationship, energy security policy is becoming a higher
priority for both the United States and the European Union. Together, the United
States and the European Union represent the world’s largest energy market. The
United States and the EU produce approximately 23% of the world’s energy and
combine for almost 40% of the world consumption of energy. The United States’
share of global oil consumption is approximately 43%, while the EU consumes 18%.
The United States consumes 23% of the world’s production of natural gas. The EU
consumes close to 19%. Combined, the United States and the EU represent over 40%
of the electricity consumed world-wide and produce almost 40% of the global CO2
emissions.61
This is a critical period for the transatlantic partnership. The long-term
implications of the energy debates taking place within the United States and Europe
are so similar in scope that the United States and the European Union have found
60 For a more detailed explanation of the economic relationship see “Deep Integration: How
Transatlantic Markets are Leading Globalization,” Hamilton and Quinlan, Johns Hopkins
University School of Advanced International Studies, 2004.
61 See BP Statistical Review, Op. Cit.

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common cause to join together in a cooperative transatlantic energy dialogue, not
only to promote competitive markets and market-based policies of producing nations,
but more importantly, to develop common strategies to ensure mutual supply
security.
At the June 2006 U.S.-EU Summit in Vienna, Austria, the United States and the
EU agreed to cooperate to improve energy security by “enhancing the dialogue with
the main transit, producer and consumer countries and by promoting diversification
of energy sources and supply routes worldwide, notably in the Caspian sea region,
Middle East, and continental Africa...”62 Additionally, during the 109th Congress,
Senator Lugar introduced the Energy Diplomacy and Security Act (S. 2435), calling
for enhanced global energy security cooperation through the development of
international energy partnerships.
Members of the Democratic Leadership in the 110th Congress have signaled
their intention to introduce legislation aimed at increasing energy independence and
reducing carbon emissions. In the face of enhanced congressional interest, European
Commission calls for new international emissions targets, and increased coordination
among energy producing nations, transatlantic collaboration in these areas stands to
grow.
The United States-EU energy partnership is currently pursued at the multilateral
level through organizations such as the International Energy Agency, the G-8, and the
Bonn Renewables 2004 Action Plan. At the bilateral level, the United States has 35
energy agreements with 11 nations of Europe and seven formal agreements with the
European Commission. Most of these agreements address nuclear and renewable
energy or energy efficiency programs, such as the Energy Star agreement for the
promotion of energy efficient office equipment. The United States and the EU are
also engaged in a formal Bio-Fuels Dialogue and a Dialogue on Climate Change,
Clean Energy and Sustainable Development.
At the same time, of particular concern to the United States is a potential long-
term threat to transatlantic relations arising from European dependence on Russian
energy supplies and Gazprom’s growing influence in large segments of Europe’s
energy infrastructure. Mindful of the EU’s rising dependence on Russian energy, the
United States and the EU have joined together to better understand at what point
reliance on Russia could threaten Europe’s overall energy security and weaken the
EU’s ability to deal with Russia on non-energy related policy issues. In particular,
some U.S. analysts have expressed concern regarding a perceived EU reluctance to
take concerted action to prevent Moscow from further exploiting its energy wealth
as a policy tool for intimidation or coercion. Critics of EU policy toward Russia
contend that the EU should strengthen its resolve in requiring Russia to ratify the
Energy Charter Treaty and to accept standard open market business practices,
competition and foreign investment in its energy sector. Observers on both sides of
62 2006 Vienna Summit Declaration, issued by the United States government and the
European Union, June 21, 2006. For additional information see the websites of the White
House and European Commission; Conclusions of the US-EU Summit Declaration, June
21, 2006.

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the Atlantic expect these issues to play a key role in negotiations on an EU-Russia
partnership agreement during the first half of 2007.
Finally, transatlantic cooperation on energy security is not limited to efforts to
promote energy efficiency, the use of alternative fuels or the securing of reliable
supplies of energy from a diversified array of energy producers.
Discussion of supply security also includes issues surrounding energy crisis
management and infrastructure protection. In this regard, some have called for
NATO involvement in energy security issues, including in securing supply sources,
distribution routes, and storage facilities. In 2006, Poland circulated a proposal for
a so-called “Energy NATO,” calling on an increased role for NATO in guaranteeing
the protection of member state energy supplies. In a similar vein, in an address at
NATO’s November 2006 Summit in Riga, Latvia, Senator Lugar proposed the
extension of NATO’s collective defense clause, Article 5, to cases where a member
state’s energy security is threatened. Other EU member states, notably Germany and
France, have greeted such proposals skeptically, preferring to advocate an enhanced
EU role in energy security matters.
However, still others assert that NATO’s role in energy security could be
complementary to the EU’s effort to strengthen market forces and interdependence
in the international energy sector by offering assistance for the protection of pipelines
or sea lanes during times of political unrest or conflict. Partnership for Peace
countries, such as Kazakhstan and Turkmenistan, which are important energy
producers are seeking ways to associate themselves more closely with NATO, in part
to diminish Russian influence and in part to develop reliable partners in an unstable
region. For some, NATO has the ability to help secure the energy infrastructure of
such countries.63
63 For additional information see CRS Report RS22409, NATO and Energy Security, by Paul
Gallis.

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