EU stays on alert over energy security

Rows with Bulgaria and Georgia prompt EU to consider diversifying energy sources, writes Daniel McLaughlin in Budapest.

Russia and Bulgaria called a truce yesterday in their fight over gas prices, as nervous European buyers of Russian energy reviewed their long-term fuel options. Bulgarian officials said Russia's state-controlled energy giant Gazprom had agreed not to raise the cost of gas to the Black Sea nation in the immediate future.

They did not rule out an increase before the end of the year, however, raising the spectre of a dispute similar to that which saw Gazprom turn off supplies to Ukraine last month, a move that caused deliveries to fall in Italy and central European states that receive much of their gas from Russia through pipelines that cross Ukraine.

Unease caused by that disruption was exacerbated last week, when Georgian officials blamed Russian foul play for explosions that damaged pipelines and left the nation without gas for several days in the middle of a bitterly cold winter. While Georgia and Ukraine accuse the Kremlin of using energy supplies as a weapon to punish states that defy it, other ex-Soviet allies of Moscow claim to be actively trying to reduce their dependence on Russian fuel.

Poland, the largest of 10 countries to join the EU in 2004, used the World Economic Forum at Davos last week to lobby for a new stance towards Russian energy.

"I will ask my partners to consider a European energy pact modelled on that of the musketeers: one for all, and all for one," said prime minister Kazimierz Marcinkiewicz. The unreliability of Russian supplies should prompt the EU to diversify its energy sources, build fuel reserves and increase energy exchange between members, he said. "We can no longer trust Russia alone," Mr Marcinkiewicz declared at Davos.

"The gas war between Russia and Ukraine, and Gazprom's failings in recent days, have brought a stark spotlight to bear on a problem that we have raised for a long time."

Also at Davos, EU monetary affairs commissioner Joaquin Almunia urged the G8 nations to discuss energy security next month, while US deputy treasury secretary Robert Kimmitt called on Russia to abide by the "accepted rules of the marketplace".

Those comments came as the leaders of Croatia and Hungary underlined their commitment to jointly boosting energy security and diversity by building a new terminal for liquefied natural gas (LNG) deliveries on the Adriatic Sea.

The facility would receive LNG from north and central Africa and southeast Asia, and feed a new pipeline running to western Europe via a network of storage facilities across the continent. Hungary's economic minister Janos Koka estimated the cost of the terminal and pipeline at some €4 billion, and hoped the EU would foot the bill.

"We need not just to build natural gas storage facilities in each country, but to tie these capacities together," he said at a meeting of energy officials from eight central European countries in Budapest last week.

"Without interconnected storage systems, there can be no regional or European Union-wide solidarity." Mr Koka also insisted that the so-called Nabucco project - for a 3,300-kilometre pipeline taking natural gas from Iran and Azerbaijan through Turkey, Romania, Bulgaria and Hungary to Austria - was "on the table" and could be completed in five years.

"For decades, we always had access to cheap and plentiful natural gas, so we never invested enough money in improving energy efficiency," he said, referring to the Eastern Bloc's dependence on Russian fuel during the Soviet era. Bulgaria, which is aiming to join the EU with Romania next year, also has high hopes for the Nabucco project, despite calling a halt to hostilities with Gazprom.

Far from being cowed by European complaints about its tactics, however, the Russian behemoth has substantial plans of its own.

Gazprom confirmed yesterday that it was interested in buying Centric, the UK's largest gas distributor, following recent comments from a top Gazprom official that the firm would like a share of around 20 per cent in the UK market, the largest in western Europe.

Also yesterday, Gazprom chief executive Alexei Miller said after talks with Greek government ministers that the company might work with Athens on energy projects that would see Greece become a significant consumer and transit state for Russian natural gas.

He also said they had discussed Gazprom's possible involvement in a planned 285-kilometre, €522 million pipeline to carry Russian oil from Bulgaria's Black Sea port of Burgas to the Greek port of Alexandroupolis, near the Turkish border.

The privately funded trans-Balkan oil pipeline, which would bypass Turkey's busy Bosphorus strait, is scheduled for completion by the end of the decade.