EU squares up to tough choices without Russian gas

Mon May 5, 2014 11:49am EDT

* Talks focus on new sources, greater efficiency

* Analysts urge need to separate politics and energy

* National interests dilute stance against Russia

By Barbara Lewis

BRUSSELS, May 5 (Reuters) - European Union officials hunkered down behind closed doors on Monday to confront the hard choices to be made for the EU to wean itself off Russian gas, even considering more use of polluting coal.

Analysts said the debate could be counter-productive as it was likely to stoke divisions over energy policy within the 28-nation bloc while doing nothing to calm tensions with Russia over Ukraine.

The talks involving European Energy Commissioner Guenther Oettinger and technical experts from member states took place after a weekend of violence killed dozens in Ukraine, a major transit route for Russian gas into the EU.

A copy of the programme for Monday's three-hour talks on energy security seen by Reuters listed debate on options such as increased use shale gas, better storage and a drive to reduce demand.

One of the technical experts attending the meeting said on condition of anonymity that discussion had focused on the need for other fuels, even coal, which is far more polluting than gas, and improved energy efficiency "as part of a bundle of measures".

The talks are part of a series to develop ideas for an EU summit next month after all 28 EU member states in March agreed on the need to improve energy security and asked the European Commission, the EU executive, to draw up an in-depth plan on the alternatives to Russian supplies.

More coal burning would run counter to the EU's policy of reducing carbon emissions as part of the fight against climate change.

Member states, with powerful industry interests, have confused the issue by pursuing their own agendas and in some cases, strengthening Russia's hand and effectively siding against Ukraine.

Austrian energy firm OMV agreed last week with Russia's state-controlled Gazprom that Russia's giant South Stream pipeline would be routed to the Baumgarten gas hub in Austria, outmanoeuvring Italy which had wanted it to end there.

The pipeline would ship gas directly to Europe, making Ukraine all but irrelevant. The Commission has said it flouts EU law and has frozen talks on how to make it comply.

While some EU interests work bilaterally with Russia, others have been trying to toughen EU unity.

Poland, which borders on Ukraine, has put forward a plan for EU-wide cooperation over gas-buying to try to counter Russia's divide and rule policy.

But a source who attended Monday's talks said Oettinger had distanced himself from the Polish plan.

BOUND TOGETHER

Because of the deep mutual dependency, at a political level, EU governments are loath to place sanctions on Russia's energy sector and analysts say Europe needs to separate energy from the debate altogether if it wants to solve the crisis over Ukraine.

"Making this about energy is a fundamentally wrong choice in my view, because Europe will bear the costs and the outcomes of this trajectory are highly uncertain," said Tim Boersma, a fellow in the Energy Security Initiative at the Brookings Institution, a Washington thinktank.

Russia provides around a third of EU gas imports, roughly half of which is piped via Ukraine. On average, Russia gets $5 billion per month in revenue from gas exports to the EU.

EU dependency is expected to increase rather than shrink as its domestic production dwindles.

For its part Russia has also been taking steps to find new markets, as well as developing routes that bypass Ukraine.

It says negotiations on a supply contact with China are in their final stages and could be signed this month.

But for both sides, Russia and the European Union, doing without each other is a distant and costly prospect.

Russian President Vladimir Putin has warned Russia could cut off supplies to Ukraine unless it starts to pay off a gas debt, which Gazprom says stands at $3.5 billion.

At the same time, a series of three-way talks bringing together Russia, Ukraine and the European Union are taking place on energy security. (Editing by William Hardy)

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