EU MEMBERS SQUABBLING OVER SECURITY

People who less than 10 years ago claimed climate change was a hoax now argue, thanks largely to Nobel laureate Al Gore, that it is overhyped -- but they can only claim that because Gore stood up to the cynics a long time ago and the world began taking charge of the problem.

What has not changed is the call for energy security. Energy security in North America means getting off foreign oil dependence. In Europe, it means establishing freedom from control by Russia’s Gazprom.

The fight over unbundling is really all about how the EU can best fend off Russia’s growing leverage. But because the European governing body’s proposal would split private companies and not state-owned companies, the fight looks and sounds a lot like a defense of and attack on private enterprise in the energy business.

Driven by market necessity, E.ON Ruhrgas has diversified into LNG and built the Nord Stream Baltic Sea underwater pipeline to unload Russia’s Ukraine pipeline leverage. On the other hand, investment in energy companies has increased in European countries (Britain, the Netherlands and Spain) that have unbundled.

So which energy security strategy will EU leaders choose? And will it protect them from the Bear?

Germans lash out at EU’s energy plans
Judy Dempsey, October 9, 2007 (International Herald Tribune)

WHO
Burckhard Bergmann, CEO, German energy giant E.ON Ruhrgas; European Commission, the executive branch of the European Union (Neelie Kroes, the EU competition commissioner); German Chancellor Angela Merkel; Jens Baganz, Merkel energy representative; Stefan Judisch, CEO, German energy giant RWE Gas Midstream

Look's like E.ON Ruhrgas has lots of competition. But the big companies appear to have carved out their own territories on the continent and the EC proposal might create some upheaval. (click to enlarge)

WHAT
Bergmann spoke out against the European Commission’s plan to “unbundle” European energy giants. Commissioner Kroes believes separating energy producers from provider networks will increase competition and drive prices down. Bergmann and representatives of other utility conglomerates with the power of vertical integration that provides energy from the raw material to the home service think it will only weaken those corporate entities in the struggle to counterbalance Russia’s control of power markets, especially natural gas supplies.

WHEN
- The European Commission, the executive branch of the European Union, made recommendations for unbundling in September.
- Its concern arises out of that moment in January 2006 when Russia’s Gazprom cut off natural gas supplies to Ukraine

WHERE
- The main opponents of unbundling are French and German corporate energy giants.
- Bergmann’s attack on European Autumn Gas Conference, Dusseldorf, Germany.

WHY
- 60% of Russian oil exports go to the EU, ¼ of EU oil. 50% of Russian natural gas goes to the EU, ¼ of EU supply.
- The EC’s unbundling plan would separate energy producer/suppliers from the utility networks they own as well as supply, either by selling off part of the company or by creating separate business entities.
- An alternative would be for the EU to create a series of Independent System Operators (ISOs) for their grids, where the ISO is responsible for the grid regardless of ownership.
Chancellor Merkel has strongly opposed unbundling and supports Bergmann’s doubts about the move increasing competition and lowering rates.
- Baganz, Merkel’s energy representative, has close ties to the German energy conglomerates which might affect his perspective on unbundling.
- Stefan Judisch, RWE Gas Midstream CEO, also complained that unbundling results from the EC’s failure to understand markets.

Lots of grid to fight over. (click to enlarge)

QUOTES
- Bergmann: “[There is] no empirical evidence that unbundling would lead to lower network charges or that it enhances investment cross-border competition…The European Commission is completely inconsistent. It says it wants to introduce unbundling and reduce regulation. But what it is doing is unbundling and increasing regulation."
- Bergmann: “[ISOs] would deprive the companies of all ownership rights. They are not justified."
- Baganz, German energy official: "[The German government is]not convinced that the commission's focus on unbundling paves the way for greater competition…what would happen to investments[?]"