Energy security: challenges and priorities in the Mediterranean (Part 1)

This analysis, made up of three parts, tries to scrutinize energy security in the Mediterranean dimension. It is examine by adopting two different models which can be simplified in markets and geopolitics in order to stress both the importance of markets and institutions, and the focus on the actors, long-term bilateral contracts and political concessions.

Passing through the needs of the two shores of the Mediterranean, that is, the significance of transits towards the north and the increase of energy consumption to sustain the development in the south, this analysis tries to assess the prospects of the Euro-Mediterranean energy cooperation. In doing so, it focuses on the EU’s relations with the fossil fuel exporting Mediterranean countries, especially Algeria. This contribution argues that Euro-Mediterranean energy cooperation will be potentially successful in setting up a sustainable energy security model if it takes into account global trends like climate change and diversification of supplies and if Mediterranean actors would accept to bear the burden of that sustainability.

What is energy security?

Formally, energy is the capacity of a physical system to perform work. Therefore, energy plays a crucial role for societies as it determines the limits of what they can carry out.

Energy security has been outlined in various ways. On the whole, it entails the uninterrupted availability of energy sources at an affordable price, according to the definition of the International Energy Agency (IEA).

Clearly, uninterrupted availability means that energy supplies are reliable and big enough to uphold the activities of a societal, political and economic entity, that is, a state or a region.

During the last fifteen years, energy security became a very central issue both for importing and exporting countries. This attention derives partly from high oil prices and fears of a scramble for supplies due to the increasing hunger for energy of new economic powers.

After all, energy security affects every aspects of human life, even food security. Indeed, progress, industrialization and the evolution of economy turned agriculture, the first energy source for humans, into an energy sink. Nowadays solar energy is not the sole kind of energy used in that field. A bulk of energy goes to fertilizer production and a big share of world population relies on this fertilizing system to live on. Natural gas prices affect fertilizer prices, because natural gas is the raw material for industrial hydrogen production. All nitrogen fertilizers are made from ammonia which is produced by natural gas.  As a result, natural gas prices have a strong influence on food prices. Irrigation is also important in food security. In waterless Mediterranean region, different economic sectors struggle for scarce water resources. Energy is needed in case of turning on desalinization plants and in order to manage irrigation schemes.

Moreover, a series of worrying events have recently threatened importing and net importing countries’ energy security, such as the Russian-Ukrainian crises, entailing natural gas disputes and the possible consequences of the current unstable and changeable situation in Ukraine.

The building up of a network made up of reliable exporting countries is the main way to satisfy the energy demand given that, according to several scholars and importers’ policies, the core of the energy security is diversification. Nevertheless, a wider approach is necessary in order to take into account changes in global energy market, supply chain vulnerabilities and the management of dependence through profitable long-term investments.

On the other hand, energy-exporting countries focus on keeping the demand for their exports, which after all results in the lion’s share of their government revenues (Yergin, 2006).

Leaving apart the demand contraction in the years after the 2008 crisis, during the last decades world’s demand for oil increased, owing to the outstanding economic growth in countries like China and India.

The current energy security system was created in order to guarantee coordination among the industrialized countries in the event of a disruption in supply, in the aftermath of the 1973 Arab oil embargo.

Ultimately, four principles are useful to maintain energy security: diversification through the multiplication of one’s supply sources in order to make less severe the shock in case of a disruption in supply from a source. Diversification backs up the second principle, the resilience, that is to say, a “security margin” in the energy supply system that provide a buffer against shocks and facilitates recovery after disruption (Yergin, 2006). The stability of the market is the third principle while the fourth one refers to the relevance of the information. On an international level, the IEA has led the way in improving the flow of information about world markets and energy prospects.

Energy Security in the Mediterranean

In the context of the Mediterranean basin, two main aspects affect energy security. Firstly, the significance of the transits towards the European Union, a net importer of natural gas and oil. Secondly, the provision of sufficient energy services in MENA countries of the eastern and southern Mediterranean rim, where higher per capita energy consumption is necessary to improve and stabilize the economy and the political scenario. These two issues are inevitably interrelated because increasing stability in the Mediterranean means that the EU can better protect the energy flows through the region.

There can be easily noticed that there is a strong relationship between highly developed countries, wealth, and proportionally-high rate of energy consumption. Socio-economic data prove considerable disparities between the northern and the southern rim of the Mediterranean, in line with energy consumption indicators. For example, for Algeria, a primary energy consumption of 46.6 million tonnes of oil equivalent per year (BP-Statistical Review of World Energy, 2014) and a population of 37.9 million (Office National des Statistiques, Population et Démographie, 2013) add up to 1.23 tonnes of oil equivalent per capita. By contrast, France consumed in 2013 about 248.4 million tonnes of oil equivalent distributed among 63.9 million people (INSEE-“Indicateurs démographiques annuels et mensuels – Population au début de la période”, 2013). Therefore, a per capita consumption of 3.9 tonnes of oil equivalent. These numbers are reflected in GDP per capita data. In 2013, France’s GDP per capita (PPP) is about $ 35,700 while Algeria’s one is about $ 7,500.

These data are useful to understand the importance of energy in the southern and eastern Mediterranean countries which need ever more energy to increase their level of wealth. Furthermore, the economies of the MENA Mediterranean rim are at a different point compared to those of the Northern countries which have shifted their economic equilibrium towards the service sector. Many MENA countries are trying to follow the industrialization economic model. These are the reasons why energy demand is expected to boost a lot more in the non-EU Mediterranean countries which have been also affected by a steady population growth in the last decades. In this sense, it will be critical for those countries to guarantee energy supplies on the one hand and at the same time to control energy demand to uphold further development.

The Southern Mediterranean rim is made up of several net fossil fuel exporting countries such as Algeria and Libya.

Hydrocarbons have long been the backbone of Algeria’s economy, accounting for roughly 60% of budget revenues, 30% of GDP, and over 95% of export earnings. Algeria has the 10th-largest reserves of natural gas in the world and is the sixth-largest gas exporter. It ranks 16th in oil reserves. Energy sector has also structured Libya’s economy , which generates about 95% of export earnings, 80% of GDP, and 99% of government income. Substantial revenue from the energy sector coupled with a small population give Libya one of the highest per capita GDPs in Africa (Central Intelligence Agency, 2014).

Nevertheless, several Southern and Eastern Mediterranean countries do not produce fossil fuels, so they depend on energy imports. “Energy importing countries in the Maghreb only receive 1.4% of the exports of hydrocarbons from their neighbouring producers, Algeria and Libya. They obtain their supply from other areas, with the high transportation costs that this involves” (Joffé et al., 2009).

In the Mashreq, Jordan imports a huge quantity of its energy needs, depending mainly on Egypt which also delivers natural gas to Israel. These two net importing countries have coped with the hard situation in Cairo during the “Egyptian Arab spring”. Attacks on Egyptian pipeline halted natural gas exports, bringing about an expensive damage for Jordanian economy[1].

For the European Union, the Mediterranean region is extremely important with regards to energy security. Germany, France, Spain and Italy were among the world’s top ten oil importers in 2012, according to the U.S. Energy Information Administration’s data. Furthermore, according to the Commission of the European Communities’ An Energy Policy For Europe, Europe is becoming increasingly dependent on imported hydrocarbons. With “business as usual” the EU’s energy import dependence will jump from 50% of total EU energy consumption today to 65% in 2030. Reliance on imports of gas is expected to increase from 57% to 84% by 2030, of oil from 82% to 93%. Furthermore, EU sense of energy weakness was aggravated in the last years by the aggressive actions adopted by its most important gas supplier, Russia, which decided in 2006,2007, 2009[2] to cut off gas supplies on account of pricing and transit disputes with Belarus and Ukraine. It brought about disruptions to the flow of gas to EU consumers, provoking the waking up of European political leaders concerning energy security (Darbouche, 2011).

The European Union has attempted to face supply risks by diversifying its oil and gas imports. Of 12,637 million barrels of oil imported daily into Europe[3] in 2013 (BP statistics, 2014), 5989 million barrels came from the Former Soviet Union, 2074 million barrels from the Middle East, and 1497 million barrels from North Africa.

Regarding natural gas, the Russian Federation has 16.8 percent of global proved gas reserves (BP statistics, 2014). Supporters of the European energy dependence on Russia and of related pipeline projects, such as the North Stream and South Stream pipelines, consider Russia as a reliable supplier, probably because it is a major non-OPEC supplier and as long as energy exports play a crucial role in its economy, Russia is obliged to keep good relations with its customers.

On the other hand, others criticize a further commitment for Russian supplies, because it would exerts political and economic power over European countries, an excessive power which would be an heavy sword of Damocles over EU’s foreign and neighbourhood policy, regarding especially Russian-Ukrainian-EU relations.

To cut down the EU’s energy dependency on Russia, one of the effective strategies could be to shift more energy flows to the Mediterranean.

 

 

BP Statistical review of world Energy – 2014 full report.

Darbouche, H. (2011) Third time lucky? Euro-Mediterranean energy co-operation under the Union for the Mediterranean, “Mediterranean Politics”, 16 (1), pp. 193-211.

European Commission (2007) An Energy policy for Europe, Brussels, COM (2007) 1 final, Brussels.

Joffé G., Allal S., Allal H.B.J. (2009) 10 Papers for Barcelona 2010 series. Energy and Global Economic Crisis: The Chances for Progress, European Institute for the Mediterranean & European Union Institute for security studies.

Yergin,D. (2006) Ensuring Energy Security, Foreign Affairs, Vol. 85, No. 2, pp.69-82.

 

Central Intelligence Agency (2014), The World Factbook (https://www.cia.gov/library/publications/the-world-factbook/)

European Commission website (http://ec.europa.eu/europeaid/what/energy/policies/southern-neighbourhood/msp_en.htm)

International Energy Agency official website (http://www.iea.org/)

Shenker J., Egyptian pipeline hit by fourth explosive attack since January, “The Guardian”, 12 July 2011. Available at: http://www.theguardian.com/world/2011/jul/12/egypt-pipeline-explosion-fourth-attack.

Office National des Statistiques, Statistiques sociales, Population et Démographie, 2013  (http://www.ons.dz/-Population-et-Demographie-.html)

INSEE, « Indicateurs démographiques annuels et mensuels – Population au début de la période », 2013 (http://www.insee.fr/en/bases-de-donnees/bsweb/serie.asp?idbank=000436387)

U.S. Energy Information Administration, Top world net importers, 2012 (http://www.eia.gov/countries/index.cfm?topL=imp)

Zinets N., (2014) Ukraine warns Europe of Russian gas cut-off, Moscow denies, Reuters. (http://www.reuters.com/article/2014/08/27/us-ukraine-crisis-gas-idUSKBN0GR0W120140827)

 

 

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