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PRAGUE UNIVERSITY OF ECONOMICS AND BUSINESS FACULTY OF INTERNATIONAL RELATIONS

Field: International Trade

European Union’s energy security with focus on trade in oil and gas with Russia

(bachelor’s thesis)

Author: Marina Apostol

Thesis supervisor: Ing. Ilya Bolotov, MBA, Ph.D.

Scholar year: 2021/2022

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Declaration:

I hereby declare that I am the sole author of the thesis entitled “European Union’s energy security with focus on trade in oil and gas with Russia”. I duly marked out all quotations.

The used literature and sources are stated in the attached list of references.

In Prague on ... ...

Marina Apostol

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List of abbreviations

EC European Commission

EEA European Environmental Agency IEA International Energy Agency

GATT General Agreement on Tariffs and Trade GECF Gas Exporting Countries Forum

LNG Liquified Natural Gas

NAFTA North American Free Trade Agreement

OECD Organisation for Economic Co-operation and Development OPEC Organisation of the Petroleum Exporting Countries

UN United Nations

USA United States of America

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1

Introduction

Modern world’s economy requires energy sources so to ensure normal functioning of its vitally important economic sectors. To meet these requirements, it is crucial to guarantee energy flow to energy consumers. For these purposes there is an energy security that primary objective is to ensure secure flow of limited energy sources. Furthermore, oil and gas are vitally significant energy sources due to their high share in the world’s energy mix. It means that modern economies are highly dependent and are used to utilising these two energy sources. But in case of oil and gas disruptions economies will not be able to switch rapidly to another energy sources without harming their vital economic sectors. That is why energy security should primarily be concerned about oil and gas. Moreover, energy security is closely related to energy trade which ensures the flow of energy sources. That is why it is highly important to bear in mind this interconnection that I will be writing about in the next chapters.

Speaking of the main topic of my thesis, it is crucial to mention that the EU as being one of the biggest net importers of energy sources particularly oil and gas should take care of the energy supply going from other countries and ensure constant flow of oil and gas. The problem here is that the EU is dependent on their external energy trade partners, especially Russia. So, in current circumstances energy trade with Russia should be of a specific concern to the EU’s energy security.

The research question of my thesis is what are the impacts of trade in oil and gas with Russia on the EU’s energy security? The main goal of my thesis is to explore the possible effects of trade in oil and gas with Russia on the EU’s energy security. I will explore the energy security from these three perspectives- from affordability, availability, and accessibility aspect.

Moreover, another key aspect will be energy legislation and energy trade which are directly connected to energy security. Finally, I will take into consideration economic, geopolitical, internal policy and legislative aspects of energy security.

The theoretical approach of my thesis is based on the concepts of neorealism and neoliberalism which are explored in more details in chapter number one. These two approaches are also used when comparing the EU’s and Russia’s approach to energy security and energy trade. As for other methods used in my bachelor’s thesis, I implemented analysis and deduction when exploring the world’s perception and relevance of energy security and interconnection between

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2 oil and gas trade in general. After I implemented the received knowledges on my final exploration of the EU’s energy security with focus on oil and gas trade with Russia. I also used the method of observation so to explore, understand and explain certain facts related to my topic.

My thesis is divided into three parts. The first part explores the significance of energy security for modern world, existing energy legislation which is vitally important to ensure and protect state’s energy security, and interconnection between energy trade and energy security. The second chapter examines the importance of oil and gas trade for the EU’s energy security and how the EU treats this matter nowadays. And finally, the third chapter explores how Russia can influence the EU’s energy security via their mutual oil and gas trade.

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1. Energy security

In this thesis, I will be talking about energy security connected to primary energy particularly oil and gas. To start with I see it necessary to define basic terms I will be using in my thesis to describe the paper’s problem and as following to answer the research question.

Before all else, it is necessary to define what energy in an economic context is. As stated by the United Nations (UN) Statistical Commission (2018, p. 4) energy is a vitally important input in modern people’s activity and economic progress. In addition, International Energy Agency (IEA) predicted that in the following decades the demand for energy worldwide will increase by 1,3% each (2019, p. 23).

Energy is a broad term connected to energy production which is narrowed down as a process of capturing, extracting, and manufacturing fuels or energy in usable form (UN Statistical Commission 2018. p. 56). Energy production can be divided into two groups- primary and secondary. Primary energy is defined as the process of capturing or extracting energy or fossil fuels from nature that are appropriate for further exploitation. Secondary production is explained as an energy products’ manufacture and transformation.

In these papers, the focus will be on crude oil and natural gas since the share of only these two fossil fuels in global energy demand is approximately 55% (IEA 2019, p. 38).

Consequently, as I mentioned energy demand, it is crucial to define this term. Global energy demand can be related to primary and final energy demand (Hasanuzzaman et al. 2020, p. 41).

According to the author, primary energy demand can be explained as the country’s energy requirements, whereas final energy demand is the number of disposable energy supplies for exploitation.

On the other side of energy demand, there is energy supply. Energy supply is the number of resources available for a country’s energy usage (Hasamuzzaman et al. 2020, p. 90). For instance, in 2018 the total energy supply was equal to 14 314 Mtoe (IEA 2019, p. 83).

Energy policy or energy governance (Proskuryakova 2018, p. 203) is vital to ensure energy security (Florini et al. 2009, p. 8) by, for example, providing valuable statistics and contributing to energy research to eliminate energy disruption in the world. One of the significant international institutions that handles it might be the IEA.

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1.1 Concept of energy security

This part of the chapter will give a clear understanding of the energy security concept, its aspects and state the major energy security challenges which are faced by modern society.

1.1.1 Multidimensional approach to energy security

The concept of energy security is becoming widely established in international relations (Vivoda 2010, p. 5258). The main raisons are the problem of elevated energy prices, the rising demand for natural resources and its limitation.

There are plenty of opinions on energy security concept and there is no single definition of it.

On the foundation of analysis of 83 energy definitions conducted by Ang et al. (2015, p. 1081), it can be concluded that the term of energy security is highly context-dependent term which does not have any universally accepted description.

It is said that energy security is a complex term (Baumann 2008, p. 4) that has an ability to adapt to different countries (Chester 2010, p.1). Typically, energy security is characterized as dependable supplies at a fair price. According to the author Baumann (2008, p.4), energy security can be seen as four aspects: economic, geopolitical, internal policy and security policy aspect.

Speaking of multi-dimensional approach of energy security, I see in necessary to highlight 4 significant elements which are connected to energy security and define its concept. It is stated by Elkind (2010) as well as by authors Bridge and Le Billion (2017) that energy security is categorized as “availability, reliability, affordability and sustainability”.

Moreover, Cherp and Jewell (2014) are supporting the identical idea of the four A-s of power security: “availability, affordability, accessibility and acceptability”. They specify that the first two pillars of the concept reflect the traditional approach of 20^th century to define energy security, while the last two pillars are related to the 21^st century which represents the issues such as fuel shortage.

Mentioning classical approach to energy security concept which is based on efficient supply at a reasonable price, we may distinguish 4 main movements: “neorealism, neoliberalism, constructivism and international political economy” (Proskuryakova 2018, p. 211).

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5 The author concludes that neorealism approach states that national interests are mostly based on energy policy. The author gives an example or Russia and Venezuela, both states which are promoting “resource nationalism”. In neorealist approach stated by Baldwin the focus should be on national guard and aggressive military campaigns to ensure energy security (1993, p. 7).

Similarly, Daddow (2017, p. 128) concludes that state’s energy policy should be focused on national energy security and if needed a state takes any necessary steps in regional conflicts.

Neoliberalism approach is based on mutual international cooperation (Proskuryakova 2018, p. 206). Neoliberalists argue with the main idea of neorealists.

Conversely, they see international institutions such as IEA or the Organisation of the Petroleum Exporting Countries (OPEC) and cooperation as a main tool to shape and stabilize modern energy market.

Constructivism approach is based on actors involved in energy security (Gheciu and Wohlforth 2018, p.30). The research provides with fundamental characteristic of international relations in energy related topic. Since actors are involved into creating international environment, they are a significant part of the energy security. Proskyryakova (2018, p. 206) assumes that there is an urgent need to recognize and pursue mutual goals and values, maintain communication and trust in resolving disputes including especially ones with energy security.

International political economy maintains the idea that energy is a significant element to support security, production, knowledge, and finance (Proskyryakova 2018, p. 206). As reported by the author, the geopolitical perspective considers closely that states have limited access to energy supplies in contrast to market actors.

1.1.2 Supply and demand side of energy security

There is also another approach of defining energy security which is focused on principle of avoiding abrupt shifts in energy supply in relation to demand (Winzer 2011, p. 4-6). The author distinguished three main opinions: those authors who put their mind on general idea of supply continuity, then those writers who incorporate more rigid filters such as commodity price changes and those who include economic actors as well as the commodity price, energy services and supply stability.

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6 Such an example of author representing the first group would be Scheepers et al. (2007), who states that the term “safe energy supply” refers to the availability of energy at the consumer's location on a continuous basis.

Speaking of the second category, the main paper to mention is IEA paper (2001), which defines energy security as accessibility of energy supply to meet demand at a given price.

And the third group could be introduced by Findlater (2010), who emphasis energy security importance with reference to continuity and availability of energy services.

To continue with stating what energy security is I see it crucial to mention the energy security definitions by international organizations.

As first organization I would mention IEA as an intergovernmental organization set up within the system of the Organisation for Economic Co-operation and Development (OECD) those one of the main goals is to ensure energy security all around the globe (IEA, 2021). As mentioned before, IEA defines energy security as energy sources that are constantly available at a reasonable price. Moreover, IEA determines short-term and long-term views. Short-term view fixates on the capacity of the energy system to respond quickly to unexpected shifts in supply-demand balance whereas long-term view primarily refers to investments for maintaining supply energy in accordance with economic needs.

IEA also considers oil and gas security as two different aspects of energy security. One of the tools to ensure oil security is preserving emergency oil shares equal to a minimum of ninety days of net imports based on the Agreement on an International Energy Program for possible oil disruptions or crises (IEA, 2019). As for gas security, the main tool to guarantee its security is to provide flexibility to the gas system and network (IEA 2019, p. 5).

On the other hand, there is a possibility to observe energy security from country’s perspective.

As stated by Luft and Korin (2019), countries can be divided into three groups exporters and producers who are striving for ensuring consistent demand for their energy commodities, importers or buyers who desire to find possible ways to diversify the energy supply to provide energy security and transit countries which serve as vital link between exporters and buyers on the energy market. Given the differences among states, energy security can be divided into two main aspects: for consumers it is a security of supply and for exporters or producers- security of demand (Paravantis et al. 2018, p. 5). Johansson (2013, p. 4) concludes

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7 that for energy exporters security of supply just as equal as security of demand. In the case of energy exporting countries, there is a high possibility of heavy reliance of the economy and the national budget on revenue from energy exports. The author mentions the case of Saudi Arabia where the oil sector plays a huge role in their exports as well as in budget revenues.

As we can observe, energy security is a multi-dimensional and complex concept that is hard to define as a single universal definition. In my thesis, I will support authors Cherp and Jewell and define energy security as availability, accessibility, and affordability of energy supply on continuous basis which meets energy demand of the chosen countries of the EU with a focus on oil and gas energy security defined by IEA (2019, p. 5). In my paper I will try to analyse economic, geopolitical and internal policy aspects to state the importance of the energy security and delimit the possible problems or opportunities for the EU.

One more key aspects of energy security are energy security of supply and demand are mentioned above, it is crucial to explain these two terms in more details.

Johansson (2013, p. 3) concludes that energy security of supply consists of consistent and uninterrupted supply of energy and relatively stable price. Moreover, Müller-Kraenner (2008) emphasizes that the energy security of supply is also connected to the availability of the energy sources in the country as well as in the world. In her opinion, energy security of supply could be connected to the energy infrastructure, diversification of the energy sources, and evolution and transparency of the energy market. Similarly, Johansson (2013, p. 3) points out that the energy security of supply is dependent on a well-operated system of energy infrastructure.

The EU energy security agenda is also based on the energy security of supply (Green paper 2008, 13). The EU sees its priority in enhancing its energy network and infrastructure, for instance, with the help of an internal energy market that supports the idea of Johansson. The EU defines energy security almost in the same way as the IEA with adding environmental and social factors (Green paper 2000).

For energy security of supply and demand, stable price and opened transportation routes are extremely significant (Johansson, 2013 p. 4). The author distinguishes between security of demand and supply by analysing the energy prices and optimal energy usage from energy consumers and producer counties’ points of view. Energy consumers strive for low energy prices with enough energy supply to meet their energy needs, whereas producers tend to keep

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8 energy prices high without a steep decline in energy demand. So basically, security of demand concerns secure cash inflows to countries selling energy sources as well as their market shares.

As a matter of fact, the main topic of this paper is the EU’s energy security with focus on Russia.

From the paragraphs above, the EU will mostly concentrate on energy security of supply, whereas Russia will primarily take care of the energy security of demand.

1.1.3 Services related to the energy security

Energy security is also about energy services that can be related to the energy demand or in other words meeting needs for energy sources (Jansen and Seebregts 2010, p.1). Energy services usually concentrate on either way on achieving desired standards such as expanding energy access and at the same time maintaining these standards in the most efficient manner possible. On the contrary, the energy security policy focuses on maintaining already achieved standards.

As stated by Baumann (2008, p. 4) a country’s well-being and stability are dependent on energy.

Not only private households but also businesses and even the public sector requires energy sources. So here I see it finally necessary to define energy policy as a tool to tackle the problem of energy expansion as well as the evolution of the energy sector to maintain the development of “energy production, distribution, and consumption” (Saidur et al. 2010, p. 1745). The features of energy policy might be related to international law including law formulation, regulations as well as incentives for the energy industry and other aspects of government policy.

Finally, it is significant to point out that energy security plays an indispensable role in the modern world with its energy issues.

1.1.4 Major energy security challenges

The importance of energy security has even increased more after certain political and economic events such as the Middle East instability, or gas disputes between Russia and Ukraine (Sovacool 2012, p. 51). The author mentions these main menaces of energy security: menaces to availability and affordability.

The key problem related to availability is reliance on energy suppliers. Winzer (2012, p. 37) states that one of the energy security challenges might be human risk elements, for instance, the

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9 failure of suppliers to provide energy sources due to political instability, geopolitical risks, severe natural events, etc. According to Chester (2009, p. 891) the threat of physical supply concerns, for instance, technical deficiency that should be granted with adequate energy infrastructure and the inability of the energy supply to meet the energy demand.

The great menace of energy security affordability is energy price fluctuations and unpredicted energy market (Sovacool 2012, p. 54). The energy prices must be estimated adequately and reasonably based on the development of the energy market (Bielecki 2002, p. 237).

Another great problem might be the dependence on specific energy sources. The specific example might be the dependence of the EU on the Russian energy supplies due to relative low prices and energy accessibility via energy network (Paillard, 2010). A well-known example of energy infrastructure is Nord Stream and Nord Stream 2 project that is in the process of installation.

All the mentioned obstacles are related to the energy security and are principal to consider when offering solutions to enhance energy security.

1.2 Existing energy law

The real modern challenges in energy policies and energy security assist the development of energy law. The importance of energy law has raised in 21^st century due to “privatization and liberalization of energy markets across the globe, and the internationalization in energy markets” (Heffron et al. 2018, p.34).

One of the most common definitions of energy law was stated by Bradbrook (1996, p.194), who specifies energy law as the distribution of rights and responsibilities for utilization of energy sources among people, public authorities, and state actors.

In a historical way, energy law was associated with a state’s sovereignty and was not included in any kind of agreements (Bradbrook 2016, p. 14). Wawryk states (2014, p. 235-236) that after the oil crisis in the 1970s Western states started to be concerned and they changed their energy trade directions and tried to diversify energy sources.

In the 21^st century, oil and gas remains the basic world energy resource and the largest objects of international trade. In this regard, the oil and gas markets are significant subjects to energy

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10 law regulation (Daintith 2012, p. 475). The biggest concern of energy law focused on oil and gas is still taken in Europe and America. The author also mentions the Charter Treaty of Energy as a crucial agreement on an international level. The significance of the treaty relies in establishment standards for international energy market functioning, for instance, transportation of energy sources and creation of energy trade relations (Energy Charter Secretariat, 1998, p.

8). The agreement plays a significant role in the East-West energy market, where Russia and the EU actively participate.

Wawryk (2014, p. 227) points out that the energy law is related to soft law as energy law is explained in non-mandatory manner via directives or resolutions. In general energy law deal with different issues such as energy production, transportation, exploration, market entrance etc.

Energy law regulates oil and gas energy sources' exploitation with the help of the national legislation with the mean of so-called Petroleum Law (Wawryk 2014, p. 230). Accordingly, energy law is particularly developing on a national level. A specific example might be the EU (Wawryk 2014, p. 229) and its Green Paper aiming at ensuring the security of the energy supply.

The main national concern of energy legislation was and still is its energy production and utilisation, energy competitiveness, ensuring and protecting the energy needs of its population.

On the other hand, it is also widespread that common energy legal practices can be applied in more than one country. Such an example might be standardised model contracts used between oil companies around the globe.

Bradbrook reports (2016, p. 18) energy law is in deep need of improvement. The reason for insufficient energy law-making may be the reluctance of energy exporting and importing countries to agree on single energy law since all the state actors have their interests. Moreover, geopolitical obstacles, sovereignty issues, and oil price fluctuations are crucial reasons for various energy policies and law-making to vary from country to country (Wawryk 2014, p.

235).

Author Muller-Kraenner (2008, p. 11) argues that in the 21st-century states are only striving for money and power sources so there is no space for improving and expanding energy law, but only domestic energy law regulations are mostly considered. There are 4 main state actors playing a significant role in the fight for energy sources. There is the United States of America (USA), Russia, China, and the EU.

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11 As mentioned by Lyster and Bradbrook (2012, p. 35), after the Second World War energy law- making matured mainly owing to international trade. The authors state the main reason for the importance of energy security is due to raised dependence of many states on imports of energy sources in particular crude oil. The biggest contribution to this matter had OPEC as an organisation that has as one of the main goals to ensure stable and efficient oil supply to oil- consuming nations (OPEC, 2021).

Moreover, energy legislation in terms of international trade where energy products are being traded across the borders, enlarged after the implementation of the General Agreement on Tariffs and Trade (GATT) and regional free trade agreements, such as the North American Free Trade Agreement (NAFTA) or the EU, which provide regulation of energy sector (Leal-Arcas 2015, p.50). The authors Lyster and Bradbrook (2012, p. 37) point out the EU that has created their own internal energy markets with its legislation where member states that lost their sovereign rights to introduce new energy legislation.

The main conclusion to be made here is that energy law especially energy law concerning oil and gas is mostly applied domestically and between states. One of the reasons might be the fact that each country has its national interests and energy policies, such as protecting the country’s sovereignty in the energy trade and energy security.

1.3 Trade in oil and gas

In this chapter I will state the significance of energy trade. Then I will state the interconnection between the trade in oil and gas and energy security. Afterwards, I will focus on world trade in oil and gas and explore its availability, affordability, and accessibility aspects with the relations to energy security.

1.3.1 The interconnection between energy trade and energy security

The existence of an energy trade owes to inequal energy sources redistribution (Zhang et al.

2021, p. 1). The energy trade contributes to establishing relations and trade connections between energy consuming and energy producing states and meet energy needs. Since fossil fuels, such as gas and oil, are one of the most significant resources for economic progress, it makes the energy trade vulnerable to country risks such as political or economic issues. The authors distinguish between energy exporters and importers from the country’s risk perspective. The

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12 conclusion of the study is following, for importers it is crucial to bear in mind the possibility of the energy dependency and fight it with energy diversification and to maintain relations with their current trade partners. For exporters’ benefits the energy trade must be stable since energy exporting countries may be highly dependent on energy sources revenues from their trade volume. It is better for the exporting countries to avoid economic and political issues inside and with their trade partners so to provide a future for their energy trading.

So here we may conclude that energy exporters and importers are taking care of different aspects in their energy trade. But in any case, countries would be better off if they cooperate and create mutual relations to meet each other’s interests and try to create a stable energy trade.

This statement supports the idea of neoliberalism.

Energy market has an ability to improve energy trade and enhance energy security through international cooperation and market integration (Sheng 2015, p. 306). The main argument is that the energy market contributes to efficiency of energy sources allocation and even the imbalance between energy demand and supply.

Energy markets are playing a crucial role in ensuring energy security (Marhold 2021, p. 33).

To provide energy security, the energy markets must be flexible to energy shocks. Modern experience has shown that any steep changes in the energy market strongly affect the concerned countries and their energy security. An example might be gas disputes a decade ago between Russia and Ukraine which highly influenced a high number of EU states and threatened the gas energy security supply.

On the other hand, Leal-Arcas et al. (2016, p. 5) argue whether efficient trade system and transit improve energy security. The biggest concern for energy security must be reliability of supply, energy prices and the ability of the energy market to provide such an energy supply so to satisfy the current energy demand.

Contrarily, according to Konoplyanik (2006, p. 2) energy markets are vital elements for ensuring the stability of energy flows and supplying energy for a reasonable price on continuous basis which is one of the definitions of energy security.

Based on arguments and opinions above we may conclude that energy trade and energy market are connected to energy security. We may state that energy security can be also affected by the

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13 energy trade or rather energy market through, for instance, imbalance in energy supply and demand, energy prices and the efficiency of energy network.

1.3.2 Oil and gas trade characteristics

To start with characteristics of trade in oil and gas it is vital to mention some significant terms related to this topic.

UN Statistical Commission (2018, p. 57) defines the export of energy sources, such as fuels, that are leaving the country of origin, and imports of energy sources entering the country of destination. The UN Statistical Commission mentions transit countries across those the energy sources are being transported.

Till nowadays the energy sector is vertically integrated among countries of OPEC, OPEC+ and the Gas Exporting Countries Forum (GECF) (Marhold 2021, p. 28) This means that the exploring, extraction, transportation, and selling of energy resources such as gas or oil are state- owned. It means that companies management and policies might be influenced by state authorities to obtain the control over the energy market in the traded region. A specific example of the natural monopolies is Gazprom or Rosneft in Russia. On the other hand, some countries, or economic integrations such as the EU, strive for competitiveness on the energy market to provide energy production to consumers for lower prices.

1.3.3 Trade in oil

Oil is a strategic fossil fuel in the global economy and national energy security of states due to its utilisation in many industrial activities and leading position in international trade (Melton 2015, p. 1). Oil as a primary energy source is a raw material for processing and obtaining such products as gasoline, jet fuels, diesel, naphtha, heating oil, kerosene, etc.

Oil sector can be divided into following segments: upstream, midstream, and downstream. This oil value chain begins with oil exploration and manufacturing, then oil transportation via tankers or pipelines and finally refining to obtain petroleum products. Oil production is technology- and capital-intensive meaning that oil exploration must be done with complex projects to extract the oil under water or onshore. It requires long-term investments into oil exploration and production.

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14 There are global large oil producers that contribute to more than a half of total oil production.

These countries are the USA, Saudi Arabia, Russia, China, Canada, Iran, and Iraq (Enerdata, 2021). The biggest consumers of oil are Asia Pacific including China, North America, and Europe. As reported by British Petroleum (2021, p.32) in 2020 the biggest contribution to global oil exports was made my Middle East (Saudi Arabia having the biggest share), then the USA, and then Russia. Speaking of oil imports, the biggest inflows in 2020 were made to Europe, Asia, and the United States of America. The main conclusion here is that the whole world is taking part in oil trade which makes it one of the fundamental aspects of global international trade. More than hundred states are involved in oil trade, especially in oil import. It makes the oil trade very dispersed.

Speaking of inter-area movements of crude oil flows, we might observe that more than 80% of global oil trade is realised between a dozen states. Some of the most significant flows are carried out between Russia and Europe, Russia and China, Canada, and the USA.

Figure 1: Major oil trade movements 2020 (Million tonnes)

Source: British Petroleum, 2021

According to an OPEC report, globally the share of oil in total primary energy demand for the past decade was between 30 to 40% (OPEC, 2021). This fact makes oil one of the most pivotal fossil fuels in the world. 70% of total proven reserves, which can be used soon to meet global oil demand, belong to OPEC countries with the biggest contribution of Venezuela, Saudi Arabia, Iran, and Iraq (British Petroleum 2021).

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15 According to Melton (2015, p. 2) more than the half of total crude oil production in the world is controlled by national oil companies which are state-owned, or majority state controlled. As mentioned in the previous part of the chapter, an example might be Russian partly state- controlled companies such as Rosneft or Lukoil.

It is crucial to state that the crude oil prices are determined by global oil supply and demand (EIA, 2021). Another major problem of oil trade is that oil energy supply and demand can be influenced by external factors such as geopolitical issues or government policies that have an impact on oil prices (Melton 2015, p. 3). Here lays the menace to energy security. As reported by Kitamura et al., (2017, p. 3) oil-importing states are bothered by energy security supply since many oil-exporting states are going through political instability which influences the trade in oil between the states. Another problem here is oil dependency between states since most oil flows are realising inside the regions such as Asia, Europe, and Northern America. One of the solutions to these problems proposed by the authors may be the trade partners diversification so to minimize energy security risks concerned to trade in oil.

1.3.4 Trade in gas

Trade in gas is also one of the most essential elements in international trade. According to an OPEC report a share of gas in global fossil fuels demand in the past decade was approximately 20% (2021). The growth of global gas demand in the past 5 years increased 2 times more than the demand for oil. The reason for this development may be gas competitive advantage due to its cleanliness and relatively low costs comparing to other fossil fuels (Conant 2019, p. 3). An average gas price in the world in 3 times lower than crude oil prices (BP 2021, p. 41). Gas is estimated to be the second-largest energy source demanded worldwide after oil (OPEC, 2021).

According to British Petroleum (2021), in 2020 the biggest gas production in cubic metres was in the USA, Russia and Canada. During the same year the biggest gas consumers were countries from North America, Europe, and Asia.

In 2020 Russia, Iran, Qatar, the USA, and Turkmenistan were the countries with the highest total proved reserve in the world. (BP 2021, p. 34).

Speaking of gas transportation, the most common methods are pipelines and Liquefied Natural Gas (LNG), which can be transported on ships by water. In the whole world the biggest gas flows are realising via pipelines. In Europe the most common gas transportation is gas

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16 transportation via pipelines. The biggest contribution to gas exports via pipelines makes Russia to Europe and Norway to Europe. Speaking of LNG transportation, it is mostly crucial to gas flows on long distance between continents. For instance, the biggest gas flows are realised between Qatar, Australia, and Asia Pacific.

Figure 2: Major gas trade movements 2020 (billion cubic metres)

Source: British Petroleum, 2021

Due to its increasing importance in international trade, trade in gas should be considered as one of the elements potentially affecting energy security. One of the problems mentioned by Umbach (2010, p. 1231) is gas consumers reliability on a small number of gas-producing countries. It has a significant impact on the short-term energy security. A specific example night gas disputes between Russia and Ukraine, which strongly affected several European countries since in general Europe imports almost three quarters of all its gas from Russia (Eurostat, 2021).

Another problem like oil trade is a vertically integrated gas sector where the biggest share still has national or stated-owned companies. Moreover, another obstacle to energy security is a gas exporting countries reliance on their gas export revenues. But in general, the reliance is on rather on smaller scale comparing to trade in oil.

All the mentioned obstacles above, are related to both oil and gas trade. Moreover, gas and oil trade are playing a significant part in energy security due to their vast utilisation in global economy. The following components of energy security such as availability, accessibility, and

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17 affordability are connected to trade in oil and gas. Trade in oil and gas contributes to establishing relations between energy exporting and importing countries and ensure energy supply and demand, making it more possible to get stable access to energy in the nearest location if possible, and at a given price.

The main contribution of this chapter is the exploration of energy security term in oil and gas area, existing energy legislation that primary objective is to ensure energy security and monitor whether the energy demands are in place, and energy trade manages to meet them. Moreover, it is undoubtedly true that energy security is significant in the today’s world and that there is a linkage between energy security and oil and gas trade. This theoretical background should help us to implement and answer my research question in the following chapters.

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2. EU’s energy security

As I stated in chapter one, the concept of energy security is a multi-dimensional term that is interpreted according to the country’s perspective on this matter. Now we will focus on the energy security of the EU and state the current situation of its energy security.

2.1 EU’s energy security concept

To start with, it is necessary to state the importance of energy security for the EU and after to explore its energy security definition and compare it to the main definition of energy security stated by me in the previous chapter.

The energy security has always been significant to the EU. The EU is one of the biggest energy importers and consumers in the world. After the 2006 and 2009 gas crises, the relevance of energy security for the EU has increased even more (Dreyer and Stang 2013, p. 1). One of the relevant problems of this matter is the energy mix of the EU which has not significantly changed for the past decades. According to Eurostat (2021), the biggest shares of the EU’s final energy consumption were made by oil and gas. Oil share in final energy consumption was approximately 30-35%, and gas share was 20% (Eurostat, 2021). As reported by EEA in 2021 the biggest final consumers of oil were transport and households and of gas were households and industry.

On the other hand, for the whole 21st century the energy sources' import dependency has not significantly changed. For the past decade, the gas import dependency even increased from almost 70% in 2010 to 90% in 2019 (Eurostat, 2021). Speaking of crude oil, the import dependence was always higher than 90% and in 2019 it was approximately 96%. That means that the EU is not self-sufficient and is dependent on energy imports to a pretty large extent.

Here comes the problem of energy dependence on energy-producing countries outside the EU and as a following the problem of ensuring EU energy security (Leaf-Arcas et al., 2015, p. 19).

Another vital fact to mention is the EU can only rely on specific energy trade partners so to fulfil its oil and gas needs. For instance, the biggest share of oil imports for the past decades is made by Russia, and Russia imports approximately one-third of all gas to the EU (Eurostat 2021).

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19 The EU concerns the most about the energy security of supply (Jonsson et al., 2015, p. 48). The EU in the Green Paper states that its “long-term strategy for energy supply security must be geared to ensuring, for the well-being of its citizens and the proper functioning of the economy, the uninterrupted physical availability of energy products on the market, at a price which is affordable for all consumers (private and industrial), while respecting environmental concerns and looking towards sustainable development, as enshrined in Articles 2 and 6 of the Treaty on European Union”. The main difference of this definition from the one I stated in the previous chapter is that the EU also bear in mind energy accessibility and social and environmental aspect of the energy security.

The EU sees it as principal to ensure the energy security of supply through decreasing energy dependency on energy-exporting countries. One of the approaches mentioned in the Green Paper is the diversification of energy suppliers.

Despite the EU’s promotion of the environmental aspect of their energy security policy, we still can observe a relatively high share of non-renewable energy sources such as oil and gas in the EU energy imports and consumption. Nowadays, these two hydrocarbons are still pivotal for meeting the EU energy needs and these energy sources should be borne in mind while ensuring energy security of the EU due to its energy dependence on these specific energy sources and their relatively high share in the EU’s energy mix.

2.1.1 EU’s energy security challenges

It is vital to state the current situation of the energy security challenges of the EU. According to Elbassoussy (2019, p. 330), the EU’s energy security is extremely endangered due to increasing dependence on energy-exporting countries. As stated, before the energy dependence rates on oil and gas imports are approximately 90%. The problem here is that the EU itself cannot be self-sufficient and extract oil and gas by themselves. In 2020 the EU’s total reserves of oil and natural gas were approximately 1,6% each which is the lowest worldwide (British Petroleum, 2021).

Furthermore, another major challenge referring to energy availability for the EU is the dependence on a limited number of energy-exporting countries such as Russia, Iraq, Nigeria, Saudi Arabia, Kazakhstan, and Norway (Eurostat, 2021). Some of the mentioned countries are experiencing some geopolitical tensions which can endanger the EU’s energy security of

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20 supply. For example, Russia is known for its political instability due to the annexation of Crimea (Summerton 2016, p. 9). One of the solutions to these problems is energy sources diversification (Elbassoussy 2016, p. 339). The proposal of the author is to rely more on renewable energy sources and to decrease the consumption of the hydrocarbons such as oil and gas. On the other hand, the author Karakullukcu (2016, p. 108) proposes to explore “energy peripheries” such as Turkmenistan, Iran, and Iraq to diversify energy suppliers. This proposal primarily concerns the gas suppliers’ diversification.

In addition, another major problem related to energy affordability may be the steep changes in energy prices and supply shortages (Karakullukcu 2016, p. 119). Rising energy prices due to higher gas demand worldwide and geopolitical disputes threaten the EU’s energy security. The authors state that the Eastern states of the EU are highly exposed to the gas supply disruption.

The author states that the steep changes in energy prices have a direct effect on the economy of the state and sometimes even slow down the economic growth (Elbassoussy 2016, p. 338).

Moreover, the oil and gas infrastructure does not allow the EU to react effectively to supply shocks (Summerton 2016, p. 19). If there is a problem within the energy infrastructure and the chosen countries are getting the oil or gas only in one specific way (for instance via pipelines), the country's energy supply may be partly or even totally stopped due to, for instance, geopolitical challenges or supply disruption. It can severely affect the country’s economy.

Finally, another key challenge to mention is the member states protect their energy policy sovereignty which does not help the formation of a completed and unified EU energy market which can threaten the energy security (Karakullukcu 2016, p.121).

2.2 EU’s energy legislation

Another crucial aspect to be mentioned about the EU’s energy security is the energy legislation focused on oil and gas. I will try to explore whether the EU’s energy legislation manages to achieve and maintain energy security.

In general, the EU supply security and energy law is explained in Lisbon Treaty in article 194 TFEU to be the competence divided between the EU and member states (Marhold 2021, p. 29).

The main goal of this article is to state the problem of ensuring energy security for the energy consumers with the help of the EU energy market. Unlike Russia, the EU strives to provide its

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21 member states with the liberalised and competitive energy sector, that goal is to provide the member states with affordable energy sources.

Moreover, the EU in Lisbon Treaty in the same article defines its energy priorities as ensuring the functioning of the internal energy market and promoting the interconnection of the internal energy infrastructure.

The EU implements secondary legislation (regulations and directives) focused on the area of oil and gas (Hughes 2016, p. 42).

In 2015 the EU proposed the creation of the European Energy Union that proves the significance of the EU’s energy security (Leal-Arcas 2016, p.1). One of the points mentioned in the Energy Union package (2015, p.5) is that the EU should find ways of reducing oil consumption. Secondly, there is an intention to provide the member states with a more competitive internal gas market.

Another document related to oil is the Oil Stock Directive. It obliges the member states to provide themselves with minimum oil reserves (equal to 100 days of net crude oil imports) to recover from supply disruption. The availability of these oil reserves is vital for ensuring the energy security of the oil supply.

Speaking of the gas, the European Commission (EC) proposed to create stronger cooperation of the member states to get over the potential disruption of gas supply. For instance, this proposal concerns the states' solidarity and reliability on each other in any gas supply disruption.

In addition, there is a Gas Regulation or Regulation of the EU 2017/1938, which guarantees the security of the natural gas supply. The main goal is to ensure an uninterrupted supply of gas in the EU.

Another necessary legislation is the Gas Directive (2009). This directive has its primary goal to create an internal liberated gas market and efficient network for gas distribution. Another goal is to ensure non-discriminatory third-party access to the EU’s internal gas market (Hughes 2016, p. 43).

It is vital to mention that the EU focused more on internal energy legislation and its internal energy policy or energy governance (Leal-Arcas 2015, p. 215). On the other hand, the EU should concern more about external energy legislation and policy to maintain its energy security of supply.

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22 The main goal of the internal energy policy is to create a competitive internal energy market (primarily it concerns gas), promote energy efficiency, and fasten the process of decarbonisation. The energy efficiency of the EU must decrease consumption and increase energy savings. These matters are explored in The Energy Efficiency Directive (2021) which mentions above all gas and oil used for providing energy. One of the main reasons for proposing energy efficiency is that it decreases the costs of energy due to efficiently saved and used energy sources.

The EU implements the strategy for decarbonisation, which means decreasing greenhouse emissions and transition to cleaner energy sources. Nevertheless, the energy share of oil and gas remains almost the half of total energy consumption of the EU. So that is why it is necessary to bear in mind the importance of oil and gas in the energy law-making and energy policy of the EU.

The EU mostly concentrated on their internal energy legislation, but on the other hand, there are also law implementations in the EU external energy policy. As mentioned above, in the Gas Directive there is a part that explains the third-party access to the internal gas market. In 2017 as its response to the new project installation of Nord Stream 2, the EC proposed a new directive to enlarge the Gas Directive. The Directive 2019/692 explores the matter of the gas pipelines between the EU and third countries. The main goal of the directive is the transparency of the legal framework so to ensure investors and market actors the certainty and maintain energy security of gas supply. Furthermore, any kind of agreement between the EU and third countries should be compatible with the EU energy law. The purpose of such changes was primarily the intention of the EU to influence the Nord Stream 2 project to maintain its energy security and minimise the geopolitical impact of Russia through its natural resources on the internal gas market of the EU.

Speaking of member states, they have the right to implement their chosen energy policies (Szulecki 2017, p. 189). For instance, the Lisbon Treaty gives the member states the right to determine the number of energy sources needed for energy consumption and the energy mix used for satisfying their energy needs. Each member state implements the goals of energy security stated by the EU in different ways.

To summarise all the mentioned information above, we may conclude that the EU as a net importer of energy sources bear in mind the energy security of supply. In addition, the biggest

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23 concern for the EU is the energy legislation focused on gas due to its strategic significance to the EU as an energy source. Oil energy legislation mostly concerns the minimal oil reserves.

Gas is said to be a clean source of energy which will support new strategies of energy efficiency and decarbonisation. To my mind, in general the EU is achieving and maintaining energy security in oil and gas areas.

2.3 EU’s trade in oil and gas

I will try to answer the question of whether oil and gas trade influences the EU’s energy security. Based on the definition stated by the EU in Green Paper we will primarily focus on affordability and availability of oil and gas. We will also look at the accessibility aspect of oil and gas that concerns energy infrastructure availability and transportation.

Firstly, I see it necessary to use divide the Europe and as following the EU countries into four geographical groups. According to the EuroVoc, Europe can be divided into Northern Europe (blue area), Eastern Europe (red area), Western Europe (green area) and Southern Europe (yellow area).

Figure 3: Regions of Europe: Yellow- Southern Europe, Green- Western Europe, Blue- Northern Europe, Red- Eastern Europe

Source: EuroVoc, 2017

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24 I will be talking about the 27 countries of the EU, excluding the United Kingdom. Thereby, Sweden, Finland, Denmark, Latvia, Lithuania, Estonia, Croatia, Slovenia, and Bulgaria belong to Northern Europe, Poland, the Czech Republic, Slovakia, Hungary, Romania belong to Eastern Europe, Germany, France, Austria, Belgium, Luxembourg, the Netherlands, and Ireland belong to Western Europe and Portugal, Spain, Italy, Greece, Cyprus, and Malta are in Southern Europe.

2.3.1 EU’s trade in oil

As mentioned before, crude oil has the biggest share in the EU’s energy mix. The share is approximately 35%. In this part of the chapter, I want to explore the EU’s trade in oil in more detail.

A key question to answer, why do the EU import that much oil and what its strategic importance? The answer is that the transport sector used most of the crude oil and petroleum products. The transport sector (road transport in particular) demands crude oil and manufactured products from oil (Summerton 2016, p 4). For the past decades, the transport sector's share demand was approximately 70% of all oil consumption (EEA 2021).

According to Eurostat (2021), the biggest crude oil importers of the EU are primarily countries of Western and Southern Europe: Germany, France, Spain, Italy, the Netherlands, and Belgium.

The highest oil import dependency rate higher than 100% have Estonia, Sweden, Bulgaria, Spain, the Netherlands, Belgium, Slovenia, Slovakia, Lithuania, Luxembourg, and Latvia (Eurostat 2021). It means that these states import more oil than they need to build oil reserves.

If the oil dependency rate has positive value, it means that the country is the net exporter of oil.

The total oil import dependency rate of the EU is almost 96% which makes the EU the net importer of oil.

Despite being a net importer of crude oil, EU has several states with their oil industry. These countries are Denmark, Germany, Romania, and Italy. The mentioned countries can flexibly react to any sharp oil disruptions (Summerton 2016, p. 5). But still, these several countries cannot meet the EU’s energy demand for oil, so the EU finds its trade partners to satisfy its oil needs. That is why the EU’s intra-trade in oil is lower than its extra-trade (Eurostat 2021). Extra- trade is 2019 a little bit less than 700 million tons. Speaking of intra-trade in oil and petroleum products, the total amount of tons is a little bit more than 170 million.

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25 Another relevant piece of information to mention is the EU’s trade partners in crude oil. In 2019 (Eurostat), the EU's biggest extra-trade partners were Russia, Iraq, Nigeria, Saudi Arabia, Kazakhstan, and Norway. Russia has the highest share (almost one-third of all the oil-exporting countries to the EU).

Oil prices, especially high oil prices, impact the EU’s economy and lead to economic uncertainty and instability (Summerton 2016, p. 9). In 2008 the inflation raised in many of the member states due to the high oil prices.

The EC stated that almost 90% of all imported oil arrived by sea. It makes the oil infrastructure flexible to any oil disruptions. From the picture below we can see that two biggest crude oil ports are in Western Europe (Rotterdam, Marseille) and one in the Southern Europe (Trieste).

On the other side, the East European countries such as the Czech Republic, Slovakia, Hungary and one Western European country Germany are mostly supplied by the Druzhba pipeline with oil from Russia. It makes them highly dependent and vulnerable to any energy supply disruption. Other non-coastal states are supplied with oil by other pipelines coming from the biggest ports of the EU.

Figure 4: EU’s oil infrastructure

Source: IEA, 2015

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26 To sum up all the information, above it is necessary to say that crude oil is still one of the most significant energy sources for the EU. Moreover, the EU is a net importer of crude oil that makes the EU dependent on external suppliers since the EU cannot be self-sufficient due to lack of own oil reserves. Moreover, only a part of member states (particularly Western European countries) has a sufficient oil infrastructure to adjust rapidly to any supply disruption. It can harm the energy security of the member states especially of East European countries and as following the EU’s energy security. In addition, Russia has always played and still plays a crucial role in the EU’s oil trade.

2.3.2 EU’s trade in gas

The EU’s trade in gas also has its significance. Firstly, the share of gas in the EU’s energy mix and the share consumption is approximately 20% (Eurostat, 2021). This fact makes natural gas the second most significant energy source for the EU. Households and the industry sector consume 75% of all imported natural gas. For instance, the biggest consumers of natural gas are the petrochemical and chemical industry. Moreover, the existence of natural gas is crucial for providing electricity and heating services for households.

The biggest consumers and importers of natural gas are Western and Southern European states:

Germany, Italy, France, the Netherlands, and then Spain (Eurostat 2021). At the same time, there are several EU states which are also producing natural gas. These countries are the Netherlands, Romania, Germany, Italy, and Denmark (Eurostat 2021). Still, the amount of produced natural gas and reserves will not cover all EU’s energy needs. The EU is highly dependent on natural gas imports. For the past decades, the natural gas dependency rate has increased by almost 24 %. Most of the East and Western European countries have the highest import dependency rate: Slovakia, Austria, Hungary, Czechia, France, Belgium, and then Southern European countries: Malta with Spain. The negative percentage of dependency rate has one of the EU’s natural gas producers- Denmark. It means that Denmark is a natural gas net exporter.

Speaking of intra- and extra-trade in natural gas, in 2019 the EU imported approximately 401 billion cubic metres of natural gas whereas the intra-trade of the EU was about 40 billion cubic metres (Eurostat, 2021). It is obvious that the EU’s extra-trade in natural gas is bigger than its intra-trade. The biggest natural gas trade partners of the EU and obviously Russia with the highest share of 30%, then Norway, Algeria, Qatar, and Libya (Eurostat, 2021).

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27 What is the strategic importance of natural gas? One of the opinions is that natural gas is relatively cleaner than oil, and natural gas can contribute to faster decarbonisation of the EU energy sector (Holz et al., 2016, p. 33).

Another key factor to mention is the gas infrastructure. The EU’s gas infrastructure consists of pipelines, LNG terminals, and facilities for gas storage (Sutrisno and Alkemade 2020, p. 25).

These elements of the gas system are vital to ensure the EU’s energy security of the natural gas supply. According to the EC, most natural gas is transported via pipelines. In the picture below we can observe how dense the gas pipeline network is. Many of the strategic pipelines come from the Eastern border of the EU though Germany, the Czech Republic, Slovakia, Poland etc.

For instance, these pipelines are Nord Stream, Nabucco, South Stream Gas Pipelines, etc.

Figure 5: EU’s gas infrastructure

Source: European Parliament, 2019

The pipeline sector is still enlarging (current installation of Nord Stream 2). Pipelines transfer almost 90% of natural gas within the EU. Consequently, the LNG terminals are becoming less price competitive than the pipeline network. Since the Eastern gas network will continue to enlarge, the EU may benefit from the lower gas prices and secure its gas supply with the help of trade partners’ diversification (Sutrisno and Alkemade 2020, p. 26). But the author Karakullukcu (2016, p.112) argues with that statement. The author believes that pipelines increase interdependencies between consumers and suppliers. It can potentially harm the energy security of the energy-consuming country. The author specifically points out the Eastern Europe

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28 which is more vulnerable to any gas disruption. One of the reasons is that Eastern Europe is provided with natural gas primarily from Russia.

On the other hand, despite the higher prices of the LNG, it can relevantly improve the EU’s energy security of supply (Apostolicas 2020, p. 9). The author declares that the LNG system encourages the EU to increase its gas infrastructure interconnection between the member states and consequently, to improve the EU’s energy security.

To summarise, the dependency rate on both energy sources has increased during the past two decades. It means that the EU is becoming more dependent on imports of oil and gas from other countries. The extra-trade of oil and gas is higher than the EU’s intra-trade. It proves that the EU imports more of them from third countries. In addition, both gas and oil infrastructure have their weak points that may negatively affect the EU’s energy security (it primarily concerns the Eastern states).

There are significant factors to bear in mind when exploring the EU’s energy security: oil and gas prices or affordability, gas and oil availability, or diversity of trade partners and energy dependence, and finally accessibility which ensures EU’s energy security with the help of oil and gas infrastructure. Different parts of the EU are affected by energy trade in oil and gas on a different level. We can observe that the East European countries are mostly exposed to any energy security risks in oil and gas trade primarily due to their energy dependency and existing energy network. In the next chapter, I will try to compare some of the member states. Based on the obtained results, I will try to answer the research question- How does the trade in oil and gas affects the EU’s energy security?

The main contribution of this chapter is the exploration of the EU’s perspective and the level of attention which is paid to energy security in oil and gas area. Now it is clear how the EU operates in the energy security matter and what are the way of treating oil and gas trade in current circumstances.

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3. EU’s energy trade with Russia

Before starting to explore the EU’s energy security with focus on Russia, I see it necessary to give reasons why Russia plays such a significant role in the EU’s energy security and trade.

According to Siddi (2018, p. 1568) the reason is the low probability of replacing Russia’s energy imports due to its price competitiveness, geographical proximity, and highly developed energy infrastructure with the EU. Moreover, there are long-term gas contracts between the EU and Russia which are valid till the 2030s and cannot be terminated without penalties.

Additionally. in 2019 Russia contributes to 23% of EU’s total oil imports and 37% of total gas imports.

Another significant remarque is the interdependent energy relations between the EU and Russia.

Consequently, both sides are exposed to energy security risks (Krickovic 2015, p. 3). Since the energy trade plays a significant part of EU-Russia relations, it is vital to explore primarily what are the possible threats to the EU in this matter. It is a well-known fact that Russia is striving for using energy trade to influence geopolitics and return its superpower status. For instance, during gas disputes in 2006 and 2009 Russia decided to interrupt natural gas imports to the EU through Ukraine due to force its own economic and political conditions in natural gas trade (Krickovic 2015, p. 10). As stated by Kropatcheva (2011, p. 555) geopolitics in energy field concerns energy access, supply, transit, and infrastructure used for transportation of energy sources. These Russia’s attempts to affect geopolitics through energy trade might threaten the EU’s energy security on economic and political level.

In addition, Judge et al. argue that EU’s and Russia’s approaches for the energy matter are different which may be the reason for potential disputes and disagreements between them (2016, p. 754). Russia’s perspective is based on realists’ approach whereas EU supports liberal approach in energy matter. For instance, it is said that Russia is known for utilising its energy sources for geopolitical influence on the international arena while the EU is promoting freedom, openness and cooperation on its market including its energy market. Since the EU is dependent on Russia’s energy supplies, especially on natural gas, it puts the EU in a weak position in energy relations with Russia.

Another key point to mention is that Russia is striving to gain more geopolitical power by imposing price adjustment of strategic energy sources on the energy-importing countries (Siddi

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30 2018, p. 1556). Then the EU’s energy-importing countries are highly exposed to energy security threats of affordability. A specific example may be the increased gas prices for Lithuania from the Gazprom’s side. It was a response to the Lithuanian separation of gas producers from gas pipeline owners on the foundation of the Third Energy Package. It is important to mention that Gazprom as a company owns gas production and the gas pipelines that are used for the same natural gas to transport abroad.

Another major factor to mention is that Russia controls most of the energy pipelines that transport oil and gas to the EU (Krickovic 2015, p. 16). It makes the EU’s states that have direct energy network with Russia more dependent on its energy imports and more vulnerable to imports disruptions due to limited energy trade partners. For instance, these countries are the Czech Republic, Slovakia, Hungary, Poland.

To summarise all the mentioned information above, we can state that Russia plays a significant part in EU’s energy trade. Russia is a strategic trade partner of the EU in energy trade.

Moreover, it is stated that Russia is misusing its key position is geopolitics as an energy supplier to influence the EU via energy trade. It exposes the EU to energy security threats such as threats of affordability though changes of energy prices based on relations with the chosen state, accessibility due to Russia’s ownership and influence over the energy pipelines, and availability because of the EU’s high dependence on Russian imported oil and gas. Moreover, Russia and EU have different approaches on energy sector matter which can lead to disagreements and harm both sides.

3.1 EU’s energy legislation with a focus on Russia

Due to high importance of energy relations between the EU and Russia, it is vital to regulate energy trade and ensure EU’s energy security with the help of energy legislation with a specific focus on Russia.

One of the most significant EU’s energy legislations was the Third Energy Package (Krickovic 2015, p. 12). It is main contribution was the part where it was forbidden for gas producers to be also operators of gas network on the territory of the EU. It specifically concerned Gazprom that is the gas producer and gas operator via pipelines on the territory of the EU. This EU regulation was called “Gazprom clause”. Even though at the beginning Russia did not want to ratify the Energy Package, finally Russian energy companies such as Gazprom decided to make its