Paweł Jakubowski , Rafał Miland, Maciej Woźniak
Energy Supply Crisis Management Mechanisms
Summary and Introduction (full version – PDF - http://omp.org.pl/pokazZalacznik.php?idZalaczniki=30)
The last decade could arguably be called a ‘period of energy threat’ for Europe. EU member states have had to face several cases of political and/or economic conflict that resulted in disruptions to oil and gas supplies. The worst affected countries were those of “new Europe” – but Western European economies could also potentially be put at risk.
Few substantial attempts have been made to reduce the danger arising from a cut-off of energy supplies to Europe. Initially, some international organisations such as the International Energy Agency were established, with the aim of reducing the potential impact of a supply crisis.
The International Energy Agency (IEA) has been developing a system for protection against a crude oil and fuel supply crisis. Its mechanism includes different supply protection and demand restraint measures which have been subject to verification since the ‘70s. Nevertheless, this organisation has not been able to introduce certain similar solutions in the case of natural gas.
The European Union is implementing an open energy market approach, which will provide consumers with competition and protection of supply. Instances of market failure resulting in supply shortages led the EU to implement a number of solutions concerning energy carrier supply security. When the EU oil and fuel crisis management mechanism was treated solely as an addition to that of the IEA, gas supply security became the main interest and resulted in a number of regulations concentrating on the protection of supply. Since the EU is also a political entity, it was also able to initiate some external actions to involve suppliers of energy carriers within the crisis management mechanism system.
The process of developing supply crisis mechanisms is dynamic. A discussion between several countries can lead to numerous recommendations for the creation of some novel solutions, especially those based on the concept of a “collective response” and “European solidarity”. The idea goes far beyond certain technical solutions of low political importance which were always the domain of some dedicated international organisations. This may be one reason why its reception has been so lukewarm. In spite of this, some elements of this concept, supported by strong political pressure, have had an impact on different actions and legislation in the EU.
An ideal energy security management system should be based on a well-functioning liberalised market where demand and supply are basic tools for balancing. To reach these ideal conditions there needs to be competition among external suppliers to the EU and regulations which are binding on the internal market must be also applied to external energy companies. Possible gains for the European economy include energy security, easier procedures and laws.
The aim of this paper is to describe energy supply crisis management mechanisms, but it does not concern itself with the problem of a common energy market within the European Union. This does not mean, however, that an integrated energy market has nothing to do with security of supply.
The regulations for liberalised energy flows create a basic safeguard for suppliers and for customers; they ensure that relationships will be safe and to some extent mutually profitable. They are also a primary reason for the development of energy infrastructure (with special regard to transmission corridors).
Furthermore, the integrated EU energy market is based on common rules and regulations which provide clarity and predictability, regardless of the country of enterprise. These rules – for example the transparency and equality of access for customers using the transmission and distribution infrastructure – are established for the whole EU area and form the foundation for a proper energy market. They allow for the free and unimpeded development of competition, which should result in the lowest possible energy prices – crucial to any economy.
However, there is a feeling that the last 10 years have clearly shown that such situations – whether caused by natural disasters, acts of terrorism, or political decisions in third-party countries – can lead to a collapse of the energy market. This kind of collapse can have profound implications even if it is only for a short period of time. Specific examples of such situations are the natural gas and oil supply crises which took place in 2004, 2006, 2007 and 2009. These crises affected large areas of Europe and resulted from causes outside of European Union control. They mainly arose from quarrels between third-party countries including Russia, the Ukraine, and Belarus. However, the negative impact on Europe resulted at least in part from a lack of capacity to respond to such situations.
Problems appearing in recent years showed that the market needs some precise and immediate short-term support, which would allow for the restoration of its fundamental operating principles. A crisis response mechanism – implemented at the level of enterprises, countries and international organisations – acts as an impulse that the market itself is unable to generate. These mechanisms can be compared to the action of a cardiac defibrillator restoring a regular heartbeat. It gives the necessary external impulse, after which regular activity is resumed. A defibrillator works only for a few seconds, but this is enough to save lives.
This paper describes those crisis management mechanisms which are in operation – as well as those that are still required. Examples of best practice can be identified not only in the EU area and therefore mechanisms implemented by the International Energy Agency will also be presented. Irrespective of which technical solutions have been adopted by each of these organisations the nature of the crisis mechanism corresponds to an underlying philosophy of action. One possible solution is action taken by fully independent countries represented by their governments, which take some steps on a voluntary basis and with full national control, motivated by an idea or on the basis of an international treaty. We shall call this ‘collective action’. Another approach is based on the assumption that some rights and responsibilities are delegated to a body (a centre, a headquarters etc.) which may initiate, conduct and finally impose some solutions. The role of countries is support but not decision making, at least not to such an extent. This will be referred to as ‘common action’. In this context it is important to differentiate between common action understood as defined above and common rules (procedures) and regulations. The latter means “accepted by all parties”, “used in the same way” but does not necessarily indicate ‘common action’. Collective action also needs common rules.
In the process of examining potential and existing crisis management solutions, this paper will attempt to match particular activities to one of the possible philosophies. This may not always be easy – as certain real-life circumstances may go far beyond a theoretical approach. Nonetheless, an individual description and assessment will always be supported by set of arguments. In the absence of predominant features of either collective or common action, this paper will use the phrase “coordinated action” to denote a mix of both philosophies.
The ultimate aim of this paper is to present policy recommendations for energy crisis management mechanisms, which would be in line with free market principles and could be regarded as useful based on practice developments. This leads us to the conclusion that proposed solutions will not always be easy to accept by politicians, especially in the context of the energy security problems described below. Nevertheless the authors believe that some motivated recommendations could find support and be used in the policy-making process.