1.0 Introduction
Energy and world economics is a very important subject
which has drawn the attention of all nations and states. In fact, all economies
of the world rely so much on energy for their growth. This research paper seeks
to take a study on the relationship that has existed between the European Union
and the Russian economy in matters of energy. The paper highlights the
advantages as well as the disadvantages of utilizing Russian energy provision
in the European Union. The paper also seeks to find out solutions to the
present energy supply of Europe and try to institute
which would be the most efficacious solution to adopt. Having had a close study on Russian business
as well as some background information about the economy of Russia, interest in carrying out a
study on the same arose as it was found an area of interest in world economics
(Robert et al, pp. 67-90).
Getting research questions for this paper demanded a full
description concerning the supply of energy resources from Russia.
Currently, it has been reported that Russia has been aggressively used
the energy status as a tool of politics against its partners in the world of business,
and more especially the members of the European Union. This spark interest in writing on energy
dependence as well as concentrate more in the topic to find out a better
understanding and knowledge of the current situation while making endeavors to
get a better idea other than the position and opinions held in the media
sources. This research paper therefore seeks to find out the answer to the main
objective in the study of whether it is possible to reduce this dependence by
European Union on Russia
for the energy needed in their economies (EU-Russia Energy Dialogue, par. 1-6).
2.0 Background
Information
Enough amounts of energy are the
most significant elements of the recipe for any economy that is expected to
make progress. Where energy is hard to
come by, production is made difficult. This affects research and convenience as
well. The abrupt and rocketing economic growth of the developing nations and
countries amounted to increased demand for the sources of energy. In an effort
to strike a balance by meeting the increased energy demand, non-renewable
resources of energy such as coal, oil, nuclear energy and natural gas together
with renewable resources like water, wind, sun, biomass and so on can be put
into use (Robert et
al, pp. 67-90).
Currently, developments have seriously embarked on the application of ways and
means of using renewable resources. This has found a greater potential in the
present times and even great opportunities in the future. However, renewable
resources have been faced with the greatest challenge of starting capital which
is very high (Smith, pp.7-23).
As a result of this, the renewable
resources have been limited in their application and use. Owing to these facts,
the universe still depends on non-renewable energy sources than the renewable
sources of energy which are by far much friendly to the environment. For
instance, the European Union is not rich in non-renewable sources of energy
while it is in dire need of supply of energy. The European Union altogether imports
close to 82% of its oil fuel and another 57% of gas. In fact, the European
Union is the leads in imports of oil and gas in the globe. The major provider
of non-renewable energy to the European Union is the Russian Federation. It has been a
smooth race for the Russian
Federation to meet the requirements of
energy of the European Union. Russia
has the biggest reserve for natural gas of any state in the universe along with
the second biggest reserves of coal and coming number eight in oil reserves. Moreover,
Russia is geographically
close to the members of the European Union than any other Nation which has huge
deposits of non-renewable sources of energy like countries of the United of
America and the Middle East. Owing to the
geographical position of Russia
to the European Union, the transportation expenses incurred are made cheaper.
Eventually, a very good infrastructural facility was constructed to link the
European Union members to the Suppliers in Russia (EU-Russia Energy Dialogue, par. 1-6).
The factors
mentioned above made Russia
the main supplier of natural energy to the European Union members. Today, Russia provides the European Union Members with
natural gas mainly through transit through the country of Ukraine and Belarus where there is the
Yamal-Europe pipeline. The main members of the European Union in these imports
are Ukraine, Italy, Hungary,
France, Germany and Turkey. Another critical importer
is Norway
although not among the member states of the European Union. Norway is well
reckoned when it comes to using the renewable sources of energy such as water
and wind although it exports huge amounts of oil at the same time. All the
same, Norway,
the green Scandinavian nation endeavors to be carbon neutral by the year 2030
together with her government she sets aside huge amounts to arrive at this
goal. The manner in which Norway deals
with the policy of energy is very commendable and worth to be emulated by the
European Union. However, this energy from Norway can never be sufficient to meet
the requirements of European’s energy demand (EU-Russia Energy Dialogue, par. 1-6).
Mutual Dependence
The European Union members need to
acquire reliable and sustainable supply of energy with reasonable prices. Import
by the European Union from unpredictable and unstable regions as well as from
unreliable suppliers led to the increasing dependence of energy. A number of
the top consumers and producers use energy as a tool of politics. On the other
side, energy as an economic sector of Russia is both significant and very
important to her and the entire European Union because 80% of the export of
Russia is basically under energy resources sector (Koszalin, pp.11-51). According to Vladimir Milov, of Carnegie Endowment
for International Peace, the concept of “energy superpower” is an illusion
which is not substantiated in reality (EU-Russia Energy Dialogue, par. 1-6).
It is
mostly likely that the concept of energy superiority does not notice the mutual
dependence that exists between consumers of energy and Russia. As a
result of conflicts in politics and a decline in production, supply interruptions
in future to Europe are predictable and cannot
be ruled out. Due to this, a time is coming when the European Companies dealing
with gas will demand the elimination of take-or-pay situations in their
contracts with Russia.
This will pose a threat to the ability of Gazprom to borrow (Koszalin, pp.11-51). The attempt of Putin to use
energy as a way of increasing the influence of Russia may however backfire at a
later stage. This mutual dependency encouraged both parties to assure each
other concerning their trust in the rest of the parties involved. Russia has
never wanted to join the European Union’s policy of Neighborhood because there
was fear that its independence would be betrayed and be treated as a weaker
partner by the European Union (Smith, pp.7-23).
Russia is
making an effort to be an equal partner of the members of the European Union
and therefore the two parties formed four common spaces for unity and
cooperation in the same economic space; in common freedom space, justice and
security; a co-operation space in the area of external security; and in the
space of education, research as well as cultural exchange. It is very important
to note that one of the supreme and most significant subjects of the common
space of economics is the guiding principle of energy. Again, Russia has in
the recent past been accused for using the status of energy as a machination of
politics. The decision of Russia
to cut off the supplies of gas momentarily to Ukraine
in the 2006 winter or during the 2008 Georgian war apparently was a
demonstration of the willingness of Russia to use energy as a weapon in
politics. The “smaller disputes” are quite a number; the Azerbaijan gas export in 2007 came to a stop
since she had not been ready to pay the inflated gas prices by Russia. Since
1991, there almost about 55 incidents involving energy resources of which about
55% (30 cases) had underpinnings of politics (EU-Russia Energy Dialogue, par. 1-6). From al these, the energy
influence of Russia
is a real menace for the members of the European Union.
Research
Questions
Questions of research are basically the tools which give
direction and the purpose for the study. The study included the examination of
the possibility of reducing the EU’s dependence on Russia for the supply of energy.
The satisfaction of the different economies in the European Union was also
another variable to be measured. The research questions which guided the study
were stated as follows:
- Is there a likelihood of lessening the dependence of the European Union on Russia for energy?
- What would be the measures needed in combating the dependence of European Union on Russia for the supply of energy?
Research
Hypotheses
The findings of the
study in this research were anticipated to support at least one of the three
hypotheses which were postulated having their basis on the questions of
research. The first hypothesis targeted the possibility of reducing the
dependence by EU on Russia
for its energy supply. Even though energy supply in the EU entirely depended on
Russia,
emerging evidence confirmed that there was a possibility that this dependence
could be reduced. The instrument of survey in this case was made to get a
measurement of the degree to which dependence on Russia by the member states of the
EU for energy supply were perceived by government officers in planning
institutions. Generally, the following
hypotheses were tested:
- There is a possibility of reducing the dependence by the European Union on Russia for their energy supply.
- The process of making a transition to beat this dependence would majorly rely on the choice of other alternative sources and alternative energy resources.
- There is a high chance of the European Union to continue depending on Russia for her energy supply if the alternatives failed or if new energy policy was not established.
PART THREE
Research
Methodology
The main purpose of this
quantitative case study was to investigate the possibility of reducing the
Russian dependence over energy in the European Union. In arriving at this purpose, the research design seeks to
establish: 1) whether there is a possibility to reduce the Russian dependence
over energy in the European Union; and 2)
the steps that the European
Union could take in dealing with the dependence on Russia for energy. From time in the
past, the dependence on Russia
for energy by the European Union has contributed a lot to the State of the EU economy.
Policies in the energy sector like any
other economic sector are very important in promoting good performance in the
economy. In fact, the energy sector is the key economic drive in any county or
nation that needs to develop. While a country would be required to provide for
its citizens, the contribution of other nations cannot be overlooked. The
European Union energy policy and dependence on Russia for energy supply cannot be
regarded as a healthy position and a safe one for that matter both in present
times and in the future.
Research Design
The
quantitative research methodology was employed to investigate the possibility of
reducing the Russian dependence over energy in the European Union. The research questions were pertinent to
the perception of the held by Economics professionals of the member states of
the European Union on the dependence of the European Union on Russia for
their energy supply. The main issue in this study is the absence of information
on the possibility of reducing dependence by the European Union on Russia for
energy to drive their respective economies. This lack of understanding and
misguided perceptions may be a very challenging fate and at times a very
humiliating affair to the EU (Smith, pp.7-23). This is because their economies could be
swayed to and fro by the so called Russian “energy super power”.
The
possibility of reducing the dependency on Russia by the EU on energy supply as
perceived the member states was a representation of the independent variable
whereas the satisfaction with which these efforts were deemed to bring
satisfaction to the respective economies represented the dependent variable.
The variables of intervention took into account factors of demography, which
included the level of employment in the respective government planning institutions
among the member states. The figure below shows how these variables relate.
Relationship
of variables
A very useful element is that the
participants are recognized as experts through the experiences that they have
in government planning institutions. The design employed in this research
involved the collection of data through a validated instrument of survey. This
was mainly done through a specific instrument of survey which was used in
asking the participants to rate the items in the instrument concerning their
perceptions on the possibility on reducing dependence on Russia for energy
supply by EU as: Never, Seldom, Occasionally, Often, and Always. An instrument
of survey is a very useful tool in measuring the independent variable of reducing
Russian dependence by EU for energy supply as viewed by the participants of the
study, the Economics Professionals for instance and the level of agreement with
the items listed as reported solely by the participants.
Making use of a quantitative
research design of correlation was suitable in making sure that the direction
together with the level of association in between these variables existed
without playing about with them (Creswell pp. 33-77). The design of the study
also took into account an investigation concerning the effect of the efforts
taken by EU to reduce energy dependence on Russia in the respective planning
institutions of the member states. A random sample of 200 professional government
economists from across Europe was targeted for
participating voluntarily in the study.
Design
Appropriateness
A
quantitative correlation study takes into account either making an
identification of the characteristics of an observable fact or may be making an
exploration of the possible relations that exists between several observable
facts or phenomena. This quantitative correlational study of research included
both empirical data generation on the perceptions of professionals in the field
of economics in looking at the possibilities of reducing dependence of the
Russia by EU members for energy supply together with making a determination of
any correlation existing between the efforts being made and the economic satisfaction that is realized
with the implementation of these efforts. According to Creswell (pp. 40-49),
quantitative methods are in most cases appropriate when the matter in question
is making an identification of the factors influencing a result, an
intervention utility, or even gaining the knowledge concerning outcome
predictors.
Deductive
analysis, testing of hypothesis together with the use of standardized
instruments like the one used in the study is all characteristic of methods of
a quantitative nature according to Creswell (pp. 46-53). These kinds of methods
are both useful and most appropriate to any data that is observable, measured and
also analyzed in a numerical way. The
characteristics and the factors influencing economic performance are both quantifiable
and perceptible. Therefore, the standardized instrument of survey which was
made to determine the perceptions of the measures taken in reducing energy
supply dependence by EU on Russia
was utilized in gathering the required data for this study. A quantitative
method of research was therefore best applied and suited than qualitative or
mixed methods of approach for study for the reason that the hypotheses could
not match well with them.
The first
hypothesis needed the study to explore the possibility of reducing the
dependence of EU on Russia
for its energy supply as chances are that the EU can use alternative means
apart from relying on Russia.
Primary energy production in EU amounted to 849.6 million
oil equivalent tones in the year 2007. This marked a perpetual decline in
production since raw materials supply and the exploitation of the scarce
resources were not economical. The UK for
instance who previously produced 27.3% of the EU share in 1997 produced only
20.4% of the EU share in 2007. Poland
was similarly affected while France
and Germany
maintained their production levels. The decline in energy production of lignite
and crude oil ultimately made EU dependent on the importation of primary energy
to meet demand. These imports surpassed the exports in 2007 by 988.4 million.While a qualitative method would
collect data and information on perceptions of the professional economists
pertinent to energy and economics, the amount of data needed determining
representativeness as well as the creation of a sound analysis in a large
government institution would be enormous. Practical matters which took into
account sample size sufficiency, constraints of time, and the purpose of
generalization of findings from the participants to the entire institutions of
government planning did not allow making use of a qualitative technique. This
is because qualitative research includes a search to make a study of a deep
understanding and requires considerable time. An approach through mixed methods
would involve both quantitative and qualitative techniques and eventually
increase the requirements of time for completing the research study. However, a
library search was necessary in developing the survey instrument.
The hypothesis in addition related to
the way stable energy policy serves as a liaison between governments and their
economic success. The EU-27
origin of energy imports has greatly changed within a short period in the
recent pats. About a third (30%) of the EU-27 crude oil imports came from Russia.
This was almost 12% higher than it was the case in 2000. Russia later became the main
provider of hard coal which saw it rise from about 8% of its share in EU-27 to
almost 23% by 2007. However, there was a decline in the share of Russia
for natural gas which reduced to about 31% from 40% in 2007 and 2000 respectively.
A quantitative approach offers the
statistical testing and proving of the empirical hypotheses. This is achieved
through the analysis of reliable, thorough and more so verifiably huge data
aggregates. Data for a casual
interrelation like studies of correlation is to be obtainable in a format which
is quantifiable. The examination of statistical association measures is
included under a research through a quantitative approach. The correlation
design of research is a research of quantitative nature. A design of
correlation is most suited in studying a matter which requires the researcher
to identify the direction as well as the level of association that exists
between two groups of scores as in the case which is currently under
investigation. While an approach of correlation design does not establish the
cause or even the effect as a design of experiment or quasi-experimental
design, the potential casual factors can be determined from the range and
direction of the relations of variables. The complexity of organizational
surroundings perplexes the researchers’ ability to determine causation. Associated disparity or the happening of two
observable facts or events varying together can be shown by a research of
correlation clearly pointing out how the variables relate.
The second hypothesis focused on the
transition that the EU has to make stating that the process would be a gradual
one. This is because Russia continues to dominate the market as her exports of
natural gas were not affected in terms of quantity. The security of the primary
supplies of energy of the EU could be threatened if a bigger percentage of the
imports centers on few partners. About 64% of the EU natural gas imports were
from Norway, Russia and Algeria. An analysis made showed
that 64.5% of the hard coal imports were from Russia,
Colombia, South Africa or Australia. In the research, the direction together with
the level of these relationships of the anticipated changes to reduce energy
supply dependence and the economic satisfaction the EU member states were
determined. The measurement of these two: reducing dependence on Russia for
energy supply as a variable and the satisfaction anticipated with the changes as
the other variable took place concurrently by the application of a validated instrument
of survey designed specifically for the study. The survey instrument was
appropriate and at the same time a reliable tool for measuring the economic
importance of redefining the EU energy policy while at the same time taking the
measurement of economic satisfaction for individual member states within the Union.
The hypothesis also made an
exploration of the energy policy and the setting. The simultaneous measurement
of variables is suitable in the studies of correlation that look for
relationships. In fact, about 60% of the imports for crude oil were also from Russia and other areas like Libya, Norway
or Saudi Arabia.
The EU-27 dependency on imports of energy moved from below 40% in the 1980s to
53% by the year 2007. The largest rates of energy dependence were recorded for
crude oil (83%) with natural gas forming about 60%. Making use of the design of a
correlation research helped in reaching the goals and the intentions of the
study since studies of correlation are particularly useful in getting knowledge
pertinent to the extent to which these variables under examination are
associated. The analysis of correlation makes provision for a solution to the
questions of research of if any relationship or correlation is in existence
between both variables. A quantitative approach in research having subsequent
analysis of data makes provision for an appropriate approach for the
identification of trends, making a comparison for various groups or may be by
linking variables.
Creswell argues that quantifying techniques
have come to existence to give an emphasis of the collection of data for the
reason of analyzing and making provision of a score or a number. The context of
each and every participant is imperative while at the same time integral to the
manner in which he or she frames the issue as well as ranking the information
in the context in terms of how difficult it was. Even though the study would
have taken into account a qualitative design of research, the research
questions themselves with the knowledge of the perceptions of the economists
were the determinants of the methodology of collecting the data required.
PART FOUR
Reducing
Energy Dependence
The European Union has already realized the need of reducing
the dominance of Russia
and more especially in the energy sector. The following have been found most
efficacious alternatives in reducing energy dependence.
- Robust Energy Policy
In the first place, the European Union had to come up with a
good policy of energy; even though the European Union originated from the
European Steel and Coal community while legislations on policy of energy have
been carried out on a continual basis, real energy policy of the European Union
members was attained by the year 2005.
- Renewable energy sources
Moreover, the development and the establishment of renewable
source of energy and hereby the reduction of non-renewable energy resources
became a very useful energy matter by the members of the European Union. At the
European conference for renewable energy in 2004, a conclusion was made stating
that the European Union would by the year 2020 attain 20% of its complete
consumption of energy requirements by making use of resources which are renewable. This would profitably cut down on
carbon dioxide emissions. Today, less than 7% of the European Energy mix comes
from such resources that are deemed renewable (EU-Russia Energy Dialogue, par. 1-6).
- Alternative pipelines of gas
To reduce dependence by the European Union on the supply of
gas by Russia and thereby the insecurity of the practices of the Kremlin, the
European Union has constructed a natural gas transport pipeline taking the
resource from Turkey through to Austria, Bulgaria then to Romania and later to Hungary in what is commonly referred
to as “Nabucco
Project.”
The
European Union had to balance out her imports and exports in order to perform
well in economic matters. This is all in the effort of promoting an open
economy; a situation where the government of the leading body like that of the
European Union has to make considerations concerning the effects of the
internal policies affecting the foreign sector for instance if a country is to
increase its rates of interest, this discourages the out flow of capital and
promotes capital inflow. This difference of capital out flow and the capital
inflow has a great impact on the rates of exchange. Russia’s state of energy superpower
would manipulate the economies of the member states of the European Union if
not dealt with. A sudden inflation of energy prices by the Russia causes a
rise in price in the entire European Union economy. This will automatically
amount to high rates of inflation which will increase the chances of an
economic recession. It is very imperative for the European Union to have these
measures established in order to have a stabilized economy. This will make it
possible for the European Union to regulate its resources by either allowing inflation
to rise and later fall hence facilitating a recovery to the recession by
lowering the rates of interest. However, the EU may opt to lower the rates of
interest instantly to avoid a recession. All the same, the choice of either of
the two options depends entirely on the interest rate levels and the inflation
of a given economy. Lowering rates of interests increases the aggregate demand
shifting back the probable output to the initial level. This is very important
for the EU economy to avoid a recession since inflation cannot be avoided.
Conclusion
From this research, it is very
possible to reduce the Russian energy reliance by the European Union although
not completely. If the Russian energy organizations and
Companies are available in all areas which could be alternatives to the EU and
more especially if the anticipated project of “Nabucco” failed, then there will
not be any other choice left for the European Union other than making purchases
from Russia
or may be from firms having Russian interest. Getting these resources from Russia is up to
date the cheapest way of energy supplies due to the geographical location and
extant Russian energy infrastructure. It should also be noted that the energy
supply from Russia to Europe has traditions with it whilst with a new major
supplier, it is important for the EU to have an experience of new cultures and
how to secure a safe relationship of business and dependable energy policy with
other new partners.
From this study, the Russian approach to
energy policy could have some changes by a well coordinated European energy
policy. Having a secure energy policy is only attainable if both external and
internal relations are coordinated by the EU. The members of the European Union
have the right to take the choice of their supplier of energy where they would
acquire their energy demand. The energy policies of the members of the EU do
not correspond exactly with one another (Koszalin, pp.11-51). Therefore, a common external policy of energy would be
considered desirable. This policy of energy should combine all the internal and
external EU energy policies. This would
be a good measure taken by the EU to fight more effectively against the
dependence on the significant external suppliers of energy which destroy the EU
internal market.
The
European Union has altogether realized the need of making use of renewable
energy resources in place of non-renewable resources and taken up the steps of
creating a greener Europe. However, these
steps are not yet fully developed. The governments of the members of the
European Union should well emphasize the need of green economies, for example
they must invest in technologies which are friendly to the environment, or
spend extra funds on the establishment of public transportation to make sure
that the cars used are few.
Works
Cited
Creswell, John. Research design:
Qualitative, Quantitative, and Mixed Methods. Approaches (2nd Ed.). Thousand
Oaks, CA: Sage, 2003,
pp. 33-77
EU-Russia Energy Dialogue. < http://www.euractiv.com/en/energy/eu-russia-energy-dialogue/article-150061>.
24th Sept. 2007. 3rd Dec. 2010, par. 1-6
Koszalin, Andreas
Heinrich. “Gazprom’s Expansion Strategy in Europe
and the Liberalization of EU Energy Markets. Russian Analytical Digest. (Research Centre for East European Studies)
(34 Russian Business Expansion). 2008, pp. 11-51
Robert, Kaufmann, Stephane Dees, Pavlos Karadeloglou and Marcelo Sanchez. Does OPEC Matter? An
Econometric Analysis of Oil Prices. The Energy Journal,
2004, vol. 25, issue 4, pages 67-90
Smith, Keith
(2008). Russia and European Energy Security-Divide and Dominate. Center for
Strategic and International Studies. pp. 7; 9; 11; 22–23
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