External Energy Security in the European Union: Small Member States’ Perspective [Hardcover ed.] 0815364857, 9780815364856

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External Energy Security in the European Union

This book explores the positions of small EU members in approaching external energy security, using Austria, the Czech Republic and Slovakia as case studies. It examines when small EU members support and when they oppose further development of cooperation at the European level in external energy security and argues that their preferences depend on their perceived ability to deal with the challenges of their energy policies. It finds that small EU members whose decision-­makers believe that their states can successfully deal with these challenges do not support the deepening of European integration in external energy security as this would mean a loss of competences (and vice-­versa), concluding that European integration is considered to be a response to perceived vulnerability. This book will be of key interest to scholars, students and professionals in EU politics and foreign policy, energy policy and security, and more broadly to security studies, European politics and international relations. Matúš Mišík is an Assistant Professor at the Department of Political Science at Comenius University in Bratislava, Slovakia. He has published several articles and regularly writes for the leading Slovak dailies, commenting on energy policy related topics in the electronic media.

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External Energy Security in the European Union Small Member States’ Perspective

Matúš Mišík

First published 2019 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 52 Vanderbilt Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2019 Matúš Mišík The right of Matúš Mišík to be identified as author of this work has been asserted by him in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data A catalog record has been requested for this book ISBN: 978-0-8153-6485-6 (hbk) ISBN: 978-1-351-10653-5 (ebk) Typeset in Times New Roman by Wearset Ltd, Boldon, Tyne and Wear

For Nada, my everything

Contents



List of illustrations Acknowledgements List of abbreviations



Introduction

ix x xii 1

Research design of the book  6 Literature on European integration in the energy policy  7 The main argument  10 Case selection: small EU member states  13 Aims of the book and its contribution to the current debate  15 The structure of the book  16 1

Preference formation and external energy security

23

External energy policy of the EU and external energy security  24 Small member states of the EU  32 Three challenges of small EU member states in external energy security  36 Case selection and data  43 Conclusion  46 2

The EU and its energy sector

55

Energy sector of the EU  56 Key position of natural gas for EU external energy policy  63 Conclusion  75 3

Development of EU energy policy and its external dimension Liberalization as the main objective of the nascent EU energy policy  82

80

viii   Contents Energy security and the eastern enlargement of the EU  86 The gas crises and the following development of EU energy policy  91 Conclusion  95 4

External challenge

101

Slovakia’s vulnerable position  102 The Czech Republic’s critical approach towards Russia  107 Austria as an important Russian energy partner  111 Conclusion  116 5

Internal challenge

121

Limited influence of Slovakia  122 Czech perception of their ability with some limitations  126 Austria’s strong position within the EU decision-­making process  130 Conclusion  135 6

Business challenge

141

Slovakia’s positive approach towards energy companies  143 Vulnerable Czech position  147 Austrian mutually beneficial relations  150 Conclusion  154

Conclusion

158

Main findings  160 Contribution to existing research  162 Policy implications  164

Appendix Index

167 169

Illustrations

Figures 2.1 EU 28 consumption of natural gas 1990–2016 2.2 EU 28 production of primary energy 1990–2016 2.3 EU 28 energy dependence 1990–2016

57 59 60

Tables 2.1 Basic energy sector indicators 2.2 Energy mix of the three studied countries

62 63

Acknowledgements

This book is a result of a long process that included support of many people and institutions. I would like to gratefully acknowledge help of all those who supported me in this process and I hope that I have not forgotten to include anybody. If that is the case, I sincerely apologize. All mistakes in this book are, however, mine and I consider them to be a difficult to completely avoid part of a learning process. The original idea for this book was created at my home institution – the Department of Political Science at Comenius University in Bratislava – and I would like to acknowledge the support of Darina Malová, Erik Láštic as well as other colleagues with whom I have discussed arguments presented in this book. My participation on the project “Changing patterns of EU foreign policy and the small member states” (APVV-­0484-10) lead by Jozef Bátora, enabled me to conduct empirical research and I would like to acknowledge this invaluable contribution. An important impulse for the development of this book was provided by a post-­doctoral fellowship at the European Union Centre of Excellence at the University of Alberta where I have written an article that served as a starting point for this book. I would like to thank Lori Thorlakson and Skirmante Tamelyte for creating a very supportive and inspirational environment during my stay in Edmonton. Their support and friendship significantly contributed to my development as a scholar. The book is closely connected also to my stay as a visiting professor at Carleton University in Ottawa, where I turned my empirical research and partial texts into this book. I would like to acknowledge support especially from Achim Hurrelmann, Joan DeBardeleben and Cathleen Schmidt but also by all others who helped me during that stay and contributed to the development of an environment perfectly suited to writing. I have presented my ideas connected to this book at several events and I would like to underline the 2014 European Consortium for Political Research (ECPR) General Conference in Glasgow and all the participants who contributed to the fruitful discussion, especially Anna Herranz Surrallés and Anke Schmidt-­Felzman. This book was written within the project “Priorities of the Central and Eastern European Countries in the context of Energy Union” (APVV-­16-0062) generously supported by the Slovak Research and Development Agency. A great team involved in this project enabled me to fully concentrate on my research and discuss new ideas and

Acknowledgements   xi a­ rguments. I would like to thank also all the interviewees that took their valuable time to talk to me about energy policy. I really appreciate their contribution to this project that was crucial for its success. My thanks go also to the Routledge team – Andrew Taylor and Sophie Iddamalgoda – whose friendly approach and professionalism inspires me. A special place in these acknowledgements belongs to Nada Kujundžić who has supported me during the whole process of preparation of this book and whose determination, diligence and personal integrity have helped me a lot during periods when the completion of this book seemed to be unattainable.

Abbreviations

BACI bcm CEE ČEPS ČEZ EC ECSC EEA EMU EPH ESDP EU EUGAL Euratom GDP IEA IGA IKL ISO ITO LNG mcm MEGAL Mtoe NATO NPP OBIB OMV OPAL OPEC PCI PHARE

Bidirectional Austrian-­Czech Interconnector billion cubic meters Central and Eastern Europe Česká energetická přenosová soustava České energetické závody European Commission European Coal and Steel Community European Economic Area Economic and Monetary Union Energetický a průmyslový holding European Security and Defence Policy European Union Europäische Gas-­Anbindungsleitung European Atomic Energy Community gross domestic product International Energy Agency intergovernmental agreements “Ingolstadt–Kralupy nad Vltavou–Litvinov” pipeline Independent System Operator Independent Transmission System Operator liquefied natural gas million cubic meters Mittel-­Europäische-Gasleitung million tonnes of oil equivalent North Atlantic Treaty Organization nuclear power plant Österreichische Bundes- und Industriebeteiligungen Österreichische Mineralölverwaltung Ostsee-­Pipeline-Anbindungsleitung Organization of Petroleum Exporting Countries Projects of Common Interest Poland and Hungary Assistance for the Restructuring of the Economy

Abbreviations   xiii RBMK RES RWE SMV SPP TAG TEN-E TSO TWh VVER WAG

Реактор Большой Мощности Канальный (Reaktor Bolshoy Moshchnosti Kanalnyy) renewable sources of energy Rheinisch-­Westfälisches Elektrizitätswerk Sowjetische Mineralölverwaltung Slovenský plynárenský priemysel Trans-­Austria-Gasleitung Trans-European Networks for Energy transmission system operators terawatt hour водо-водяной энергетический реактор (Vodo-­Vodyanoi Energetichesky Reaktor) West-­Austria-Gasleitung

Introduction

Energy has had a prominent place in world development (Smil, 2017) and a specific place within the European Union since the very beginning of the integration project within Western Europe in the 1950s (Matláry, 1997). As the well-­ established – and often repeated – claim argues, two out of three intergovernmental treaties that created the European Community – the treaty establishing the European Coal and Steel Community (ECSC) and the treaty establishing the European Atomic Energy Community (Euratom) – dealt with energy-­related issues, only the treaty establishing the European Economic Community was not in any way connected to energy. However, these treaties only implicitly mentioned energy; as such they did not provide a legal basis for the development of an EU energy policy (due to lack of explicit mentioning of energy in their texts) and no energy policy was therefore created at the European level during the first decades of the integration project. Indeed, member states were reluctant to transfer competences in energy policy – and especially energy security – to the European level, i.e. the European Commission (EC) (Pointvogl, 2009). Therefore, their response to the 1973/74 oil crisis supported solutions at the level of individual states (or within an intergovernmental organization like the International Energy Agency – IEA), rather than within the European Community (McGowan, 2011). A large part of the following decade was, generally speaking, a period of low energy prices, and consequently, also perceived high energy security. There was sufficient amount of different energy commodities on the global market, the period was free of major events and even energy supplies from the Soviet Union – the principal nemesis of the Cold War era – to Western Europe were frictionless during this period (Högselius, 2013; Perović, 2017). Therefore, energy policy did not belong among the top priorities of the European Community during this decade and it did not get to the table until the internal energy market creation at the end of the 1980s and beginning of the 1990s (Tosun et al., 2015). However, the development of the energy market was driven predominantly (if not exclusively) by the liberalization agenda that was underway within the Community also in other areas like telecommunications. Still without a specific legal basis in primary law (neither the Single European Act of 1986 nor the Maastricht Treaty of 1993 established energy as a common EU policy by explicitly

2   Introduction ­ entioning it), energy rules borrowed their legal backing from affiliated areas m such as environmental policy or they used more general liberalization articles (Kanellakis et al., 2013). Indeed, the 1990s energy agenda was developed as part of the Single European Market and therefore had a very strong liberal dimension, which dominated the nascent EU energy policy (Kuzemko, 2014) focusing on the establishment of an internal energy market and the break-­up of traditional vertically-­integrated and state-­owned energy companies. Energy security was not widely debated within the EU during the 1990s and early 2000s. It was only in 2009 when the Lisbon Treaty was adopted that energy policy gained legal basis at European level. The treaty includes energy policy among shared competences between the member states and the EU in its article 194. Energy policy was thus incorporated into primary EU law (Szulecki, 2018) and all new secondary legislation governing energy issues could have started to be based on this article. However, acknowledging the nascent nature of the policy, the Lisbon Treaty does not use the term ‘EU energy policy’, but ‘EU policy on energy’. Indeed, there is currently no common energy policy at EU level comparable to existing fully developed common policies (for example, the Customs Union or the Common Commercial Policy), not only because this policy belongs among shared policies, but also due to the fact that it is still being developed and many issues are still firmly in member states’ hands. The Energy Union project supports future development of the policy as it connects its different dimensions under a common ‘roof ’. Although this book acknowledges such complex nature of energy policy at the EU level, it uses the term ‘EU energy policy’ as it builds on existing literature that – basically unanimously – uses this term. The energy liberalization agenda of the internal energy market of the EU that was established during the 1990s introduced a set of rules aiming to support competition, which was viewed as crucial for the improvement of end customers’ position in the market (Ciambra and Solorio, 2015). External energy relations were not linked to this endeavour as the solution to energy security issues was seen as being connected to the liberalization processes: namely, a well interconnected single energy market fosters market tools, which can be used to deal with all energy policy related issues including energy security (Aalto and Temel, 2013). Special focus on energy relations with third – supplying – countries was thus not needed. The liberal dimension is, by many, considered to be at the core of EU energy policy and has also been seen as a significant influence on its external dimension. For instance, Goldthau and Sitter (2014) argue that the liberal nature of the EU and its energy policy tools pursued by the Commission remained unchanged even after the world had begun to view energy from a more realist perspective that required a different set of instruments. The Commission also started to use the liberal energy tools that were at its disposal outside of the internal energy market, but in a way that reflected the changed nature of global energy policy more accurately. From this perspective, external energy relations (including energy security) have been dealt with by the EU and the Commission with a set of tools developed to govern the internal energy market. Indeed, it has been argued that the Union is a market-­ oriented actor within the market-­based/geopolitical discussion on how to deal with

Introduction   3 energy supplies (Romanova, 2016). Put differently, the EU has focused its ­external energy relations on the creation of a common regulatory space (i.e. external energy governance) and not on “directly involving [itself] in pursuing bilateral energy deals or infrastructure projects” (i.e. energy diplomacy) (Herranz-­Surrallés, 2016: 1386). This monograph is based on a different set of assumptions. The arguments presented here stem from a claim that two sets of tools are necessary to achieve energy security of EU member states. These tools are not always interchangeable and therefore we need both in order to achieve energy security. A functioning internal energy market enables energy to flow freely within the Union and is thus crucial for internal energy security. However, the EU member states also need access to energy sources from third parties, as they cannot cover their consumption from domestic sources. The EU member states have not been self-­ sufficient in the energy sector for a long time and the dependency on external supplies has increased with the decrease of domestic production. Therefore, the EU also needs an external dimension to its energy policy to safeguard external energy security (for a distinction between internal and external energy security, see, for example, Maltby, 2013). This book puts emphasis on the importance of specific sets of tools connected to external energy relations necessary to support energy security of the European Union and its member states. Energy security is a central concept of this book; therefore, it has to be introduced at the very beginning of the text. However, at the same time, energy security is a very difficult concept to grasp and work with (see discussions in, for example, Ang et al., 2015; Sovacool and Mukherjee, 2011; Zeng et al., 2017). This fact sometimes results in a lively conversation that confirms the difficulty to define the term in a precise and concise way (Sovacool, 2011 vs. Cherp, 2012). Ergo the book dedicates a separate section of the theoretical chapter to the discussion of this concept, rather than discussing it at this point. For the purpose of providing a basic idea about this concept within this introduction, we can define energy security as an uninterrupted availability of energy sources that an entity requires. External energy security focuses on the external dimension of energy security that manifests itself in relations between energy importing and energy exporting countries. This is, however, only a preliminary definition, more thorough examination of the concept can be found in the theoretical chapter (Chapter 1). Member states were not interested in bringing external energy policy (including external energy security) to the European level for several decades of European integration. They preferred bilateral relations with their external energy providers, and this situation has not changed after post-­communist countries from Central and Eastern Europe (CEE), for which energy security was already a priority, joined the EU in 2004 during the eastern enlargement of the EU. Although these new members tried to bring external energy issues to the EU table immediately after their accession, internal market integration was still seen as an adequate tool for securing sufficient energy within the EU by many ­stakeholders (Mišík, 2015). Bocquillon and Maltby (2017) argue that structural

4   Introduction conditions like the economic crisis at the end of the 2000s or the 2006 and 2009 natural gas crises had a much more significant impact on the energy policy of the EU than the enlargement itself. Indeed, it can be claimed that the 2009 gas crisis especially was a milestone in (not only external) energy security development at the EU level. With the latest development in the area of energy supplies to the EU (or more precisely its member states), the positions of many EU countries, as well as the Commission, have changed (see, for example, Maltby (2015) on the Bulgarian case). As Herranz-­Surrallés (2016) argues, the trend has already been visible since the late 2000s, when the EU started to depart from the external energy governance model in favour of energy diplomacy. The smaller natural gas crisis of 2006 was especially alarming for the CEE countries (Austvik, 2016); however, the Western part of the Union remained calm and rejected the Commission’s efforts to take specific steps to improve the EU’s position vis-­à-vis its main energy suppliers (Mayer, 2008). On the other hand, the 2009 crisis, which caused severe problems for several member states as a full cut-­off of natural gas supplies left them without supplies in the middle of winter (and the heating season), was an eye-­opener for practically the entire EU. External energy security became one of the main issues within the energy area at the EU level and an important policy priority for the 2014 Juncker’s Commission. Increased interest was now being paid to securing energy supplies to the EU from external sources. Such development was mirrored also in academic writings as the late 2000s saw increased interest in different issues connected to energy security within the EU (Prontera, 2018). What made external energy relations a crucial part of EU energy policy in addition to the 2009 gas crisis, was the conflict between the Russian Federation and Ukraine, which peaked in the spring of 2014 with the annexation of Crimea (Goldthau and Sitter, 2014). The Commission has been developing a more assertive position, in particular since 2015 when the Energy Union was introduced (Andersen et al., 2017; Siddi, 2016; Szulecki et al., 2016). Moreover, uncertainty about natural gas transit via Ukraine, coupled with new proposed pipelines from the Russian Federation to Europe (for example, the South/Turkish Stream or the Nord Stream 2) and the implementation of new EU rules concerning the gas market, created further challenges for mutual energy relations (Siddi, 2017). Thus, the critical development in relations between the Russian Federation as the main external energy supplier and Ukraine as the key transit country (and an object of European Neighbourhood Policy) pushed external energy relations to the centre of EU energy policy (ibid.). In addition to issues related to the Russian Federation (more precisely, Gazprom as the monopolistic exporter of gas from Russia; Konoplyanik, 2012) as the main EU external energy supplier, further reasons why external energy policy has gained importance at the Union level can be identified. A negative long-­term outlook of EU energy (especially natural gas) supply caused by decreased domestic production, an expected decrease in production in Norway and the unknown consequences of Great Britain’s withdrawal from the EU

Introduction   5 (Brexit) triggered expectations of significant changes in gas supply structure to the EU and increased reliance on third-­country suppliers. Many member countries with limited diversification and energy supplies coming predominantly or exclusively from the Russian Federation viewed such changes as especially alarming. The Russian Federation is seen by many countries as an unreliable energy partner (due to the 2009 gas crisis), and its current decision not to continue transit through the Brotherhood pipeline via Ukraine to the EU after 2019 further fosters such negative positions (Mišík and Nosko, 2017). As a reaction to this situation and the annexation of Crimea – at that time the most pressing problem of EU–Russia relations – the then Polish prime minister and soon-­to-be President of the European Council Donald Tusk proposed a new energy project entitled ‘Energy Union’ in the spring of 2014 (Tusk, 2014). The proposal aimed to create a unified EU energy policy including an external energy security dimension. The Polish Ministry of Foreign Affairs further developed Tusk’s ideas into a non-­paper titled Roadmap towards an Energy Union for Europe (MFA Poland, 2014), which included six pillars: (a) infrastructure; (b) solidarity mechanism; (c) strengthening the bargaining power of member states and the EU vis-­à-vis external suppliers; (d) development of indigenous energy sources in the EU; (e) diversification of energy supply to the EU and (f ) reinforcing the Energy Community. The project was later taken over by the European Commission as Jean-­Claude Juncker included it among the top five priorities of his Commission. The Energy Union was officially introduced as a European Commission project in February 2015, under the name Framework Strategy for a Resilient Energy Union with a Forward-­Looking Climate Change Policy (European Commission, 2015). The official proposal consisted of five areas: (a) energy security; (b) the internal energy market; (c) energy efficiency; (d) decarbonization of the economy; and (e) research, innovation and competitiveness. It also included ‘action steps’ – a blueprint for achieving the goals of the Energy Union. The above-­mentioned challenges in the energy policy area created expectations that the EU will be much more dependent on external energy supplies in the future, which will not only negatively influence energy security as such, but will also become a burden on the EU budget. One of the goals of the Energy Union is therefore to react to this situation. The project suggested creation of a ‘common EU voice’ that should improve the position of member states and the EU towards their main energy suppliers. Although external energy relations (directly connected to energy security) were much more prominent in Tusk’s original proposal than in the official European Commission’s strategic document (Austvik, 2016), they remained an important part of the updated project and are still being further developed. However, reactions of EU member states to the proposal were not overwhelmingly positive and a few countries even presented critical positions (see, for example, the UK and CR non-­paper, 2015).

6   Introduction

Research design of the book This book examines these developments at the EU level and analyses the policy choices of small member states in external energy security. Energy security, the crucial dimension of external energy policy, has become one of the EU’s top priorities after the 2009 gas crisis and many member states as well as the European Commission support further development of integration in this area at the Union level. While these actors are more or less unified in their position on the further development of tools within the EU internal energy market, aiming to improve energy security (e.g. diversification, building new interconnectors, liberalization rules), the question of how to approach relations with supplying countries divides member states. Some are more supportive of the development of a common EU approach towards third countries that supply the EU countries with natural gas (as well as other energy sources), while others are in favour of keeping competences in their own national hands. The main research question of this book thus asks under which conditions small EU member countries support the transfer of competences in external energy security to the EU level, and when they oppose further deepening of European integration in this area. The main argument presented in this text claims that the concept of perceived vulnerability can shed light on the reasons why some small EU member states support the deepening of integration in external energy security, and why others do not. This concept can be operationalized with the help of three partial challenges: the external, internal and business challenge. Small EU members whose decision-­makers believe that their states are able to successfully deal with these challenges do not support the deepening of integration in external energy security as this would mean a loss of competences in this policy. On the other hand, small EU members whose decision-­makers do not believe in their states’ ability to deal with these challenges and perceive them in terms of vulnerability, support the transfer of competences to the EU, as they see the united EU with a single voice to be more capable to deal with external energy security. The united EU is seen as a strong actor that is able to help small – and vulnerable – members reach their goals. This claim is not only applicable to general trends connected to the further development of external energy security, but can also be used to explain the positions of small EU countries towards individual policy proposals. Therefore, while this book is predominantly interested in the big picture – it analyses the general development of external energy security at the EU level and preferences of small EU members – the arguments presented in it can be also used to explain positions of small member states towards individual policy proposals or new legislation at the EU level. The book thus examines the general development of EU energy policy, while acknowledges the divergent positions of individual member countries towards partial proposals. The monograph bases its empirical arguments on evidence from three countries: Austria, the Czech Republic and Slovakia. Although small member states gained importance within the consensus-­based EU decision-­making process after

Introduction   7 the eastern enlargement of the EU they still present an under-­researched area of study. The book focuses on natural gas as an energy source that has proven to be one of the most challenging at EU level, not only from the specific perspective of this book (external energy security), but also in terms of the liberalization process within the internal energy market. The specific nature of natural gas and its market that is – in spite of improved interconnections and increased liquified natural gas (LNG) supplies, as well as the rising number of LNG terminals in Europe – still predominantly regional, makes this type of energy source especially challenging. However, the book does not exclude other types of energy sources from the analysis. While these do not have such a prominent place within the analysis as natural gas, they still contribute to the overall argument and illustrate the breadth of the energy security issue within the EU.

Literature on European integration in the energy policy Academic literature on EU energy policy reflects the development of the policy itself quite closely; since the policy started to be developed only during the late 1980s, literature on this topic emerged only slowly afterwards with authors concentrating on the nascent internal energy market (for example, Golombek et al., 1998 or Padgett, 1992). The research interest shifted later towards external energy relations and energy security after the 2006 and, especially, the 2009 gas crises (among many others see Batzella, 2018; Maltby, 2015; Mayer, 2008; Roth, 2011). Current research focuses predominantly on the Energy Union project and its many dimensions; in addition to external energy security, these include the internal market, renewables or nuclear energy (Austvik, 2016; Lawrence et al., 2016; Ringel and Knodt, 2018; Siddi, 2016; Szulecki, 2018). The complexity of this ever-­growing scholarship can only barely be captured in the small space this introductory chapter provides; this section therefore only sketches the development of this literature by discussing some of the works that have been written on the subject and thus presents only a general overview of the existing scholarship. Neither does this section aim to analyse all the existing scholarship. The energy policy literature has boomed during the last period: for example, in an effort to develop social science programmes for energy policy research, Sovacool (2014) analysed 4444 articles published in leading energy journals. The first, seminal work on EU energy policy was written by Janne Matláry (1997), who examined the role of the European Commission in the internal energy market development. She argued that since the early 1990s, the Commission has been trying to gain new competences in the energy sector, including areas in which it was not mandated to do so by the member states. Ten years later, this conclusion was supported by Mayer, who claimed that although member states refused to grant the Commission more competences in the energy area, the latter “has still been able to informally exploit its own institutional position in between intergovernmental bargains” (2008: 270). In addition to path-­ dependent dynamics, the Commission also utilized the windows of opportunity

8   Introduction created by the 2006 energy crisis (see also Roth, 2011). As a result of such behaviour, the status of the Commission is difficult to define: it “can neither be conceptualized as an obedient subordinate with a servant-­like status, which passively fulfils assignments delegated to it by EU governments, nor as an autonomous supranational actor entirely immune from political member-­state control” (Mayer, 2008: 271). The main goal of the Commission is to ensure a reliable flow of hydrocarbons to the EU – in other words, to take care of external energy policy. Mayer’s was thus one of the first papers to include external dimensions into an analysis of EU energy policy. Similar patter in the Commission’s behaviour was noted also by Maltby in connection to the 2009 gas crisis when the Commission played a role in the “gradual social construction of energy dependency as a problem” (2013: 441). This issue was closely connected to the Russian Federation as the main energy supplier of the Union. What especially contributed to the perception of Russia as an energy security threat was the eastern enlargement (which increased the number of member countries dependent on Russian supplies), as well as the energy price increase. Such development enabled the Commission to construct energy dependency as a problem that in turn helped it to further strengthen its own position within external energy policy at the EU level. The distinction between the internal and external dimension of energy policy (security) has been widely, although often only implicitly, used. This distinction is connected to emerging EU energy diplomacy – i.e. the use of foreign policy tools to secure energy supplies. The EU external energy policy is “a hybrid mode […] characterized by new instruments of energy diplomacy, but largely interpreted and enacted through the lens of energy governance”, as policy practices, contrary to policy discourse, are characterized by “the usual division of labour: EU-­level external energy governance and national energy diplomacies” (Herranz-­Surrallés, 2016: 15). The EU uses both external and internal energy policy tools to follow its external energy policy goals. External energy policy has become a prominent issue not only within EU energy policy, but also within academic (and policy) analyses of energy policy area. This does not mean that the internal energy market is not important for the EU or that it was side-­tracked – the Energy Union has several goals connected to this issue and the research on the internal market is still on-­going. Within the area of external energy policy, relations between the EU, its member states and Russia as the main energy provider, have all been analysed (Bilgin, 2009; Judge et al., 2016; Neuman, 2010; Orttung and Overland, 2011; Siddi, 2017). Kratochvíl and Tichý (2013), for example, analysed the EU and Russian discourse on mutual energy relations, and concluded that it revolves around three main issues: integration, liberalization and diversification. However, both countries have different points of view, which causes frictions and misunderstandings in mutual relations. The integration discourse is dominant in both cases, which goes against the securitization argument presented in the literature. Although the EU’s dependency on Russian gas supplies was not considered to be a security threat at the beginning of this decade (Casier, 2011), the

Introduction   9 perception has shifted more towards this attitude as the conflict between Ukraine and the Russian Federation peaked during the first half of 2014. The reason for seeing EU–Russia energy relations as a challenge stems from shifting identities and perceptions of the relations. This development was fostered by changes in the global energy market situation and the eastern enlargement (Casier, 2011). Individual member states’ energy relations with the Russian Federation have also been examined (for example, Binhack and Tichý, 2012; Mišík and Prachárová, 2016 within the EU context; Grigas, 2013 from a broader perspective). Analysing the interdependence in energy relations between the Czech Republic and the Russian Federation, Binhack and Tichý (2012) claim that possible situations in mutual energy relations cannot be limited to one of the equal interdependence types. Contrary to that, Czech energy sensitivity and vulnerability (two components of interdependence theory) towards the Russian Federation put the supplier into an advantageous position. However, EU membership and regional cooperation within the Visegrad Group help the Czech Republic counterbalance the existing asymmetry. The importance of EU membership for energy security was also shown in the Lithuanian case, although the position of this country was complicated by the EU’s requirement to shut down its only nuclear power plant, which had a negative impact on the level of dependency on Russian supplies (Mišík and Prachárová, 2016). The country built an LNG terminal at the end of 2014 that significantly changed not only the balance between the Russian Federation and Lithuania, but also, the newly established competition for the, until then, monopolistic supplier of natural gas caused a decrease in the price of pipeline gas provided by Gazprom. The dominant role Poland has been trying to assume within the EU is also mirrored in its efforts to upload its energy policy preferences to the EU level. Immediately after joining the EU the country wanted to push through its views on energy relations with the Russian Federation, but was not very successful in this endeavour: its ‘Energy NATO’ project (supposed to guarantee energy supplies to member states via a system analogous to NATO’s mutual defence article) did not materialize and was replaced by the energy solidarity clause within the Lisbon Treaty. Roth argues that ‘Energy NATO’ failed because it was viewed as a “strongly anti-­Russian” project with too much focus on Polish national priorities (2011: 621). The country managed to upload its preferences to the Lisbon Treaty later on, as it “successfully identified and seized the ʻpolicy window’ created by the revival of the constitutional treaty and the Russian-­ Belarusian energy dispute of 2007” (Roth, 2011: 621). Poland learned how to frame its policy choices in a European way and afterwards managed to get support from other influential actors. As the European Commission’s newest project, the Energy Union – originally initiated by Polish representatives – has also attracted substantial scholarly interest (for example, Andersen et al., 2017; Lawrence et al., 2016; Szulecki et al., 2016), mostly due to its nature of a very ambitious project aimed at encompassing EU energy policy in its entirety. An analysis published shortly after the project’s introduction identified several policy cleavages within the proposal

10   Introduction (Szulecki et al., 2016). The main cleavage, connected to member states’ willingness to deepen the integration, can be characterized as “Europeanization versus maintaining [member states’] sovereignty in the energy sector” (ibid.: 564). Moreover, the research stressed the necessity to connect energy and climate policy objectives in order to make the Energy Union a success. Lawrence et al. (2016) explored diverse strategies of member states regarding the utilization of nuclear energy in connection to the Energy Union and the EU’s 2020 Strategy. Nuclear energy can contribute to the goals of the Strategy, especially when it comes to developing low-­carbon economy objectives (many actors consider nuclear technology to be carbon-­free). The study highlighted several factors which have an important effect on the states’ nuclear strategies and acceptance of the technology: technological capacity and consumption; economic cost; security and materiality; national perceptions; and political, ideological and institutional factors. However, in order to fully utilize the capacity of nuclear energy to fulfil climate change goals, an increase in citizens’ nuclear power awareness, as well as their participation in policy design is necessary. This book develops an argument about the influence of perception on EU member states’ policy choices and the role vulnerability plays in this process. Scholarship on perceived vulnerability and its impact on policy choices deals with this issue mostly from a theoretical perspective (see, for example, Copsey and Haughton, 2009 or several papers on small states by Baldur Thorhallsson who is a leading scholar in this area – Thorhallsson, 2006, 2019; Thorhallsson and Wivel, 2006). However, the topic is also present in the discussion on EU energy policy, although this scholarship is limited. For example, the social construction of energy dependence was identified as a reason for the Commission’s activities in the external energy security area (Maltby, 2013). Similarly, Kuzemko (2014) argues that ideas about energy policy within EU institutions have an impact on energy relations between the Union and the Russian Federation. The EU started to perceive “its energy security in geopolitical manner”, which triggered criticism of the liberal approach and resulted in the EU becoming a “divided actor in energy” (Kuzemko, 2014: 70). Other works identified perceived vulnerability as a reason for member states’ policy choices in the energy area (Mišík, 2015; Pointvogl, 2009; Roth, 2011). Roth argues that Poland tried to push through its policy choices in the external energy security area at the EU level due to the “misfit between Warsaw’s geopolitical priorities and established EU policy” (2011: 501). The country’s priorities mirrored its sense of vulnerability vis-­à-vis its big neighbour, while its discourse on energy supply was highly securitized during the first years of the country’s EU membership.

The main argument This book builds upon and further develops arguments about the influence of perceived vulnerability on the development of the European integration. It examines such influence in the area of external energy security and uses the concept of perceived vulnerability to analyse the roots of member states’ willingness

Introduction   11 (or opposition) to transfer competences in this policy area to the EU level. The book thus aims to contribute to the argument about the importance of ideational factors in shaping the EU’s policies in general (Copsey and Haughton, 2009), and external energy policy in particular (Kuzemko, 2014; Pointvogl, 2009). As a concept for explaining member countries’ preferences concerning integration at the EU level, the idea of (perceived) vulnerability was introduced by Milward in his book on the development of the European project (1992). However, existing conceptual challenges make it especially difficult to work with this idea and include perceived vulnerability into explanatory frameworks. For example, Copsey and Haughton (2009) or Pointvogl (2009), only implicitly define vulnerability as a country’s perceived weakness. This book takes this definition as a starting point and further elaborates on it in order to establish perceived vulnerability as a theoretical concept for the study of European integration. The main argument of the book claims that member states’ support for the deepening of integration within the EU does not depend only on structural (i.e. material) characteristics of a given country, but also on how these are perceived by the decision-­makers. If decision-­makers perceive them in terms of vulnerability – they believe that their country is not able to deal with existing challenges in a given area successfully – they support transfer of competences to the EU level. European integration is thus seen as a response to perceived vulnerability. On the other hand, member states whose representatives believe that they can handle these challenges by themselves want to keep competences back home. In this case the EU is viewed as an actor limiting member state’s manoeuvr­ability and therefore the transfer of competences is not supported. Applying such logic to external energy security, this book claims that member states’ support for integration in this area does not depend only on existing structural characteristics of a given member state’s energy sector (for example, energy mix, energy import dependency, level of diversification, etc.), but also on the way such characteristics are perceived by that state’s decision-­makers. This also has important policy implications – countries’ activities in energy security are guided not by rational calculus, but by perception of a given situation. As a consequence, activities like development of new infrastructure or any kind of diversification aiming to increase energy security, do not have to have the intended impact if they are based not on the real needs, but perceived energy security threats (see Mišík and Nosko, 2017 for an empirical example). Member states’ external energy security choices are thus influenced by decision-­makers’ perception of their states’ ability to cope with energy challenges. Such challenges have to be conceptualized in order to be useful for an examination of member states’ position towards further development of European integration. This book introduces three partial challenges: external, internal and business, and proposes also three partial assumptions that follow the logic of the challenges. The external challenge refers to member states’ ability to negotiate favourable deals with their main energy suppliers. At the most general level, national governments conclude energy agreements and sign memoranda with energy exporters, creating general frameworks for energy relations between

12   Introduction the parties. Not all member states have the same ability to negotiate favourable deals – some of them can be in disadvantageous positions vis-­à-vis their energy suppliers, especially if they have only a limited number of suppliers (Kratochvíl and Tichý, 2013). This can result in a high level of dependency on a single supplier and very limited leverage. Indeed, most EU suppliers (basically all except Norway) can be considered problematic (Wood, 2010), most of all the Russian Federation (Ostrowski and Butler, 2018; Schmidt-­Felzmann, 2011). This puts a lot of pressure on individual (especially small) member states and their ability to find a balanced relationship with their energy supplier. This book proposes that when a member state perceives its relations with its energy supplier as mutually advantageous, it does not support the deepening of integration in external energy policy, as this would influence its good relations with the supplier. In contrast, member states whose representatives perceive relations with energy suppliers in terms of vulnerability, support a common EU external energy approach, which is seen as being able to secure better energy deals for united member states. The internal challenge refers to the fact that the EU level also influences member states’ external energy security choices in spite of only very limited harmonization in this area. Rules closely connected to the external energy security are being developed within the EU and member states’ ability to influence this process has a significant impact on their position towards further integration in this area. This challenge concerns ad hoc rules that have consequences for energy sector of member states, not the big picture (i.e. integration in the energy sector). Member states have different abilities to influence what is going on at the EU level – with some being more able to pursue their preferences than others. Member states (including smaller ones) can employ a wide range of strategies in order to improve their negotiation position. This can influence not only their ability to pursue energy-­related goals within the EU, but also the perception of their ability to cope with energy issues within the EU and its decision-­making process (in other words, the internal challenge). Similarly to the external challenge, countries that are able to deal with the internal challenge oppose further integration, as they want to keep competences in their own hands. In contrast, members whose decision-­makers perceive this challenge in terms of vulnerability support further integration, which should level the playing field and thus provide a better position for these ‘weaker’ member states within the EU. The business challenge refers to relations between EU member states and energy companies. Large energy firms dominate the European gas market: these are often of multinational character, conduct their business in several member states, are extremely large and belong among the biggest taxpayers. Because of this, governments tend to approach them very cautiously. These companies hold a key position within the energy sector; however, their relations with governments are often complicated, and mutual cooperation is not always based on equal terms. This is true even in cases when a state is the partial or full owner of such a company. In the case when decision-­makers perceive their state’s relations with these companies in terms of vulnerability, a country supports the deepening of integration in the external energy security area. Common rules at

Introduction   13 the EU level should help EU countries deal with energy companies operating on their territory more successfully; as such, these firms play a very important role in energy policy and are actually a key factor when it comes to providing energy security. In cases when relations are viewed as mutually beneficial and contributing to fulfilling a state’s energy policy objectives (including energy security), countries do not support the deepening of integration as they want to keep the special arrangements that enabled them to develop beneficial relationships with energy majors. One of the main contributions of this book is that it provides deep insights into external energy security thanks to this specific operationalization (the three challenges and three sets of assumptions). This enables it to locate the particular question at hand (how small member states form their external energy security preferences) within a wider current debate and discuss (external) energy policy from a holistic perspective. The book is therefore able to take into consideration a much broader range of factors, rather than concentrate on just one or two energy policy components/challenges, a common approach within the existing debate (see, for example, Aalto and Temel, 2013 or Pointvogl, 2009). Although the analysis presented in this book predominantly focuses on (small) member states, its effort to view the phenomenon at hand in its complexity enables the book to cover issues connected to relations between the EU and its external energy suppliers, member states and EU institutions, and individual member states and energy businesses.

Case selection: small EU member states Generally speaking, it can be argued that small EU countries do not receive as much attention as their bigger counterparts. Some scholars even go so far as to argue that European integration is exclusively in the hands of the main – i.e. the biggest – member states, while others – i.e. small members – do not have a significant impact on the EU (Moravcsik, 1993 and his followers utilizing a liberal intergovernmental approach). However, with further development of the integration project and with every new enlargement, the Union consists of more and more small member states (Sedelmeier, 2014). Moreover, after Great Britain leaves the Union, it will lose one of its biggest member states, which will affect the ratio between big and small countries within the EU in favour of the latter. Informal rules within the EU decision-­making mechanisms that support consensus-­based decision-­making, (Hosli et al., 2013) further strengthen the position of small member states. As a result, small members have been attracting increased academic interest aiming to explain their position within the EU and sources of their ability to influence the decision-­making process in spite of their smaller size, and stemming from that, limited capabilities (Panke, 2010, 2011; Steinmetz and Wivel, 2010; Thorhallsson, 2006; Wivel, 2005). However, the level of interest differs: while at the theoretical level (Archer and Nugent, 2006) or within foreign policy studies (Arter, 2000), small EU states have been the subject of detailed research

14   Introduction for several years already, literature on EU energy policy development is still dominated by the examination of big members (see, for example, Eising, 2002; Hager and Stefes, 2016 or Morris and Jungjohan, 2016). A very important exemption is a study by Grigas (2013), who analyses the Baltic States’ energy policies. However, the EU is not the focal point of this analysis that concentrates on the relations between the three countries and the Russian Federation. This book aims to contribute to this discussion and studies three EU member states: Austria, the Czech Republic and Slovakia. In addition to being small members – a group of EU states that has gained importance due to the above-­ mentioned reasons – the three select countries have energy policy characteristics that make them interesting for the analysis. Although these countries have different historical legacies (communist and democratic), when it comes to energy policy, they have several common traits: they share high levels of utilization of natural gas in their energy mixes; they are dependent on import from third countries; they have the same main supplier (the Russian Federation), etc. However, they have different preferences towards integration within the EU in terms of external energy security: from rejection (Austria), through partial support (the Czech Republic), to full support (Slovakia). Geographical proximity of these countries allows us to study the countries’ different positions towards the same external supplier (the Russian Federation/ Gazprom), the same regional leaders within the EU (especially Germany) and the same energy businesses (especially the so-­called ‘energy majors’) operating in this region. The regional focus of this analysis cuts across the typical Western/ post-­communist Eastern division of EU countries, and can thus help foster the discussion about small states within the EU without a priori identification of the historical legacies as the main source of differences between them. Thirty years after the fall of communism this factor – and the transformation to capitalism – should no longer be considered to be the main driving force of policies in Central and Eastern European countries. It is also important to provide a short terminological note at this point. This book is trying to avoid usage of any name for the region it studies. Although from a position of geography, this is Central Europe, this concept is too broad to be useful for the purposes of this book (for example, it also covers Germany). Academic literature connected to the eastern enlargement of the EU usually uses terms such as Central and Eastern Europe (CEE; Copeland, 2014; Dimitrova and Toshkov, 2007; Osička et al., 2018; Toshkov, 2008) or Central and Eastern European Countries (CEEC; Bocquillon and Maltby, 2017; Schimmelfennig, 2005; Sedelmeier, 2008) to describe countries that entered the EU during the three rounds of this enlargement; i.e. 2004, 2007 and 2013. In some cases literature even uses the term ‘Eastern Europe’ to refer to countries under the Soviet influence before the end of Communism (including East Germany) and ‘Central and Eastern Europe’ to refer to the 2004 EU newcomers, but excluding Slovenia and including Ukraine and Belarus (Balmaceda, 2017). This book also examines Austria that joined the EU in 1995 and therefore these terms cannot be used. In order to avoid contributing to the already existing methodological fragmentation

Introduction   15 (see Mišík, 2017), this book does not name the region in which the studied countries are located. The claim here is that this is actually not important for the analysis conducted within the book as it does not concentrate on the region itself, but on small EU member countries.

Aims of the book and its contribution to the current debate This book has three main aims – (A) to analyse the sources of EU member states’ preference towards European integration; (B) to contribute to small states’ scholarship; and (C) to examine EU member states’ energy policies. The first – theoretical – contribution of the book stresses the importance of ideational factors (more precisely perceived vulnerability) in shaping member states’ preferences at the EU level. The role of ideas and perception in energy policy has become part of the academic discussion and this book aims to provide a holistic approach to the examination of sources of member states’ preferences in this area. In this way the book contributes also to the larger discussion about the sources of member states’ positions towards European integration. The second – empirical – aim of the book is to contribute to our understanding of small member states, their preferences and activities at the EU level. The book analyses three small member states and examines the formation of preferences they pursue within the EU. Small states are able to overcome their structural limitations by applying a range of counterstrategies (Panke, 2010) that helps them to achieve their goals. The book explores these issues and adds to the empirical examples analysed in connection to small states’ limitations and capabilities. Although the book focuses on small members of the EU and external energy security, the theoretical conclusions stemming from the analysis presented within the monograph are applicable also to different geographic and policy areas. The third – also empirical – aim of the book is to contribute to the existing knowledge about energy policies and preferences of EU member states. The majority of existing studies examine member states from Western Europe (Jacobs, 2016; Jewell et al., 2014; Newbery, 2016) or from the region of Central and Eastern Europe (Binhack and Tichý, 2012; Bocquillon and Maltby, 2017; Grigas, 2013; Mišík, 2015; Roth, 2011). The overlap between these two, especially when it comes to small comparative qualitative studies, is very seldom (Szulecki et al., 2016) due to an argument that these two regions are very different and each has specific characteristics (Austvik, 2016). However, this is not a starting point of this analysis, which acknowledges diversity among EU member states from these two groups. The book therefore includes countries from Central and Eastern Europe (the Czech Republic and Slovakia) as well as a Western European country (Austria) into the analysis. The approach utilized in this book fosters conversation between EU member states, which are no longer seen as belonging to separate groups based on the year when they joined the Union. To consider member countries from Central and Eastern Europe as a separate group with specific characteristics is not suitable anymore,

16   Introduction as they have embarked on very different paths since they have become members (Mišík, 2017). This book examines the complex formation of member states’ external energy security preferences taking into account different dimensions that makes the theoretical approach of the book very innovative. The interest in small EU member states makes the focus of the book specific, while at the same time further expanding its target audience to include academics and practitioners interested in small states. The book may also be of interest to scholars dealing with European integration and international relations in general, as it discusses external energy relations. Scholars analysing EU–Russian relations will also find the book interesting, as energy is an important part of the mutual relations. Moreover, the book will also be of interest to theoreticians studying small states. Given the amount of specific and unique information it provides on the development of EU external energy policy and the analysed countries – topics which are currently only scarcely covered by existing academic texts – the book can be used as an introductory text for scholars studying EU energy policy or small states. These issues can also be of interest to a broad readership outside EU studies.

The structure of the book This book consists of an introduction, six chapters and a conclusion. Chapter 1 develops an analytical framework for studying small EU member states’ positions towards the deepening of integration in external energy security. It creates the main argument presented in this introduction and further discusses the case selection and data used in the analysis. The chapter shows how the three energy challenges (external, internal and business) mutually contribute to the overall perception of vulnerability/ability to deal with external energy security and how this perception in turn affects EU member states’ policy preferences. It provides a detailed discussion on energy security, which has proven to be one of the most difficult concepts in the energy policy area to define (see, for example an interesting discussion in Szulecki, 2018). While the chapter acknowledges the complex nature of energy security and engages in a conversation with existing literature on this topic, it argues for a concise policy-­oriented working definition that would enable the analysis in the book to grasp the complexity of the concept, while allowing its applicability to qualitative analysis. The research is based on 52 semi-­structured interviews with decision-­makers and experts from the three analysed member states at the domestic level as well as at their permanent representations in Brussels and the Commission’s senior officials. Moreover, other primary data such as governmental strategies and documents, reports from energy agencies, and energy statistics are used to support arguments presented in this book. Chapter 2 focuses in its first section on a general overview of the EU’s energy sector and its basic characteristics. It discusses energy production and energy consumption within the EU, and examines the energy mix of the EU’s member

Introduction   17 states. The second section discusses policy related and technical differences between different energy sources utilized within the EU (especially between oil and natural gas) and with the help of these, explains why natural gas has such a prominent place within the discussion on external energy security within the EU. Chapter 3 offers discussion on EU energy policy development. It starts with an analysis of the creation of the European integration during the 1950s that was closely connected to energy issues, then jumps directly to the end of the 1980s and beginning of the 1990s. The period between these decades was characterized by very low interest in the energy topic at Community level. Even the 1973/1974 oil crisis did not change the approach of the European Community towards energy policy (and energy security). Member states were against the transfer of competences in energy security to European hands, as they believed that these issues are best dealt with at the national level. Moreover, the Commission had established rules concerning emergency oil stocks a few years before the crisis and further strengthened them (by increasing the number of days the emergency stock has to last for) as a consequence of the crisis. The late 1980s saw the official creation of the internal market of the European Community (by the Single European Act of 1986), while the beginning of the 1990s was marked by the Commission’s first efforts to liberalize the energy market and to develop a suitable environment for competition. Only the period after 2009 has seen efforts to deal with EU external energy issues (including energy security) that were also supported by member states (the 2009 gas crisis was a milestone in this process). The internal dimension of energy policy remained dominant until the development in Russia–Ukrainian relations in 2014 resulted in the creation of the Energy Union that fostered a complex discussion on the external dimension of EU energy policy. Chapters 4 to 6 examine Austrian, Czech and Slovak perceptions of their ability to deal with the three energy challenges. Chapter 4 studies the external challenge and predominantly focuses on relations between energy suppliers and the analysed countries. The chapter studies the decision-­makers’ perceptions of the relations between their countries and the Russian Federation, which is the main and, at the same time, the most problematic energy partner of the whole EU, as well as many member countries (Kratochvíl and Tichý, 2013). Different historical and infrastructural legacies shape these relationships, however, not always in a negative way. For example, Austria has developed long-­standing and mutually advantageous energy relations with the Russian Federation. On the other hand, the Czech Republic and Slovakia have much more complicated relations with their main energy supplier that are mirrored in their perception of the external energy challenge. Chapter 5 analyses the internal energy challenge, which focuses on the small member states’ perceived ability to cope with energy issues at the EU level. In other words, it deals with member states’ position within the EU, their ability to influence the EU’s decision-­making process and their position vis-­à-vis other member states within this mechanism. The three examined countries show a greater degree of variability compared to the previous challenge. While Austrian

18   Introduction decision-­makers are confident in their country’s ability to deal with this challenge, the Czechs perceive their country as having a limited ability to do the same. Once again, Slovak representatives perceive their state’s abilities in terms of vulnerability. Chapter 6 studies the business challenge, which examines the relationship between small member states and the main energy companies operating on their territories (‘energy majors’). When it comes to this challenge, the Czech Republic and Slovakia share the perception of vulnerability, while Austrian decision-­makers once again view this challenge as manageable and consider their state’s position towards energy companies in terms of ability. The conclusion presents the main findings of the book, with a special focus on the role of perception as a factor influencing small member states’ position towards integration at the EU level in external energy security. Results of the analysis conducted in the three previous chapters indicate that the perception of vulnerability guides member states’ policy choices. While Austria, which considers itself able to deal with energy challenges, opposes further integration in this area, Slovakia’s perceived vulnerability supports the transfer of competences to the European level. The Czech Republic finds itself between these two positions as its representatives consider their country partially able to deal with external energy issues and support the deepening of integration only to a limited degree. The conclusion also offers important policy implications by claiming that decision-­makers’ perception of the situation in the energy sector is important for EU member states’ policy choices. Most importantly, it argues that changes to structural characteristics (for example, increased diversification) do not automatically lead to changes in member states’ policy choices, if the perception remains the same.

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Introduction   21 Ostrowski, W. and Butler, E. (2018) Understanding Energy Security in Central and Eastern Europe. Russia, Transition And National Interest. New York: Routledge. Padgett, S. (1992) The single European energy market: The politics of realization. Journal of Common Market Studies 30(1): 53–76. Panke, D. (2010) Small States in the European Union. Coping with Structural Disadvantages. Farnham: Ashgate. Panke, D. (2011) Small states in EU negotiations: political dwarfs or power-­brokers? Cooperation and Conflict 46(2): 123–143. Perović, J. (ed.) (2017) Cold War Energy. A Transnational History of Soviet Oil and Gas. London: Palgrave Macmillan. Pointvogl, A. (2009) Perceptions, realities, concession-­what is driving the integration of European energy policies? Energy Policy 37(12): 5704–5716. Prontera, A. (2018) The new politics of energy security and the rise of the catalytic state in southern Europe. Journal of Public Policy 38(4): 511–551. Ringel, M. and Knodt, M. (2018) The governance of the European energy union. Efficiency, effectiveness and acceptance of the winter package 2016. Energy Policy 112: 209–220. Romanova, T. (2016) Is Russian energy policy towards the EU only about geopolitics? The case of the third liberalisation package. Geopolitics 21(4): 857–879. Roth, M. (2011) Poland as a policy entrepreneur in European external energy policy: towards greater energy solidarity vis-­à-vis Russia? Geopolitics 16(3): 600–625. Schimmelfennig, F. (2005) Strategic calculation and international socialization: membership incentives, party constellations, and sustained compliance in central and eastern Europe. International Organization 59(4): 827–860. Schmidt-­Felzmann, A. (2011) EU member states’ energy relations with Russia: conflicting approaches to securing natural gas supplies. Geopolitics 16(3): 574–599. Sedelmeier, U. (2008) After conditionality: post-­accession compliance with EU law in east central Europe. Journal of European Public Policy 15(6): 806–825. Sedelmeier, U. (2014) Europe after the Eastern Enlargement of the European Union : 2004–2014. Working paper. Brussels: Heinrich Böll Stiftung European Union. Siddi, M. (2016) The EU’s energy union: a sustainable path to energy security? The International Spectator 51(1): 131–144. Siddi, M. (2017) The EU’s gas relationship with Russia: solving current disputes and strengthening energy security. Asia Europe Journal 15(1): 107–117. Smil, V. (2017) Energy and Civilization: A History. Cambridge and London: MIT Press. Sovacool, B. K. (2011) Evaluating energy security in the Asia Pacific: towards a more comprehensive approach. Energy Policy 39(11): 7472–7479. Sovacool, B. K. (2014) What are we doing here? Analyzing fifteen years of energy scholarship and proposing a social science research agenda. Energy Research and Social Science 1: 1–29. Sovacool, B. K. and Mukherjee, I. (2011) Conceptualizing and measuring energy security: a synthesized approach. Energy 36(8): 5343–5355. Steinmetz, R. and Wivel, A. (2010) Small States in Europe. Challenges and Opportunities. London: Routledge. Szulecki, K. (2018) (Ed.) Energy Security in Europe. Divergent Perceptions and Policy Challenges. London: Palgrave Macmillan. Szulecki, K., Fischer, S., Gullberg, A. T. and Sartor, O. (2016) Shaping the ‘energy union’: between national positions and governance innovation in EU energy and climate policy. Climate Policy 16(5): 548–567.

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1 Preference formation and external energy security

This chapter develops a theoretical model that guides the analytical chapters of this book (Chapters 4 to 6) and helps them to answer the central research question: Under which conditions do small EU member countries support the transfer of competences in external energy security to the EU level, and when do they oppose the further deepening of European integration in this area. It discusses how EU member states form their preferences that they pursue at the EU level, examines what exactly defines EU member states that can be considered small and what is the external energy security of the EU. This chapter develops the main assumption connected to perceived vulnerability as a factor that influences small member states’ position towards integration in external energy security at the EU level, arguing that small member states that perceive their position in this area as vulnerable support deepening of integration as they see it as a suitable response to such vulnerability. On the other hand, small member states that perceive themselves as strong actors able to cope with challenges in the energy sector do not support deepening of European integration, as they consider cooperation at the EU level to limit their manoeuvrability. Therefore they prefer to keep competences in their own hands. European integration is thus seen as a solution to perceived vulnerability. First, external energy policy of the EU and its connection to energy security is examined. The chapter discusses the complex nature of energy security, its internal as well as external dimension. The second section examines small EU member states and argues in favour of relative weight as a defining factor for this group of member states. The third section operationalizes the energy challenge that is a crucial part of the assumptions regarding small EU states’ support or opposition to integration in external energy security. The operationalization develops three types of partial challenges: external, internal and business that can help us to find an answer to the research question and create the main structure of the analytical section of the book. The last section examines case selection and data. It explains the reasons why Austria, the Czech Republic and Slovakia were chosen for the analysis and discusses data that are used in the analysis.

24   Preferences and external energy security

External energy policy of the EU and external energy security The EU has been developing the security dimension of its energy policy since around the time of the eastern enlargement of the EU. This event together with the 2009 gas crisis unveiled problems in the energy security of some EU member states (especially those from Central and Eastern Europe) and fostered the Commission’s activities in this area. The EU’s involvement in energy security is examined in detail in Chapter 3 and partly also in Chapter 2. Therefore this section focuses mostly on a theoretical discussion about energy security and not on the EU’s activities in this area, although these two are closely interlinked – the development of the EU’s involvement in energy security has fostered increased academic interest in the area. Therefore, we can observe a ‘boom’ in academic publications on energy security issues in connection to the EU, especially after the 2009 gas crisis (for example, Duffield and Birchfield, 2011; Hedenus et al., 2010; Maltby, 2013; Mišík, 2010; Neuman, 2010; Pointvogl, 2009; Pollak et al., 2010; Roberts, 2009; Wood, 2010; Youngs, 2011), although energy security centred analyses have been published prior to this (Haghighi, 2008; Mayer, 2008; Talus, 2008). Later, the scholarship became too wide to present a full list here; moreover, that is not the objective of this chapter (see, for example, Andersen et al., 2017; Filipović et al., 2018; Godzimirski, 2019; Mouraviev and Koulouri, 2019; Szulecki, 2018). Although there had been a significant development in energy policy by the end of the 2000s, the dominant position at that time was that the policy had a long way to go until it would become a fully-­fledged EU policy. For example, Wood claimed that “energy politics betray a basic lack of European unity” (2010: 307) and that there was no common EU energy policy at that time. Due to different energy mixes, “exposures to supply issues” and “divergent views toward external relations”, it was very difficult to find common ground among member states in this area (Birchfield and Duffield, 2011: 265). The Lisbon Treaty of 2009 included energy policy among shared competences between the EU and its member states that brought significant changes into the policy, but these took time to be implemented. Although article 194 of the treaty stipulates in its first part that its aim is to “ensure security of energy supply in the Union”, the second section claims that measures from the first section “shall not affect a Member State’s right to determine the conditions for exploiting its energy resources, its choice between different energy sources and the general structure of its energy supply” (European Union, 2007). This means not only that member states can continue using those energy sources over which there is no consensus at the EU level (for example, coal or nuclear), but also that they are responsible for energy supplies in general and those from third countries in particular. Moreover, foreign policy issues are still firmly in the hands of member states who have the dominant position in spite of the Commission’s efforts to increase integration in this area and develop common institutions like the European External Action Service (Bátora, 2013). As a consequence, member states are able to

Preferences and external energy security   25 pursue their own independent foreign policies, although the Common Foreign and Security Policy of the EU is getting more developed over time (Orenstein and Kelemen, 2017). The external energy policy of the EU is thus, to a significant degree, in the hands of member states who are responsible for managing their own energy supplies. They sign intergovernmental agreements (IGA) with their suppliers and support their energy companies’ relations with external suppliers in many other ways. The Commission also has a say in external energy relations, however, its role is closely connected to environmental and climate policies (Adelle et al., 2018) or the internal energy market (Goldthau and Sitter, 2014). The EU has pursued environmental goals within the international arena via traditional external policy areas such as trade or development or within the Common Foreign and Security Policy, but also through other policy areas like chemicals policy or energy policy. The link between environmental and climate issues and energy policy is very close as the energy sector belongs among the main polluters. The EU is the third largest emitter of greenhouse gases (Welsch, 2017); a significant part of which is created in the energy sector. Although the EU adopted very ambitious domestic goals connected to decarbonization (2050 Energy Strategy), these have not become “a centrepiece of the EU’s external relations with energy partners” (Dupont and Oberthür, 2015: 259). The other way the Commission can influence external energy relations is by extending its internal energy market rules beyond its borders. The Commission exports EU internal energy market rules to third countries, in most cases the EU’s neighbours, to help them to develop their own energy markets that would create stable investment conditions for EU energy businesses as well as support reliable transit and energy relations in general (the EU’s involvement in the Energy Community is a very good example; see Goldthau and Sitter, 2019). Scholars have argued that this is a specific type of energy relations with third countries and coined it external energy governance (Herranz-­Surrallés, 2016) or market approach (Siddi, 2019). Within this approach the EU is not directly involved in development of new infrastructural projects outside of the EU (pipelines) nor does it pursue bilateral energy deals with supply countries. On the other side there is much more active approach that uses foreign policy tools to secure access to energy sources. This approach became known as energy diplomacy (Herranz-­Surrallés, 2016) or geopolitical approach (Siddi, 2019). Main trait of this strategy is active support of new pipelines and more direct engagement in discussions with supply countries. Some authors claim that the EU’s approach to its external energy policy has changed since the mid-­2000s when the Union started to use energy diplomacy at the international level that caused the erosion of the market-­based approach (Kuzemko, 2014). The EU’s engagement in the Nabucco pipeline or the Southern Gas Corridor are prime examples of this new approach towards energy policy. While the former cannot be considered to be a success, as it never materialized, the latter is currently under construction, although its capacity will probably not significantly influence the EU’s natural gas market. Abbasov includes the Southern Gas Corridor among examples of

26   Preferences and external energy security external energy governance of the EU that he defines similarly to the previous authors as “the export of the energy acquis beyond its borders” (2014: 28). He argues that there is more to the gas corridor than bringing additional gas supplies to the EU – what he calls physical supply security – and that the EU aims to export its acquis eastward in order to “minimize the ability of the exporters and transit countries to manipulate energy flow and tailor it to their political/economical objective” (ibid.: 36). Herranz-­Surrallés (2016) points out that while the policy discourse has followed an energy diplomacy trajectory and the EU became more involved in direct energy relations with third countries, the policy practice has not changed, and the Union still utilizes energy governance tools (that help it to transfer its internal energy market rules abroad) while member states pursue national diplomacies (forming energy contracts and building new infrastructure). Indeed, while the South Gas Corridor has been discussed and planned, Germany and the Russian Federation built the first two lines of Nord Stream and developed a solid basis for the start of construction on the second two lines (Nikiforov and Hackemesser, 2018). The Commission has an ability to check IGA between EU members and third countries, however, this fact has not changed the power structure between the Commission and member states. This measure was met with strong opposition from the member states when it was first introduced in 2012 (European Commission, 2016) and it had to undergo a revision in 2016 in order to gain a real impact on these agreements. The main aim of this mechanism was to bring a certain level of transparency into intergovernmental agreements on energy supply and to ensure compatibility of these agreements with the rules of the internal energy market. They enabled the Commission to have an overview of the existing contracts and in this way the Commission can exercise pressure to create an even playing field. However, the ex-­post nature of the original compatibility checks between IGAs and EU legislation has not “resulted in the transformation of concluded non-­compliant [intergovernmental agreements] into compliant ones” (European Commission, 2016: 5) and therefore the Commission suggested changing the model of compliance check to ex-­ante. Nowadays the Commission has the ability to check the compatibility of the new proposed energy contracts before they are signed. EU member states are thus the key players in external energy policy and therefore we need to examine these actors if we want to look closer at the development in this area. This book concentrates on the small EU member states and how they create preferences supporting or opposing further development in external energy security policy. While the former will be discussed in the next section, the rest of this part takes a look at the latter and tries to establish the place of external energy security within the existing discourse on energy security, characterized by complexity and difficulty to find a universally acceptable definition (see, for example, Azzuni and Breyer, 2018 or Szulecki, 2018 on the current discussion; for earlier, see Chester, 2010). The steep increase in the number of different definitions and approaches to energy security is impressive, especially if considered that less than a decade ago Ciută lamented that

Preferences and external energy security   27 “[a]bundant analyses of pipeline politics stand in stark contrast to the very few attempts to make sense of energy security conceptually” (2010: 124). And he was not alone – Chester (2010) also criticized the limited discourse about the nature of energy security. Such calls for energy policy conceptualization were soon answered (see, for example, Winzer, 2012) and nowadays, less than ten years later, scholars dealing with energy security lament over the large number of different approaches and definitions of the concept (see, Cox, 2018). For this reason this chapter does not aim to provide an exhausting discussion on existing academic literature examining different aspects of energy security. Its main goal is to provide a working definition that can be used in the following analysis while acknowledging the complexity of the concept. The main focus here is on external energy security and therefore this section’s objective is to examine the position of this dimension of energy security within a broader discussion on energy security. According to a very basic definition, energy security can be characterized as “uninterrupted, continuous and sufficient availability of all forms of energy a given entity requires” (Pointvogl, 2009: 5705–5706). However, such a simple definition does not sufficiently mirror the complex nature of energy security with its many dimensions (Sovacool and Mukherjee, 2011). Therefore, many scholars argue that energy security, as a part of energy policy, has to be analysed in its multifaceted character (Hermanson, 2018) comprising of “technical, economic, social, environmental and geopolitical issues in close interaction” (Escribano and García-Verdugo, 2012: 27). Newer papers include even more dimensions including political stability, foreign affairs or market liberalization (Chalvatzis and Ioannidis, 2017). The complexity of energy gives energy security a special position not only within national markets, but also at the global level. According to Goldthau and Sovacool (2012), energy has four distinctive characteristics that makes it difficult not only to analyse, but also to take policy decisions: vertical and horizontal complexity, higher costs and strong path dependency. There is a whole array of definitions reflecting this complexity, and almost every author proposes their own definition (Ang et al., 2015 examined 104 studies on energy security). No single definition prevails in academic literature or within the international institutions that all use their own definition. On the other hand, an often­used argument claims that there is “a need for a comprehensible understanding of the term energy security”, because energy is crucial for the functioning and survival of society (Azzuni and Breyer, 2018: 2; also Dannreuther, 2017) and energy security is its principal component. We can identify several reasons why energy security is so difficult to define. First of all, energy security is a relative concept that differs among countries as well as in time. Chester argues that “the specificities of [individual components of energy security] will understandably differ at any point in time” (2010: 887). Similarly, Talus (2008) claims that this is the main reason why it is so difficult to find a common definition (for a detailed discussion, see also Bahgat, 2006). Energy security means different things for countries that produce, transit or import energy sources. Besides the energy supply security, which is the main

28   Preferences and external energy security concern for energy importing countries, there is also security of demand, which is an important issue for the exporters (Kirchner and Berk, 2010; Selim and Sahar, 2009). This book differentiates between energy supply security and external energy security, as the focus here is on relations with energy exporters and not suppliers in general. Supply security can be achieved by EU member states in different ways, for example, by development of interconnectors with the neighbouring EU member states or other countries that do not need to export energy to the given country. It can be achieved also by importing energy from a third country – this is what we call in this book external energy security. This distinction is closely connected to the issue of internal and external energy security that is discussed below. Some authors use these terms interchangeably (for example, Chalvatzis and Ioannidis, 2017; Winzer, 2012), however, it is claimed here that there is a difference between them. Other scholars (Jonsson et al., 2015) argue that security of supply is one of the dimensions of energy security and that others have to be added to gain a complex picture. This book wants to contribute to the development of consistent energy policy terminology, as terminological heterogeneity is often present in the research (Mišík and Szulecki, 2018). Second, energy security priorities change alongside the changes in the energy mix over time. The main focus at the beginning of European integration was on domestically produced coal (Pollak et al., 2010) which was considered to be a secure source of energy. The 1960s saw changes in the energy mix within the European Community and a transition to oil from external sources is what prompted discussion on energy security (McGowan, 2011). Later energy security stopped to be an issue as the late 1980s saw a fall of oil prices and the 1990s were characterized by the development of the internal energy market. Natural gas became an important energy source in the late 1970s with the 1980s experiencing the development of import infrastructure (Högselius, 2013). Natural gas became a crucial component of the energy mix and has risen to the top of the energy security agenda recently. The special technical characteristics of gas “mean that [it] is an even more significant energy security challenge than oil” (Shaffer, 2009: 94). Compared to oil, natural gas is much more difficult to store and transport, and there are also significant differences in how these two commodities are marketed (see Chapter 2 for more details). Oil, therefore, has been considered to be a less problematic energy source for most EU members (Roberts, 2009: 248). Third, energy security in general “is a vague concept that is hard to define properly” (Hedenus et al., 2010: 1242). While short and concise definitions of energy security are struggling with omissions of some aspects of this phenomenon, complex ones, reflecting an effort to include all aspects of energy security, are often too long and too difficult to apply in real-­life conditions to be useful at all. A complex overview of different definitions of energy security is provided by Winzer (2012) who uses this term interchangeably with the term supply security. He claims that the existing energy security analyses include one or several of the following dimensions in their definitions: the sources of risk, the

Preferences and external energy security   29 scope of the impact measure, and different severity filters such as the speed, size, sustention, spread, singularity or sureness of impacts (Winzer, 2012). The International Energy Agency’s relatively short definition of energy security as an “adequate, affordable, and reliable energy supply” has been criticized because it does “not offer very much guidance” (Hedenus et al., 2010: 1242). Individual factors such as adequate energy supply can mean different things in different contexts and such a definition is therefore not specific enough. Winzer (2012) argues that the outcome of an energy security analysis depends on conceptual definitions and differently conceptualized energy security dimensions can provide divergent outcomes. Short and concise definitions are not able to provide enough specific definitions to eliminate this problem. On the other hand, a longer definition claims that energy security means “availability of energy in various forms, in sufficient quantity and at affordable prices, delivered in an environmentally friendly, sustainable manner which is also free from serious risk of major disruption of service” (Kirchner and Berk, 2010: 864). Especially in the period after 2010 researchers started to add new dimensions to energy security definitions as they “found more dimensions worthy of consideration” (Azzuni and Breyer, 2018). A long and complex definition is translated into complex operationalization including a large number of different factors influencing the final level of energy security. So, for example, by breaking down five main dimensions of energy security (availability, affordability, technology development, sustainability, and regulation) Sovacool and Mukherjee (2011) came up with a list of 320 simple indicators and 52 complex indicators. The problem with such a complex approach to energy security is – besides questions connected to applicability, arbitrariness of individual indicators and their relative weight or the necessity to collect a huge amount of data – that such a large number of features are difficult to meet. Therefore, according to such a definition, there would always be some energy security problems. Scholars and practitioners thus continue to strive for a concise definition of energy security. We can distinguish between external and internal energy security. External energy security is connected to relations with third countries (producing and transporting countries), whereas internal energy security deals with the question of how to guarantee energy security within a state. Although both types are necessary in order to achieve energy security of a country, different actors dominate these areas and they use different sets of tools. While internal energy security can be achieved by the tools that the EU has at its disposal, like internal market rules or development of energy infrastructure between member states, the external energy security is in the hands of the member states as was argued above. The distinction between these two types thus allows us to focus on member state’s activities in the area of energy security and study their support – or opposition to – further integration in this area within the EU. Prontera differentiates between measures aiming to guarantee long-­term and short-­term energy security. While the former includes “mainly the set of tools intended to respond rapidly to supply disruptions” like strategic reserves, emergency plans, solidarity procedures, etc., thus concerning the question of how to secure deliveries of

30   Preferences and external energy security energy to customers (the ability of the energy companies to fulfil the needs of their customers), the latter encompasses “interventions intended mainly to prevent energy crises related to supply disruption or excessive price increases” like diversification of sources and routes of supplies, support of internal market development or promotion of domestic sources of energy (Prontera, 2017: 6). At the general level we can differentiate between two different scholarly approaches to energy security: quantitative and qualitative. Quantitative studies usually develop complex lists of factors influencing energy security (see for example, Cox, 2018; Filipović et al., 2018; Sovacool and Mukherjee, 2011) and apply data from individual countries in order to create rankings based on an index. Such an approach is quite often used to examine energy security of EU member states. For example, Radovanović et al. (2017) developed an Energy Security Index which includes environmental and social concerns as a response to insufficient focus of the existing indexes on long-­term sustainability. Their analysis has shown that the United Kingdom, France, Germany and Italy have experienced the smallest fluctuation in their energy security during the 23-year period under scrutiny (1990–2012). Countries from Central and Eastern Europe were identified as being the most negatively influenced by changes in energy security with Poland and Hungary having most stable energy security development. Similar methodology was also used by Chalvatzis and Ioannidis (2017) who applied different indexes to the whole EU (28 member states). They measured the levels of energy source diversity and dependence, as they claim that these two factors have a crucial impact on energy security. Countries like Denmark, Romania, Sweden and the Czech Republic, characterized by a high diversity of energy sources and a low dependence on energy imports, are better equipped to face problems in energy security. On the other hand, states whose energy mix is dominated by one energy source and characterized by import dependency, like Malta, Cyprus or Luxemburg, are at the other end of the energy security spectrum. The second type of approach towards energy security is qualitative – within this realm, authors do not create indexes that rank countries, but support their claims about a certain characteristic of energy security of a given country argumentatively (Dannreuther, 2017; Hermanson, 2018; Jonsson et al., 2015; Ruble, 2017). This enables a deeper understanding of energy security, however, it makes comparison between cases – and between studies – much more difficult. While the former approach enables analyses to produce an absolute value of energy security (presented in the form of a concrete index) which can be turned into a relative position of a given country within an energy security ranking, the latter approach is much more useful in relative comparison of different countries within the same study. The ability to utilize different qualitative studies in cross-­ study comparative examination is, however, limited, due to the inherited characteristics of qualitative inquiry. In spite of such differences between quantitative and qualitative approaches, as well as other differences among various energy security studies, Winzer claims that “the common concept behind all energy security definitions is the absence of protection from or adaptability to threats that are caused by or have an impact on the energy supply chain” (2012: 41).

Preferences and external energy security   31 Both types of approaches base their definition of energy security on three or four main characteristic: availability, reliability, affordability and sustainability (Elkind, 2010) or availability, accessibility, affordability and acceptability (Bridge and Le Billon, 2017). Shaffer (2009) presents a shortened operationalization of energy security when claiming that it has three basic characteristics: reliability, affordability and friendliness to the environment. Reliability refers to “regular, non-­interrupted access to energy in the quantity and form [an entity] requires”, affordability denotes “access to energy supplies at a price that can be sustained economically and promotes economic growth”, friendliness to the environment implies that “the prevailing form of energy provides for environmental sustainability and does not incur high health costs for residents” (Shaffer, 2009: 93). There is a disagreement among scholars especially in connection to the environmental dimension. A critical stance argues that “there are many reasons to accept that energy security and the protection of the environment are policy objectives that are not perfectly compatible” (Escribano and García-­Verdugo, 2012: 28). Furthermore, this attribute can be altered with sustainability that includes environmental issues but is an even broader term. The mentioned difficulties with the definition of energy security sometimes challenge an explicit definition of this term (see, for example, Sodupe and Benito, 2001, or Youngs, 2009), on the other hand complex definitions are criticized for methodological shortcomings (Cherp, 2012). The four main dimensions of energy security – availability, accessibility, affordability, and acceptability – sometimes also called the four A’s (Cherp and Jewell, 2014), are not always seen as sufficient, and other dimensions including climate change (Goldthau, 2011) are being added. Due to such complexity recognized by many scholars (Ang et al., 2015) and the problematic nature of the definition of energy security, Ciută (2010) even suggested moving beyond the definition itself and concentrating on the context in which the concept is being used. This book subscribes to such an approach and looks for a more policy-­oriented definition of external energy security. It uses the EU’s approach towards energy security as the EU is a relevant context for this analysis. The Energy Security Strategy, a prominent energy security strategic document published by the Commission in 2014, argues that the “key to improved energy security lies […] in a more collective approach through a functioning internal market and greater cooperation at regional and European levels […] and in a more coherent external action” (European Commission, 2014: 3). The main point of external energy security from this perspective is to guarantee access to energy supplies from third parties that are necessary for a country to cover its domestic consumption. This is the key goal of external energy security – which is actually a policy objective – that is at the centre of this book. Such a qualitative approach to (external) energy security can show us differences among various member states, shed light on a member state’s (external) energy security development, and the current level of its security in this area in spite of the limitations discussed above. External energy security has three main – closely interconnected – characteristics that inform the analysis presented in

32   Preferences and external energy security Chapters 4 to 6 of this book. First of all, member states of the EU themselves make general, long-­term intergovernmental agreements with the exporting countries (Boussena and Locatelli, 2013; Herranz-­Surrallés, 2017). Although these are nowadays under the auspices of the Commission (see Chapter 3) that can check their compliance with EU energy acquis, especially the third energy package, EU member states can still decide independently of the EU how they will get their energy from third countries (Siddi, 2019). The Commission checks whether IGAs are in line with existing rules, however, it does not interfere with the decision to conclude such agreements or with the selection of suppliers. External energy security (policy) is not harmonized at the EU level and therefore all partial decisions connected to this area are a result of intergovernmental negotiations between member states. This is the second characteristic of external energy security. Third, the execution of the external energy security itself is in the hands of energy companies operating within the territories of individual member states, which have concrete energy deals with exporting companies from third countries (Stoddard, 2012). Energy security is a very specific policy sector as there is a strong connection between states on the one side that consider it to be of vital importance for their country’s security and even survival, and therefore often approach energy as a strategic commodity, and energy businesses on the other side that look at energy from a different perspective. These divergent perspectives has been blurred in the past as governments were typically also owners of the main energy companies and due to a strategic view of energy, tried to shield these from competition (Herweg, 2016). With liberalization and unbundling, the differences in interests between these two actors became more visible.

Small member states of the EU This book wants to contribute to the growing literature on active involvement of small member states in the EU decision-­making process and different policies. The scholarship has so far been interested in foreign (Blockmans, 2017; Goetschel, 1998; Nasra, 2011), security and defence (Haugevik and Rieker, 2017; Jakobsen, 2009), monetary (Maes and Verdun, 2005) or environmental policy (Kronsell, 2002; Liefferink and Andersen, 1998), as well as in the area of conflict prevention (Björkdahl, 2008) or the Northern Dimension Initiative (Arter, 2000). General activities within the EU decision-­making process (Egeberg, 1999; Panke, 2011; Steinmetz and Wivel, 2010) as well as small states’ presidencies of the Council of the EU have been examined too (for example, Panke and Gurol, 2018) although Grimaud recently lamented that “small state governmental influence in the shaping and taking of EU decisions has been overlooked by the literature on small states” (2018: 24). The intensification of academic interest in the activities of small EU member states since the second half of the 2000s (Blockmans, 2017; Panke, 2010, 2011; Panke and Gurol, 2018; Thorhall­sson, 2006; etc.) corresponds with their increased number after the eastern enlargement. In the enlarged EU, “the relevance of small states is set to increase

Preferences and external energy security   33 considerably” especially in those areas which are of interest to many (but not all) members (Nasra, 2011: 177). Energy security definitely belongs among such policies and it has been analysed in connection to small states (Nechvátal et al., 2012), although mostly outside of the EU framework (Raghoo et al., 2018). Existing research on energy policy focuses on the influence of the European Commission and the big EU member states (for example, Bohzilova and Hashimoto, 2010; Maltby, 2013; Matláry, 1997; Mayer, 2008; Verhoeff and Niemann, 2011, and many more), while other member states have been included into analyses much less (however, see, Pointvogl, 2009 or Roth, 2011). Examination of small states faces several important challenges – for example, there is wide variety of approaches towards their definition (Long, 2017). Some authors (see for example Björkdahl, 2008; Blockmans, 2017; Jakobsen, 2009; Magnette and Nicolaïdis, 2005; Meerts, 1997) do not explicitly use any definition of “smallness” and only implicitly determine which EU member states are classed as small. However, such an approach is not helpful for analytical purposes. As Keohane pointed out, “[a]n intuitive definition that makes a clear and relevant distinction is better than any definition that does not; but a clearly categorizing definition based on concepts that suggest valid explanations is best of all” (1969: 294). Existing literature suggests that in the case of small states this is much more difficult to achieve than it seems. The term small state is often used quite vaguely in European integration studies as well as within international relations (Jazbec, 2001; Pace, 2000). Such a situation complicates the aggregation of knowledge and creates a situation when the academic discussion is “plagued by a lack of cumulative insights” (Thorhallsson and Wivel, 2006: 652). Although there are doubts about the usefulness of this term at the theoretical level, Wivel claims that it can help us at least as a “focusing device” that concentrates on the special challenges and dilemmas of these countries (2005: 395). On the other hand, Maass (2009) argues that the fundamental disagreement concerning attributes that define small member states is not a disadvantage for the field, as it supports the small state studies with conceptual flexibility, which enables the application of a wide range of research designs. Long claims that “[t]here are no clear-­cut lines for smallness” and that we should stop trying to find an ideal definition of a small state and concentrate on the relations between states at the international level (2017: 145). However, the existing discussion about the definition of small EU member states is not random and we can find several patterns. This chapter’s aim is not to provide an exhausting discussion on the definition of small (EU) states – there are specialized papers that do this much better (see, for example, Maass, 2009 or Long, 2017). This part aims to provide a basic overview of the field that will enable us to explain why it is interesting to study small EU member states and what we can learn from such examination. We can group existing literature into five categories according to the attributes they use to define a small state: size of territory, size of population, political size, vulnerability and relative weight. The first group concentrates on the physical size of a state. Authors usually take into consideration the size of the territory, although other measures such as

34   Preferences and external energy security gross domestic product (GDP) or military expenditures have been included. In spite of Panke and Gurol’s claim that “[s]ize is a social construction, and there is no one and only correct definition and measurement of what constitutes small” (2018: 142), they use GPD as a proxy to determine the size of a state. They consider “smaller EU member states” those with “below average GDPs” (ibid.: 146). We can also include Nasra into this category as he argues that small states are those with “a limited material resource base” (2011: 164). However, such a definition includes more attributes of a state than just the size of its territory. Various approaches demonstrate the effort to define small states on the basis of their physical size. However, “attempts to use quantitative criteria” have not led to the solution of the problem of how to define a small state (Pace, 2000: 108). The second group of definitions concentrates on the size of a population, making it a very similar approach to the first one. While several definitions include absolute size of a population, newer analyses started to use it in a relative perspective within the decision-­making process in the Council of the EU. Jazbec (2001) claims that small states have a population of up to 15 million (and a territory of up to 100,000 km2) while Manners (2000) argues that small states are those with a population of less than 16 million. According to Prasad, small states are those with less than 1.5 million inhabitants, although he admits that “there is no theoretical justification for taking a particular size as a cut-­off point” (2009: 44). The newer inclusion of population size in determining which EU member states are small ones is connected to changes in the decision-­making process after the adoption of the Lisbon Treaty. Although every member state has one vote in the Council of the EU, there is still a difference between individual member states in the decision-­making process as the ordinary legislative procedure is based on a double majority principle – a majority of member states (formally 55 per cent) has to represent at least 65 per cent of the EU population in order to pass a legislation. This creates a formal difference between member states in terms of size, along an informal difference caused by different administration capacity (Panke and Gurol, 2018). Grimaud argues that population size is “the most relevant indicator of state size in EU decision-­making process” as “the EU system in general tends to select this criterion as the one that is most essential, for instance in allocating Council votes to member states under the system of QMV” (2018: 16; cursive in original). The third group of scholars use political size to define small EU member states. This used to be operationalized as the number of seats in the Council of the EU before the Lisbon Treaty changed the decision-­making process. Mattila (2004) divided the member states of the EU15 into the ‘big four’ (France, Germany, Italy and the United Kingdom) with ten votes and the rest (less than ten votes). Schure and Verdun (2008) differentiated between big (29 and 27 votes), medium (14 to ten votes) and small (below ten votes) members. These different numbers of votes reflected changes in the voting system connected to the eastern enlargement of the EU. According to Panke, small members are those “with below average political resources” (2011: 126). She operationalized this definition by number of votes in the Council with small ones having less than the

Preferences and external energy security   35 average number of votes in the Council. This distinction is therefore binary: there are no medium-­sized countries. Before the Lisbon Treaty the average was 12.57 votes and there were, therefore, 20 small states out of 28 EU members. However, this division serves predominantly for analytical purposes and the difference in votes is not that visible in the day-­to-day voting of the Council, as most decisions are adopted by consensus and not by employing formal voting rules (Thomson, 2013). The fourth group of scholars define small states in terms of vulnerability. The activity and behaviour of states at the international level depends “on the way it is perceived by that state itself and by other actors in its international environment”, and not on its actual physical size (Tiilikainen, 2006: 73). According to Keohane, a “psychological dimension must […] be added [to the established definition of a small state] for the sake of clarity as well as in recognition of the fact that ‘objective reality’ does not determine statesmen’s behaviour directly” (1969: 296). Similarly, Thorhallsson (2006) claims that we have to add two new indicators (“perceptual size” and “preference size”) to the traditional defining attributes of small states. These reflect the way decision-­makers perceive their own states as a part of the international community and how other international actors see these countries. Pace argues that the “key concept in understanding the nature of small states is ‘vulnerability’ in political, economic and strategic terms” (2000: 109). Thorhallsson and Wivel (2006) equivalently claim that small states are those that are not capable of changing the basic contours of the ‘spatio­temporal’ context, i.e. the environment within which they operate. There seems to be a growing consensus among scholars on the importance of the relative weight as a defining feature of small member states (i.e. Grimaud, 2018; Long, 2017; Nasra, 2011; Panke, 2011; Panke and Gurol, 2018; Thorhall­sson, 2006). It is the relative, not the absolute, weight (size) that determines an EU country’s place within the EU. There are thus two groups of EU member states: big and small, with the latter having smaller relative weight compared to the former. The approach of this book towards small member states is based on this argument and subscribes to the claim that it is more fruitful to concentrate on the relations between these two types of states than on finding an ideal definition (see Long, 2017). This book thus does not propose a list of concrete characteristics that would define a small EU member state, but assumes that there are two groups of EU member states – big and small – that differ in their relative weight. Small states thus differ when it comes to their activity at the EU level and ability to influence the EU decision-­making process from their bigger counterparts. Small EU countries do not have to have the same set of priorities just because they are small. There can be big differences between them, even the small ones can significantly influence development of different policies at the EU level (see, for example, Maes and Verdun, 2005) or they can influence the decision-­making process (Panke, 2011). However, their influence will never be comparable to big EU member countries – the difference in their capacity has an impact on their ability to influence politics and policies within the EU.

36   Preferences and external energy security

Three challenges of small EU member states in external energy security The main argument of the book claims that the position of small EU member states in external energy security depends on their decision-­makers’ perception of the ability to cope with the energy security challenge that is operationalized with three partial challenges: external, internal and business. States whose decision-­makers consider their state successful in dealing with these challenges, oppose further integration in the energy security area, while those experiencing difficulties in doing so support deepening of cooperation. The latter group perceives integration as a way to delegate competences in a problematic area to the EU level, while the former do not see any reason why they should give up their sovereignty if they do not get any surplus in return. This argument builds on the existing scholarship on integration as a compensation for domestic shortcomings of European countries (for example Antola, 2002; Copsey and Haughton, 2009; Haughton, 2009 or Milward, 1992) and further develops it by providing more detailed operationalization. Scholarship on small states suggests a link between the size of a state and its security preferences (Archer et al., 2014; Haugevik and Rieker, 2017). Small states are concerned with their ability to guarantee security, because due to their limited resources in basically all areas, from economic and military matters to administration capacity and expertise, “the question of the security of small states is classified as their disadvantage” (Jazbec, 2001: 59). Therefore, these countries are more willing to transfer competences in this area to international actors or alliances (Thorhallsson, 2019; Wivel, 2005). As Pace argues, “for the small country, the solution to its security dilemma lies outside more than in the case of the larger states” (2000: 108). While the later have more resources to deal with their security problematique, “the smaller a country is, the less it can rely on its own resources to achieve [the desired level of security]”, that increases the dependence on other actors in the international arena, making integration “vital to [their] national survival” (ibid.). Integration is advantageous for small states as “institutions constrain the actions of great powers, facilitate peaceful conflict resolution and provide voice opportunities for the lesser powers” (Wivel, 2005: 395). Moreover, integration is less costly for small states compared to big countries as the smaller number of citizens makes it easier for political representation to aggregate different preferences (Baldersheim and Bátora, 2012). Literature suggests that the EU brings all these advantages for small countries and membership in the Union is thus beneficial for them. The EU creates “a stable regional security order allowing the small EU Member States to avoid some of the traditional security problems of small states in international relations” (Wivel, 2005: 409). The main advantage of European integration for small states is that it “lessen[s] their vulnerability […] and strengthen[s] their actual position” (Jazbec, 2001: 56). Entering the Union was especially advantageous for Central and Eastern European states, which “want[ed] to use their membership not only to consolidate

Preferences and external energy security   37 their transition to a market economy, but also to meet some of their ‘hard’ security concerns linked to the possibility of a return of Russian pressure in the region” (Pace, 2000: 118). On the other hand, small states have to face an integration dilemma (Goetschel, 1998) where there is either membership, which can mean a loss of sovereignty, or non-­membership and no advantages from integration. The cost of integration lies in the loss of sovereignty in areas where competences have been transferred to international organizations headed by big members, restraining the activities of other states. This dilemma concerns the decision to take part in the integration project or deepen the already existing system. The counterargument is that even if small states’ activities within these institutions would be significantly restrained, “[t]he small and middle powers’ leaders realize that although they may be able to do little together, they can do virtually nothing separately” (Keohane, 1969: 296). According to these arguments, small member states should prefer the deepening of integration in the external energy security area as they want the EU to take care of this demanding matter. However, integration in this area had not been supported by either small or big EU member states prior to the eastern enlargement of the EU. For example, when discussing the inclusion of energy into the Maastricht Treaty, both small and big EU members have supported or opposed this step (Mayer, 2008). In spite of several occasions when member states experienced energy security difficulties, only a very limited amount of integration took place (Aalto and Temel, 2014; Mišík and Szulecki, 2018; Welsch, 2017). Small states do not necessarily have to support the deepening of integration in the external energy security area just because of their size. This book argues that these states face three energy challenges, and the support for or opposition to integration in the external energy security area depends on the decision-­makers’ perception of the ability of their states to cope with these. The first challenge, an external one, concerns the ability of small member states to successfully deal with their external energy suppliers. The internal challenge considers the role of small member countries within the EU decision-­making process and their stance vis-­à-vis big states and EU institutions. The third (business) challenge concerns the small members’ relations with the main energy companies, usually called ‘majors’ or ‘national champions’. Small member states, whose decision-­makers consider themselves successful in dealing with these energy security challenges, oppose integration. By contrast, small EU members whose decision-­makers perceive that their countries are not able to deal with these energy challenges, support the deepening of integration in this area as a response to perceived vulnerability (see also Cherp and Jewell, 2014 or Pointvogl, 2009 for energy policy related arguments or Haughton, 2009 for more general arguments). The level of support for or opposition to integration thus depends on the decision-­makers perception of the ability of their states to cope with the three challenges and creates a continuum from full support (severe problems with all three energy security challenges) to full opposition to the deepening of integration (the ability to cope with all three challenges sufficiently). Such claims stem from an argument that

38   Preferences and external energy security ideas (Herranz-­Surrallés, 2016; Herweg, 2015; Kuzemko, 2014) and perceptions (Maltby, 2013; Mišík, 2015; Osička et al., 2018) play an important role in European integration in general and the development of energy policies (including external energy security) in particular. External challenge The first challenge concerns the ability of small EU states to successfully negotiate with their energy suppliers from outside of the EU and its legal framework (i.e. outside of the internal market). Since they are small and have limited resources, small states have only a restricted negotiation capacity and can offer only a few incentives to their much bigger partners. This can negatively influence their ability to negotiate and back up energy companies operating on their territory during their talks with exporting companies from third countries. Even though the energy business has an important position in guaranteeing energy security, governments are included not only as shareholders of energy companies, but also as supporters at the international level. Exporting companies like Gazprom are so closely interwoven with their governments that its activities are quite difficult to differentiate from the governments’ foreign policy interests (Siddi, 2017). Moreover, Moscow has traditionally used energy as a foreign policy tool (Umbach, 2011; see Judge et al., 2016 for a different interpretation), and Russia, as the main supplier to Europe, has used its supplies as an energy weapon and favours bilateral deals with EU countries (Smith Stegen, 2011; see Stulberg, 2015 for a critical stance), which further worsens conditions for small member states. Europe has to face a ‘double dependency’ on Russia not only as a producer but also as a transit country for energy from Central Asia (Umbach, 2011). Högselius argues that an energy weapon has to be treated as a social construct as it exists only “to the extent that it is believed to exist” and therefore we have to place “perception rather than objective reality at the centre” of this concept (2013: 221). Indeed, perception as a factor influencing EU–Russia relations is gaining a lot of attention (Casier and DeBardeleben, 2018). As the major supplier of gas to the EU (Szulecki, 2018) and the dominant supplier for many European countries, the Russian Federation “has consistently shown preference for bilateral negotiations with individual Member States” (Bohzilova and Hashimoto, 2010: 635). This strategy is advantageous for countries that are able to negotiate mutually beneficial deals with Russia (for example, Italy and France), or for those EU member states that are cooperating with Russia on diversification projects like Nord Stream (1 and 2) but is not for those countries that are not included in these undertakings. The German company E.ON is engaged in the construction of this pipeline and the German government is one of its main supporters (Goldthau, 2016). Contrary to this bilateral project that has been materialized (Nord Stream 1) or is currently being developed (Nord Stream 2), the EU-­led Nabucco pipeline that was supposed to diversify not only routes, but also sources of gas, suffered severe damage and is no longer being prepared. Although “Gazprom and the Russian government have

Preferences and external energy security   39 not reacted to the threat of Nabucco by specific or ad hoc measures, […] they have managed to weaken Nabucco’s options” (Fernandez, 2011: 69). The Southern Gas Corridor that was supposed to replace Nabucco is much smaller and the EU has been criticized for its geopolitical approach towards this pipeline that overlooks numerous other factors (Siddi, 2019). The big member states that are importing large volumes of energy from Russia (or any other exporter) have in general much better negotiation positions than small states that import small amounts. Bohzilova and Hashimoto claim that big member states like “France and Germany participate in EU–Russia energy negotiations from a rational objective economic stance” (2010: 628), and they are not affected by a non-­economic agenda as some other member states, especially small members from Central and Eastern Europe (for instance, the Czech Republic, the Baltic States or Slovakia). One of the aims of energy liberalization within the internal market is to increase energy security by developing the internal infrastructure and enabling the free trade of energy within the Community. However, “liberalization has helped to bolster, rather than diminish, Gazprom’s power, at least in some key areas” (Fernandez, 2011: 81). It has helped Gazprom to access the EU energy market and basically merge upstream and downstream even though the original idea was to break up national monopolies and increase competition. Such a result is problematic, especially for small member states, which are keen to decrease the influence of their main supplier to a minimum. The external challenge centres on the problems of small EU member states in external energy security which are caused by their unequal position in relation to their main external energy suppliers and which negatively influence their ability to guarantee their own energy security. Small member states not only lack the political power of their big counterparts, but the former also import much less energy compared to the latter, which makes small EU members less important in the eyes of their external energy suppliers. Moreover, the small members often (but not in all cases) have only one major supplier due to limited diversification and interconnectivity, which makes it even more difficult for them to successfully negotiate terms of supply. However, if decision-­makers of small member states perceive that they are able to successfully negotiate with the main supplier, they do not support the transfer of competences in the external energy security area to the EU level. On the other hand, if representatives of these countries think that they are not able to cope with this challenge, their country supports the creation of common rules at the EU level that should improve their stance vis-­à-vis their external energy suppliers. Internal challenge The second challenge concerns the role of small member states within the EU decision-­making process and their stance vis-­à-vis big member countries. Due to, among other factors, their smaller resources and smaller administrations (see Grimaud, 2018 for a list of differences between small and big member states in

40   Preferences and external energy security the EU’s decision-­making process), small member states are in a disadvantageous position compared to big members and are less able to influence the decision-­making process. However, they are able to overcome these limitations if they actively follow their objectives and employ different counterstrategies (e.g. Panke, 2011). A critical evaluation of the EU’s decision-­making process at the end of the 1990s stated that “the larger member states dominate EU negotiations and there is not much one can do about it” (Meerts, 1997: 473). Such a trend also continued during the 2000s when Thorhallsson and Wivel noted that although the EU institutional framework guarantees a voice within the decision-­ making process for small member states, big member states can circumvent it and “negotiate the big issues outside the formal institutional procedures” (2006: 658). The big members are playing a dominant role within the internal market – the Economic and Monetary Union was supposed to serve “the domestic economic interests of the three most dominant Member States” (Maes and Verdun, 2005: 328). Big countries have more possibilities to influence European integration especially in those policies where costly resources are required, which small member states cannot afford. For example, Schure and Verdun (2008) showed that the big EU states (Germany and France) managed to pursue their goals concerning the Stability and Growth Pact in spite of strong opposition from small member states. These trends and arguments presented in the academic literature have not changed in the current decade. It has been claimed that the big three EU members (Germany, France and Great Britain) are, especially in foreign policy issues, “precooking decisions that are then formally adopted by all member states” and for small states there is thus “not much choice other than to accept the authority of large member states” (Nasra, 2011: 163). The latest research similarly claims that the difference in activity and ability to pursue their preferences between small and big member states stems from several factors including administrative capacity, as small member states’ “reality differs starkly from larger administrations with larger number of experts” (Grimaud, 2018: 25). However, also small members have the capacity to influence the development of common policies if they employ different counterstrategies (Panke 2011). They can compensate for their size-­related shortcomings through “institutionalized learning and through the possession of expertise” (Panke, 2011: 137). Small member states are able to influence the EU rules also in their preparatory phase by providing expertise to the Commission that is responsible for drafting a proposal (Haverland and Liefferink, 2012). Grimaud, who studied the smallest EU member state (Malta) came to the conclusion that “it is necessary that [small] states adopt appropriate strategies early in EU decision-­making processes if they are to exercise influence” (2018: 274). He argues that since the analysis examined the smallest EU member state, the conclusions are valid also for other member states: “if Malta’s government manages to exercise influence in EU decision-­making, then other larger EU small state governments should be able to do the same” (ibid.: 8). Small states can use strategies “to gain influence on issues that they normally fail to affect” (Björkdahl, 2008: 137). For example, to

Preferences and external energy security   41 support the Northern Dimension Initiative (NDI) the Finns engaged in four strategies (Arter, 2000): they embedded their support in vague phraseology in order to give as wide an appeal as possible, and they presented it as a European (and not a national) project which was complementary to existing programmes – NDI was a soft security project in line with the mainstream view. The project “indicates that small EU states with bright ideas can in the right circumstances exert influence on Union policy-­making” (Arter, 2000: 693). Nasra (2011) studied the influence of Belgium within EU foreign policy and showed how it managed to put its foreign policy preferences on the EU agenda. The issue in question (EU relations with the Democratic Republic of Congo) was not of interest to other member states, and Belgium did not face any opposition that enabled it to successfully push through its preferences. Jakobsen (2009) has shown that the Nordic countries have managed to keep their agenda (civilian ESDP – European Security and Defence Policy) at the EU level in spite of strong opposition led by France as a big EU member state. According to his theoretical model, in order to be successful, small EU member states have to (a) be recognized as a leader at the area at hand, (b) present convincing arguments, (c) lead coalition-­building as an honest broker, and (d) have the capacity to support the implementation. Since Nordic states fulfil all these four requirements, they “have had a big, and at times, even decisive influence on the civilian ESDP” (Jakobsen, 2009: 96). Small member states face difficulties connected to their size within the EU and its decision-­making process. However, they are able to overcome the formal and informal dominance of the big member countries by applying different counterstrategies. They are able to “punch above their weight” (Panke, 2010) by, among other strategies, “invest[ing] their [limited] energies” into a specific area (Björkdahl, 2008: 139). Although external energy policy is not harmonized at the EU level, there are still issues connected to this policy being debated and partial rules are being adapted at the EU level. When small member state’s decision-­makers perceive that their country has the capacity to overcome their limitations by employing different strategies, they do not support deepening of integration in external energy security. Decision-­makers in this case believe that their country is able to actively influence the decision-­making process and push through its partial goals – thus the common rules are not that important for these states. On the other hand, small EU members support deepening of integration in this area if their decision-­makers think that their state is having problems pursuing ad hoc energy security preferences. Decision-­makers believe that their country is not able to push through particular objectives at the EU level and therefore support strong common rules that are supposed to level the playing field and give also weaker states an opportunity to influence the decision-­making process. Business challenge The business challenge covers relations between small member states and the energy companies operating on their territory. These companies are often of a

42   Preferences and external energy security multinational character, and small EU members can have a hard time dealing with them and persuading them about the need to introduce measurements or policies positively impacting their energy policy (and security). Energy companies “perform a key role in ensuring energy security as the actors that actually carry out the exploration, investment, extraction, delivery, refining and in some cases, strategic stockpiling of oil and gas products” (Stoddard, 2012: 352). Energy firms in general are often extremely large, employ several thousand people and significantly contribute to states’ revenues through taxes. They have therefore a special place in member states’ economies and governments are very cautious when approaching them. Moreover, the main energy firms from the big member states dominate the European energy market (Ipek and Williams, 2010; Schumann and Widmaier, 2003). However, one of the main problems of the internal energy market is the abuse of the energy firms’ dominant position and the on-­going liberalization process not tackling this particular issue as it concentrates on other areas (Nechvátal et al., 2012). Schumann and Widmaier (2003) claim that French and German energy firms have applied various strategies to influence the liberalization process depending on state-­industry relations. Large companies “play an important role, both in seeking influence on the European regulations and also in implementing these regulations within the framework of the domestic regulatory regime” (Schumann and Widmaier, 2003: 267). While Électricité de France approached the national government in order to use its veto as a bargaining chip in negotiations with the Commission, German electricity companies negotiated directly with the Commission itself. The Commission was the stakeholder energy companies were striving to reach in both cases. However, the aims of the Commission sometimes diverge from those of business (Stoddard, 2012). Good examples are areas of climate change, price or competition, where the Commission is very proactive, whereas companies are trying to keep the status quo, which is advantageous for them. The member states from Central and Eastern Europe in particular are experiencing difficulties in coping with energy companies as a lot of their energy assets changed ownership during the privatization process from the mid-­1990s to the mid-­2000s (LaBelle, 2009). Their originally government-­owned companies were often bought by businesses from big members like France, Germany or Italy. Their EU membership played a key role in choosing those countries as a destination for investments as it fostered “a common legal framework in each country and encouraged the opening of national markets for investments” (ibid.: 4678). Another demanding issue is the special relations between some energy companies and individual member countries. This state of affairs disrupts efforts to act unitarily towards third parties at the EU level. Moreover, such activities decrease the overall energy security of the EU as bilateral agreements with suppliers only foster the security of the involved country and decrease the security of other members. Contrary to the small member states, their big counterparts usually have much better relations with the energy companies (Eikeland, 2011; Westphal, 2014). As Youngs notes, “member-­state governments have backed

Preferences and external energy security   43 their respective national energy champions in signing long-­term bilateral contracts with Gazprom – and have indeed been minded to argue that such deals represent a success for energy security” (2011: 57). Such contracts have very strong support from national governments: for example, according to Wood “no German government will jeopardize resources supply and the lucrative distribution arrangements German companies have secured” (Wood, 2010: 314). The same is true for France and Italy, whose governments “privilege national firms over the collective EU” (ibid.). The development around Nord Stream 1 and 2 pipelines support these arguments. Small member states are thus in a specific position vis-­à-vis energy companies. These are important players not only within domestic energy policy but also at the EU level as they are important stakeholders in rules setting. Thanks to their size, energy companies can use their dominant position on the energy market and approach the Commission directly in order to push through their point of view. Besides, energy companies engage in bilateral deals with the exporting countries with backing up from their home governments, often without considering the impact of such steps on the energy security of other members. This section thus develops an assumption according to which small member states whose decision-­makers believe that their states are able to successfully negotiate with the energy companies operating on their territory do not support the transfer of competences to the EU level, as this would hamper the existing equilibrium between these states and energy businesses. On the other hand, small EU members whose decision-­makers perceive that their country is having problems dealing with energy businesses, support the transfer of competences, as common EU rules are supposed to improve their stance towards energy businesses.

Case selection and data This book explores the above-­developed assumptions using the example of three small EU member states: Austria, the Czech Republic and Slovakia, which present a unique combination of small EU countries, particularly suitable for this analysis. This does not mean that the conclusions stemming from this analysis cannot be applied to other small EU member states – they certainly can as the arguments supported by the analysis are of a general nature. However, these three states present a very good sample for analytical purposes and enable the analytical chapters to develop arguments based on the theoretical model presented within this chapter. The examination conducted in the three analytical chapters of the book (Chapters 4 to 6) is based on qualitative methods that are typical for utilizing a small number of cases, enabling deep understanding of an issue at hand. These three cases are suitable for analysis for three main reasons: (A) external energy security is an important issue for the selected countries: natural gas plays an important role in their energy mixes and they import a significant share of it from abroad; (B) their geographical proximity enables comparison of the three cases; (C) the selected countries differ in their position towards

44   Preferences and external energy security external energy security integration. This enables the study of a whole range of positions, from rejection (Austria), through partial support (the Czech Republic), to full support (Slovakia) of further development of integration in external energy security at the EU level. Moreover, the countries sampled consist of countries from Central and Eastern Europe (the Czech Republic and Slovakia) as well as a country that is considered to belong to Western Europe (Austria). However, this book argues that the post-­socialist nature of the former should not prescribe a priori any concrete type of activities or behaviour as these countries have embarked on different paths and to consider them as a unified group means to ignore existing differences between them (see also Mišík, 2017 for detailed discussion). When it comes to the first characteristic of the studied countries – the importance of natural gas in their energy mixes – Chapter 2 provides detailed examination of the different energy types these countries use to cover their energy needs. Natural gas covers 21 per cent of the total energy consumption of Austria, the figure is 16 per cent in the Czech case and more than 23 per cent in the Slovak case (Eurostat, 2018). None of the three analysed countries have significant energy sources and the Russian Federation is the major supplier of natural gas. Detailed discussion on this issue is provided in Chapter 4. Because of the high importance of imported natural gas for the analysed countries, it can be expected that they will have a well-­developed position towards external energy security and a rather clear view on whether they want to keep this issue in national hands or upload it to the EU level. This was one of the crucial reasons for choosing these countries as clear and well-­developed positions were necessary preconditions for empirical research. As Chapter 2 explains in detail, natural gas is the primary type of energy this book examines, however, it does not exclude a priori any energy source from the analysis. The second reason for selecting these countries is their geographical proximity. Natural gas in particular is very much connected to a concrete territory creating regional – rather than global – markets (Balmaceda, 2018) due to its technical characteristic, limited interconnectivity within the EU internal energy market and underdeveloped LNG. The selected countries are part of the same region and thus have links to similar suppliers (especially the Russian Federation) that enables comparison of their approaches. Moreover, geographical proximity allows us to study the countries’ different positions towards regional leaders within the EU (especially Germany) and the energy businesses (especially the so-­called energy majors) operating in this region. Third, in spite of their need to import natural gas, selected small member states differ in their position on the most suitable level for dealing with external energy security. Austria prefers keeping the competences in national hands, while Slovakia supports deepening of integration in this area. The Czech position can be found between these two. Slovak support for deepening of European integration in the external energy security area has been identified by existing research (Mišík, 2015). Strategic documents of the Slovak government underline the 2009 gas crisis as the milestone for the country’s increased interest in energy

Preferences and external energy security   45 security issues in general and its external dimension in particular (Ministry of Economy, 2018). Besides general support for the transfer of external energy security issues to the EU level, the Slovak government has also been very supportive of the EU’s diversification agenda as diversification is considered to be one of the main tools to improve energy security. An interviewee from the Slovak Ministry of Foreign Affairs claimed that the main issue for the EU is to “develop a real common energy policy” that would include provision comparable to Article 5 of the NATO treaty (Interview 6). The former Slovak prime minister argued that only such a policy would be able to “protect the EU from abusing gas as a policy tool” (Fico, 2015). The Czech position is much less clear; on the one hand the country supports integration in external energy security (Tichý, 2013), on the other hand, the strategic documents see limits in this area (Ministry of Industry and Trade, 2015). This is because while integration in some areas of external energy security can be advantageous for a country, “it can sometimes be risky to turn your energy security into someone else’s hands” (Interview 18). Besides, there are also other energy related issues at the EU level that have a similar level of priority for the country – for example, the internal energy market, the coal industry or nuclear energy. Austria has a less developed position concerning external energy security as it is satisfied with the existing situation and the country is not actively supporting a change of the status quo (Interview 41). Similarly, the Austrian energy strategy claims that the “security of supply belongs among key responsibilities of individual member states” (Bundesministerium, 2010: 34). Austria’s most visible preferences in energy policy are support of renewables and a very strong opposition towards nuclear energy (ibid.; Wagner et al., 2015). Although the country used to support further development of its internal energy market at the EU level, according to the interviewees it does not any more, as the policies reached their goals – at least from an Austrian perspective – and they see the current situation as satisfactory (Interviews 25 and 40). The book is based on three types of data: two primary types of data (interviews and official documents) and one type of secondary data (academic literature, reports, etc.). The combination of these different types of data helps us to provide as complex a picture about the positions of the examined countries towards the integration in external energy security as possible. The main source of primary data is a set of 52 semi-­structured interviews conducted with the representatives of the studied countries. These were expert interviews, conducted face-­to-face with senior officials from various ministries that have energy policy on their agenda (not only ministries of economy, but also ministries of foreign affairs). Moreover representatives from other stakeholders were interviewed – for example, representatives from regulatory authorities. In order to gain a perspective from Brussels, diplomats and energy representatives from permanent representations of these countries to the EU were interviewed as well. To a lesser degree experts from think-­tanks focusing on energy policy and other specialists were consulted. The complex list of interviewees is included in the Appendix at the end of the book. The interviews lasted on average approximately 40 minutes,

46   Preferences and external energy security most of them were recorded and later transcribed – the analysis is based on a verbatim transcription of all available recordings. Some interviews were not recorded as per interviewees’ requests. In these cases, notes were taken. Interviews were necessary to gain insight into decision-­makers’ perception of external energy security issues. Other types of primary and secondary sources were also used to provide more complex analysis and triangulate findings from the interviews. Official documents, strategic papers, official statistics or governmental reports were used together with existing academic literature, reports from think-­tanks and newspaper articles. Especially in the Czech case, the last period has seen a steep increase in energy policy analyses (Binhack and Tichý, 2012; Černoch et al., 2012; Frantál and Malý, 2017; Sivek et al., 2017) while much less literature has been published about the other two examined countries (see, for example, Mišík and Nosko, 2017 or Wagner et al., 2015 as well as broader studies of the region like Janda et al., 2017; Osička et al., 2018).

Conclusion The main aim of this chapter was to develop a theoretical background for the analysis conducted later in the book within Chapters 4 to 6. By discussing external energy security and its relation to energy security, the chapter created a firm conceptual background for further analysis. It also examined the concept of a small member state, discussed its complexity and problematic nature. The chapter argued in favour of relative power as a defining feature of a small EU country and subscribed to the notion about the importance of relations between different states for our understanding of the relationships within the EU (Long, 2017). It examined an argument presented in the existing literature according to which small states are concerned about their ability to guarantee their own security due to their limited resources and therefore are more willing than big countries to transfer competences to international actors (e.g. Archer et al., 2014; Haugevik and Rieker, 2017). Here we argue that the logic is not that straightforward and that the willingness to integrate is not directly connected to the size of a country. The chapter identifies perceived vulnerability as the key component in the process and argues that small member states’ support for and opposition to deepening of integration in external energy security depends on their decision-­ makers’ perception about the ability of these states to cope with three energy challenges – external, internal, and business. Small EU states support further integration if their decision-­makers consider their states unsuccessful in dealing with these energy challenges and vice versa. This argument builds on the scholarship claiming that EU member states see integration as a way to cope with domestic shortcomings (Copsey and Haughton, 2009; Milward, 1992). For example, Haughton notes that “[r]ecognizing the limitations of what can be achieved domestically, integration is […] advocated as a means of compensating for domestic weakness” (2009: 1386). After developing theoretical models that will be used for the examination of the three selected countries later in the book,

Preferences and external energy security   47 the next chapter looks at the energy sector of the EU while Chapter 3 examines the development of EU energy policy.

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2 The EU and its energy sector

The aim of this chapter is to provide a general overview of the situation in the energy sector in the EU and its member states. Since some of the energy issues are governed at the EU level while others are still in the hands of member states, this chapter discusses both levels in order to provide a comprehensive picture of the energy sector. In this way it provides a background for examination of external energy security priorities of small EU member states which is the main objective of this book. This chapter follows two objectives. The first one is to provide a comprehensive picture of the energy sector within the EU. The chapter argues that the energy system is a complex entity (Balmaceda, 2018) and therefore we need to study it from a holistic perspective. The book, therefore, does not exclude any energy source from its analysis and tries to encompass the complexity of energy systems within its analysis. However, on the other hand, the chapter argues that natural gas has – for several reasons that are explained in detail here – a prominent place within the EU when it comes to external energy relations. The second aim of the chapter is thus to explain why this is the case and why so many analyses of external energy relations of the Union focus on natural gas as the most important energy source (Afifi et al., 2013; Bilgin, 2009; Rodríguez-Gómez et al., 2016; Ruble, 2017; Schmidt-­Felzmann, 2011). This chapter analyses in detail political, but also technical reasons supporting this argument. The chapter proceeds as follows. The first section analyses the energy sector of the EU and its member states in is complexity, including several energy types, not just in relation to natural gas. It provides basic energy indicators and illustrates the current situation when it comes to issues like consumption, imports, domestic production, dependency, interconnectivity, etc. of all the types of energy sources that form the energy mix of the EU member states. The section examines more closely the analysed countries (Austria, the Czech Republic and Slovakia) and provides a detailed description of their energy sectors. Data presented in this section are used later in the book for analytical purposes. The second section of the chapter examines differences between individual energy sources utilized within the EU and explains why natural gas has such a prominent place within its external energy policy. This section argues that there are differences between individual energy sources as some of them are produced

56   The EU and its energy sector domestically while others are imported (or their important share) from third countries. Moreover, even between those that are imported (especially crude oil and natural gas), there are differences not only in their technical nature, but also when it comes to relations with the supplying countries. These two energy commodities are treated rather differently in the EU, although in both cases, significant volumes of these are imported from third countries (most importantly from the Russian Federation). Other energy sources are considered to be domestic, although in some cases (for example nuclear energy) most EU member states are dependent on imports from third countries. The overall aim of this section is to support the claim regarding the crucial position of natural gas in EU external energy security as is emphasized in the analytical chapters of the book (Chapters 4 to 6).

Energy sector of the EU This section presents basic information about the energy sector in the EU and its member states with a special focus on the three states that are the object of the analysis within this book (Austria, the Czech Republic and Slovakia). If not stated otherwise, the data presented here come from the official web page of Eurostat, the statistical office of the EU and its section on energy (Eurostat, 2018). These data, and not those provided by national authorities, are used also – for consistency purposes – when discussing individual member states. Due to variances in methodology, data provided by different sources (different national statistical offices) often diverge, which is problematic in comparative settings and limits precise analysis. Therefore, this book utilizes predominantly data from Eurostat that uses united methodology. Data provided by national statistical offices and other actors involved in the energy sector (like national transmission system operators, energy companies, etc.) will be used in the book, mostly in cases when data from Eurostat was not available (due to specifics of the data or other reasons). The book uses ‘million tonnes of oil equivalent’ (Mtoe) as a basic unit, although when discussing natural gas the text mentions also ‘billion cubic meters’ (bcm) as this is commonly used within official statistics as well as academic literature. Within the book, bcm is mostly used when examining capacities of natural gas infrastructure (pipelines, LNG terminals, etc.), as in this context Mtoe is not frequently used; bcm or terawatthours (TWh) being more common. The latter unit is used to better describe the amount of energy stored in natural gas, as its volume depends on temperature and altitude (atmospheric pressure). Mtoe will be used mostly when examining or comparing different types of energy sources or when discussing energy in general. The EU is one of the main consumers of energy in the world; gross inland energy consumption of all its member countries was 1627 Mtoe in 2015. The trend in consumption is rather stable: it hasn’t changed a lot since the beginning of the 1990s when the total consumption was 1670 Mtoe. There was a slight increase in the consumption around 2005 (1830 Mtoe), however, it decreased to

The EU and its energy sector   57 1700 Mtoe in 2009 (a 5.8 per cent decrease compared to the previous year) as the global economic crisis slowed down economic production. Gross inland energy consumption within the EU has slightly fluctuated since then, however, it did not see a dramatic change until 2016. One of the reasons for the stable energy consumption in spite of overall economic growth (an increase of GDP within the EU) during the period 2005–2015 could be due to the improvement of energy efficiency that was recorded, in spite of the economic crisis during a part of this period, in all EU member states except Greece. However, when considering individual energy sources, the EU underwent significant changes during the period 1990–2015. Renewables experienced their biggest increase in gross inland consumption (192 per cent), while consumption of solid fuels decreased during this period by 42.2 per cent and consumption of oil products decreased by 11.4 per cent. When it comes to natural gas, its consumption also underwent rather significant changes after 1990. While the whole European Community consumed 298 Mtoe of natural gas in that year, its consumption increased steadily until 2010 when it peaked at 447 Mtoe. Consumption decreased to 343 Mtoe in 2014 only to increase to 357 Mtoe in 2015 and even to 383 Mtoe in 2016. So, while experiencing rather dramatic changes in consumption, with periods of significant increases in demand, followed by periods of sharp decreases, the overall consumption of natural gas has increased during the period 1990–2015 by 20 per cent (see Figure 2.1). The biggest energy consumers among member countries in 2015 were Germany, France and United Kingdom with 19.3 per cent, 15.5 per cent and 11.7 per cent share in total consumption respectively. When it comes to individual sectors of economy, the main consumer in 2015 was transport with 33.1 per cent share followed by households (25.4 per cent share), industry (25.3 per cent share) and services (13.6 per cent). The rest (2.7 per cent) was consumed by agriculture and other sectors. Oil is the main component of the EU’s energy mix

































Figure 2.1  EU 28 consumption of natural gas 1990–2016 (in Mtoe). Source: Eurostat, 2018.







58   The EU and its energy sector with a 34.4 per cent share, followed by natural gas with a 22 per cent share and solid fuels with a 16.1 per cent share in 2015. Nuclear energy provided another 13.6 per cent of the energy mix, while renewables were responsible for 13 per cent and (non-­renewable) waste provided the rest. Although natural gas has only the second position within the aggregated energy mix of the EU member states after crude oil and the EU is dependent on imports of both types of energy source (oil to an even higher degree), the following section will explain why natural gas is a much more sensitive issue from an energy security point of view than crude oil. The section thus sheds light on why natural gas is the most important energy source when it comes to the external energy policy of the EU. EU member countries produced significant amounts of energy domestically, however, this is not enough to cover their total consumption. Primary production of energy in the EU’s 28 member states was 767 Mtoe in 2015, a decrease of less than 1 per cent from the previous year. This downturn trajectory was, however, much more significant from a long-­term perspective: compared to 2005, the EU 28 produced 15.2 per cent less primary energy in 2015. The main contributor to primary energy production in terms of size was nuclear energy with 28.9 per cent share. Although a large share of nuclear fuel is imported from outside the EU, nuclear energy (more precisely nuclear heat) is considered to be part of domestic production (see also the difference between gross inland energy consumption and final energy consumption in the statistics produced by Eurostat). In France, this energy source accounted for 82.5 per cent of domestic production of primary energy. In Belgium nuclear energy had a 65 per cent share in primary production while in Slovakia it was 62.6 per cent (data for 2015). However, other member countries have a much smaller share of nuclear in their primary energy production with 14 members (including Austria) having no electricity generated from nuclear power. The second most important energy source produced within the EU are renewables with a 26.7 per cent share recorded in 2015. Among different types of renewables the most important source was biomass and (renewable) waste followed by hydropower and wind. Solid fuels, with a 18.9 per cent share, were the third most important energy source produced domestically in the EU. The rest of the primary production by EU member states was provided by natural gas (14 per cent), crude oil (9.8 per cent) and other (1.7 per cent). All types of energy sources except renewables (and non-­renewable waste) experienced a decrease in domestic production, with natural gas and oil seeing the most significant drop in production. From a short-­term perspective, production of natural gas decreased by 8.2 per cent in 2015 compared to 2014. However, over a decade (2005–2015), it was oil that experienced the most significant drop in domestic production of 43.9 per cent, while natural gas fell by almost the same amount (43.5 per cent). In this way natural gas continued in the negative trend of domestic production observed during an even longer period of time – the period 1990–2015 saw a decrease in the production of natural gas of 32.7 per cent (see Figure 2.2). In absolute terms, current members of the EU produced 163 Mtoe of natural gas in 1990 and the production was increasing during

The EU and its energy sector   59 

ƒ–—”ƒŽ‰ƒ• ‘Ž‹†ˆ—‡Ž ‡‡™ƒ„Ž‡•



‡–”‘Ž‡—’”‘†—…–• —…Ž‡ƒ” ƒ•–‡



































Figure 2.2  EU 28 production of primary energy 1990–2016 (in Mtoe). Source: Eurostat, 2018.

the first half of the 1990s, reaching 212 Mtoe in 1996. The production within the EU stayed above the 200 Mtoe mark until 2005 when it decreased back to 190 Mtoe. Since then we can observe a downward trajectory of natural gas production within the Union with 110 Mtoe of natural gas produced in 2015 (and 109 Mtoe in 2016). Moreover, there is a general expectation that the decrease of natural gas production will continue in the future. Indeed, in the coming years, the depletion of natural gas fields will be one of the most pressing issues connected to domestic production of energy in the EU. On the other hand, from a long-­term perspective renewables have experienced the biggest increase in production (an increase of 71 per cent over the period 2005–2015) as well as on a yearly basis (almost 4 per cent increase between 2014 and 2015). Because of such sharp decrease in domestic production, member countries were forced to increase imports of energy from outside of the Union (Ruble, 2017). In 2015 the EU’s total net imports of different energy sources equalled 902 Mtoe (the gross inland energy consumption was 1627 Mtoe in that year). More general figures (European Commission, 2018) claim that the EU imports 54 per cent of its energy from third parties – 90 per cent of crude oil, 69 per cent of natural gas and 42 per cent of solid fuels. Although the EU imports the biggest share of crude oil, it is currently natural gas that presents the main challenge for external energy policy, not only because of the sharp increase of its import to the EU – the volume of its import has doubled during 1990–2015 to 343 Mtoe (see Figure 2.3 on the development of EU energy dependency). Political as well as technical specificities discussed later in this chapter can be considered the main source of natural gas dominance in external energy policy discourse. The biggest member countries in terms of population are also the main importers of energy from outside the EU; with an exception of Poland that is using significant

60   The EU and its energy sector     

             

Figure 2.3  EU 28 energy dependence 1990–2016 (in %). Source: Eurostat, 2018.

amounts of domestic coal to produce electricity (Manowska et al., 2017), which notably decreases its dependency on energy imports. Denmark was the last net energy exporter among the EU member states until 2013. However, due to a decrease in domestic production, it became a net importer in that year and has stayed one till the current time. As a result, there is currently not even one net energy exporter among EU member states. The Russian Federation is the main supplier of different types of energy to the EU. It is the leading external supplier of solid fuels with a share of almost 26 per cent and it is also the main supplier of crude oil, although its share has decreased slightly since 2005 to less than 28 per cent of the total oil imports of the EU. The Russian Federation is the biggest supplier of natural gas with a share of more than 29 per cent (data for 2015). The second biggest supplier is Norway with a share of almost 26 per cent and third is Algeria with a share of almost 9 per cent of the total natural gas imported to the EU. Most of the natural gas (64 per cent) is thus imported from only three sources (the Russian Federation, Norway and Algeria). Although LNG is becoming more and more prominent within the EU’s natural gas market, many terminals, particularly those located in Western Europe, are struggling with low utilization rates, especially due to the higher price of LNG gas compared to pipeline gas (the utilization of LNG terminals within the EU in 2014 was only about 25 per cent; European Parliament, 2015). The decrease in domestic production means an increase in energy dependency in general and in natural gas in particular. Overall dependency increased to 54 per cent of gross energy consumption (see Figure 2.3). Dependency in natural gas was 69 per cent in 2015, the second biggest after crude oil at almost 89 per cent. In several countries that experienced an increase in energy dependency during 2005–2015 (for example, Great Britain or the Netherlands) this can be linked to a depletion in domestic sources. On the other hand, some countries decreased their energy dependency, for example Austria, Latvia and

The EU and its energy sector   61 Romania – this can, in turn, be connected to several factors including an increase in energy efficiency. Indeed, data show interesting information when it comes to energy dependency. For example, Estonia belongs among the least energy dependent countries when it comes to gross energy consumption, with imports only accounting for 7.3 per cent of total consumption (mostly thanks to its domestic sources of shale oil). However, when it comes to natural gas, its dependence on imports is 100 per cent. This book examines in detail three small EU member states – Austria, the Czech Republic and Slovakia. The following part therefore briefly examines basic aspects of their energy systems (see Table 2.1 for an overview) while further details will be provided in the analytical chapters (4 to 6) that deal with concrete aspects of these countries’ energy sectors. Slovakia is the smallest of the three countries studied when it comes to energy consumption – its total gross inland consumption was 16.5 Mtoe in 2016. Austria consumed that year 33.9 Mtoe while Czech’s total gross inland consumption was 41.8 Mtoe. These are rather small volumes compared to the overall consumption of the EU: 1640 Mtoe. While in the Czech and Slovak cases there was a decrease in consumption by 7.7 and 5.4 Mtoe respectively compared to 1990, Austria consumed 8.2 Mtoe more in 2016 than in 1990. A significant part of this energy had to be imported from abroad. For example, Austria produces annually around 1 Mtoe of natural gas (less than 14 per cent of total consumption) with a peak production of 1.7 Mtoe recorded in 2003. This is a much higher production than the other two countries that extract around only 2 per cent of their total consumption from domestic sources. Austria’s gross energy dependency was 62 per cent in 2016 while in the natural gas sector the figure was 86 per cent – lower than in the case of the other two analysed countries. However, the overall Austrian dependency on external energy supplies is higher than Slovakia’s dependency and much higher than in the Czech case (59 and 33 per cent respectively). In spite of very high levels of dependency in natural gas (96 per cent) and petroleum products (97 per cent), significant domestic production of solid fuels decreased the overall energy dependency of the Czech Republic, similarly to the above-­mentioned Estonian case. All three countries have experienced rather significant variance in natural gas dependency since 1990: Austria’s dependency went all the way to 104 per cent in 2011, Czech fluctuated from 89 per cent in 2012 to 110 per cent in 2011. The variation in the Czech case can be linked to a storage issue, as the domestic production of natural gas is only about 2 per cent. Although natural gas consumption in the Czech Republic has a decreasing tendency, its utilization for electricity generation significantly increased in the last decade. While in 2008 less than 90 mcm was used for this purpose, it was more than 520 mcm in 2017 (ERÚ, 2018). Slovak dependency on natural gas imports ranged from 90 per cent in 2002 to 109 per cent in 2009 depending on the storage strategy in a particular year. The supplier concentration index, measuring total energy (natural gas) imports to an EU member country provided by suppliers outside of the European Economic Area (EEA) is shown in Table 2.1. Smaller values of the index ­indicate larger diversification, resulting in smaller risks to energy supply shocks.

Table 2.1  Basic energy sector indicators Indicator

Gross inland consumption (Mtoe)

European Union 1640 Austria 33.9 The Czech Republic 41.8 Slovakia 16.5

Domestic production (Mtoe)

Net energy Natural gas imports (2015, consumption Mtoe) (Mtoe)

Energy dependency (%)

Natural gas dependency (%)

Petroleum dependency (%)

Supplier concentration, gas (2015, %)

757 12.4 27.2 6.2

902 20.2 13.5 9.6

53.6 62.4 32.8 59.0

70.2 85.8 95.7 92.8

86.7 92.0 97.2 91.8

N.A. 52.6 38.6 90.3

Source: Eurostat, 2018; data for 2016 if not stated otherwise.

383 7.2 7.0 3.9

The EU and its energy sector   63 Table 2.2  Energy mix of the three studied countries (Mtoe)

Austria Czech Republic Slovakia

Solid fuels

Oil

Natural gas

RES

Nuclear

Waste

Other

3.0 16.6 3.2

12.2 8.3 3.5

7.2 7.0 3.9

10.0 4.3 1.6

0.0 6.2 3.9

0.8 0.3 0.2

0.7 –0.9* 0.2

Source: Eurostat, 2018; data for 2016. Note * Czech Republic is a net exporter of electricity.

The data shows that the Czech Republic has the smallest risk of energy supply shocks, while Slovakia is in totally the opposite situation. These three countries have different energy mixes, Table 2.2 presents details about the composition of their gross inland consumption in 2016. While Slovakia and the Czech Republic have a significant share of nuclear power in their energy mix, Austria does not use this energy sources at all; actually, it is one of the main opponents of nuclear energy among the EU countries. The Czech Republic also uses more solid fuels (various types of coal) compared to the other two countries. On the other hand, Austria is the leader in renewable sources of energy, especially in hydro: it produced 3.4 Mtoe of energy from water, compared to 0.4 Mtoe produced by Slovakia and 0.2 Mtoe by the Czech Republic. Together, biomass and renewable waste represent the main source of renewables (RES) in Slovakia and the Czech Republic, with a production of 1.1 and 3.9 Mtoe respectively.

Key position of natural gas for EU external energy policy After providing a basic overview of the energy sector within the EU with a focus on the three studied countries, this section develops the argument that natural gas is the most important energy source for the EU’s external energy policy. On the one hand this book acknowledges the complexity of energy systems and energy relations by also including other types of energy sources into its analysis, on the other hand it explains why natural gas is the most important energy source when discussing EU external energy security. To develop arguments, the analytical chapters thus include into their examinations other sources of energy like RES or nuclear, however, they predominantly focus on natural gas. The aim of this section is to examine the dominant position of natural gas in the discussion on external energy policy (and security in particular) and in this way acknowledge the importance of technical aspects of energy for the overall understanding of energy policy. This is often omitted from analyses, however, the position of this book is that energy policy is closely interlinked with technical aspects of energy and an understanding of former is thus closely connected to the understanding of the latter.

64   The EU and its energy sector The majority of existing book-­length publications include a wide range of energy sources in their analysis (for example, Andersen et al., 2017; Szulecki, 2018; Tagliapietra, 2017), while others concentrate only on one source (Grabau, 2016). The situation is different when it comes to journal articles (see, among many others, Aalto and Temel, 2013 or Norvaiša and Galinis, 2016) – they usually focus on a specific energy source due to their high specialization and limited space (plus, some journals examine only one type of energy, for example, The Electricity Journal). However, there are articles that are trying to shed light on different energy sources, their mutual interconnections and the complexity of energy systems (see Balmaceda, 2018). Sometimes comparison of different energy sources is important for the arguments presented in the article – for instance, when analysing the liberalization process within the internal energy market that concerns both electricity and natural gas (Geldhof and Vandendriessche, 2008; Golombek et al., 1998). While this book does not try to claim that it manages to include all possible types of energy sources and their different dimensions (variety of renewables, for instance) into the analysis, it acknowledges the complexity of the energy systems (Mišík and Szulecki, 2018) and does not exclude any energy source per se from the analysis. As a result, the book supports its arguments by an analysis including several types of energy sources, not only natural gas – it discusses the role of nuclear energy at the EU level (Lawrence et al., 2016) or in the relationship between the Czech Republic and Austria (Axelrod, 2004), and examines the role of not only gas companies, but also electricity ones. The book argues that we also have to look inside the EU and its member states if we want to analyse external energy relations (internal and business challenges, see Chapter 1). This is when several types of energy sources come into play, as they influence relations between member states and the overall energy policy situation within the EU, as well as the relationship between governments and energy businesses (see Chapter 1 for details on the theoretical model of the book). The complexity of the energy system is further complicated by partial interchangeability of several energy sources, especially when it comes to electricity production, but also in other areas like industry, heating or transport (see also the difference between gross inland consumption and final energy consumption). Different energy sources can be used for similar purposes: for example, natural gas can be used in its original form (i.e. as gas for heating, in the chemical industry to be processed into fertilizers, etc.), but it can also be used to produce electricity that is then used for other purposes. When applied to the subject of this book, this means that although such electricity is produced domestically, it is dependent on sources that are mostly supplied from outside of the given country. When it comes to natural gas, this is the case in Lithuania (Grigas, 2013). Many other countries of the EU produce electricity in nuclear power plants from uranium that is imported from abroad, however, they still consider such an energy source to be domestic – and thus also secure. The Lithuanian case illustrates well the complexity of energy systems – after phasing off the Ignalina nuclear power plant in 2009, Lithuania was forced to

The EU and its energy sector   65 replace this source which produced up to 95 per cent of domestic consumption of electricity (Vilemas, 1995). One solution to resolve this situation was – beside increasing electricity imports from the Russian Federation – to increase also domestic production of electricity in gas-­fired power plants. However, such a move meant a further surge in natural gas imports from Russia, as Lithuania did not have any alternative supplier at that time (Mišík and Prachárová, 2016). This further exacerbated the position of natural gas within Lithuania’s energy mix, influenced energy relations between both countries and contributed to Lithuania’s decision to opt for full unbundling within the third energy liberalization package. Although this book acknowledges such complexity of the energy sector and includes many different energy sources into its analysis, it highlights natural gas as the most important energy source when it comes to external energy policy and security. Such a position stems predominantly from the fact that the EU member states (aggregately) import a significant share of their final gas consumption from third countries (69 per cent, see also the previous section of this chapter). In spite of the fact that the EU is much more dependent on oil imports (about 90 per cent of its consumption), oil does not play such an important role in external energy policy. There are two main groups of reasons (although closely interlinked) explaining why natural gas is more important for this policy than oil and why it has such a prominent position in this discourse: political and technical. Political differences between oil and natural gas At the political level, natural gas has a prominent position among energy sources within the EU due to previous experiences with supply disruptions and challenging relations with some suppliers. Especially the relationship with the Russian Federation, as the main external supplier of natural gas (Siddi, 2019), which has had a downward trajectory not only in the energy area (Prontera, 2017), but also at a more general level. However, according to attentive observers, this relationship has never been in a good shape, it has been “an unhealthy marriage of convenience, marred by deeply rooted differences” from the very beginning (Schmidt-­Felzmann, 2016: 120). The 2006 and 2009 gas crises especially, provided an important incentive for fostering an EU energy security policy (Bocquillon and Maltby, 2017; Maltby, 2013), while the expected crisis of 2014 – that, however, never happened – supported further strengthening of the EU in the energy security area (Stulberg, 2015). This led to the establishment of the Energy Union with its strong security dimension (European Commission, 2015). The development in this mutual energy relationship between these two actors sparked wide academic interest among energy policy (security) scholars (among many others see, for example, Kratochvíl and Tichý, 2013; Kuzemko, 2014; Maltby, 2015; Romanova, 2016; Schmidt-­Felzmann, 2011; Siddi, 2017). When it comes to oil as another very important energy source that is being imported to the EU from third countries, the situation has been different, which has had policy implications for external energy policy.

66   The EU and its energy sector The industrial revolution was closely connected to the utilization of coal that stayed a prominent energy source until the beginning of the 20th Century. During the 1910s Winston Churchill, then a young politician, became a political leader of the transformation of the Royal Navy that was looking for a way to compete with an expanding German naval presence. He advocated transition from coal to oil as the fuel for the British fleet that should have secured British naval superiority over Germany. However, this change caused dependency of the Navy on oil resources that had to be, contrary to the domestic coal, imported from abroad. Britain therefore, made sure to secure access to Persian sources before fully switching to oil (Black, 2012). This decision turned oil into a strategic energy resource for the United Kingdom (Yergin, 2008) and changed its position world-­wide, starting its dominance in the global economy. The importance of oil further rose during the Great War (later renamed to the First Word War) and the Second World War (Black, 2012) when it became crucial for unit’s mobility. Ever since, oil has been connected to issues of energy security and external energy relations, although the post-­war period was characterized by rather calm development. European integration, however, did not start with oil that already had a key position in transport in the late 1950s – it focused on coal that still had at that time, a key position in electricity generation and steel production. Chapter 3 examines these issues in more detail. The 1956 Suez Canal crisis showed the importance of this route for oil transit, but it did not have a significant impact on the trade itself, or on oil prices. This situation offered an opportunity for supporters of Euratom to frame it as a response to Europe’s energy problem and portray nuclear as a domestic energy source (Brutschin, 2016). The first major disruption of oil supplies occurred in the 1970s and it was connected to the US’s oil imports from the Middle East. An embargo on oil exports by Arab members of the Organization of Petroleum Exporting Countries (OPEC) at the end of 1973 meant a cut-­off of a significant part of US oil supplies. The embargo followed a US decision to support Israel during the Yom Kippur War between Israel and an Arab coalition lead by Egypt and Syria in October 1973. The impact of this crisis commonly known as the first oil shock was most seriously felt in the US as Amer­ican customers “had grown […] completely accustomed to a culture defined by petroleum abundance” (Black, 2012: 189). Although the situation was not critical, the panic that the embargo created, caused a perception of a gasoline shortage. This resulted in long queues in front of gas stations and a strong political response in the form of the strategic oil reserves development. The second oil shock followed the Iranian revolution of 1979, when Amer­ican president Jimmy Carter placed an embargo on the import of Iranian oil to the US following a hostage crisis at the US embassy in Teheran. The Iran–Iraq war that broke out in 1980 further worsened the situation on the global oil market, as Iranian production almost stopped and Iraqi production significantly decreased (ibid.). Again, the consequences for the US were not critical, however, panic broke out and the situation on the domestic market from 1973 was repeated. The 1980s saw an increase in the oil supply and a significant drop in its price on the world market; an abundance of oil decreased

The EU and its energy sector   67 interest in energy security in the oil sector. With the invasion of Kuwait by Iraq in 1990, oil became once again a central issue for world politics. Iraqi supported their military activities by accusing Kuwait of tapping into cross-­border oil fields and maintaining low prices that undermined Iraqi competitiveness on the global market (Le Billon and El Khatib, 2004). When it comes to the European Union and its predecessor (the European Community) oil hasn’t been such a challenging issue for most of its existence, although the 1973 embargo also targeted the Netherlands (while Denmark, that became a member of the European Community earlier that year, was subjected to a partial embargo), and supplies to other member states by Arab members of OPEC were shortened. However, member states of the European Community did not hurry to show solidarity and help fellow member countries in need – contrary to that, some of them, most notably the United Kingdom and France, did their best not to antagonize their suppliers by publicly showing support for the Netherlands. However, thanks to the already existing community legislation and the willingness of most of the European companies to divert supplies to affected countries, “the embargo had only a limited impact on those states which were its target and even less on the rest of the Community” (McGowan, 2011: 497). The member countries did not see a common approach within the Community as a suitable way to tackle energy security issues, since they did not want to give up their competences in this area and transfer them to common institutions at the Community level. They preferred a multilateral dimension and most of them (Belgium, Denmark, Germany, Ireland, Italy, Luxembourg, the Netherlands, United Kingdom, but not France) together with several other oil importing countries (Austria, Canada, Japan, Norway, Spain, Sweden, Switzerland, Turkey, and the United States) established the International Energy Agency. The main trigger was the 1973 crisis during which “the main industrial countries became painfully aware of their vulnerability to the new economic power of the oil producer countries” (IEA, 1994: 28). Since then oil has not been a source of many issues connected to its supply within the EU. At an individual level, several EU member countries have experienced shortages, these have, however, never turned into a broader issue or full cut off of oil supplies. Among the countries analysed within this book, the Czech Republic experienced shortages of supplies several times during the 1990s, the latest and most significant one happened in 2008 (Černoch et al., 2012). Neither had natural gas been a problematic source of energy for the EU until 2006. In spite of the fact that significant amounts of natural gas (and oil) had been imported from the Soviet Union to countries in Western Europe during the Cold War period, the mutual energy relations between these two camps – in other areas they were deadly enemies – flourished and lacked frictions. Western Europe gained access to cheap gas (as well as oil) from the Soviet Union, and in return, the Soviet Union gained hard currency to enable it to purchase Western equipment and technology in order to develop its energy sector, which was necessary to fuel domestic demand but also to export. Whilst during the 1960s and 1970s oil was the main source of hard currency for the Soviet Union, after

68   The EU and its energy sector the development of the Brotherhood pipeline, natural gas became a much more important source of income (CIA, 1985). During the 1970s and the following decade, the Soviet Union was steadily increasing its revenue from energy exports to Western Europe. However, when it comes to energy imports from the Soviet Union, natural gas had a more specific position that oil. Soviet oil has been traded, in most cases, on the spot markets of Western Europe since the early 1980s after the Soviets were forced to change their strategy of long-­term contracts due to a decrease in demand caused by European conservation efforts (CIA, 1985). Soviet oil was thus one of the sources that competed on the market and such a situation did not enable any manoeuvrability with this energy source for political reasons. On the other hand, natural gas has been shipped via pipelines on the basis of long-­term contracts as a part of the diversification effort of Western European countries from the 1970s, which created a direct link between the Soviet Union and its energy partners from Western Europe (ibid.). Such a direct link was much more suitable for exercising pressure on the supplied countries. Already at the beginning of the 1970s many Western European countries were thus connected to the Soviet Union via natural gas pipelines and “[a]t the time when the Berlin Wall fell and the Soviet Union collapsed, Soviet natural gas became one of the most important sources of fuel in Western Europe” (Högselius, 2013: 3). That’s why even the small gas crisis of 2006 was such a huge shock for many in Europe – this was the first time ever that the flow of Russian gas to Europe had been reduced after almost four decades of frictionless deliveries, including two during the Cold War. The 2009 gas crisis, during which a full cut off of Russian supplies through the Brotherhood pipeline occurred, confirmed the problematic nature of Russian natural gas deliveries through Ukraine, as the transit and price disputes between these two countries were at the heart of the problem. This book argues that the 2009 crisis (together with the eastern enlargement of the EU) was one of the main triggers of the development of an energy policy at the EU level. New rules were adopted within the internal energy market and complex strategies were developed over several years to prevent similar situations from happening in the future. These had positive effects on the EU’s resistance towards future similar crises, especially at the aggregate level (Bouwmeester and Oosterhavenb, 2017). Although some analyses have argued that East European countries would still be negatively affected if a crisis were to occur (Richter and Holz, 2015). The book comes back to the historical legacies of Russian gas and the consequences of the gas crises especially in the third chapter, which provides a detailed examination of these issues in connection to the development of the external energy relations of the EU. Technical differences between oil and natural gas Besides differences in political settings and the nature and number of crises, crude oil and natural gas also differ in other aspects that further supports the argument that natural gas is the most important energy source for EU external

The EU and its energy sector   69 energy policy. When compared to oil, natural gas has some specific physical characteristics that make it much more challenging from an energy policy (and especially an energy security) point of view. This is the second reason why natural gas is much more important for EU policy than oil. First of all, there are significant technical differences between these two energy sources (Balmaceda, 2018), which are responsible for differences in transit, storage, trade, etc. Natural gas has been traditionally transported by pipelines directly connecting suppliers and customers on a long-­term contract basis, which usually included take-­or-pay clauses (see below). These contracts created an advantageous and stable long-­ term environment suitable for significant investments into the pipeline infrastructure, as it guaranteed returns on the investments. Natural gas can also be transported in the form of LNG, but this technology requires liquefying and re-­ gasification terminals that are not only financially challenging, but are not a solution for landlocked countries that need pipelines even when they do have access to LNG terminals. Moreover, at a general level, LNG gas is still more expensive than pipeline gas, although the premium on LNG has significantly decreased over the last period. The potential of LNG to develop on the global gas market thus exists (see also below), however, it is currently still in the making (Bridge and Bradshaw, 2017). As a result, statistics over last two decades show “the prevailing dominance of pipeline imports” (Wood, 2016: 2). Current pipelines that supply European countries with Russian gas go from east to west and thus increase the dependence on Russian supplies. South– north interconnections are still not fully developed, however, reverse flow capabilities, built after the 2009 gas crisis, brought important diversification possibilities, as it enabled the countries of Central and Eastern Europe to receive supplies of gas from Western European sources or from spot markets located in this part of Europe. Such infrastructural development meant a crucial improvement compared to the previous situation, when Central and Eastern European countries could only be – due to the technical nature of the then existing infrastructure – supplied from the east i.e. from the Russian Federation (Mišík and Nosko, 2017). However, significant investments are still needed to build new gas interconnectors between member states, in order to support diversification and enable an unrestricted flow of natural gas between all EU countries. There are still countries that are not, or only to a very limited degree, connected with neighbouring countries with gas pipelines (or with other energy infrastructure for that matter). Baltic States are a very good example – although natural gas plays a key role in the Lithuanian energy mix and the country has developed an LNG terminal, its potential is not fully utilized, due to the lack of strong connections within the region or with Poland (Gaigalis and Skema, 2014; Norvaiša and Galinis, 2016). Moreover, the storage of natural gas demands specific geological conditions and therefore countries differ in storage potential. After the 2009 gas crisis, the EU adopted rules concerning the storage of emergency natural gas supplies. So now, all EU members have to have access to emergency gas supplies for a given time period specified in the legislation (Rodríguez-Gómez et al., 2016).

70   The EU and its energy sector On the other hand, oil is both much easier to transport and store. Oil can be transported in several different ways, including pipelines, tanker vessels, rail cars or trucks, and switching between these different types of transport does not require complicated technological facilities, as is the case with natural gas (more precisely LNG that requires liquefication and regasification terminals; natural gas in its original gas form is not transported in any way other than via pipelines for practical reasons). Rules concerning oil emergency stocks were adopted within the European Communities even prior to the 1973/1974 oil crisis (see also the section on the historical development of the energy issue) and they were further tightened during the following years in order to provide a higher level of security in oil supplies (Tosun, 2011). Second, these physical differences are responsible for the divergent ways in which these two energy commodities are usually traded. While natural gas is traded regionally due to pipelines’ geographic limits, oil is mostly traded globally, which is connected to tanker vessels’ flexibility. In 2015, more than 60 per cent of crude oil and petroleum liquids were moved by maritime roads worldwide (IEA, 2017). This leads to a reliance on regional supplies when it comes to natural gas (Roberts, 2009), while the oil market is in most cases traded globally (as tanker vessels are a very common type of transit). This is also one of the reasons why “the risk of (targeted) supply disruptions mainly concerns natural gas” (Roth, 2011: 606) – the oil trade is much more flexible and it is much easier to get alternative supplies (although due to technical differences between individual types of crude oil, mostly connected to the level of sulphur, there are also some limitations when it comes to this energy source). Building alternative natural gas pipeline infrastructure is very complicated and also a capital-­ intensive process, therefore we do not see parallel (and competing) gas pipelines (this is a rather bold and preliminary claim – see, for example, discussion in Mišík and Nosko, 2017; Siddi, 2019). On the other hand, oil is traded globally and consumers are therefore not dependent on a limited number of regional suppliers, but can more easily change suppliers if interruptions occur (An et al., 2014; Zeng et al., 2017). The regional nature of gas supplies and the underdeveloped EU internal energy market that does not allow unrestricted access of all member states, creates a situation whereby member states only have a limited number of natural gas suppliers. This is not a problem in terms of the mutual relations function on strictly market rules. However, for many member countries that are being supplied from the Russian Federation, this is not the case, as their supplier uses energy also for political goals, as an ‘energy weapon’ (Smith Stegen, 2011). The third difference between oil and natural gas, stemming from their different physical characteristics, is connected to the nature of contracts between suppliers and consumers. Natural gas is transported mostly via pipelines that create a direct link between suppliers and consumers. However, the high cost of such infrastructure, develops a pressure to establish a long-­term trade relationship which, as a result, creates a suitable environment for such investments. The  nature of trade relations in natural gas is therefore long-­term, with supply

The EU and its energy sector   71 contracts being signed for a period of up to 30 years, with 20–25 years being the usual length of such contracts. Moreover, in order to further improve the stability of the relationship, these contracts usually include ‘take-­or-pay’ provisions that obliges the customer to pay for booked volumes of natural gas even in cases when they decided that they do not need it and therefore did not receive it. These provisions thus develop a robust framework between upstream and downstream parties (Glachant and Hallack, 2009). A similar clause – ‘ship-­or-pay’ – usually included in transmission contracts, correspondingly protects transmission system operators (TSO), as it guarantees payment for booked volumes of shipped natural gas, not for actually shipped gas. Similar rules also apply for oil that is being shipped by pipelines – however, since the oil trade is much more flexible, agreements are usually signed for a much shorter period, even for only one year or the oil is traded on the spot markets. Other sources of energy in the European energy mix After discussing the differences between natural gas and crude oil that highlighted the prominence of the former in EU external energy relations, this section briefly examines other sources of energy that are being used within the EU. These are in most cases used to generate electricity, and in order to keep this analysis within certain limits, the text omits issues connected to utilization of energy for central heating, or similar uses. Contrary to the previous two energy sources, electricity has to be generated, and there are different methods for achieving this – we can use solid fuels, i.e. coal in its many forms, different types of renewables, nuclear energy or waste (you could also use natural gas and oil, which further complicates this issue). In 2015, 48.1 per cent of electricity within the EU 28 was produced from combustible fuels (coal, natural gas and oil), 26.4 per cent was produced in nuclear power plants, 25.3 per cent by renewables and 0.2 per cent by other sources (Eurostat, 2018). This data further supports the arguments presented within this book about the complexity of the energy sector. Imports of electricity from outside the EU are limited due to technical reasons, mostly connected to low interconnectivity and incompatible synchronization of transmission systems, so the vast majority of it is produced domestically. However, some imports of electricity from third states does exist – net imports of electricity to the EU 28 was 1.6 Mtoe in 2016, which was less than 0.2 per cent of the total net energy imports (Eurostat, 2018). Electricity is different from other energy sources because it cannot be effectively stored, at least not with current technology (Jülch, 2016), with the exception of pumped-­ storage power plans. These however, in most cases, serve a different purpose, connected to power grid balancing. Thermal power plants burning various types of fossil fuels to generate electricity still dominate world electricity production. Hard coal and lignite provided more than 30 per cent of global primary energy consumption and more than 40 per cent of global electricity production in 2013 (Widera et al., 2016). However, this type of electricity generation is problematic

72   The EU and its energy sector due to high levels of emissions, which makes it especially challenging within the EU, which is striving to decrease its carbon footprint and develop a carbon-­free economy. The share of solid fuels in the energy mixes of individual member states differs from very low levels to extremely high levels. Poland for example, is fully dependent on coal for electricity production, as it is used for over 85 per cent of Poland’s total electricity production (Widera et al., 2016). This type of energy source is similarly important for the Czech Republic that uses domestically produced lignite (a type of coal with a very low carbon content of between 60 and 70 per cent) to generate electricity. The share of lignite used in Czech electricity production is up to 40 per cent (Sivek et al., 2017). However, in general, the production of coal has significantly decreased over the last period, as did the electricity production in thermal coal-­burning power plants within the EU. A further decrease in coal demand is forecast by the International Energy Agency that expects Poland to be the only country with a stable coal demand until 2022 (IEA, 2017). From an external energy policy perspective, coal is not considered to be an energy security issue in spite of the fact that a significant share is being imported from third countries (the Russian Federation, Columbia and Australia being the three main suppliers). Indeed, in 2016, out of 240.7 Mtoe gross inland consumption of solid fuels, 134.9 Mtoe was imported (European Commission, 2018a). Coal is considered by many EU countries to be the safeguard of energy security, especially when it is produced domestically. Among the countries analysed within this book, the Czech Republic considers coal to contribute to the country’s energy security (Sivek et al., 2017), this argument is presented also in Slovakia and Poland (Manowska et al., 2017). The second most prominent contemporary energy source for electricity generation is nuclear energy, for both the high level of its utilization by some EU member states, and also due to its controversy caused by current, but also long-­term safety issues. The critical discussion is connected predominantly to the Fukushima nuclear power plant accident in 2011 (Elliott, 2013) and nuclear waste disposal and management. There is no consensus at the EU level regarding nuclear energy, and the Lisbon Treaty explicitly left the choice of energy mix – including nuclear energy – in the hands of member states (European Union, 2007). They can thus freely decide whether they will pursue a nuclear agenda or not. Several countries from Central and Eastern Europe (the Czech Republic and Slovakia among them) are proponents of nuclear energy together with Finland, France and Great Britain (Umbach, 2010). The Czech Republic and Slovakia are especially interested in the use of nuclear energy and its further development in the EU. In order to actively support this energy source, in 2007 they established the European Nuclear Energy Forum, a platform for discussing issues related to nuclear energy within the European Union – chaired by the European Commission. Although the Fukushima accident caused a severe decline in support for nuclear energy within the Union, the accident did not mean the end of the Forum. It replied to such trends by fostering discussion on the issues that had already been at the centre of its interests and became crucial in the post-­Fukushima period – safety of nuclear power plants and

The EU and its energy sector   73 nuclear waste management. Although currently not very visible, the Forum still serves for the Czech Republic and Slovakia (as well as other pro-­nuclear countries) as a platform for discussing the role of nuclear power in a low-­carbon economy. The interest these countries have in nuclear energy is confirmed by their activities; both countries are currently building (Slovakia), or are in the preparatory phase of building (the Czech Republic; however, the story is rather complex and complicated, see, for example, Černoch and Zapletalová, 2015 or Frantál and Malý, 2017) a new nuclear power plant. Such a positive approach towards nuclear energy is not typical for all EU members and some European countries are “more enthusiastic about this source of energy than some others” (Litmanen, 2009: 25). After several years of changing its position, Germany has decided (on the basis of the consequences of the Fukushima accident) to terminate its nuclear program and close down all its existing nuclear power plants (NPP) until the end of 2022 (Jorant, 2011). Immediately after the accident Germany closed down eight nuclear reactors causing an imbalance between electricity supply and demand in a country with an underdeveloped internal electricity grid. Production from renewables (mostly wind and solar) which are replacing nuclear sources, is located mostly in the northern regions of the country, while the demand hungry southern Germany is lacking a robust grid able to bring enough electricity from the north. A limited national grid creates severe bottlenecks and forces electricity, traded within Germany, to travel through neighbouring grids, especially Polish and Czech ones. Such unscheduled loop and transit flows consequently created a difficult situation for neighbouring transmission systems that resulted in a conflict with Germany. The conflict was further amplified by the existence of a common bidding zone in electricity between Germany and Austria that on the one hand helped Austria to lower its electricity price, however, on the other hand it exacerbated the problems with loop and transit flows overloading the neighbouring transmission system (Janda et al., 2017; Singh et al., 2016). Austria is a strong opponent of nuclear energy at the domestic level as well as within the EU. Although the country built a nuclear power plant in Zwentendorf during the 1970s, a referendum held in 1978 prevented it from getting operational and stopped all efforts to use nuclear energy for electricity generation within the country. Austria consequently became a very strong opponent of the technology and this topic was an important issue within bilateral relations with the Czech Republic and Slovakia during the 1990s when these countries started accession negotiations with the EU. Although Austria tried to bring the issue of nuclear energy to the EU level, the Commission considered this to be a bilateral topic between the countries and rejected involvement in the dispute. Austria and its political institutions have repeatedly expressed official protests against the development of new nuclear facilities in neighbouring countries, however, they did not manage to stop the processes (Axelrod, 2004; Wesolowsky, 1998). Nuclear energy was a very important issue for Central and Eastern European countries during the 1990s, not only because of a strong opposition by Austria. Three of the countries that utilized nuclear energy for electricity generation

74   The EU and its energy sector (­ Bulgaria, Lithuania and Slovakia) were asked by the European Commission to shut down several of its Soviet type nuclear reactors (model RBMK, which was also used in Chernobyl, and VVER) that were considered hazardous from a safety perspective (Mišík and Prachárová, 2016). This step put nuclear energy to the forefront during the EU membership negotiations in these three countries, making it instantly a very sensitive domestic issues. Moreover, this decision supported Austria’s efforts to also add to this list the Czech NPP Temelín (Axelrod, 2004), which in the end did not happen. The membership negotiations between the Commission and the thee applicants resulted in a gradual shutting down of several reactors in the three countries between 2004 and 2009 (two reactors in the Jaslovské Bohunice NPP in Slovakia, four reactors in the Kozloduy NPP in Bulgaria and two reactors in the Ignalina NPP in Lithuania). Nuclear energy has been viewed by a group of member states – led by France – as an appropriate response to climate policy issues and an important tool for reaching EU climate goals. Considered to be a carbon-­free technology for producing electricity, nuclear energy has turned surprisingly from an environmental enemy into a climate remedy during the 2000s (Kojo and Litmanen, 2009). Moreover, in spite of the fact that most EU member countries get their nuclear fuel from abroad (more than 90 per cent of uranium originated outside of the EU in 2016 with Niger, Canada and the Russian Federation being the three main suppliers; Euratom Supply Agency, 2017; the European Commission, 2018b, provides different figures due to different methodology), this type of energy is considered domestic, thus contributing to energy security. Although different types of nuclear reactor fuels coming from different suppliers are not interchangeable, the ability to stock relatively large amounts of nuclear fuel contributes to the perception of the high energy security of this energy source. Supplying nuclear fuel is formally a competence of an agency working within the institutional structure of Euratom (Euratom Supply Agency), although in reality the member states and the energy companies themselves negotiate the trade agreements. Renewable sources of energy have a very specific position in the energy mix. These are mostly used to generate electricity; however, they can also be used for other purposes like heating or in transport. Traditionally hydroelectric plants were the main supplier of renewable energy, however, since the 1990s and the beginning of Energiewende in Germany and similar policies in other EU countries, other types of renewables have also gained importance within the Union. Several EU policies aim to increase the share of renewables in the energy mix; most notably the 2020 Energy Strategy (European Commission, 2010) and the 2030 Energy Strategy (European Commission, 2014) that developed several goals which are binding at different levels (Bürgin, 2015) (see Chapter 3 for a detailed discussion). Contrary to nuclear energy, there is basically a consensus at the EU level that renewables are necessary for reaching a carbon-­free future. Moreover, these energy sources are not dependent on imports from third countries and they are thus considered to be a domestic source of energy, supporting energy security in electricity. However, in spite of strong financial support for

The EU and its energy sector   75 RES within EU member states, which is considered to be one of the main factors behind their sharp increase, analyses have argued that fossil fuels are still receiving the biggest share of support (in many different forms, not only financial) world-­wide (Coady et al., 2017).

Conclusion This chapter offered a general background for examination of the external energy policy of the EU. First, it introduced the energy sector of the EU and provided information about its basic indicators with the aim of underlining the Union’s dependency on energy imports. Indeed, the EU imports significant parts of its energy consumption from abroad, especially from the Russian Federation, but also from other sources. Moreover, the EU is facing a depletion of domestic reserves which further stresses the importance of external energy relations. This section also presented basic energy indicators of the three studied countries. The second section of this chapter aimed at supporting the claim that natural gas presents the main energy source when it comes to EU external energy relations, not only because it became the main focus of energy conflicts, but also because its physical characteristics make it a much more difficult energy source to deal with in terms of energy security (internal as well as external). The chapter also discussed other energy sources that are used by member states and their place in the energy security discourse. The main argument behind such an approach is that we have to study energy policy in its complexity and we therefore should not limit our examination to a single energy type. However, due to the critical position of natural gas, for the discussion in this book the text puts the main emphasis on this energy source.

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3 Development of EU energy policy and its external dimension

European integration wasn’t connected to the energy sector during the first decades of its development. Only with the creation of the internal market in the second half of the 1980s did the EU start to include energy issues into its agenda. However, the liberalization logic embedded in the common market dictated the nature of the nascent EU energy policy. The market and its tools were considered to be an answer to challenges connected to energy policy, including those in the energy security area. Only later did the EU institutions, as well as many member states, realize that the market approach had to be combined with an external dimension as the relations with energy suppliers started to cause frictions – peaking during the 2009 natural gas crisis. We can distinguish two main periods of EU energy policy development. The main difference between these two is their main focus – while the first one focused on the development of the internal energy market, during the second one, the EU started to develop, not only an internal dimension, but also an external dimension to the energy policy. This chapter considers two events that are of significance for the development of the external dimension of the EU’s energy policy – the eastern enlargement of the EU and the 2009 gas crisis. The first two rounds of eastern enlargement (2004 and 2007) are especially significant from the perspective of EU energy policy development, as they brought to the EU ten post-­socialist countries from Central and Eastern Europe with an energy legacy from their communist past (Högselius, 2013). This made them especially aware of their dependence on supplies from the Russian Federation and some of them (although not all) tried to bring external energy policy issues (with a special link to external energy security) to the EU table. We can even claim that these countries introduced the question of external energy security to the EU, as this topic was not an important part of the EU energy discourse previously. Before the eastern enlargement, the EU (consisting of 15 member states) focused predominantly on the issues connected to the development of a single energy market within the single EU market. Despite several successful initiatives in the field of the EU internal energy market and a growing number of common rules on energy, this development has not led to the creation of a common energy policy for the EU. Indeed, progress in the energy dimension of the common market has been slow, due to member states’ hesitation to deepen

Development of the EU energy policy   81 integration in this area and cede competencies to the EU or its predecessors (Herweg, 2015). In spite of their efforts to switch the focus in energy policy to the external dimension and connected energy security issues, new member countries from CEE were not very successful in persuading the EU (i.e. many member states; the Commission was supportive of such measures) of the importance of the topic in the period right after they joined the Union. For example, Poland did not manage to push through its idea of ‘Energy NATO’ with the primary aim to establish a legally binding type of solidarity within the EU, similar to NATO’s article 5 on collective defence (Roth, 2011). The main problem was that the overall limited activity of the new members translated into a small visibility of these countries within the EU in most areas, including energy policy (Mišík, 2010). Bocquillon and Maltby therefore argue that the eastern enlargement did not have a decisive impact on the development of the EU energy security agenda and that the 2006 and especially the 2009 gas crises had a more significant impact on the “EU’s process and outcome performance” in this area (2017: 99). However, this chapter claims that the eastern enlargement played an important part in bringing the energy security agenda to the EU as it changed the balance between actors supporting this step (the Commission and CEE countries) and actors against bringing energy security to the Union level (several western EU member states). As a consequence, the European Commission and other actors were able to establish a background for further development of an energy security agenda at the EU level. Both events – the eastern enlargement of the Union and the energy crises – were crucial for bringing discussion on energy security to the EU level (see also Siddi, 2019 for a similar argument). While the eastern enlargement meant the beginning of efforts to bring an energy security agenda with an external dimension to the Union level, it were the two gas crises of 2006 and 2009 that presented a milestone in this process. Bocquillon and Maltby highlight the importance of the crises for the development of the energy security agenda when claiming that it “would [not] have become such a high priority issue for the EU in general” without the presence of the crises (2017: 99). The European Commission reacted to the new situation and changed its focus from the development of a common energy market to relations with third (supply and transit) countries and energy security. Although the Commission admitted that it wasn’t ready to deal with the 2009 gas crisis when it occurred, this can be attributed to the lack of tools at hand caused by member state’s unwillingness to increase cooperation in the energy policy area after the first gas crisis (Mayer, 2008). Nowadays energy security is one of the main priorities at the EU level. Although expected, 2014 did not see a repetition of the 2009 gas crisis (Rodríguez-Gómez et al., 2016). The EU and many member states were much better prepared for a crisis this time and the developments between Ukraine and the Russian Federation that year lead to the establishment of the Energy Union by the European Commission (European Commission, 2015), to date the biggest energy policy related EU project. Its main goal is to

82   Development of the EU energy policy bring all energy related issues within the Community under a common ‘roof ’ and thus basically create a common EU energy policy. This chapter does not aim to provide an exhausting analysis of the development and current stage of the energy policy and its different dimensions. There are other sources that deliver this information on a much larger scale and even in a book-­length format (for example, Pollak et al., 2016 or Tosun et al., 2015; see also Brutschin, 2016 or Högselius, 2013) and this chapter does not want to compete with these sources (neither does this book). The aim of this chapter is to concisely examine EU energy policy with a special focus on its external dimension to create a foundation for further examination within the book. The first part shows that the lack of a legal basis for the energy policy did not prevent the EU from developing a whole range of energy related legislation within the internal energy market, from the late 1980s, as a part of EU internal market development. This section also examines the negative attitude of the then member states to mutual cooperation in external energy issues. The second section concentrates on the impact of the eastern enlargement on the EU energy policy. Energy policy related issues were an important part of the pre-­accession negotiation process not only because some of the candidate countries had to close their nuclear power plants prior to membership. That section also points to the development of EU-­wide initiatives in the energy area and an increased interest of the European Commission in energy security issues. In its third section the chapter focuses on the 2006 and 2009 gas crises and the Energy Union as an on-­going project aiming to cover all areas of energy policy and thus contribute not only to energy security, but also to energy transition and sustainability.

Liberalization as the main objective of the nascent EU energy policy The EU energy policy focused primarily on the creation and development of the internal energy market, which was part of a more general integration strategy including liberalization and establishment of a single market in the EU until the second half of the 2000s. However, these efforts did not lead to the creation of a common energy policy and, as mentioned above, many important parts of energy policy were until recently in the hands of national governments. The European Community, and after 1993 the European Union, did not deal with external energy issues at all, and energy security and energy relations with third countries were in the competences of member states’ governments. These opposed all attempts to develop a common energy policy with external dimensions and to cede competences in this area to the Community level because they saw energy as a strategic commodity that has to be dealt with at the national level (Herweg, 2016). State interventions were seen as necessary for the energy sector to meet its public obligations such as security of supply (McGowan, 1989), while dependence on supplies from third countries was considered to be a geopolitical concern. This section concentrates on the development of the EU internal energy market and points out those few

Development of the EU energy policy   83 instances when external energy relations or their energy security dimensions were discussed. While the common EU energy policy hasn’t been fully established yet, many energy policy issues connected to the internal market are regulated at the EU  level. Even before the adoption of the Lisbon Treaty, Renner noted that “[a]lthough the European Union does not yet speak with ‘one voice’, it has a common corpus of legislation for energy efficiency, renewables, competition and liberalization” (2008: 4). The Lisbon Treaty did not establish a common EU energy policy, however, it further fostered the development of the policy area by providing a clear legal basis and including it among shared competences between the EU and its member states. The development of the energy policy is thus still an on-­going process – the development around the Energy Union confirms this – and while the European Commission supports the establishment of a fully developed common energy policy, the member states have divergent positions and views on what such a policy should look like and how deep the integration within the energy area should go. The chapter will come back to this discussion later on when it examines proposals – and divergent positions of member states towards these – that created the basis for the Energy Union. Traditionally, energy policy has been dominated by national governments. Member states believed that their own tools are better suited for dealing with energy crises than the ones developed at the Community level. Two examples from the 1950s and 1970s illustrate this point nicely. During the winter of 1954/1955 the ECSC, established only a few years before in 1952, underwent its first major crisis. This was closely connected to energy issues, as at the heart of the problem was a warm winter that significantly decreased the demand for coal (at that time the main energy source for heating) and therefore also its price. This was problematic especially for coal producing countries like Germany. The ECSC was prepared for such a situation and there was a set of tools ready at the Community level. However, member states decided not to follow the rules established at the Community level and opted for individual solutions with the aim of protecting their national economies (Dinan, 2014). For example, Germany and Belgium imposed a licencing system on coal imports that was in direct contradiction to the ECSC rules (Brutschin, 2016). Another similar example is connected to the reaction to the oil crises during the 1970s. Member states of the then European Communities – once again – decided to rely on their own national tools rather than strengthening cooperation at the regional level, and following the crisis ‘nationalized’ energy policies (Belyi, 2008). The main argument supporting such a step was the view that energy policy is too important from a strategic perspective and it has to be kept at home. This argument also caused resistance from member states towards liberalization as they tried to ‘shield’ their national champions from competition (Herweg, 2016). McGowan argues that “[w]hile the [1973/74] crisis provided the Commission with the pretext to pursue the goal of a common energy policy, the countervailing factors prevailed” (2011: 506). Most importantly, the ‘shadow of the veto’ constrained decision-­making of the Community while member states

84   Development of the EU energy policy were not able to reach a common position and the two most affected countries – Great Britain and the Netherlands – were rather unhappy about the level of solidarity from other member states. Paradoxically, the Community adopted two directives requesting a building up and maintaining of emergency stocks of oil and/or petroleum products for 65 and 90 days respectively (Directive 68/414/ EEC and Directive 72/425/EEC) even before the crisis of 1973/74 (Tosun, 2011). Although energy policy was still dominated by the national governments, the end of the 1980s and the beginning of the 1990s saw changes in the approach towards energy related issues within the European Community/newly established European Union. The biggest impetus was the adoption of the Single European Act with its strong liberalization agenda; energy was considered to be one of the areas to be liberalized at the community level. The internal energy market was formally established in 1988 with a focus on the creation of a liberalized energy market that would enable open access to gas and electricity supplies for end customers (Matláry, 1997). Although member states supported the general idea, they were at the same time also “wary of losing national control over energy policy” which significantly slowed down the whole process (ibid.: 21). In spite of this, the internal energy market has been developing since the early 1990s. The Commission was the prime mover in this process, while member states have been mostly slowing down its high integration tempo. The liberalization legislation has been clustered into three so-­called liberalization packages covering sectors of electricity and natural gas (1996/1998, 2003/2004 and 2009). All three shared common objectives: (a) introduction of common rules (most importantly unbundling) and (b) standards for access to the network (third-­party access) as well as (c) institutionalized European regulators (Herweg, 2017). The main aim of the Commission in this process was to replace horizontally integrated energy companies that created natural monopolies in individual member countries with a liberalized common market which had a specific set of rules that would support competition among the suppliers and thus improve the position of end customers. Such a process was – of course – not viewed favourably by many member states and (often state owned) energy companies. This was one of the main reasons for the rather slow development of the liberalization agenda at the EU level. Two main components are crucial for the liberalization process. First is unbundling – separation of different activities of vertically integrated companies. Traditionally, in network sectors like gas or electricity, there was only one company in each country that was responsible for all activities connected to energy supply to end customers. The company bought energy (or produced it), transmitted it to the customers and sold it to them. The point of unbundling was to separate these activities (together with transit) and thus enable the creation of a market with several competing companies. Unbundling can take different forms – for example, Herweg (2017) lists six possible types: account, functional (or managerial), legal, creation of independent transmission system operator or independent system operator and ownership (full) unbundling. And while the

Development of the EU energy policy   85 first one means separation of bookkeeping activities and the second one having different sets of management for different companies, ownership unbundling presupposes no connections between companies that sell, distribute or transmit natural gas/electricity. Unbundling, in its many forms, has a clear aim – to separate these activities, because some of them have significant technical limitations that do not allow more than one actor to provide them. For example, distribution networks have a character of a monopoly, because it is not feasible to develop two or more sets of power grids or natural gas distribution systems that would compete against each other. Therefore, the second main rule necessary for liberalization concerns ‘third-­party access’ – a rule that stipulates that all companies that are interested in transmitting or distributing their products through existing energy infrastructure have access to it under the same conditions. Transmission and distribution companies thus have to create a set of rules enabling all market players access to its infrastructure under the very same conditions, including the company that was ‘unbundled’ from the original monopolistic energy company. The first liberalization package containing rules supposed to start the process of gas and electricity market liberalization (Directives 96/92/EC and 98/30/EC) was adopted in 1996 and 1998. The EC was already very ambitious at this time; however, the resulting agreement between member states was far from the Commission’s expectation that aimed for full, ownership unbundling. Therefore, the second liberalization package followed shortly, with Directive 2003/54/EC on electricity and Directive 2003/55/EC on gas. The second liberalization package was the Commission’s response to the shortcomings of the previous one and its low ambitions in internal energy market liberalization (Geldhof and Vandendriessche, 2008). To improve the interconnectivity of member states which would stimulate the development of an internal energy market, the EU introduced a financial framework (Trans-­European Networks for Energy; TEN-E) in 1996. Its main shortcoming was an insufficient amount of financial aid eligible to infrastructural projects that did not cover a significant part of construction costs (Talus, 2008). The third liberalization package (Directive 2009/73/EC for gas and Directive 2009/72/EC for electricity) that was adopted in 2009, brought full unbundling in the form of ownership unbundling. However, as a result of negotiations with different stakeholders (especially member states) in the period before the official introduction of the proposal by the European Commission as well as during negotiations after its introduction, another two options were introduced for member countries to choose from (Herweg, 2017). Only a limited number of EU member states have opted for the full unbundling that requires a complete separation of activities of energy companies. While the internal dimension of EU energy policy was slowly developing from the late 1980s, the security of supplies was not an issue at the EU level. During the 1980s and 1990s, oil prices stayed low and there was enough oil on the market. As a consequence, security of supplies was not a topic within the European Community (Hedenus et al., 2010). Energy security did not gain much support from the member states and has not been in the focus of the Commission either. The main idea was “that a liberalized and de-­monopolized energy sector

86   Development of the EU energy policy is the best guarantee for efficient and reliable supplies” (Herranz-­Surrallés, 2016). The questions of external energy policy and energy security were thus largely neglected by the EU. Only in the oil sector were common rules dealing with emergency stocks of oil created, but this was not a direct consequence of energy security problems. However, the situation has changed in the mid-­2000s with countries from Central and Eastern Europe becoming member states of the Union. These brought their own set of priorities and challenges that were connected to energy security.

Energy security and the eastern enlargement of the EU This book considers the eastern enlargement of the EU (especially its first round in 2004) together with the 2006 and 2009 gas crises to be crucial milestones in the development of the EU energy policy. After these events, EU energy policy moved beyond the market issues connected to liberalization within the internal energy market towards more politicized issues connected to external energy relations and external energy security. The EU was active in these areas also before 2004, however, the approach and tools that it used were not different from the ones utilized within its internal energy market. The EU was characterized as a liberal actor using market mechanisms to achieve its goals also in the external energy area (Goldthau and Sitter, 2014). It focused on the creation of a common regulatory space that was viewed as a way to secure energy supplies; the transfer of EU energy rules to transit and exporting countries was supposed to guarantee supply security for the EU (see also Introduction). The period after the eastern enlargement saw an increased interest in energy security issues. The topic was brought to the EU level by the newcomers and later was further amplified by the events connected to the 2006 and 2009 gas crises. Although energy security is also part of the internal market that has tools for dealing with it, these have proven to be insufficient as the newest members had to cope with a different set of energy security issues, mainly connected to their dependence on supplies from third countries (i.e. the Russian Federation). Therefore, these countries brought the question of external energy security, and their set of priorities in this area, to the EU (Mišík, 2015). However they were not very successful in pursuing their preferences connected to energy security as many other member countries did not consider this issue to be a pressing matter (Roth, 2011). Neither was there strong support from the Commission – that had traditionally been supportive of the idea of bringing external energy relations to the Community level – which, amplified by a gas crisis at the beginning of 2006 had helped new member countries from Central and Eastern Europe to turn energy security into an EU-­wide issue (Mayer, 2008) before the 2009 gas crisis. It was the 2009 gas crisis that opened the window of opportunity helping the Commission to gain support from the member states for the energy security agenda and enabled it to push through new legislation on energy security in the area of natural gas (Maltby, 2013). Therefore the 2009 gas crisis – and not the eastern enlargement – is considered by some scholars to be the crucial point

Development of the EU energy policy   87 causing a shift in the EU’s focus towards (external) energy security issues (Bocquillon and Maltby, 2017). However, while acknowledging the importance of the 2009 gas crisis, this book argues that it was the 2004 enlargement of the EU that enabled access to the countries from Central and Eastern Europe with their focus on an energy security agenda in the EU. Without these countries being EU members, the 2009 gas crisis would not have had such an influence on the Union, as the countries most severely hit by the crisis would not actually have been a part of the integration project. The eastern enlargement thus marked a new period in the EU’s approach to energy policy that started to focus on external energy security issues. Energy security has stayed a key dimension of the EU’s energy policy until recently, although with the introduction of the Energy Union project in 2015 (European Commission, 2015) the portfolio has widened and the EU now deals with a wide range of energy policy issues under the common ‘roof ’ of the Energy Union (Mišík, 2016; Siddi, 2016; Szulecki et al., 2016). The eastern enlargement of the EU was a long process that started right after the fall of Communism and finished (for now) when Croatia joined the Union in 2013. The European Community had already started to prepare for enlargement at the beginning of the 1990s when CEE countries expressed their interest in the membership. However, the Commission has focused on its own priorities in the energy area, with regard to energy efficiency, environmental issues and the ability of the candidate countries to adapt to the Community rules (Matláry, 1997), not on energy security, which was important for CEE countries (Mišík, 2010). There was a limited amount of pre-­accession support that was focused mostly on environmental issues and not on energy policy (i.e. PHARE – Poland and Hungary Assistance for the Restructuring of the Economy). An exception was the adoption of the Energy Charter Treaty that entered into force in 1998. The EU was an important partner in this international organization that aimed to support improvements in the investment environment in post-­communist countries and to help transform the state energy sector. However, due to Russia’s lack of interest in this treaty it was never able to significantly contribute to the EU’s energy security. Although for the European Community, and later European Union, energy did not play an important role in relations with the Central and Eastern Europe countries, for these countries energy and especially energy security was one of the main issues during the negotiation process. Some CEE countries put a lot of emphasis on energy issues throughout the accession talks due to different EU requirements or their specific structural energy conditions (Estonia, for example, needed to introduce issues connected to oil sands as this was an unknown energy source within the Union). Later on, three candidate countries from CEE were affected by the EU requirement to close down nuclear power plants with Soviet-­ type nuclear reactors. This was viewed as a safety issue by the Commission and the EU, however, for the affected countries this had also a very important energy security dimension. Reactor types VVER-­440 model B 230 and RBMK (which was also used in Chernobyl NPP) were regarded as not fulfilling the safety

88   Development of the EU energy policy c­ riteria of the EU, and therefore the Community was negotiating closure of these particular reactors. Three candidate countries were asked to close down their reactors in the negotiation process: Slovakia (Jaslovské Bohunice 1 and 2), ­Bulgaria (Kozloduy 1 to 4) and Lithuania (Ignalina 1 and 2). Other types of reactors in the region were considered upgradeable to European standards and therefore the Commission did not require their closure. For all three states this requirement implied substantial economic costs and it also had an important consequence for their energy security. Therefore the candidate states asked for compensation to balance their economic losses. Governments from ‘Western’ countries have provided financial assistance for countries operating Soviet models of reactors from the beginning of the 1990s (van Oudenaren, 2001). This support was supposed to upgrade safety levels of nuclear power plants in general and motivate CEE countries to close down the ones that were not upgradeable to Western standards. However, these incentives were not sufficient to persuade CEE countries to close down these reactors. Therefore, the Commission included talks about these nuclear facilities into the membership negotiations and connected these two issues. Conditionality, or a system of ‘carrots and sticks’, was developed to foster candidate countries’ compliance with EU rules and requirements (Schimmelfennig and Sedelmeier, 2005). The utilization of such an approach in connection with the requirement to shut down selected nuclear power plants was viewed rather negatively as a pressure on, or even blackmail of, the impacted candidate countries. The question of shutting down these reactors thus became a crucial part of the accession negotiations of these three candidate countries and a very hot domestic topic (for example, Maniokas, 2009 or Rybář, 2011). However, at the end, all three countries complied with the requirement to shut down their reactors deemed unsafe (and non-­ upgradeable) by the Commission/international community. Although Bulgaria at one point tried to change the existing agreement concerning the closure of four reactors in NPP Kozloduy, later on the government assumed a pragmatic attitude and concentrated on reaching an agreement with the EU on compensation that was supposed to help the country with the NPP decommissioning. Bulgaria was not the only country with a similar attitude. In January 2009, during the gas crisis, Slovakia faced problems with its electricity supply because the gas-­fired power plants that were supposed to replace NPP generation capacity were not operational due to the interruption in natural gas supplies. To remedy the situation, that according to Slovak representatives could have led to a black-­out, the Slovak government discussed the possibility of re-­ activation of one reactor of the Jaslovské Bohunice NPP, which was decommissioned only a few days before on 31 December 2008. The reaction of the Commission was harsh and its representatives spoke openly about the “violation of the accession treaty” (SME, 2009). For Lithuania, the closure of its nuclear power plant, Ignalina, presented a significant change in its energy mix as it was the key electricity source producing up to 95 per cent of all electricity. The country had to cope with the new situation by increasing electricity imports from abroad (due to synchronization with the Russian Federation and the lack of

Development of the EU energy policy   89 e­ lectricity interconnectors with European countries it had to import electricity from the former) and increase production in gas-­fired power plants, which also meant increased gas imports from Russia. The direct consequence of the nuclear power plant decommissioning was, in the Lithuanian case, an increase of energy dependency on Russian supplies (see also Chapter 2). Slovakia and Bulgaria also often used energy security as an argument why they considered the decommissioning of their NPPs a key problem and a major intervention into their energy mix. During the accession talks, other candidate countries also raised their respective demands related to the specific structural conditions of their energy sectors. Estonia produces a significant share of electricity from oil shale, a mineral that is, within the EU, mined and utilized only in Estonia, and therefore Estonia introduced this issue in the negotiation process (Mišík, 2010). Poland’s main pre-­accession objectives concerned climate issues connected to energy policy, as it produces most of its electricity from coal. Therefore, the most important questions to be addressed during membership negotiations were regarding emissions and a possible transitional period allowing Poland to decrease its emissions over a longer period of time. This question also stayed central for Poland after joining the EU and the country became a leader of the anti-­climate change coalition of CEE countries. During the accession negotiations, candidates countries (except for Hungary) asked for a transition period to increase their oil reserves to the levels required by the EU rules. However, this issue was not connected directly to the energy security concerns of the CEE countries, the main reason for this request was the financial intensity of such an energy stock upgrade (Tosun, 2011). Central and Eastern European countries were significantly dependent on energy imports from the Russian Federation after they joined the EU, this issue was especially visible in the natural gas sector. EU membership had, at that time, no impact on their energy sector situation, on the other hand, after CEE countries joined the Union, the overall dependency of the EU on energy imports (both oil and natural gas) grew (Geden et al., 2006), with Russia (23 per cent), Norway (14 per cent) and Algeria (10 per cent) supplying half of gas consumed within the enlarged EU (Umbach, 2010). This situation has not changed a lot since then (see Chapter 2 for information on the EU energy sector). The original EU member states (i.e. those that were already members in 2004) were much less dependent on external supplies as they also had domestic production, however, the EU enlargement was not the only factor that increased the Commission’s interest in energy security issues. Other factors were not directly connected to the eastern enlargement but they coincided with it and thus contributed to the overall change in opinion towards energy and especially energy security, by not only the Commission, but also other member states. However, only after the 2009 gas crisis can we observe a more general trend going beyond short-­term or partial activities in the energy security area. Other factors that influenced the Commission’s perspective on energy policy were – and this is definitely not a complete list – the changing Russian attitude

90   Development of the EU energy policy towards energy exports, the increase in hydrocarbon prices and the development of new markets. Russia started to use energy as a foreign policy tool around 2005 (Finon and Locatelli, 2008; Mayer, 2008). In particular, the 2006 and 2009 natural gas crises, discussed later, are primary examples of such behaviour that manifested itself even prior to these events. The 2006 crisis increased awareness by the Commission about energy security and energy supply challenges (Talus, 2008), however, the member states from Western Europe were still not interested in moving beyond the existing model. The period after 2004 was also marked by a general increase in energy prices and increased demand by emerging economies like India and China (Umbach, 2010). Moreover, various expectations about the future development of supply and demand in the EU further fostered the Commission’s focus on energy policy and energy security. Although some estimates forecasted declining consumption of energy in Europe, decreasing production in member states was still expected to cause an increase in energy imports to the Union (Roberts, 2009). Higher utilization of natural gas in electricity generation was further supposed to increase the importance of natural gas for the whole EU and to connect security of gas supplies with overall energy security (Talus, 2008). All this contributed to a change in the EU’s position towards the energy sector (Litmanen 2009). The Commission recognized the threats connected to the energy security of EU member states and published a green paper entitled, A European Strategy for Sustainable, Competitive and Secure Energy, following the 2006 gas crisis. External energy policy was one of the paper’s six principal priority areas and it aimed to “speak with one voice” (European Commission, 2006: 14). Although the paper was rejected by the European Council in March 2006 (Mayer, 2008) it is still important as it was the first strategic document from the European Commission’s desk that included external energy policy issues. The development at the EU level speeded up and the Commission published several strategic documents after 2006 (for example, Strategic EU Energy Review or Energy Action Plan) and also proposed the Third Liberalization Package (Brutschin, 2016). This was the main change in the internal energy market development during the late 2000s, however, the final form of the unbundling in the natural gas sector proposed in this package has diverged from the Commission’s ideal model. The Commission preferred full unbundling, however, many countries opposed this model, which resulted in a system with three variants of unbundling that gave member states a wide range of options, from a minimal change from the previous model, to full separation of the different activities of energy companies. While the first two options included the complete separation of distribution from supply (full or ownership unbundling) and the creation of an independent system operator (ISO model) without full unbundling, within the third mode, an independent transmission operator (ITO) would secure equal conditions for all market participants. Within the second and third model the supply companies were allowed to own and operate the network.

Development of the EU energy policy   91

The gas crises and the following development of EU energy policy There were two major natural gas crises with pan-­European impact that influenced the way the Commission, but also the EU as a whole, including its member states, started to look at energy security and a possible increase in cooperation in this area. The 2006 crisis (sometimes also called the small crisis) presented an important impulse for the development of an energy security agenda at the EU level (Mayer, 2008), however it was the 2009 crisis that changed the position of many EU member states towards this issue. The Commission used a window of opportunity created after the latter crisis and brought the energy security issue to the EU level (Maltby, 2013). The opposition to such a step, led by several member states from western parts of the EU, was weakened by the crisis and its immediate consequences. Disputes between Russia and Ukraine over the price of gas and transit fees in January 2009 caused a full cut-­off of gas supplies through the Brotherhood gas pipeline for the very first time in almost 40 years of Russian exports to Europe (Lee, 2017). Gas supplies were interrupted for 11 days and altogether 17 European states were affected. At the official level most of the influenced countries claimed that both parties were responsible for the crisis, several pointed to Gazprom as the main perpetrator, some assumed a neutral position. The Slovak government was the only government from the EU to openly blame Ukraine for the crisis (Duleba, 2009). The affected counties were not prepared to face a situation where absolutely no gas flowed from Ukraine via the Brotherhood pipeline to Europe. The previous crisis in 2006 had only minimal consequences for most European countries (as there was only a partial reduction of supplies, not a full cut-­off as in 2009) and they did not, in most cases, transform this crisis into lessons in energy security (see Chapter 4 for the Austrian perspective). Therefore when the 2009 gas crisis occurred, they were not prepared. Not all EU member states were influenced by the crisis to the same degree. Most of them were able to supplement missing supplies with domestic production or stored capacities. However, this was not the case for Slovakia and Bulgaria that had to adopt emergency procedures since they did not have alternative sources of natural gas (except for very small amounts of domestic production that were not able to cover significant parts of consumption) and had to deal with infrastructural limitations (i.e. one-­directional pipelines, limited withdrawal capacity from storage facilities, etc.). The Commission was actively involved in solving the crisis, although in its working paper it admitted that “the scale of the gas supply disruptions required an adequate response at the EU level, however, a clear strategy as well as concrete instruments were lacking” (European Commission, 2009: 12). An extraordinary meeting of the Energy Council took place in the middle of the crisis on 12 January 2009. It included representatives from Russia, Ukraine and the involved companies. However, a common position was not reached as the Western European states were not invested in the problem (Mišík, 2015).

92   Development of the EU energy policy After the crisis, the Commission started to put much more emphasis on energy security issues connected to relations with energy suppliers (Maltby, 2013). At a general level, the Lisbon Treaty brought important changes to the energy sector within the EU. With respect to concrete new rules, the first main change came with the adoption of a regulation on security of natural gas supplies (No. 994/2010) in 2009. This regulation introduced the N-­1 rule, according to which member states have to create emergency stocks of natural gas that would cover demand for a specific time period in the case of the failure of the main gas infrastructure. To prevent similar crises in the future, the EU signed a memorandum with Russia that created an early warning mechanism between the two actors (European Commission, 2011a). Moreover, the overall direction of energy policy after the 2009 crisis changed and started to include more and more issues connected to external energy security. The number of different policy proposals and strategic documents (for a general overview see, for example, Schubert et al., 2016), but also the increased engagement of the Commission in external energy security supports such a claim. Already in 2011, the Commission published a communication, The EU Energy Policy: Engaging with Partners Beyond our Borders, in which it claims that “the EU needs to take a strong, effective and equitable position on the international stage to secure the energy it needs” (European Commission, 2011b: 2). The document proposed four concrete objectives to ensure its energy supplies. First, the Commission proposed an information exchange mechanism among member states about their bilateral deals with energy suppliers. This was supposed to strengthen the position of the EU member states in negotiating with their energy partners. Second, the Commission proposed the development of a standardized set of rules for EU relations with supply and transit countries. The third goal of the document was the inclusion of an energy agenda into the development policy. The last objective was to strengthen the promotion of EU policies beyond its borders and to improve internal coordination among the member states. The Commission was in the period after 2009 very active in external energy policy and also included provision on energy into international agreements with countries outside of the EU. For example, associate agreements with Moldova and Georgia included important energy provision. However, the most important development was connected to the information mechanism on intergovernmental energy agreements. Although member states were sceptical towards this step because they considered it to be in conflict with their sovereignty, the rule was eventually supported by the Council and the European Parliament (Decision 994/2012/EU) (Herranz-­Surrallés, 2017). It gave the Commission the possibility to oversee the bilateral agreement between member states and their energy suppliers. At the beginning of 2016, the Commission released a report in which it concluded, on the basis of examination of 124 intergovernmental agreements, that this mechanism “in its present form is not considered effective” especially because of the ex-­post nature of the capability checks with the internal energy market and competition laws of the Union (European Commission, 2016a: 8). Therefore the mechanism underwent a revision and the EU’s institutions adopted

Development of the EU energy policy   93 a new decision in April 2017 (Decision 2017/684). The new rules require an ex-­ ante compliance check of intergovernmental agreements on gas and oil with the rules of the EU conducted by the Commission. This new rule was a part of a larger energy security package (European Commission, 2016b) that also included a proposal for a new security of gas supply regulation, an LNG and gas storage strategy and new rules in the area of heating and cooling. The main point of this package was to implement an energy security dimension of the Energy Union with particular focus on natural gas. The new regulation on security of gas supplies, replacing the one adopted after the 2009 gas crisis, brought the main changes to mutual relations between EU member states that have to cooperate more in regional groups to assess the potential for gas supply disruptions (European Commission, 2017a). Moreover it strengthened the solidarity principle and agreed on common measures to prevent or mitigate possible interruptions. In order to react to the global development the Commission proposed a new climate and energy framework for the period 2020–2030 at the very beginning of 2014 (European Commission, 2014a). The so called 2030 climate and energy framework was adopted by the European Council in October 2014 and set targets similar to those on the 2020 strategy. The Commission proposed the first Energy and Climate Package (Energy 2020) in January 2008. It defined the main targets as: there should be a 20 per cent decrease in the production of greenhouse gasses compared to 1990, renewables should make up a 20 per cent share of total energy consumption within the EU and there should be a 20 per cent decrease in energy consumption until 2020 (European Commission, 2010). The targets presented in the second strategy (Energy 2030) are more ambitious: a 40 per cent reduction in greenhouse gas emissions compared to 1990 (binding target); an increase in the share of renewables to 27 per cent by 2030 (binding target at the EU level), an improved energy efficiency by at least 27 per cent by 2030 (indicative target) and an increase in interconnectivity by 10 per cent until 2020 and by 15 per cent until 2030. These targets, although not directly connected to the energy security issue, have also impacted on this policy area as they decrease dependence on fossil fuels (increase of renewable use and improvement of energy efficiency) and support energy diversification (interconnectivity). They are connected in the long-­term perspective to an overall goal of energy transition and the significant reduction of greenhouse gas emissions described in the Energy Roadmap 2050 (European Commission, 2011c). From a broader perspective, this framework is also “a signal of Europe’s commitment to the global climate policy agenda” (Szulecki, 2016: 543). In its 2014 European Energy Security Strategy, the first major energy security document of the EU since the 2009 gas crisis, the Commission claims that the crisis was “a stark ‘wake up call’ pointing to the need for a common European energy policy” (European Commission, 2014b: 1). From a short-­term perspective the strategy reacted to the development in relations between the Russian Federation and Ukraine, and expected a new gas crisis in the winter of 2014/2015. In order to prepare for this situation, the document suggested so

94   Development of the EU energy policy called stress-­tests, which aimed to evaluate the readiness of EU member countries to face another cut-­off of Russian gas supplies. From a long-­term perspective the document suggested a series of measures connected to internal energy market development, increase of domestic production (particularly of renewable sources of energy), diversification of energy supplies, improvement of coordination among member states and ‘speaking with one voice’. The stress tests (European Commission, 2014c) were conducted during summer 2014 based on a methodology developed during the spring of that year. Included were EU member states, Energy Community contracting parties, Georgia, Switzerland and Turkey. The stress tests concluded that a prolonged interruption of Russian supplies via Ukraine “will have a substantial impact in the EU, with the Eastern EU Member States and the Energy Community countries being affected most” (European Commission, 2014c: 15). Two main weaknesses were: unfinished diversification projects that were launched as a response to the 2009 gas crisis and the limited cooperation between EU member states at the level of energy supply security strategies. The stress tests identified the Baltic States, Central and South-­East European EU member states and Energy Community contracting parties to be the most affected countries in the case of supply interruptions. The document presenting the results of the stress tests (ibid.) included a list of short-­term and medium-­term recommendations to prevent a negative conclusion of a potential crisis. This scenario was not fulfilled and there was no gas crisis during the winter of 2014/2015. The stress test, however, helped the EU and its member states not only to move forward the existing ­projects related to energy security, but also to further develop long-­term strategic thinking in this area. As a direct reaction to annexation of Crimea by the Russian Federation, the then Polish prime minister and later the President of the European Council, Donald Tusk, proposed an Energy Union that was supposed to develop a common EU-­wide approach to energy policy. His original ideas presented in the Financial Times in April 2014 (Tusk, 2014) were later further developed into a complex proposal by the Polish Ministry of Foreign Affairs (MFA Poland, 2014). The Commission turned these into an official policy proposal at the beginning of 2015 under the name, A Framework Strategy for a Resilient Energy Union with a Forward-­Looking Climate Change Policy (European Commission, 2015). After getting official support from the EU members in March 2015 the Energy Union became the single biggest current energy policy project of the EU. The importance of the energy policy for the Commission was highlighted also in the creation of the position of Vice-­President for the Energy Union in the 2014–2019 Commission. This position was filled by Maroš Šefčovič who gained, together with other vice-­presidents, a very strong status within the Commission as all new proposals in the energy area have to go through him before becoming an official part of the agenda. The vice-­presidents thus became responsible for developing internal consensus among different commissioners who are involved in their agenda before discussing new proposals during the Commission’s meetings. Šefčovič has been a strong proponent of the Energy

Development of the EU energy policy   95 Union project from the very start when he called it the “most ambitious energy project since the coal and steel community” (EUobserver, 2015). Energy security is an important part of the Energy Union as one of the five main policy areas covered by the project is ‘security, solidarity and trust’. Other priority areas are: a fully integrated European energy market; energy efficiency contributing to moderation of demand; decarbonizing the economy; and research, innovation and competitiveness (European Commission, 2015). At the core of the ‘security, solidarity and trust’ priority is diversification of energy sources for the EU member states and ensuring energy security. This was one of the main issues behind Tusk’s original proposal that suggested the creation of an EU agency responsible for natural gas purchase, which was supposed to improve the negotiation position of the EU vis-­à-vis its energy suppliers. This met with a strong opposition from several EU member states and thus did not make it into the formal Commission’s proposal for an Energy Union (see also Chapter 2). In spite of this, ‘speaking with one voice’ is considered by the Energy Union project to be an important tool for improving the energy security of the EU member states. However, the major achievement of the Energy Union framework has so far been connected to a broader issue and climate and energy goals. In late 2016 the Commission presented, Clean Energy for all Europeans, one of the biggest energy packages so far that included several new measures facilitating the clean energy transition (European Commission, 2016c). The Commission has so far published three reports on the state of the Energy Union in which it monitors the progress in individual priority areas of the project. The second one lists the development during the last year and states that “[w]ork on the internal agenda has therefore been complemented by a reinforced energy diplomacy, designed to strengthen security of energy supply, to expand exports of European low carbon technology solutions and boost industrial competitiveness” (European Commission, 2017b: 2). The third report stressed especially the link between energy and climate policies at a global level as a way to achieve a suitable model of energy transition in the future (European Commission, 2017c). In order to facilitate achievement of the Energy Union objectives, the Commission proposed a regulation on the Governance of the Energy Union (European Commission, 2017d), which was still being discussed whilst this book was being written (late 2018).

Conclusion The main objective of this chapter was to present the development of external energy security at the EU level. It was argued that the eastern enlargement of the EU was an important milestone in this process as the CEE countries brought their energy security issues to the EU and the Commission started to deal with this policy area much more than before, in order to respond to these countries’ energy policy needs. However, it was the 2009 gas crisis that presented a ‘wake­up call’ for member states, as some of them were not in favour of developing an EU wide approach to external energy security until the crisis. Although the

96   Development of the EU energy policy c­ andidate countries from Central and Eastern Europe wanted to bring energy security issues to the negotiating table, the Commission’s main concern during the pre-­accession period was connected to safety of nuclear power plants in this region, not energy security. The Commission used the window of opportunity (Maltby, 2013) created by the 2009 crisis and started to highlight energy supplies as an issue, from a security point of view. This had a significant impact on the change of narrative within the EU that then started to pay much more attention to energy security issues including its external dimension. Relations with third countries and supply diversification became a part of the energy discourse at the EU level and the Union has consequently seen the adoption of an increased number of strategic documents, but also concrete rules in this external energy security. Inclusion of energy security among the top priorities of the Energy Union’s strategy further supports the claim about the increased importance of this policy issue for the EU in the period after the 2009 gas crisis. However, the external energy security area is still not fully integrated and member states have an important say in relations with energy suppliers. The length of the adaptation process of the Information Exchange Mechanism on intergovernmental energy agreements and the negative positions of many EU member states towards the establishment (and later revision) of this measure tells us a lot about many member states’ unwillingness to abandon the bilateral nature of external energy relationships. On the other side, several member states are supportive of development in the (external) energy security area at the EU level. Such dynamics create the core of the arguments presented in this book. The next three chapters apply the theoretical model introduced in Chapter 1 and analyse the main research question of this book that asks about the determinants of member states’ positions towards further development of a common approach in the external energy security area at the European level.

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4 External challenge

This is the first analytical chapter that applies the model developed within the theoretical chapter of this book for studying external energy security preferences of small EU member states. Previous chapters have provided a background for this analysis by presenting an overview of the EU’s energy sector and the development of energy policy within the EU. While the EU member states need to import energy (especially natural gas and oil) from third countries, there has only been a limited integration in external energy policy at the EU level and member states themselves are responsible for external energy security. This book’s main argument claims that domestic decision-­makers’ perception influences the position of a given member state towards the deepening of integration at the EU level in external energy security. If the decision-­makers perceive challenges related to external energy policy as manageable, they want to keep preferences in their own hands, as this is advantageous for them – they can set the policy and its particular characteristics themselves. However, in the opposite situation, when the small country’s decision-­makers perceive these challenges as problematic, they support deepening of integration at the EU level as a response to the perceived vulnerability of their country. This chapter examines the first out of three types of energy challenges identified in the theoretical chapter – the external challenge. It focuses on the perceived relations between EU member states and their external energy suppliers, and especially on relations with the Russian Federation, which is the main energy (natural gas as well as oil) supplier for many EU member states and provides the biggest share of natural gas for the Union. This chapter is guided by a specific set of assumptions related to this energy challenge. While member states’ decision-­makers’ perception of vulnerability and inability to secure reliable energy supplies during negotiations with external suppliers (i.e. Gazprom/the Russian Federation) supports efforts to cede competence in external energy security to the EU level, the perceived ability and strength vis-­à-vis their energy supplier work in the opposite direction by promoting the notion that competences should remain in domestic hands. The discussion on the European Commission’s power to veto agreements between individual member states and their energy suppliers prior to their official validation (information exchange mechanism) is a good example of this challenge

102   External challenge (Herranz-­Surrallés, 2017). The chapter analyses historical legacies of the selected countries and discusses their energy relations with the Russian Federation as their main energy supplier. It examines, among other issues, the influence of the 2006 and 2009 gas crises on the countries, their abilities to respond to and overcome the crises or their diversification strategies that were developed after these crises. The chapter identifies differences between the examined countries, not only with regard to their physical infrastructure, but their perceived vulnerability (as viewed by their decision-­makers) as well. The latter, the chapter argues, translates into different positions towards integration at the EU level in external energy security. Such a claim also has important policy implications as it highlights the role of perception in the diversification discourse. The book’s conclusion provides detailed discussion on this subject. This chapter argues that there are significant differences between the three analysed countries. The Slovak position is closest to the vulnerability argument, while Austria’s point of view is, thanks to very good relations with the Russian Federation, at the opposite end of the spectrum. The Czech perception of their ability to deal with the external challenge is more confident than the Slovak one thanks to a long-­term diversification strategy that is viewed as an effective tool for guaranteeing energy security. The following three sections examine these countries in detail in relation to their external energy suppliers (especially the Russian Federation) and provide support for these main findings of the chapter. The conclusion summarizes the main arguments presented in the chapter.

Slovakia’s vulnerable position This section argues that Slovak representatives perceive the external energy challenge in terms of vulnerability because they are having difficulties persuading the Russian Federation, Slovakia’s main natural gas supplier, to comply with existing agreements and negotiate mutually favourable deals. The unevenness of the relationship became apparent especially during the 2009 gas crisis, and several times afterwards, and influences the position of Slovakia towards integration in the external energy security area at the EU level. The perception of vulnerability and inability to successfully negotiate with its main external energy partner translates within the EU into support for deepening integration in this area. Here we show the impact of the 2009 gas crisis on the perception of the external challenge in terms of vulnerability and how the development connected to the Nord Stream 2 pipeline further strengthens such a perception. Slovak energy policy was for a long time characterized by a reliance on Russian supplies of several key commodities including natural gas, oil, nuclear fuel or hard coal, and the Russian Federation is still considered to be a key Slovak energy supplier. A respondent claimed that the EU is crucially dependent on Russian supplies and “this is even more true for Slovakia” (Interview 5). The reasons behind the establishment of the Energy Union project support such a claim as the EU’s reliance on energy supplies from third countries and the financial sources that member states pay for energy imports were among the top

External challenge   103 reasons for the establishment of this new approach towards EU energy policy (European Commission, 2015). Supplies to Slovakia are based on a long-­term contract between SPP (Slovenský plynárenský priemysel), the main gas company, and Gazprom Export; the last of these to date was concluded only a few weeks before the 2009 gas crisis broke out, for a period of 20 years (SPP, 2008). Since then the number of gas suppliers increased due to the liberalization process, however, before the 2009 gas crisis, SPP was one of three gas suppliers to Slovak end consumers, having a significant majority of the market (Eurostat, 2018). The transit of natural gas to and through Slovakia is governed by a long-­ term contract between eustream, the Slovak TSO and Gazprom Export, the last time this was prolonged was at the end of 2008 for a period of 20 years – until 2028 (Ministry of Economy, 2018). High reliance on Russian gas supplies (up to 98 per cent of total consumption, see also Chapter 3) was not considered to be problematic before the 2009 gas crisis as there had not been any experience of full supply interruption during almost 40 years of gas transit through Slovakia (Duleba, 2009). Slovakia as a part of Czechoslovakia had an important position in natural gas transit from the Soviet Union to Western Europe since the second half of the 1960s. The Soviet Union started exports of natural gas to former Czechoslovakia in 1964, which inspired Western companies who also wanted to gain access to the relatively cheap Soviet gas (Högselius, 2013). The transit started in 1968 with the development of an interconnector between the Slovak part of Czechoslovakia and Austria (see also below). During the 1970s the Czechoslovak position was further strengthened by scaling up the transmission system; an upgrade necessary due to new contracts signed with several European countries (Perovič, 2017a). The huge transmission capacity up to 100 bcm a year was supported by the biggest compression station in Central and Eastern Europe developed in Veľké Kapušany at the entry point from Ukraine. The Slovak part of the Czechoslovak system had a much bigger capacity than the Czech part as one line of the Brotherhood pipeline goes from Slovakia to Austria where it connects to other infrastructure that transits Russian gas further to the West. Due to the significant importance of the Slovak part of the Brotherhood pipeline for supplying Europe with Russian gas and its huge capacity, a possibility of a full cut-­off was not even taken into consideration by Slovak authorities as well as the transmission system operator itself. The responsible authorities were thus not prepared for a situation of full interruptions of gas supplies, which contributed to the negative consequences of the crisis. External energy security was not a significant issue during this period and the level of interest in diversification or similar measurements aimed at improving energy security was very limited, which corresponded to an uneventful relationship between Gazprom and the Russian Federation on the one hand and SPP and Slovakia on the other. The situation changed after the 2009 gas crisis when energy security in general, and external energy security in particular, became top priorities within energy policy and one of the key policy topics in general. Together with Bulgaria, Slovakia was most significantly hit by the crisis (Lee, 2017) and the experience from the

104   External challenge beginning of 2009 when there was no gas flowing to the country for 11 days has been repeatedly stressed in official documents as well as the energy discourse. On the other hand, the smaller energy crisis of 2006 when natural gas supplies via Ukraine were not fully interrupted, but only lowered, did not leave as big a mark on Slovak energy policy. The still valid 2008 Energy Security Strategy does not mention the 2006 crisis at all, it even claims that “given the existing legal commitments of the [transit system’s] users, we can evaluate the security of gas supplies to Slovakia from Ukrainian border in the horizon of the next ten years as satisfactory” (Ministry of Economy, 2008). The fact that the energy security policy of Slovakia is still governed by a document approved before the main energy security event (the 2009 gas crisis) would suggest that the Slovak government relies heavily on EU guidance in this area as there are mid- and long-­term policies as well as concrete rules developed at this level. Until the 2009 gas crisis, the Slovak natural gas sector was defined by double dependency. The country not only imported almost all of its natural gas from the Russian Federation (there is a very small domestic production of about 100 mcm a year or 2 per cent of total consumption), but it is also dependent on a single route – the Brotherhood pipeline via Ukraine. This was the main reason for the serious consequences of the gas supply interruption for Slovakia. As the above quote from the Slovak Energy Security Strategy suggests, contractual relations with other energy players connected to gas transit through Slovakia were considered to be a sufficient guarantee of external energy security. After the 2009 gas crisis the position has changed and the 2014 Energy Policy of the Slovak Republic stresses the importance of improved interconnectivity and the general development of the EU energy market together with storage and long-­term agreements to be a backbone of the country’s energy security (Ministry of Economy, 2014). However, the interviewed respondents pointed out the negative experience from the beginning of 2009 when in spite of the existence of long-­ term transit as well as trade agreements, Slovak authorities were not able to persuade the involved parties that there was a contractual obligation to supply Slovakia with gas. As one interviewee pointed out, “the member states were just spectators” in this crisis and had no influence on the negotiations (Interview 9). After the crisis, the position of Slovakia has changed and it has become much more active in the energy security area. For example, the country regularly includes energy security among its top priorities of the presidency of the Visegrad Group (Government of the Slovak Republic, 2018). Energy also belonged among the top priorities of the proposed programme of the 2016 Slovak presidency of the Council of the EU (Ministry of Foreign Affairs, 2016a), however, energy security was later replaced by other issues like migration or Brexit (Ministry of Foreign Affairs, 2016b). The latter, especially, had a very strong priority at that time as the referendum on leaving the EU had taken place only couple of days before the Slovak presidency started (Bilčík, 2017). Moreover, upgrades to the gas infrastructure aimed at improvements to the cross-­border interconnectivity with neighbouring countries had already started by the end of the 2009 gas  crisis when a reverse flow with the Czech Republic was provisionally

External challenge   105 e­ stablished (Mišík, 2015). Permanent upgrades to this entry-­exit point were made shortly after the crisis together with the establishment of reserve flow with Austria. Moreover, an interconnector with Hungary was commenced in 2015. Financial support from the Commission (first the European Energy Program for Recovery and currently the Connecting Europe Facility) had a crucial impact on these diversification projects (Oravcová and Mišík, 2018). However, in spite of this progress that meant development of significant alternative supply routes with combined technical capacity exceeding Slovak domestic gas consumption several times, energy security and its external dimension is still a crucial argument for the development of new infrastructure. For example, the end of 2017 saw the signature of an agreement between Slovak and Polish TSOs on the development of a common interconnector supported by energy security argumentation (eustream, 2017). The dominant perception towards mutual energy relations after the crisis has been characterized by a view that Slovakia is not able to secure stable gas supplies from Russia as this energy partner is not reliable, and Slovakia is in a vulnerable position unable to reach a mutually beneficial deal during negotiations. On the one hand, the official discourse claims that Gazprom is a reliable partner that is able to fulfil its obligations towards Slovakia, on the other hand, several respondents noted that at an informal level there are different expectations and the ability of Gazprom to keep delivering natural gas in the long-­term is questioned (Interview 8). Although Slovakia has “above standard” relations with Gazprom, it is in “disadvantageous positions because of new pipelines are being build” (Interview 7). Because of such perceived difficulty to negotiate with the Russian Federation and Gazprom Export, Slovakia is looking for ways to increase its importance as a transit country. Slovakia is an important transit country as the main gas and oil transit corridor from the Soviet Union to Western Europe was built via former Czechoslovakia from the late 1960s (see Högselius, 2013; Perović, 2017a or Chapter 3 for more information). Although the amount of natural gas transited via the Brotherhood pipeline has decreased due to Russian diversification projects (Yamal in the late 1990s and early 2000s, Nord Stream in 2010s) transit through Slovakia still represents an important part of Russian supplies to the EU. Thanks to the development of the reverse flow with Ukraine (exit-­entry point Budince) together with a higher demand for gas in Europe during the last few years, the volume of transited gas via Slovak territory has increased (eustream, 2018) although it has not reached the levels before the commencement of the first two lines of the Nord Stream pipeline. According to several respondents interviewed for this research, the overall decrease of transit via Slovakia negatively influenced the Slovak position vis-­à-vis Russia and the ability of its representatives to negotiate on an equal basis. Reverse flows and the Eastring gas pipeline are two main examples of diversification projects aiming to increase the levels of natural gas transited via the Slovak part of the Brotherhood pipeline. These activities can be viewed as a preparation for complete cessation of gas transit via Ukraine after 2019 (Mišík and Nosko, 2017). Slovakia is one of the main opponents of the Nord Stream 2,

106   External challenge because this pipeline will enable almost full replacement of the Brotherhood pipeline as a transit route of Russian gas to Europe (Pirani and Yafimava, 2016; Sharples, 2018). The Slovak government supports the utilization of the Slovak transmission system to the maximum possible degree as this is viewed as a guarantee of energy security. Therefore, the government claims that it supports diversification of suppliers and routes of natural gas to the EU at the general level, however, the new infrastructure should not “duplicate the existing available capacities that have to be utilised to a maximum level” (Ministry of Economy, 2014: 52). This is, according to the Slovak government, the case with the Nord Stream (1 and also 2) as it duplicates the capacity of the Brotherhood pipeline. To offset the negative consequences of the two new lines of the Nord Stream 2 pipeline, especially the expected further decrease of transit through Slovak transition, the government supports the development of the Eastring pipeline. This is supposed to increase utilization rates in the Slovak part of the Brotherhood pipeline. In spite of very strong political support, the development of this pipeline is very slow (however, it was included among Projects of Common Interest (PCI), the Commission’s list of prioritized energy infrastructure projects). Although the Slovak government is investing a lot of efforts into persuading its Russian energy partners about the importance and convenience of transit via Slovakia (energia.sk, 2016), the current development around the Nord Stream 2 pipeline would suggest that these have not been very successful. Several interviewees claimed that Slovakia has had a hard time persuading its Russian counterparts about the need to follow the mutually agreed rules and to fulfil contractual obligations connected to transit and supply of gas to Slovakia. For example, one interviewee claimed that if Russia stopped transit via Ukraine and Slovakia in spite of the existence of the long-­term transit contract, Slovakia can “sue them all we want, but we do not have lever” that would force them to keep using Slovak transit infrastructure (Interview 11). The differences between Gazprom’s negotiating strategy with big EU member states and countries from Central and Eastern Europe stems from the fact that “we are small, weak states […] they can effort to negotiate with us in a different way” (Interview 12). Gazprom representatives do not consider the Slovak side to be an equal partner and are blaming Ukraine, as the transit country, for the interruptions or any other problems with supplies and are not even trying to find a solution to supply problems. A respondent explained that such a situation is caused by the fact that natural gas transit and supply is not governed by the EU rules that are bringing transparency into these activities. Gas in the Russian Federation is “under state control” which has a negative impact on mutual relations and Slovakia’s ability to exercise pressure on its Russian gas supplier (Interview 6). The Slovak government is trying to keep the mutual relations with the Russian Federation as good as possible and therefore does not usually present critical positions towards its main energy supplier that could negatively influence energy negotiations (Interview 7). The Slovak position towards sanctions against Russia for illegal annexation of Crimea is a good illustration of this. Robert Fico, the former Slovak prime minister has repeatedly claimed that

External challenge   107 ­ lovakia does not support sanctions against Russia, however, the government S voted for them to show unity within the EU (Webnoviny.sk, 2017). Moreover, he claimed that Slovakia is providing reverse flow to Ukraine thus helping the neighbouring country to limit its dependence on Russian gas (Ukraine got on a path towards complete independence from Russian supplies after the 2014 annexation of Crimea). However, the development of the reverse flow was not straightforward and Slovakia at first opposed this solution using different arguments including legal and financial, in spite of strong support by the Commission (Interview 8). The Slovak government started to support this solution only after the tension between the Russian Federation and Ukraine peaked during the spring of 2014 (Stulberg, 2015).

The Czech Republic’s critical approach towards Russia The Czech perception of the external energy challenge is different from the Slovak one. On the one hand, the country’s representatives assume a very cautious approach towards the Russian Federation and doubt its ability to fulfil contractual obligations based on existing trade agreements. To remedy such a situation, the Czech Republic has engaged in diversification projects since the early 1990s, not only in the natural gas sector, but also in oil. Thanks to this strategy, the Czech Republic had a totally different experience during the 2009 gas crisis compared to Slovakia and was able to help the latter with emergency supplies towards the end of the crisis. Moreover, underground gas storage facilities that have total capacity of 3.1 bcm are considered to strengthen the country’s energy security and support resilience of the system in case of supply disruptions (ERÚ, 2018). On the other hand, several Czech interviewees claimed that their country’s representatives have the specific know-­how enabling them to negotiate with their Russian counterparts more successfully than other countries in a similar situation. Similarly to the previous case, transit is also considered to be a crucial component of the energy security puzzle by Czech decision-­makers. However, contrary to Slovakia, Czechs connected their natural gas diversification to Western European markets and with Russian diversification projects aimed at this market, namely, the Nord Stream 1 and 2 pipelines. This strategy plays a crucial part in the Czech diversification efforts and at the same time it puts their gas transit objectives into direct competition with the Slovak ones that are based on transit via the Brotherhood pipeline. The Czech representatives perceive their state to be able to deal with the external challenge, however, a crucial part in this perceived ability is played by different strategies applied by the country in the energy sector (diversification, transit and energy diplomacy). The general expectation towards the ability of the Russian Federation and Gazprom to keep its contractual obligations in the natural gas supply area is rather negative in the Czech case. As noted by a respondent, there is “no strong framework that would oblige Russia to provide stable supplies” (Interview 17). Another interviewee noted that Russia is an unpredictable energy partner that is able to cause interruption randomly without prior warning or a proper argument

108   External challenge supporting an emergency situation. In his own words, an interruption can occur any time and “you do not even know why” (Interview 15). Very effective “Russian tools” are being used by this main European external supplier. These are creating, in the Czech Republic, feelings of insecurity and unpredictable development (Interview 18). Because of these negative expectations, the Czech representatives responsible for energy security are developing energy strategies and plans with the worst-­case scenario in mind when it comes to energy supplies from the Russian Federation. The Czech Republic has developed two types of interlinked tools that are used to react to these perceived problems. Diversification of transit routes and sources of natural gas is the main strategy in this regard. Another important measure is the creation of ‘mutual dependency’ between the two countries by strengthening the transit nature of the Czech Republic. The country is thus not only a customer for the Russian Federation, but also a partner for the transit of gas for much bigger clients in the western part of the EU (especially Germany). The diversification process in the Czech Republic started with oil supply diversification at the beginning of the 1990s, when the country was still a part of the Czech and Slovak Federative Republic. The original idea to diversify routes and thus also sources of oil for the country by building an interconnector with Germany was developed during the federation period and continued also after the Czech Republic became an independent country in 1993 when the two countries split. The smooth continuation of the project was caused by the fact that diversification stayed an important objective for the Czech Republic and the planned interconnector was located on Czech territory. The result of this first diversification was the IKL pipeline (Ingolstadt – Kralupy nad Vltavou – Litvinov) that commenced in March 1996 (Černoch et al., 2012) and since then helped repeatedly with energy security during the period of lower supplies from Russia (Interview 46). It transits up to 56 per cent of total Czech crude oil supplies depending on the year, with significant fluctuations over time (Mero ČR, 2018). A similar approach was also chosen in the natural gas sector in which diversification processes started in the second half of the 1990s. In April 1997 a long-­ term supply contract with a Norwegian supplier was signed by the Czech TSO Transgas (later renamed Net4Gas) what enabled the Czech Republic to also receive natural gas from a western direction via entry-­exit point Hora Svaté Kateřiny. This happened “[d]espite some reservations from the Russian Federation and Gazprom” (Binhack and Tichý, 2012: 56). The contract was signed for 20 years (it expired in 2017) and covered approximately 25 per cent of total Czech gas consumption. According to one interviewee, as a result of these diversification efforts, the country stopped being dependent on a single gas supplier and significantly improved its energy security (Interview 22). Such a program of source diversification was unique in the region of Central and Eastern Europe in the 1990s and early 2000s. Other countries of the region kept relying heavily on Russian supplies without access to alternative gas. For example, the Baltic States, in spite of repeatedly suffering from supply interruptions (Grigas, 2013),

External challenge   109 had not diversified their natural gas supplies before 2014 when Lithuania commenced LNG terminal ‘Independence’ (Mišík and Prachárová, 2016). The diversification that took place – most importantly the Yamal pipeline – was a route, and not source, diversification and negatively impacted the volumes of natural gas transited via the Brotherhood pipeline, although it can be argued that the pipeline improved Polish energy security. The Czech Republic increased its importance as a transit country after the first two lines of Nord Stream were commenced in 2011 and 2012. Until then the gas was transmitted through Czech territory via the Brotherhood pipeline in an east–west direction from Slovakia to Germany (Net4Gas, 2011). Nord Stream is connected to the Czech system via the OPAL pipeline (Ostsee-­PipelineAnbindungsleitung) that is linked to the Gazelle pipeline build on Czech territory and commenced in January 2013. The Gazelle pipeline runs in a north–south direction connecting to the OPAL pipeline in the north and MEGAL (Mittel-­ Europäische-Gasleitung) in the south of the country. The OPAL pipeline has been hotly debated, as Gazprom originally applied for exemption of its full capacity from the third party access rules of the internal EU energy market. The OPAL pipeline is crucial for bringing Russian gas to Germany via Nord Stream as the latter terminates at the shore and the former is thus necessary to physically supply gas to the German market. The Commission granted exemption only to de facto half of this capacity (50 per cent) in 2009 arguing that higher exemption from this rule would negatively influence the Czech upstream wholesale market by limiting competition (Dralle, 2018). Dominant players (effectively only Gazprom) were also able to book more capacity under this exemption, however, the rules stipulated that in order to do this the company would have to implement a ‘gas release program’ (gas sale under conditions set by the regulatory authority) that never happened, and thus OPAL’s utilization rates stayed at 50 per cent. The institute of exemption was created to enable investments in areas in which they would not take place if the regulatory scheme were to be applied in full. The decision to grant only half of the capacity was re-­visited in 2016 and the result was an increase of the available capacity for OPAL for Gazprom to 80 per cent (European Commission, 2016). Yafimava argues that this decision “signifies an important turning point in how Russian gas will be transported to Europe in the future” (2017: viii) as it will enable an increase in Russian supplies via Nord Stream to the EU and thus circumvent Ukraine (and therefore also Slovakia) as a transit country. This will be an important factor in deciding about the future of gas transit via the Brotherhood pipeline as the current contract terminates at the end of 2019. The Czech Republic has been a strong supporter of the Nord Stream pipeline because it brings for the country not only route diversification (via the OPAL and Gazelle pipelines), but also improves its position as a transit country. The south end of the Gazelle pipeline connects to the MEGAL pipeline and thus is an important part of a transit system bringing gas from Nord Stream to southern Germany. This is viewed as a guarantee of energy security as “[i]t is much easier to stop supplies to a country that is at the end of the line than to a country that is

110   External challenge a part of it” (Interview 14). The Gazelle pipeline is not only a transit pipeline, but is also connected to the Czech national grid in several places enabling direct connection to natural gas from the Nord Stream pipeline in case of emergency. This is viewed as a significant boost to the Czech energy security and was one of the main prerequisites for the support of the Nord Stream/OPAL project by the Czech government (Interview 14). The Czech worried that if they were not be a part of a system connected to the Nord Stream, they will be the last ones supplied by the Brotherhood pipeline after Nord Stream became the main supplying pipeline for Germany. In the words of a respondent, the country did “not want to become an appendix” (Interview 17). This is also one of the main reasons why Czechs support the development of the Nord Stream 2 pipeline. The two new lines of this pipeline have a potential to increase the utilization rate of the Czech gas transmission system which is viewed not only from an economic perspective, but also from an energy security one especially vis-­à-vis the expected termination of transit via Ukraine. As expressed by the state secretary of the Ministry of Industry and Trade of the Czech Republic, “the view of the ministry is clear. Long term [transmission] contracts are expiring or are close to their expiration date and we are responsible for as efficient utilization of transmission system as possible” (oenergetice.cz, 2018). Gas from Nord Stream 2 should replace, especially, the gas currently flowing via the Brotherhood pipeline and thus being part of this new transmission route is perceived to be crucial for Czech energy security. However, the Czech position towards the pipeline was not so positive from the very beginning. The Czech prime minister signed – together with another eight countries from Central and Eastern Europe – a letter to the European Commission claiming that the project could “pose certain risks for energy security” for their region (euobserver, 2016). However, the Czech position later became “more nuanced and they likely see themselves as a beneficiary of transit of Russian gas from Nord Stream to Austria, Central and Eastern and South Eastern Europe” (EPSC, 2017: 11–12). The Czech Republic is in this way preparing for significant changes in the direction of natural gas flow within Central and Eastern Europe. From the currently dominant east-­west direction via the Brotherhood pipeline through Ukraine, Slovakia, the Czech Republic and Germany, the flow of gas will probably change after the current transit contract between Gazprom and Naftogaz Ukrainy expires at the end of 2019. The new direction of gas flow will go via Nord Stream to Germany, the Czech Republic and Austria/Slovakia. The first preparations were already being made in 2017 when capacities for the new direction of transit were provisionally booked in the Czech transmission system (Net4Gas, 2017). Also, the new planned pipeline on German territory – EUGAL; Europäische Gas-­Anbindungsleitung – that is a component of the intra-­EU midstream infrastructure will be an important part of this new transit structure. It will bring gas from Nord Stream 2 to the German–Czech border from where it will continue via the existing Czech pipeline system to Slovakia and Austria (EPSC, 2017).

External challenge   111 The diversification will lead to an improvement in Czech energy security in spite of the gradual decrease of supplies from Norway that ended in 2017 when the 20-year gas supply contract terminated. The Czech energy companies began to utilize spot markets in Germany (especially the Gaspool market area) and the supplies from Germany started to cover a significant part of total domestic consumption around 2015 (iDnes.cz, 2016). The refocus on the German gas market as the principal source of natural gas for the Czech Republic was further confirmed in late 2018 when a virtual interconnection point was established at the market border between Gaspool and the Czech Republic (Net4Gas, 2018). The amount of natural gas coming to the Czech market on the basis of long-­term contracts is sharply decreasing, while most of the gas is being bought on the German market. The Czechs view this situation as an important contribution to their energy security and therefore also supports further development of spot markets in Europe. According to respondents, it is such availability of alternative supplies from several sources and direct connection to natural gas hubs in Germany that allows the Czech Republic to have a critical and rather relaxed position towards the Russian Federation as described at the beginning of this section. Moreover, the Czech representatives claim that they do have a long-­term and detailed knowledge of Russia enabling them to have special and balanced relations with the country. Czech representatives perceive their country as able to deal with the external challenge, because they have a unique “long-­term experiences with Russia” that even “the Commission does not have” (Interview 15). Thanks to this capability they are able to achieve positive results in the area of energy diplomacy with the Russian Federation. As explained by an interviewee, it is “important to conduct a dialogue” with Russia as the main energy partner (Interview 14). The official documents present a very similar picture. The State Energy Strategy claims that it is important to “coordinate cooperation with important producing and transit countries” and calls for an improvement of energy diplomacy in these countries (Ministry of Industry and Trade, 2015: 94).

Austria as an important Russian energy partner The position of Austria and its decision-­makers is very different from both the Czech and Slovak perspective. The dominant view about the country’s ability to deal with the external challenge is characterized by a perceived capacity to successfully negotiate with external energy suppliers. This directly translates into a perceived ability to guarantee access to all the energy the country needs to import from abroad in order to cover its domestic consumption. The difficulties and issues that the other two countries covered in this analysis encountered in their relationship with the Russian Federation (and Gazprom) as their main energy supplier are not present in the Austrian perception of the situation, although the country also imports a significant portion of its gas from this supplier. This section thus argues that Austria does not have a problem coping with the external challenge and the decision-­makers perceive their country as able to

112   External challenge deal with this challenge. Therefore, they are in support of keeping competences in external energy security in domestic hands and not to transfer them to the EU level. Such a situation would allow them to continue with their external energy policy that favours bilateral deals with the Russian Federation. Gazprom Export claims that from the very beginning of its export to Austria in 1968 until 2018 the country received more than 190 bcm of Russian natural gas (Gazprom Export, 2018a). OMV (Österreichische Mineralölverwaltung) is the main Austrian energy company and via its subsidiaries it is Gazprom’s principal partner for gas transit as well as gas supplies to the country. Transit through Austria further to the West is secured by a system of pipelines (West-­AustriaGasleitung – WAG or Trans-­Austria-Gasleitung – TAG; to name the two main ones) running from Baumgarten, which is the main natural gas hub developed at the end of the 1950s to several neighbouring countries (Gas Connect, 2018). Yearly capacity is approximately 30 bcm of natural gas that are transmitted via Austria to Italy, France, Germany, Hungary, and Slovenia (Gazprom Export, 2018a). The system is operated and maintained by Gas Connect Austria, a subsidiary of OMV, which is the transmission system operator in Austria. The gas supplies to the country are currently, in the main, secured by a long-­term contract between Gazprom Export and OMV Gas Marketing & Trading (operating under the name OMV GAS) that was signed in 2006 for the period until 2027 (Gazprom Export, 2018a). The contract was prolonged until 2040 in June 2018 and the volume of supplied gas was increased in November of the same year. At this occasion the Chairman of the Executive Board of OMV noted that this step means a “contribution to security of supply in Austria – as well as to other European countries” (OMV, 2018) highlighting the importance of transit for Austria’s energy security. Although mutual relations with Gazprom have also “disadvantages”, the existing contract “secures energy supplies” (Interview 37). As explained by an interviewee, energy security is an important issue for Austria because they are “quite import dependent, so [they] have to work on secure imports” (Interview 27). Relations with energy suppliers are thus crucial. At the general level, the respondents from Austria defined their relationship with the Russian Federation in the energy area in very positive terms. The vocabulary used to describe this relationship thus substantially differentiated from the one utilized by the Czech and Slovak respondents that questioned Gazprom’s (and thus also the Russian Federation’s) ability to be a responsible and reliable energy partner. Austrian respondents claimed that the energy relationship with their main gas supplier can be considered exceptional and there are no major complications in their mutual interactions. One of the interviewees even went so far as to describe the energy relations between Austria and the Russian Federation as “frictionless” (Interview 35). Although other respondents did not use such strong claims, they were still very positive about the nature of the mutually advantageous relationship and their country’s ability to secure Russian gas supplies. When creating a parallel with the situation in the Central and Eastern European countries, the same respondent (Interview 35) explained that the reason why  Austria is in a different position is that it does “not have such a kind of

External challenge   113 sensitivity” that stems from a historical experience of these countries with the Russian Federation (and especially the Soviet Union). Another respondent during an interview conducted several years after the 2009 gas crisis added that Austria – compared to Central and Eastern European region – does not have “ideological problems with the Russians because we are on the other side of the Iron Curtain” (Interview 26). Moreover, the Russian Federation is one of the main trade partners (and the main energy partner) for the country and therefore Austrians are maintaining very good relations with the country in general, not only when it comes to the energy sector. In order to support the development of these mutual relations, Austria promotes a “political dialogue with Russia” (Interview 40). The ability to conduct constructive dialogue with Russian representatives was a reoccurring theme during the interviews. A critical stance came from an energy expert who claimed that representatives of the Austrian government are hesitant to criticize Russia at the EU level because they want to maintain good relations (Interview 44). Austria’s ability to successfully negotiate with its energy supplier is not limited to natural gas. The country imports most of its crude oil from Kazakhstan and the mutual relations are “certainly an issue in our foreign policy” as “it is a tricky relationship with a country, which is run by a dictator. However, the business is doing well” (Interview 27). If the EU issued sanctions against a ‘problematic’ country, this would not stop Austria continuing its business as they will “not be implemented immediately, there will be some delay” (Interview 26). Austrians “will find way around the sanctions” because “this is the game, this is the EU, you are a part of it” (ibid.). Austria has a long history of energy relations with the Soviet Union and later with the Russian Federation that goes back all the way to the mid-­1960s (Konoplyanik, 2012). After the Second World War the country was partitioned among Allied powers and later became a neutral country (i.e. not a member of NATO or ECSC/European Community, nor the Warsaw pact) in 1955. The country played a crucial role in the development of natural gas transit to Western Europe during the late 1960s and early 1970s. Because it had well-­developed energy infrastructure close to the border with the Czechoslovakia (used for domestic production of natural gas), only a few kilometres of new pipeline were needed to connect Austrian gas infrastructure to the existing Brotherhood pipeline system on Slovak territory. Austria thus became the first Western country to import gas from the Soviet Union after a contract was signed between OMV and Soyuz­ nefteexport in 1968 (Högselius, 2013). The gas started to flow after only three months of preparations and infrastructure upgrades. On 1 June 2018, 50 years of Soviet/Russian gas supplies to Austria were thus marked. On this occasion, Alexey Miller, the head of Gazprom noted that “[t]he strategic partnership of Gazprom and OMV is built on a robust foundation” and that there is an expectation of “a new level of strategic cooperation in the near future” (Gazprom Export, 2018b). The positive experience of Austria inspired further development of Soviet gas exports to Western Europe. At the beginning of the 1960s, Soviet supplies of

114   External challenge energy (at that time oil) were viewed in the West with suspicion and an embargo on large-­diameter pipes – that were crucial for building exporting pipeline, but the Soviet Union was not able to manufacture them in large enough quantities – was introduced in late 1962 (Perović, 2017a). The embargo was lifted in 1966, however, at that time the Druzhba oil pipeline, whose building was supposed to be prevented by the embargo, was already finished. The embargo thus had a significant negative impact on German steel companies that were not able to sell their pipes to the Soviet Union. When Western European countries started to consider Soviet gas to be an alternative to Middle Eastern oil supplies after the 1973/74 crisis, there was already experience not only with oil supplies, but, thanks to Austria and several other countries, also with natural gas imports from the Soviet Union. The main issue in this period was the scaling-­up of the existing transmission system, not the establishment of a brand new one. Although the original natural gas supplies to Austria at the end of the 1960s can be characterized as ‘modest’ (142 mcm a year; Gazprom Export, 2018b) the 1968 energy contract between Austria and the Soviet Union opened doors for future development and similar contracts with countries like France, Italy and Finland, and later also with the Federal Republic of Germany (West Germany) that used to be the main trading partner of the Soviet Union before the Second World War (Krempin, 2017). It also has to be noted that gas exports to Czechoslovakia were very limited at this point, reaching only about 1 bcm a year as the transit system was only in the nascent phase (Lee, 2017). The contract with West Germany was a long-­term deal that guaranteed natural gas supplies to Ruhrgas gas company from October 1973 for 20 years with a possibility of prolongation. An important part of this trade deal was a side agreement on supply of large-­diameter pipelines from Germany to the Soviet Union. This on the one hand solved the Soviet problem of supply shortages of these crucial gas infrastructure components caused by a very limited ability of the domestic industry to manufacture these (especially the gas ones with very large diameter), and on the other hand, this deal helped German steel companies struggling with a recession to develop a new market (ibid.). Austrian respondents repeatedly stressed the important position of Austria in this development and highlighted the key role their country played in introducing Soviet gas to the West European market and enabling its transit further to the West (especially to Italy, but also to other countries). In the words of one respondent, Austria “had opened Russian gas for Europe” (Interview 35). Even more importantly for the argument presented in this book, Austrian representatives consider energy supplies from the Russian Federation to be reliable and noted that the reliability has been the main characteristic of the mutual relations since the very beginning of Austrian imports of gas from the Soviet Union. For example, one interviewee noted that “the Russians have been reliable [energy] partners […] for the last 50 years” (Interview 41) and this wasn’t negatively influenced even by the break-­up of the Soviet Union. On the occasion of the fiftieth anniversary of gas imports, Rainer Seele, the Chairman of the Executive Board of OMV stressed the reliability of gas supplies from Russia twice in one

External challenge   115 sentence when he claimed that “we have received reliable gas supplies from Russia and have been able to provide our industrial and household customers with high-­quality natural gas without interruption” (Gazprom Export, 2018b). Even more importantly, neither the 2009 gas crisis, that also had consequences for the Austrian natural gas sector, caused a rift in the mutual energy relations. Positive attitudes towards the supply history dominate Austrian perceptions of energy relations with the Russian Federation, in spite of the fact that the country was influenced by the interruption and there was a decrease of gas supplies during the 2009 crisis. As explained by an interviewee, during several decades of uninterrupted gas supplies, the 2009 crisis was “the only incident we had with Russia” (Interview 40). Because the relationship between the energy partners has been otherwise problem-­free, this event was not considered to have any significant consequences for this relationship. However, the crisis also took Austria by surprise as only a few years ago “nobody would have believed you that things like that can happen, because [the gas supplies] worked for 40 years fine” (Interview 24). One of the reasons for such an approach towards the crisis was the fact that it was “handled relatively very well” (Interview 40). According to out respondents, the limited number of necessary measures needed to overcome the crisis (an agreement with the main consumer was reached to lower their gas usage) hasn’t affected the positive image of the way the situation was handled by their supplier. As explained by an interviewee, “Gazprom found [a] way to supply Austria” (Interview 37). The Commission also considered Austria to be one of the countries that handled the crisis very well, although it named different reasons in its post-­ crisis evaluation. The Commission listed Austria among the countries affected by the crisis in which there was no need for “emergency intervention due to adequate interconnections, adequate gas in the system and back-­up storage” (European Commission, 2009: 10). Such reasoning was supported by several interviewees, one of which claimed that the rather problem-­free course of the crisis was caused by upgrades in the Austrian gas sectors after the 2006 gas crisis. The country had thus done “a lot of things to prepare itself for [a] similar situation” after the previous crisis (Interview 24). From Austria’s perspective, Gazprom and the Russian Federation were not the parties responsible for the crisis, some of the respondents even directly blamed Ukraine for the situation, although this was not the official position of the Austrian government. In spite of the different position of Austrian decision-­makers towards the Russian Federation in general and in connection to the 2009 gas crisis in particular compared to the other two analysed countries, Austria shares a common position with these when it comes to diversification. The country’s representatives view diversification as an appropriate answer to energy security issues and therefore Austria actively supports the development of new infrastructure that has a potential to bring ‘new’ gas to Austria and Europe or increase interconnectivity within the community. One of the respondents claimed that “in particular for small countries, it is utmost important to be well connected with their neighbours, because a small country cannot really succeed with standing-­alone

116   External challenge strategy” (Interview 25). Austria supported diversification projects from the early 2000s and the gas crisis reaffirmed its position in this matter. One difference compared to the other two countries is in the type of diversification, as Austria focuses mostly on route (not on source) diversification and on Russia-­led projects. Although Austria also supported the EU-­led Nabucco (and later Nabucco-­West) pipeline project (Nabucco, 2010), it has provided a strong support especially for Russian diversification projects. Austria was one of the main supporters of the South Stream pipeline that was supposed to end at Baumgarten hub in Austria and circumvent Ukraine on its way to Europe (Stern et al., 2015). This support was closely connected to good bilateral relations with the Russian Federation. As explained by one respondent, there was a “political agreement with [the] Russians that if South Stream should go to Austria [then] we [would] support everything” (Interview 26). Nabucco and South Stream were, however, considered to be direct competitors with problematic economic backing as well as prospects (Baev and Øverland, 2010). However, Austrian OMV was included in both projects and later it also became a part of the Nord Stream 2 project. The company signed a series of agreements in 2015 aiming to develop a consortium for construction of this pipeline (Gazprom Export, 2018a). This was done with backing from the Austrian government. Chapter 6 will discuss the relationship between the central government and OMV in more detail.

Conclusion This first analytical chapter examined the perceptions of the countries’ ability to deal with the external challenge that concerns the relations with the main external energy suppliers, namely, in the case of the three analysed small EU member states, the Russian Federation. The analysis showed a different perception of this ability by the decision-­makers from these countries. On the one end of the spectrum is Slovakia with decision-­makers perceiving their state’s ability to deal with this challenge in terms of vulnerability, on the other end is Austria whose relations to the Russian Federation are considered to be at a very high level. The Czech position is closer to the Austrian one when it comes to perception of ability to deal with the external challenge; however, the attitude towards the Russian Federation is negative. Slovak representatives do not believe that their country has an ability to negotiate mutually advantageous deals with their Russian counterparts. The 2009 gas crisis showed them that they have only a very limited toolkit to persuade their energy partners to fulfil their contractual obligations. Therefore, Slovakia engaged in a diversification program that enabled it to connect to the wider European gas market and gain access to alternative supplies. The Czech mistrust towards the Russian Federation as its energy supplier had already manifested in the 1990s when the country diversified its oil, and later also gas supplies, and in this way became an exception within the whole Central and Eastern European region. Therefore, while the Czech representatives view the Russian Federation

External challenge   117 through a prism of mistrust, they consider their country’s ability to deal with the external challenge in a rather positive light as diversification has enabled the Czech Republic to exclude the uncertainty from mutual energy relations. Moreover, the Czechs claim that they have a special set of skills enabling them to successfully negotiate with the Russians as energy suppliers. The Austrian perspective is totally different from the previous two – the country has been engaged in several infrastructural projects that included the Russian Federation, and its representatives consider the mutual relations to be in very good condition. The 2009 gas crisis was an important milestone for all three countries although they were not impacted by it to the same degree. The crisis served as a catalyst for development of infrastructural projects, although Austria and the Czech Republic were also actively engaged in diversification processes before the crisis. Diversification is viewed in all three cases as the most efficient answer to energy security issues, and so is transit, which is considered to be a safeguard against supply interruptions. This is where the positions of the three countries diverge as they support different diversification projects. While Austria and the Czech Republic currently support the development of the Nord Stream 2 pipeline, Slovakia is a strong opponent of this project as its representatives expect negative consequences for transit via its territory when use of the pipeline commences.

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5 Internal challenge

Chapter 5 analyses the second issue identified in the theoretical model as a factor affecting small EU member states’ position towards integration in external energy security at the EU level. This book argues that when analysing preferences of small EU member states in this area not only the relations with their energy suppliers matter; also other factors like internal relations within the EU and relations with energy companies are important. This chapter, therefore, looks closely at the relationship between small member states and the EU institutions, as well as relations between individual member states within the EU decision-­ making mechanism. Small states face several disadvantages at the EU level as their smaller size is connected to smaller administration, limited capacity, and, consequently, limited ability to influence what is going on in the EU, including discussions about external energy security. Although this policy area is not harmonized within the EU, there is still a lot going on – rules connected to particular areas of external energy security are being developed and the EU and its institutions are more and more active in external energy relations (Herranz-­ Surrallés, 2016). Small countries have developed a series of counterstrategies (Panke, 2011) which can help them to overcome their structural disadvantages and become successful at promoting their positions within the EU. This chapter examines the perceived ability of small states to influence the EU and argues that this has an impact on their willingness to support the deepening of integration in energy policy at the EU level. Small EU members able to push through their partial interests connected to external energy security in particular and external energy policy in general do not support the development of a complex external energy policy, as such policy would limit their manoeuvrability at the EU level. On the other hand, small states, which do not believe in their ability to deal with these issues, support the development of external energy policy and deepening of integration in external energy security, as this would level the playing field for all EU member states, including the big ones. Moreover, the chapter studies mutual interactions between small and big members and identifies strategies utilized by the three analysed small states that help them to become more successful at the EU level. Similarly to the previous chapter, the three analysed countries differ in relation to the internal challenge. The position of Austria in regard to its ability to

122   Internal challenge assert influence at the EU level is rather strong, contrary to the view of the Slovak representatives (and official documents) that are rather sceptical about their country’s ability to have an impact on the EU decision-­making process or be a strong negotiator vis-­à-vis other, especially big, member states. The Czech position is again somewhere between these two – on the one hand, the country sees limits to its engagement at the EU level in the energy area, however, on the other hand, the country’s representatives see room for deeper involvement of the Czech Republic in the decision-­making process of the EU. The following three sections examine these issues in detail and provide support for these main findings. The conclusion at the end of this chapter summarizes its main arguments and connects them to the bigger picture presented in this book.

Limited influence of Slovakia Slovakia joined the EU in 2004 together with another seven countries from Central and Eastern Europe (as well as Cyprus and Malta) during the first wave of the eastern enlargement. However, its path towards membership was more complicated than that of most other countries from the region, and Slovakia started to catch-­up only after the 1998 elections when the new pro-­European government “placed a high priority on EU accession” (Haughton and Malová, 2007: 70). Slovakia was able to fulfil all the Commission’s requirements in time to be accepted as an EU member state in 2004 together with other countries from the Central and Eastern European region although it started negotiations later due to non-­democratic domestic development in the second half of the 1990s. A strong pro-­European drive by the country from the accession period translated into its strong support of European integration from a position of a full member. The multiple economic crises that started to negatively manifest themselves in Slovakia’s open economy from the early 2010s also did not change the positive EU rhetoric of its elite (Malová and Dolný, 2016). What did change the position of the Slovak government was the migration crisis that started in 2015, which provoked an anti-­EU campaign and strong opposition to several common EU-­ wide solutions to this crisis suggested by the Commission, especially the relocation mechanism (so called ‘refugee quotas’). However, in other areas the country repeatedly showed its strong pro-­ European stance. For example, it is the only country among the Visegrad Group (the Czech Republic, Hungary, Poland and Slovakia) that joined the Eurogroup. Moreover, its representatives repeatedly claim that the position of the country is at the EU’s core, although some of the government’s steps, especially those connected to the migration crisis, would suggest otherwise (Gál and Malová, 2018). Slovakia has been an active EU member only in a limited number of policy areas, as the small size of its administration forces the country to prioritize and cover predominantly those issues that have been of a crucial importance to it. The overall image of the country presented in this section is of a perceived limited influence of Slovak decision-­makers at the EU level and of the common rules that are adopted there.

Internal challenge   123 One of the main areas that is of importance for Slovakia at the EU level is energy policy. The country has been active in this policy from the very beginning of its membership and has actively pursued its preferences connected to several issues in this area including energy security, the energy mix and the internal energy market (Mišík 2010, 2015). The EU is considered by the Slovak decision-­makers to be the key platform for the country to deal with energy issues; the interviewees claimed that it is a crucial ‘playground’ for Slovakia in energy policy. The EU and its strategic energy documents are the cornerstone of the long-­term development of Slovakia’s energy policy as represented by the country’s strategic documents that stem from the principles established at the EU level (for example, Ministry of Economy, 2008; 2014). However, according to Slovak representatives, the position of the country within the EU decision-­ making mechanism differs from other member countries, especially those that entered the Union during the previous rounds of EU enlargement. As explained by one interviewee, Slovak behaviour and activity within the Union “is given by its size and historical background” that is “different from the old members” (Interview 6). “Nothing can be achieved without the big states” within the EU, lamented another one (Interview 7). Not only size, but also the historical legacy connected to the Communist past has been identified as a reason for existing differences among member states. However, as we will see in the following section, representatives of the Czech Republic, which has the same communist legacy, perceive their place within the decision-­making mechanism differently, so the legacy itself does not explain the vulnerable Slovak position. On the other hand, seniority within the EU is a much stronger factor as experience gained during the membership can positively impact a member state’s ability to push through its preferences. However, other factors also influence the position of EU member states. For example, the role of the Netherlands during the negotiations of the climate package was “disproportionately big considering its small size; it was caused by detailed preparations” and also by the strong position of the issue in the domestic discourse (Interview 7). The EU decision-­making process is governed by a set of formal, but also informal rules with the latter affecting the overall process to a significant degree. It has been argued, utilizing quantitative data, that the eastern enlargement has had only a limited impact on decision-­making within the Union, but it is difficult to disentangle the impact of the eastern enlargement from other events that coincided with it (Toshkov, 2017; compare to Hertz and Leuffen, 2011, who claim that the increase in size slowed down the decision-­making process). The respondents claimed that the short membership period in the EU together with other structural issues (especially the country’s small size), create a situation where the country has problems keeping up with the EU decision-­making process. Especially the differences in influence and ‘power’ between the small EU countries and the big members within the mechanism has been argued to negatively impact Slovakia’s ability to pursue its preferences at the EU level. Bigger member states have much larger administrations, that can support the

124   Internal challenge development of their country’s position, can have a bigger influence on the Commission and can also improve implementation, as “20 people work on a directive [in a big country] and two do that here” (Interview 10). An important part of this argument is also the fact, that the biggest EU member states have been EU members for a long time, which puts them in an even more favourable position. One interviewee bluntly explained what the informal pre-­negotiations look like when he complained that “[o]ld member states meet and agree on how things should look” (Interview 4) and the rest of the EU members do not really have a say in the process. ‘Old member states’ is a term used for EU countries that joined the community before the 2004 enlargement. ‘New member countries’ are those that became members after 2004, although this term is no longer appropriate after 15 years of membership and therefore was mostly replaced by the term ‘Central and Eastern European’ countries (Mišík and Szulecki, 2018). During preparation and execution of major infrastructure projects “nobody asked Slovakia, nor other member states, anything, they just went ahead and did it” (Interview 5). According to interviewees, in such situations when the original members come with a ready-­made solution, Slovakia and also other CEE countries “do not contribute with [their] own ideas” and “just vote in line with the main countries” (Interview 4) during the formal voting procedure. This experience highlights the importance of informal procedures that are crucial within the EU decision-­making process (Häge, 2008) and to which Slovakia has had only limited access. The situation has improved especially after the 2016 Slovak presidency in the Council of the EU, which had the positive impact of improving both the knowledge of internal procedures and the overall ability of the administration to influence the EU decision-­making process (Bilčík, 2017). The main exemption in this area is nuclear energy in which Slovakia is “rather strong” and has – together with the Czech Republic – an important position within the EU (Interview 7). Both countries have established and are hosting the European Nuclear Energy Forum, which aims to discuss the opportunities and risks of nuclear energy (European Commission, 2018a). However, as confirmed by an interviewee, such a position is strongly backed by preference alignment with France, which is the strongest supporter of nuclear energy within the Union. Moreover, the development of the nuclear sector in the EU is unclear after the Fukushima nuclear accident that caused severe changes in nuclear policies of several EU member countries including Germany and Italy. The existing anti-­nuclear groups in these countries used the opportunity the accident presented to “mobilise the public and to persuade their respective governments to discard nuclear energy” (Bernardi et al., 2018: 63). This has also affected those EU countries that are still supportive of nuclear energy including Slovakia and made their efforts to promote this type of energy at the EU level much more difficult. Their position had already had strong opponents before the accident, with Austria being a vocal opponent of the technology that caused a rift in mutual relations not only with Slovakia (Lofstedt, 2008), but also with the Czech Republic (Fawn, 2006). Negative attitudes towards nuclear energy were expressed by many Austrian respondents, one of them even described the state’s position as “thou shall not have nuclear” (Interview 38).

Internal challenge   125 Slovakia is trying to be a constructive member of the EU especially in the area of energy and therefore supports the development of compromises, even in cases when these do not reflect Slovak preferences. As explained by an interviewee, in many cases the consensus is supported because it is considered to be the best solution under given circumstances (Interview 6). Consensus is the main mode of decision-­making within the Council of the EU (Heisenberg, 2005; Mühlböck and Tosun, 2017) and therefore this can be seen as a normal situation within the EU. However, the position of Slovakia is complicated by the fact that its relationship with big EU member states – predominantly Germany – is perceived by the country’s respondents to be unbalanced, putting their country into a disadvantageous situation. According to one interviewee, the situation is so skewed in favour of this big EU member state that Slovakia is “in a defensive position towards Germany” at the EU level to a similar degree as it is towards the Russian Federation in the international arena (Interview 3). The mutual relations with Germany are thus viewed in terms of vulnerability, in spite of the fact that Germany is a major economic partner for Slovakia and the countries have a very strong economic relationship, but also other ties. Such a perception of unequal mutual relations with Germany in the energy area can be traced back to past Slovak experience with its big partner. In 2008, Slovakia was one of the member countries that supported German efforts to change the Commission’s plans in energy liberalization (Herweg, 2017). This was considered by the respondents to be an important signal to their German counterparts that Slovakia was supportive of their attitudes towards liberalization and especially towards the level of unbundling within the internal energy market (Interview 10). When the Commission proposed full unbundling as the only option for further liberalization of the internal gas market, Germany was the main opponent of such an approach, arguing in favour of higher flexibility in this area (Batzella, 2018). Seven countries including Slovakia (and Austria, Bulgaria, Cyprus, France, Greece and Luxembourg) united under German leadership, wrote a letter to the then Commissioner for Energy, Andris Piebalgs, in which they argued that “full ownership unbundling would not be able to deliver the necessary positive effects on competitivity, security and sustainability of energy supply” (Buchan, 2009: 73). This co-­called ‘group of eight’ pushed for a third version of the unbundling after the Commission revised its original plan to suggest only full unbundling in the gas sector within the third liberalization package and proposed two options. However, for Germany and other countries, not even these two options were acceptable, and therefore, a third option was proposed that was very similar to the existing unbundling rules (Mišík, 2015). In the end, the third package included all three unbundling options and it was up to the member states to choose their preferred version of further separation of individual activities of their formerly vertically integrated companies (for more details on the liberalization process see, for example, Herweg, 2017). However, there is a perception among Slovak decision-­makers that Germany was happy to receive support from Slovakia during the liberalization process, but when Slovakia needed Germany to change its internal energy policy in order

126   Internal challenge to limit the impact of their negative externalities on the whole CEE region, Slovakia was not successful with such a request. During 2011, a problem with unscheduled electricity flows from Germany to CEE appeared. Slovakia as one of the affected countries joined forces with the Czech Republic, Hungary and Poland and tried to persuade Germany of the need to change its policies that were the sources of these unscheduled flows (ČEPS et al., 2013). At the heart of the problem were changes in German domestic electricity generation caused by Atomausstieg (cancellation of the nuclear program) after the Fukushima nuclear disaster and increased utilization of renewables, as well as the common electricity bidding zone between Germany and Austria (ibid.). The pressure exerted by Slovakia, and other countries of the region individually but also as a group did not bring the desired outcomes. Only after several years of dealing with this issue did Germany announce in 2017 that there would be separation of Austrian and German grids, which happened on 1 October 2018 (Exaa, 2018). While cooperation with Germany is considered to be necessary, but at the same time challenging, Slovakia also has a well-­developed collaboration with other EU member countries. Especially, the cooperation within the Visegrad Group is considered to be an important part of Slovak activities within the CEE region, as well as in the EU (Interview 6). However, Slovak interviewees saw limits to the ability of the group to influence what goes on at the EU level. According to one respondent, all of these countries, including Poland, are “small, weak countries” and the performance of their economies is much smaller than those of Germany or France (Interview 12). Moreover, the group functions on an ad hoc basis with individual countries having different and sometimes even opposing preferences (Oravcová and Mišík, 2018). A good example is a new pipeline, BACI (Bidirectional Austrian-­Czech Interconnector), that is supposed to create a direct connection between Austria and the Czech Republic, (Gas­ connect, 2018) circumventing the Slovak transmission system (Energia.sk, 2018). The interconnector was not part of the original design of the North–South Gas Corridor and was added later (Interview 10). The Slovak government and the transmission system operator were therefore very critical towards this project. However, it was included by the Commission to the Project of Common Interest list, thus qualifying for EU support (European Commission, 2018b). This project is analysed in the following sections of this chapter, as it was developed by the other two analysed countries that are examined below.

Czech perception of their ability with some limitations Czech representatives view their country as being able to successfully negotiate within the EU decision-­making process and to push through most of its preferences in the energy policy area. The decision-­makers perceive the Czech Republic predominantly in terms of ability when it comes to the ability to influence the development of partial energy rules at the EU level and consider their country to be an equal partner with most member states. In spite of this overall positive attitude towards their country’s ability to influence activities at the EU

Internal challenge   127 level, the respondents saw also some limitations of their country’s position within the EU and its decision-­making mechanism. These are connected especially to the successfulness of Czech activities in energy policy in general, and energy security in particular, as well as to the country’s complicated relationship with Germany, which is its main partner within the EU. Our Czech respondents claimed that their country has employed several strategies in order to ‘punch above its weight’ as coined by Panke (2010) who examined how small EU member states cope with their structural disadvantages connected to their limited size. Small EU states developed several strategies in order to successfully pursue their goals at the EU level including prioritization or expertise (see, for example, Björkdahl, 2008; Haverland and Liefferink, 2012, and Chapter 1 for more details). An interviewee claimed that it is possible to “push through quite a lot” within the EU decision-­making process if a country invests in developing arguments supporting its position (i.e. expertise) and explains how the proposed solution will be beneficial for the whole community (Interview 29). However, the respondent immediately added that even in such cases there exists a power imbalance within the mechanism and the bigger EU countries are usually the main winners. He lamented that “at the end of the day France or Great Britain get much more than the Czech Republic” (Interview 29). This was not a unique statement – such a situation was mentioned by several of the Czech respondents who highlighted the fact that the biggest and the old member states are the ones who “have primary position within decision-­making” (Interview 16). These countries are the most active ones at the working group level and are “better prepared and more active” (Interview 17). Even the Commission was criticized by the Czech respondents for being “big member states’ best friend” (Interview 18), a comment on an argument according to which the Commission to certain degree prioritizes small members (Bunse et al., 2005). A senior official identified factors that he considered to influence member states’ activity within the decision-­mechanism and their ability to push through their proposals. From his perspective, “the experience is that the bigger you are the bigger influence you have and the more people you have in the Commission that can influence something” (Interview 15). This was the Czech evaluation of the situation, although formally, the officials working for the Commission are supposed to be neutral and “their conduct shall never be guided by personal or national interest or political pressure” (European Commission, 2018c: 4). However, the Czechs would like to see more of their nationals in the EU’s institutions including the Commission as they view a link between the number (and also level of seniority) of their nationals working in the EU institutions and the country’s ability to influence what is going on in the Union. The respondents claimed that this strategy had not been very successful and at the time of the interviews there were not as many Czech nationals working for the Union’s institutions as they would like (Interview 16). It has to be noted that there was an overall expectation that the situation would improve with time. Data provided by the European Parliament (2018) shows that almost all CEE members have a higher share of administrators in the Commission compared to

128   Internal challenge the individual country’s share of the overall population of the EU. The only exception is Poland, it is penalized due to its size together with all the other five big countries (i.e. Germany, France, United Kingdom, Italy, Spain). However, these are aggregated data for different levels of seniority within the Commission and therefore are not able to grasp the different imbalances in the workforce caused by the EU’s recruiting policy identified by a more thorough examination. The analysis, conducted by the Commission (2018d), argued that the multidimensional nature of these imbalances do not allow for generalization and different countries are affected at different levels to a different degree (ibid.). Academic research has analysed this issue too and examined the Commission’s effort to achieve ‘representative bureaucracy’ that is based on the idea that “public organizations [should be] representative of the society that they serve” as this may contribute to their legitimacy as well as their performance (Christensen et al., 2017). There have been special recruitment rounds for countries from CEE in order to bring officials from these countries to the EU level and “to ensure that the new member states have a fair level of representation” (ibid.: 823). This system favoured small EU member states, “while clearly penalizing the bigger member states – especially Germany” (ibid.: 825). However, such a strategy had negative consequences as it puts more emphasis on geographic representativeness than on specialist qualifications. These recruitment rounds have therefore focused on entry-­level positions (Gravier, 2013), which contributed to a very low number of senior officials from CEE countries, especially during the first years of these countries’ membership in the EU. Research showed that for officials at the managerial levels from this region “nationality was less important in shaping the values and management style […] than had been expected” and that it was their colleagues from the ‘old member states’ that “harbor[ed] some stereotypes of national differences […] toward all of the newcomers from CEE countries, which, in some cases, shaped their willingness to accept proposals for changes coming from their new managers” (Ban, 2013: 174). Coming back to Czech activities within the EU decision-­making process, the respondents argued that the overwhelming agenda together with the Czech image of a troublemaker also had a negative impact on the country’s ability to push through its energy policy (but also general) agenda at the EU level (Interview 16). While the latter issue is usually connected to a particular situation and is only seldom of a long-­term nature (compare to the Polish image during the first years of its membership; Copsey and Pomorska, 2010), the former was identified as a major issue for several CEE countries in connection to their limited administrative capacities (see, for example, Börzel and Sedelmeier, 2017 or Knill and Tosun, 2009). However, this limitation has not translated into weak performances in all areas. For instance, CEE countries have a very good compliance record that can be explained by pre-­accession conditionality that created “a clear link between compliance and being a deserving and acceptable member state, which makes Europhile governments in these countries more inclined to endeavour to comply well” (Börzel and Sedelmeier, 2017: 212).

Internal challenge   129 These partial issues, according to the respondents, form a much broader and even more fundamental problem of the low coalition potential of the Czech Republic that limits its ability to develop or join like-­minded groups at the EU level. The interviewee argued that the key to a more successful presence within the EU decision-­making process is an improvement in their ability to create alliances within the mechanism (Interview 17). Coalition-­building has been identified by the literature to play an important role within the EU decision-­making process, especially after the eastern enlargement (see Mattila, 2009 or Uilenreef, 2016) as the high number of participants makes preparation in like-­minded groups crucially important for success during negotiations. However, the Czech Republic is a member of only a couple of permanent like-­minded groups (for example, during the period when interviews were conducted, the country was a member of a group focusing on internal market issues), which limits its activity at the EU level. When it comes to energy policy, the engagement of the Czech Republic in like-­minded groups is even more limited. Similarly to the Slovak case, Germany was also mentioned by the Czech representatives as a difficult partner at a bilateral as well as a multilateral level within the EU. The relationship between these two countries is even closer than that with Slovakia for historical, as well as geographical reasons (Tampke, 2003). Czech foreign policy strategy lists Germany as the second most important foreign policy partner after Slovakia, however, it is the former that “presents the key partner of the Czech Republic given the economic interconnectivity of both countries as well as the importance of this country for the EU, world economy, and in a growing extend also for international security” (Ministry of Foreign Affairs, 2015: 12). Together with Great Britain, Germany used to be the key Czech partner in the nuclear energy area at the EU level, however, the German position towards this type of energy has changed after the Fukushima nuclear accident (Bernardi, et al., 2018; see also the previous section). Moreover, this group, according to the interviewees, in most cases only reacted to initiatives aimed at restricting the use of nuclear energy in the EU and did not actively propose its own ideas in this area (Interview 22). This group was therefore not considered to be very successful. The current situation is very different and the close proximity of the Czech Republic to Germany even has negative consequences for the Czech nuclear energy sector not only at the EU level, but also domestically. As argued by Osička and Černoch, “[b]eing firmly entangled with the German market, which is governed by an anti-­nuclear energy policy, the ability of the Czech decision-­makers to push an independent, pro-­nuclear policy is questioned” (2017: 12). However, nuclear energy is very important for the country as it is perceived through a prism of energy security (Interview 18). The problematic nature of their relationship with Germany was also mentioned in connection to several other issues in the energy policy area and we therefore claim that although at the general level the Czech representatives perceive the internal challenge in terms of capability, when it comes to relations with Germany, these are viewed more often through a prism of vulnerability. The respondents claimed that they had difficulties in persuading Germany to

130   Internal challenge help them solve problems that had to be dealt with in mutual cooperation. For example, although the Czech Republic currently supports the Nord Stream 2 pipeline, the position towards the development of this infrastructural project as well as its first phase (Nord Stream 1) has undergone changes. The Czechs, at first, claimed that the Nord Stream pipeline is not in line with the solidarity principles enshrined within the Lisbon Treaty and argued that in spite of German claims that the pipeline will have a positive effect on the energy security of the whole EU, its main goal was to support only German energy security (Interview 17). However, as the previous section of this chapter discusses in detail, the Czechs managed to connect their gas infrastructure to the Nord Stream pipeline via the interconnectors, Gazelle and OPAL, which supported their efforts to increase transit through their territory considered to be a crucial part of their energy security strategy. The Czech Republic is also facing problems persuading its partners about the advantages of the solutions it proposes within its immediate neighbourhood. Besides the above-­mentioned BACI project that was problematic for some domestic actors as well (E15.cz, 2018), the main disagreement with other Visegrad group partners was connected to the Czech support of the Nord Stream 2 project. Polish opposition to this pipeline resulted in a revision of the Stork 2 pipeline that was supposed to improve interconnectivity with the Czech Republic. The pipeline was included among all three lists of Projects of Common Interest that were published until the end of 2018, although the grants from the Connecting Europe Facility were supposed to cover only the preparatory phase, as no final investment decision was taken until the end of 2018. The Polish support for this pipeline started to diminish in 2016 when Poles began to see the pipeline as a possible carrier of Russian gas from the Nord Stream which they strongly oppose (Oravcová and Mišík, 2018). The problematic nature of Czech relations with Germany is not limited to the natural gas sector. Loop and transit flows of electricity are an even more visible problem in the Czech case than in the Slovak one. Czechs, unable to persuade their German counterparts to change their policies that would decrease the pressure on neighbouring countries’ electricity grids, were forced to make upgrades to their infrastructure to prevent the negative consequences of the situation (ČEPS, 2017). According to the interviewees, German partners were not interested in an active approach towards the problem and bilateral (and later also multilateral) negotiations did not influence the situation in a positive way (Interview 20). Moreover, some of the respondents argued that when the affected countries (including the Czech Republic) brought this issue to the EU level, Germany demanded special treatment by the Commission, which was perceived in a very negative way by these countries.

Austria’s strong position within the EU decision-­making process The position of Austrian decision-­makers concerning the internal challenge is very similar to their position towards the external challenge, as the country’s

Internal challenge   131 representatives believe that their country is able to pursue its preferences concerning partial energy policy issues at the EU level without significant problems. A capability to deal with the internal challenge is thus the dominant perception of the Austrian decision-­makers, which differentiates them from the previous two cases discussed in this chapter. According to the interviewees, such capability stems from the Austrian approach towards the negotiations at the EU level that is in line with the nature of the decision-­making process and their ability to utilize opportunities the mechanism provides. Moreover, the Austrian representatives involved in the EU decision-­making engage in a learning process that allows them to utilize past experience, which enables them to easily adapt to new conditions and to know the limits and red-­lines of other actors involved in the process. At the bilateral level, for Austria also, Germany is their main partner within the EU in general and in energy policy in particular, although the respondents also expressed critical remarks towards their big neighbour. For Austrians, the EU level is crucial for the development of energy policy. As explained by a representative from the regulator, “as soon as a piece of European legislation [is adopted], there is a little bit possibility to manoeuvre when it comes to the interpretation of directives” (Interview 24). Austrians are therefore trying to influence the form of new rules as soon as possible. The interviewees viewed the key to success within the EU decision-­making process to be in the acknowledgement and understanding of its complexity, as well as in the diversity of member states’ positions and preferences. It has been argued that not only the positions of member states but also the institutional settings can influence the results of the decision-­making process (Lewis, 2010). The ability of a member state to utilize the opportunities this environment provides enables it to better push through its preferences. Similarly, the knowledge of the limits of an existing institutional setting has favourable consequences for a country’s activities and success within the process. Austrians acknowledge these fundamental characteristics of the mechanism and they have learnt that it is possible to “work only on small steps” while the goal of negotiations has to be “the smallest common denominator” among the member states (Interview 25). They have adjusted their approach towards the negotiations to reflect such an environment, which enabled them to achieve positive results not only within the energy area, but also in a broader perspective. Focusing on specific areas where a small country has expert knowledge has been shown to positively influence a country’s ability to push through its preferences at the EU level. Examining the development of the Economic and Monetary Union (EMU) Maes and Verdun argued that the Netherlands and Belgium played an important role in this process as they – in spite of different preferences among themselves – managed to utilize a set of tools that enabled them to push the process “at a time when EMU was losing momentum” (2005: 345). Although the biggest EU members still played the dominant role in the process of the EMU creation, the two small EU countries were crucial in keeping the ideas alive during challenging periods. This does not mean that Austrians are not aware of certain limitations. As explained by an interviewee, size does matter when cooperating with other

132   Internal challenge member states: “negotiating as a small country with a big country is not good. You are always in a weaker position” (Interview 24). Austrians therefore engage in strategies that enable them to influence the EU decision-­making process to such a degree that they consider it to be in line with their goals. A respondent claimed that at the end of the day what is decisive is “the quality of arguments” (Interview 37). Therefore, the country’s representatives engage in a learning process that supports their position within the mechanism and improves their ability to push through their ideas in energy, but also in other areas. During the energy liberalization process (see Chapter 3) Austrians utilized their experience from a similar process in the telecommunication sector that happened during the 1990s (Eliassen et al., 1999a) and therefore partly coincided with the development of the first liberalization energy package. Because in both sectors the liberalization principles, as well as the issues, were very similar (both sectors depend on infrastructural networks, etc.) the member states’ positions towards the main questions connected to these two processes were to a significant degree very similar, in some cases even identical. For instance, the existence of ‘national champions’ was a characteristic feature of both sectors before liberalization introduced competition on national markets and there were supporters as well as opponents of telecommunication liberalization among member states (Eliassen et al., 1999b). Both groups – supporters as well as opponents of liberalization – had similar positions in several areas that underwent liberalization at the end of the 1980s and beginning of the 1990s. Austrian representatives utilized their experience from the process of telecommunication liberalization that enabled them to learn about other countries’ priorities as well as their positions towards liberalization in general. They used this knowledge later on when conducting negotiations in connection to the energy market liberalization. Their knowledge of other countries’ preferences and especially their ‘red lines’ enabled Austrians to formulate their energy liberalization preference within existing boundaries as well as to pursue them more effectively at the EU level (Interview 36). Such a learning process facilitated Austria’s position as a successful negotiator and helped it to achieve its goals within the Union’s decision-­making process. Knowledge gained during the telecommunication liberalization process allowed Austrians to be an active participant in the energy market liberalization process, to develop a position more acceptable to other member states, to join a like-­minded group and to play a vital role in it. Existing literature claims that policy learning is an important part of the negotiation itself because after receiving complex information on an issue from the multiple stakeholders involved in the process, member states can actually change their positions. Eising argues that in the case of the first round of the electricity market liberalization, “learning processes in the course of EU negotiations led to a preference change in favor of liberalization” (2002: 97). Some member countries changed their original negative position towards the Commission’s proposal once they were informed about the reasons behind the Commission’s approach. Another factor influencing a country’s position within the EU decision-­making process that is repeatedly stressed, is seniority – i.e. the length of membership. It is

Internal challenge   133 closely connected to learning, as the experience is gained while being a member state, which leads some authors to operationalize experience in terms of seniority. Leuffen et al. claim that “administrative experience, as captured by the duration of EU membership, seems to have an impact on salience formulation” (2014: 629). Therefore they claim that the CEE countries, and especially those among them that joined last (i.e. Bulgaria and Romania at the time of writing of that paper), have lower levels of salience compared to other EU states that joined sooner and are, therefore, more experienced. The latter group also includes Austria, although the difference in the number of years of membership is actually not so significant – Austria joined the EU in 1995, only nine years before countries from Central and Eastern Europe. Although Austria is very interested in long-­term cooperation within like-­ minded groups, it also supports collaboration within short-­term ad hoc groups in order to increase its chances of reaching its goals within the EU (Interview 24). According to the Austrian interviewees, the country does not have any stable partners because “every country is so different, especially in energy questions” (Interview 27). Therefore, Austrian cooperation with other member states is based on bilateral relations or on ad hoc groups that are formed with an aim to solve particular problems. Similarly to the multilateral level within the EU decision-­making process, Austrian representatives also view cooperation with member countries at the bilateral level in pragmatic terms. Austrian interest in cooperation stems from the attitude that “a small country cannot really succeed with a standing-­alone strategy” (Interview 24). Such an attitude is in line with existing research that highlights the importance of cooperation for small states’ ability to achieve their goals within the EU, but also at the global level (Steinmetz and Wivel, 2010). The most important partner for Austria in the energy policy area – but also in many other policies – is Germany. According to an official from the Austrian ministry responsible for energy policy (see Chapter 6 for more details), German counterparts are the first ones to be consulted during discussions at the EU level. This is done “out of convenience” (Interview 38) that is given by shared preferences in connection to many energy policy issues. The interviewees claimed that such convenience is not connected to the common language and that it stems from the approachability of the German representatives (Interview 37). In spite of this, the relationship between Austria and Germany is not frictionless. Some of the respondents lamented that many EU member states are not interested in goals and solutions that would have a strong positive pan-­European impact, but that they are pushing through their own national interests at the EU level. They mentioned Germany as the prime example of such behaviour. When it comes to the energy area, interviewees mentioned the Nord Stream pipeline that is used by the Germans to “tap directly into the Russian market” (Interview 41). Such an approach guarantees Germany – from an Austrian perspective – an advantageous position within the EU at the expense of many other members of the Union. By circumventing several member states and connecting the Russian Federation directly to Germany, the pipeline decreases the energy security of many EU

134   Internal challenge countries while supporting only German energy security. This was considered by the interviewees not to be a “very European way of thinking. It is rather business or national way of thinking” (Interview 41). However, according to an Austrian expert, such laments are not very appropriate as the country itself follows such ‘selfish’ logic. In his words, Austria is “going to look for [its] own advantages” whenever it can, like any other EU country (Interview 42). A good example of this Austrian approach is the already mentioned BACI pipeline or loop and transit flows of electricity in Central and Eastern Europe. Austria currently supports also the Nord Stream 2 pipeline (see Chapter 4), arguing that it is a strictly commercial project. Contrary to the Czech Republic that supports this pipeline at the political level, but is not directly involved in its development (although indirectly it is), Austrian’s OMV is one of five European companies that are directly involved in the project (together with Germany’s Uniper and Wintershall, France’s Engie and the Netherland’s Royal Dutch Shell). Austrian Chancellor Sebastian Kurz even assured Russian president Vladimir Putin at the end of 2018 that “European countries, participating in this project, support it” (Reuters, 2018). Together with the French and German governments Austria argues “that Nord Stream 2 would enhance the EU’s energy security by increasing the capacity of a direct supply route” (Belkin et al., 2018: 1) from the Russian Federation to an EU member state. A similar argument has also been used in connection to the BACI pipeline (see the previous section on the Czech Republic) that has been supported by Austrians due to its proclaimed positive effect on energy security of the region (Gasconnect, 2018). Both pipelines indicate Austrian support of projects that the country and its representatives consider important for domestic reasons in spite of the negative position of other European stakeholders towards these. It is claimed here that this is connected to the Austrian’s perception of an ability to cope with energy challenges at the EU level as the country has developed a set of tools to successfully deal with energy issues within a multilateral, as well as a bilateral setting. The development surrounding the transit and loop flow of electricity further illustrates the Austrian view of its position within the region. Moreover, it shows the perception of the country’s ability to deal with energy related issues within the EU on its own, respectively in cooperation with like-­minded countries, in spite of strong opposition from other EU members. Austria does not support the development of strong common EU rules as these could limit its ability to develop specific energy policies and relations with other member countries. The country cooperates with Germany especially in the electricity area. The two countries, together with Luxembourg, created a common power zone (often referred to as the German-­Austrian bidding zone) in 2002 (Blume-­Werry et al., 2017). The zone was split into several parts in late 2018 after pressure from Central and Eastern European countries and European authorities. However, Austria as well as Germany resisted pressure for several years as the common bidding zone presented for both countries a way to deal with their domestic energy issues. The main reason for Austrian support of the common power zone was that it enabled the country to import electricity from Germany that was cheaper than electricity produced domestically (Interview 25). Moreover, the

Internal challenge   135 situation was mutually beneficial as Germany was able to export its electricity surplus. From an Austrian perspective, the splitting of the bidding zone was not an appropriate solution as it went against the logic of the internal energy market. As noted by a respondent, “we are working on integration of the market, not on disintegration” (Interviewee 41). The solution to this situation, presented by the Austrian interviewees, was further development of the internal energy market, as its existing limits, together with under-­developed infrastructure, were blamed for the technical problems in the neighbouring countries (Interview 35).

Conclusion This chapter examined the ability of the three studied small EU member states to deal with the internal energy challenge that concerns their activity within the EU, its decision-­making process as well as within bilateral relations with other member countries. Small states are facing several limitations in connection to their size (for example, Grimaud, 2018; Jazbec, 2001) and they are developing different strategies in order to overcome these and play an active role within the EU (Panke, 2010, 2011). This chapter studied how Austria, the Czech Republic and Slovakia pursue their energy related goals at the EU level, how their representatives view their countries’ position within the EU decision-­making mechanism and how they are trying to make their voices louder – i.e. what kind of strategies these countries employ at the EU level. It identified differences among the examined countries, similar to those identified in the previous chapter. The main distinction from Chapter 4 was found in the case of the Czech Republic, whose decision-­makers perceive their country in terms of limited ability when it comes to the internal challenge, but in terms of ability in the external challenge. The Slovak dominant perception was one of vulnerability, while Austrian representatives viewed their country as being able to deal with challenges within the EU (i.e. perception of ability). The perception to cope with the internal challenge was thus in the Austrian and Slovak cases similar to the external one. The perception of Slovak decision-­makers has been one of rather passive observers. Similarly to the external challenge where they consider their country to be a passive observer of relations between the Russian Federation and Ukraine, within the EU decision-­making process Slovak representatives also view their country’s potential to influence internal mechanisms only to a limited degree. One of the main boosts in this area was the presidency of the Council of the EU in 2016 that helped the country to better get to know the informal structures of the EU institutions and gain tools to influence these. Czech representatives also see limits to their active engagement at the EU level connected especially to their limited administrative capacity and shorter membership within the EU that hasn’t allowed them to develop a strong network within the EU institutions. As a result, it is mostly the big member states that have been in the EU for a long time (especially the founding ones) that have the main say and are considered by the Czech interviewees to be the main ‘winners’ of the decision-­making process. Austria’s position is very different – although the Austrian interviewees recognized certain limits to their

136   Internal challenge activities at the EU level, they considered these limits to be the same for all member states, not specific to them or small states. In order to overcome these limitations, all three countries employ different strategies that help them to be more successful at influencing the EU decision-­ making mechanism. However, the strategies differ and so does the perception of an individual country’s ability to utilize them. Slovakia is trying to develop compromises within the decision-­making process that would not be too distant from the country’s ideal solution. Moreover, the country cooperates with other member states, for example with France or Germany. However, especially the latter is a challenging partner at the EU level. Germany was also criticized by the other two examined countries for not always behaving in a ‘European way’, by pushing through its own preferences masked as an EU-­wide solution. Czech strategies focus on administrative capacity improvements and bringing more nationals to the EU institutions, which is perceived as an important factor of a member state’s success within the Union, in spite of the fact that primary loyalty of the officials in EU institutions like the Commission should be with the EU and not the member states from which they come (European Commission, 2018c). Austrian strategies to improve their negotiation potential within the EU are linked to their negotiations model that is based on finding a common position among the parties, no matter how small. In order to be able to do this, the country and its representatives utilize experience gained during other negotiations within the EU institutions. This learning process allows Austrians to gain an insight into other partners’ positions and priorities, but also their red lines when it comes to the main integration issues that are transferable within different policy agendas (like their general position towards liberalization that is applicable to many policies that are undergoing a liberalization process). This enables Austrians to develop positions and suggestions, accepting existing limitations, which makes them more acceptable for other partners within the EU decision-­making mechanism. Germany is considered by respondents from all three countries to be their most important EU partner. The relationship is, however, quite problematic and even Austria, a long-­term German ally criticizes its big neighbour for behaving in a too dominant way. The Czech and Slovak interviewees mentioned Germany in this context a lot too, especially in relation to German attitudes towards regional problems like Nord Stream 2 in the natural gas sector or loop and transit flows in the electricity sector. The country is perceived as difficult to talk to outside of issues that are important for Germany itself. In spite of this, the importance of Germany as the main partner within the EU for all three countries has been repeatedly stressed by out interviewees.

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6 Business challenge

This chapter examines the relations between small EU member states and the energy companies operating on their territory. The idea behind this challenge is that energy security in general and external energy security in particular depends not only on relations between member states and their external energy providers or the ability of member states to influence the decision-­making process at the EU level, but also on the relations with energy companies that are actually the actors that supply end customers with natural gas (energy in general). They buy the gas from suppliers (exporters) and deliver it to customers; before the liberalization process these companies were also distributing gas, after unbundling, the distribution became the responsibility of a separate company. Energy companies thus play a crucial role in energy policy and energy security. The theoretical model utilized in this book develops an argument that the mutual relationship between energy businesses and small EU member states – together with the other two factors discussed in the previous analytical chapters – influences the position of the latter towards external energy policy integration within the EU. This relationship can be a complicated and demanding, as energy companies are usually very big, often multinational in nature and therefore present a strong partner for national governments. In spite of the fact that liberalization of the EU energy market has created a common market with free competition, individual national markets are still dominated, in most cases, by a small number of prevailing energy companies. Eurostat data supports this argument in the case of the natural gas sector of the examined countries, but also other small states (Eurostat, 2018). Although there are 64 natural gas suppliers in Austria, 98 in the Czech Republic and 25 in Slovakia, the number of those that have more than a 5 per cent share of the market (i.e. sell at least 5 per cent of the total national natural gas consumption, in which case Eurostat defines them as a ‘main retailer’) is much smaller: three in case of Austria and Slovakia, and seven in the Czech Republic. There are three EU members (all can be considered small) that have only one main gas retailer – Estonia, Latvia and Finland. The average number of main natural gas retailers within the EU’s member states is 3.5 (ibid.). Moreover, there is usually one major company among the ‘main retailers’ that can be considered to be the key partner of the government in a given energy sector. The dominant position of the

142   Business challenge largest natural gas retailer has decreased in Slovakia from having a 96.4 per cent share in 2007 (before liberalization) to a 55.5 per cent share in 2016. The main Czech supplier had a 35 per cent share in 2016 while the figure has fluctuated between 13.1 and 64.9 since 2007. The latest available data (Eurostat, 2018) for Austria are from 2010 with the main company having a 43 per cent share of the market. So, while due to liberalization national governments have more than one company as their partner within the energy security discussion, the overall number of main natural gas providers is still rather low, usually with one company having a dominant position. Even in cases when these companies are fully or partly owned by the governments (which is actually the case in the majority of the main energy companies), the relationship between these two actors does not need to be straightforward and advantageous for the small countries. Energy companies do not automatically have to comply – even in this case – with the state’s energy policy (including external energy security) and the mutual relations do not have to be perceived as beneficial. As this chapter shows, the position of energy companies can be even contradictory to those of governments, and governments can adjust their preferences based on the energy companies’ position and not vice versa. This chapter develops an argument that the perceived ability of a small member state to successfully deal with the energy businesses operating on its territory (i.e. the ability to find mutually beneficial solutions to issues connected to external energy security) also determines, together with the two previous energy challenges, the state’s position towards deepening of European integration in external energy security. Small states with mutually beneficial relations with the main energy companies operating on their territory do not support the transfer of competences to the EU level, as they are able to increase their external energy security by cooperating with these companies. On the other hand, in a situation when representatives of a small EU member state do not consider relations with the main energy companies as beneficial, they support deepening of integration in external energy security as a way of improving their position towards these. Common rules at the EU level would provide tools for individual member states to more successfully negotiate with energy companies, as they would provide a strong backing by the whole community. This chapter analyses relationships between the selected small EU member states and the main energy companies in the natural gas sector (OMV, innogy, SPP; but also others) to further strengthen its central argument about the importance of this factor. It examines the challenging nature of this relationship in the Czech and Slovak cases and a mutually advantageous perception of the cooperation in the case of Austria. One issue that was specific when carrying out research on this challenge was that the attitude of many of the respondents towards this topic differed from that in the other two challenges. While the discussion on challenges in bilateral relations with third countries and within the EU was open and mostly without ‘no-­ comment’ issues, the situation was different when discussing relations with energy companies. Austria was an exception in the external energy area as there

Business challenge   143 are “officially no problems with Russia” (Interview 36), a position that is supported by strong formal, but also informal ties between the Austrian public administration and the Russian government and companies. This, however, can create problems for research, as such an approach can be a source of bias. The discussion on the relationship with other member states and with EU institutions was especially open. When it comes to issues connected to the business challenge, the interviewees often did not want to go into details about individual companies and their relations with their governments for different reasons (including the confidential nature of trade deals), and therefore the interviewees often spoke at a more general level. This did not negatively influence the interviews or the ability of the research to collect appropriate empirical data, as the data can still be used to analyse the ability of governments to negotiate with energy companies. This has to be, however, done at a more general level and the analysis has to cover companies from different energy sectors at the same time. The analysis emphasizes the natural gas sector, however, only to the degree allowed by the data. It is not considered that this presents any significant limitation to the ability of the research to provide data necessary for the analysis, as data commenting on the relationship between the government and energy companies in sectors other than natural gas can also provide us with an insight into the ability of governments to negotiate with energy companies.

Slovakia’s positive approach towards energy companies This section argues that the position of the Slovak government towards energy companies operating within its territory is perceived by the decision-­makers in terms of vulnerability. Although at the general level most of the interviewees claimed that the relations with the main energy companies are balanced and mutually advantageous, discussion about the details of this relation unveiled a situation that can be seen as more advantageous for energy businesses, with the government’s preferences having secondary priority. Indeed, the respondents saw the creation of a favourable environment for energy businesses as one of the main objectives of the government. The experience of several interviewees from different governmental bodies (especially the Ministry of Economy) of the negotiation processes with energy companies document this claim. This section shows how this unbalanced relationship translates into positions that reflect more of the interests of the energy business than the needs of the government, stemming from long-­term strategic planning. At a more general level, cooperation between the central government and the energy companies is considered by the Slovak respondents to be based on equality between the partners and therefore is viewed as mutually fruitful. The Ministry of Economy of the Slovak Republic that deals with energy policy, regularly approaches energy businesses to discuss new proposals developed at the EU level or within the country (usually within the ministry, but also in other institutions). The ministry’s goal is to get alternative information from different stakeholders (not only energy companies, but also producer’s associations, etc.) on

144   Business challenge new rules proposed at the Union level in order to prepare a more complex reaction that would better reflect the position of different actors involved in Slovak energy policy. According to one interviewee, during this process both the government and the energy business know each other well enough to be able to evaluate the ability to reach an agreement and to provide positions that allow a compromise solution to be reached (Interview 7). The main aim of these consultations is to get to know the positions of individual actors and to provide a solution with which all involved parties would be satisfied. However, the energy business is usually in a more advantageous position as the ministry is aiming to accommodate the requirements of the business whenever it is possible. As explained by one respondent, the opinion of the ministry is often in line with the position of energy companies when developing positions for the negotiations at the EU level. He put it quite bluntly when he claimed that “[w]hat [the energy firms] send us is also the Slovak position” (Interview 10). Such an evaluation of the mutual negotiations sees the interests of the energy business having a priority over the country’s position. This approach is, however, not specific for the country’s position when preparing for negotiation at the EU level – according to interviewees, a similar mechanism is also in place when it comes to the development of energy policy at the domestic level. Although in most cases energy businesses prepare well-­developed arguments as to why their position towards an issue should be taken into consideration during the preparation of a negotiation position or a legislative proposal, this is not always the case. Sometimes the requirement to amend the governmental position or alter legislative proposals presented by energy companies are not supported by complex arguments. In some specific cases, no arguments were needed to influence the position of the ministry. An experience of a senior official at the Ministry of Economy of the Slovak Republic illustrates this point very well. During the preparation phase of new energy legislation a request from an energy firm arrived asking to change several provisions in the draft. The Ministry did its best to understand these requirements, engaged in a discussion about proposed changes and included them into the final draft. However, after some time, the same energy company approached the Ministry with a request to withdraw the changes. The Ministry returned to the original form of the draft without even knowing the details as these were not provided by the energy company. (Interview 7) Moreover, several of the interviewees claimed that the main energy companies, in which the state owns shares, leaves the government outside of its strategic decision that directly concerns the whole company, not only one group of shareholders. SPP, Slovakia’s ‘energy major’ in the natural gas sector that has the biggest share of the gas market, can be considered to be a prime example of the complex and unbalanced relationship between the central government and an energy company operating in Slovakia. Although the situation changed after

Business challenge   145 2014 when 100 per cent of the company’s shares came under the ownership of the Slovak government, the transaction itself as well as the relationship with company subsidiaries (especially the transit company eustream, the Slovak transmission system operator – TSO) still support the claim that there is an imbalance in the relations between the Slovak government and energy companies in favour of the latter. SPP used to be a vertically integrated state-­owned gas company until 2002 when it underwent a process of privatization that was typical of Central and Eastern Europe during the 1990s and beginning of the 2000s (see LaBelle, 2009 for an energy sector related discussion, and Meyer and Peng, 2005 for a broader economic perspective). During the privatization process, 49 per cent of the company’s shares were sold to a consortium consisting of German E.ON Ruhrgas and Gaz de France Suez (currently engie) (National Council of the SR, 2007). Gazprom was part of this consortium during the preparatory phase of the privatization process that made the official offer to the Slovak government. However, it later left the consortium and did not participate in the final deal. Although E.ON Ruhrgas and Gaz de France Suez became minority shareholders of SPP, they effectively gained control over the company as they were given a majority on the executive board. This has proven to be the crucial factor influencing the relationship with the government as the majority shareholder, as is discussed below. The second most important change in the Slovak natural gas market was brought about by energy market liberalization within the EU that caused the partition of this ‘energy major’ according to rules brought by the energy liberalization packages (Herweg, 2017). SPP underwent unbundling in 2007 which resulted in the creation of three separate companies responsible for trade (SPP), distribution (SPP-­Distribúcia) and transmission (eustream) of natural gas (Government of the Slovak Republic, 2007). Energetický a průmyslový holding (EPH), a European company that focuses on the energy sector and currently has assets in several European countries (EPH, 2018), bought shares in SPP from E. ON Ruhrgas and Gaz de France Suez in 2012 (Hirman, 2015). As part of this process, the government gained full control (100 per cent of shares) of SPP trade company supplying end customers, a process that was finalized in 2014 after two years of negotiations. The Slovak government blamed the original minority owners of SPP for the high price of natural gas for households and considered complete ownership of the company to be a way to keep the prices at what it considered to be an appropriate level (etrend, 2012). EPH gained access to 49 per cent (and control over) the two subsidies – SPP-­Distribúcia, a gas distribution company and eustrem, the Slovak TSO. The relationship between the minority shareholders E.ON Ruhrgas and Gaz de France Suez was considered by Slovak interviewees to be problematic and unbalanced, creating a perception of vulnerability. These companies had full control over SPP and, according to respondents, they often made decisions ‘back home’ at their respective headquarters in the countries of their origin (i.e. in Germany and France). Similarly, Enel, a majority owner of partly state-­owned electricity company Slovenské elektrárne, “decides in Rome and not in Slovakia”

146   Business challenge (Interview 5). As a consequence, the Slovak government had no influence over decisions made in this way and was left out of the decision-­making process. A former high-­ranking official at the Ministry of Economy while describing this situation went so far as to claim that “[m]y personal experience is that in general we are independent in the sense that nothing depends on us” (Interview 11). Such a situation concerned not only decisions about the development of the company, but also those connected to relations with the suppliers. The company’s management negotiated with external gas suppliers (Gazprom Export) without the involvement of the Slovak government in the process. The respondents recalled a situation when Gaz de France Suez and E.ON Ruhrgas negotiated a new long-­term gas contract with Gazprom without participation of the Slovak government as a majority shareholder. This opened doors to speculations about how beneficial such a deal was for the Slovak company and whether the parent companies made a trade-­off to improve their own conditions ‘back home’ (Interview 11). An uneven relationship between SPP and the government is also illustrated by a situation from 2014 when the government was concluding the negotiations of transfer of the shares from EPH. One of the conditions of the takeover was a renewal of the long-­term contract with Gazprom Export and the revision of the gas price. The Slovak government wanted to decrease the price of gas, however, SPP was already creating debt due to low profit margins and high costs (energia, 2013). Although the Slovak government was at that time a majority shareholder that was negotiating the purchase of the rest of the company, the Ministry of Economy did not have a central position in the process of price negotiations with the supplier and was informed only to a limited degree. After the negotiations between SPP and Gazprom Export were concluded, the ministry claimed that the contract was “signed by two commercial companies” and the government as a shareholder “was informed” (etrend, 2014). Such a position of the ministry would suggest an unbalanced relationship with the main energy company. Although the government’s position with SPP has improved as it became the owner of 100 per cent of the company’s shares, the relationship with one of SPP’s former subsidiaries, only partly owned by the government, still shows unbalanced relations. Eustream, a company that is responsible for the transit of gas through Slovak territory (it is the country’s TSO), is facing a problem in the form of decreased transit from Russia to Europe via Ukraine due to disputes between these two actors and the development of alternative routes like Nord Stream 1 and 2. Moreover, the unclear future of the Ukrainian transit route after termination of the current contract between Gazprom and Naftogaz Ukrainy (Sharples, 2018) also presents a significant unknown variable for Slovak transmission as it is a part of the Brotherhood natural gas transmission system. As argued in Chapter 4 the Slovak TSO proposed the Eastring pipeline as a solution to this situation, which was supported by the government as well as the EU via the PCI list (Eastring, 2018). However, an analysis examining this pipeline in detail (Mišík and Nosko, 2017) argues that the energy security aspect of the project highlighted by its supporters, including the Slovak government, could be

Business challenge   147 not as important as it is claimed and an effort to guarantee maximum utilization of the transmission capacity for commercial purposes could be the main purpose of the pipeline. Challenging relations with energy businesses do not only materialize in the ways described above. The Bratislava–Schwechat Pipeline, a planned oil interconnector that is supposed to connect Austria with Slovakia, illustrates a different situation; one in which the government supports the development of a new infrastructure in spite of opposition from the main energy company in this sector. As explained by an interviewee, Slovnaft, the only refinery operating in Slovakia and owned by Hungarian MOL heavily criticized the suggested pipeline backed by the Slovak government (Interview 6). The pipeline has been developed by Slovak Transpetrol (fully owned by the Slovak government) and Austrian OMV since 2003, however, there has been a strong opposition by the public, as well as representatives of the Slovak capital, as the pipeline route crosses densely populated areas (Global Legal Group, 2018). The development of the pipeline hasn’t been accelerated in spite of the inclusion of the project into all three PCI lists (European Commission, 2018). The disagreement between the government and the main oil company continues (etrend, 2013) with the former restarting the project at the end of 2017 (Government of the Slovak Republic, 2017). Such strong disagreement between an energy company and the central government provides further support to the claim about the overall perception of the low ability of the Slovak Republic to deal with the business challenge.

Vulnerable Czech position The position of the Czech Republic in the business challenge is very similar to the Slovak one, as the Czech decision-­makers perceive their country’s ability to negotiate with energy businesses dominantly through a prism of vulnerability. At a general level, the relations are considered to be good and mutually fruitful, however, a closer look reveals that they are perceived to be single-­sided with the government being in a disadvantageous position when negotiating with energy companies operating on the Czech territory. During interviews, the respondents repeatedly stressed that the role of the government (especially the Ministry of Industry and Trade) is to develop a suitable environment for the companies functioning within their energy market. Such claim, often stressed also by the Slovak decision-­makers, locates the central government not to a position of an active rule giver, but to a position of a passive actor with only limited ability to pursue its own priorities. The main natural gas company in the Czech Republic is innogy (renamed from RWE Transgas in 2016) that has the biggest share of the market (iHned, 2018). The company is fully in private hands (innogy Česká republika, 2018) after privatization at the very beginning of the 2000s that foreshadowed significant changes in the whole sector. Germany based multinational energy company RWE (Rheinisch-­Westfälisches Elektrizitätswerk) commenced its business in the Czech Republic in 2001 when it bought shares in the Transgas

148   Business challenge company together with shares in several small regional distribution companies during this privatization wave. RWE gained access to 97 per cent of the Transgas shares and the company was renamed to RWE Transgas in 2005 after finalization of the privatization deal. At this point in time the company was still vertically integrated and had a monopolistic position within the Czech gas market. Unbundling started with separation of transmission operations from RWE Transgas (‘energy major’) and the creation of RWE Transgas Net that was later renamed to Net4Gas. Similarly to other EU countries, the liberalization process started in 2005, and since 2007 all Czech customers, including households, are able to choose their supplier of natural gas. Until then, RWE Transgas was a monopolistic supplier and trader of natural gas in the Czech Republic (Ministry of Industry and Trade, 2014). However, compared to the other two examined small states, the Czech natural gas market is more fragmented with a higher number of ‘main retailers’ (Eurostat, 2018; see also the introduction to this chapter). In spite of this, innogy can be considered to be the main player on the Czech gas market. Innogy is currently also the main supplier of gas to the Czech Republic (via its subsidies) and has a long-­term contract with Gazprom valid until 2035 (Jirušek and Kuchyňková, 2018). The only other company that imports gas to the country is VEMEX, the majority of which is owned by the German subsidiary of Gazprom (ibid.). Another crucial Czech energy market participant is ČEZ (České energetické závody), a partially state-­owned joint-­stock company that is predominantly active in the electricity sector, however, as with many other energy companies, it is also active in natural gas market. Almost 70 per cent of the company is owned by the government, the rest is owned by small investors (ČEZ, 2018). The state has been reluctant to sell its shares in the company (Buzar, 2007). In spite of such an important position of the Czech state in the shareholders structure, the research presented in this book indicates that the relationship between these two actors is not mutually beneficial. Anecdotal ‘evidence’ illustrating this point can be found in the pun, ‘ČEZ Republic’, which highlights the influence of this company on the country and its government. Indeed, this ‘energy major’ plays an important role in the development of the Czech energy market. Commenting on its influence on the development of the domestic energy policy, Osička and Černoch (2017) claim that the position of ČEZ is crucial for further expansion of Czech nuclear policy. They argue that the most important factors influencing the future development of the policy “seem to be the sheer amount of nuclear industry insiders […] as well as the vested interests of the influential state-­owned company ČEZ, the business model on which the survival of nuclear energy depends in the country” (ibid.: 12). Moreover, ČEZ belongs among companies that got an exemption from a law that requires all (at least partly) state-­owned companies to publish all contracts over a specific amount in order to increase transparency in public finances (iDnes, 2018). The role of the central government and especially the Ministry of Industry and Trade of the Czech Republic that has energy policy among its main competences, in relation to energy businesses was described by interviewees in a way

Business challenge   149 similar to the above examined Slovak case. According to the respondents, there is a fruitful discussion between these two actors shaping the energy market as they both engage in information sharing and together consult new energy policy related proposals (Interview 17). The ministry “listens carefully to energy companies” (Interview 21). In a nutshell, the role of the government, according to the interviewees, is to make sure that the business environment within the country is suitable for energy companies. A senior official from the ministry claimed that “we are here not for ourselves” (Interview 15), stressing the fact that the ministry does not create rules for its own sake, but to develop conditions as suitable as possible for the market participants. This has been named as the primary objective of the Ministry of Industry and Trade also by another interviewee from this institution (Interview 18). In the words of a senior official, the ministry is “trying to satisfy most subjects” that are involved in the energy market in the Czech Republic (Interview 14). In order to achieve this, the ministry carefully examines the positions presented by energy companies and tries to be reflective towards their needs when developing its own positions. Such an approach indicates an uneven relationship between energy companies and the government that is skewed in favour of the former. This situation was also confirmed by other representatives of Czech institutions that viewed the position of the state as weaker compared to energy businesses. One senior interviewee from the Ministry of Industry and Trade even went so far as to claim that the mutual relations are “too good” with the government often going into great lengths to accommodate the requirements presented by energy companies (Interview 52). According to him, such an approach is chosen also in situations when the objectives of these actors are not compatible with the government’s priorities. A respondent from the permanent representation in Brussels confirmed this nature of relationship between the government and energy businesses also at the EU level. He recalled a situation when the official position of the Czech Republic during negotiations was “significantly influenced by the great players” (Interview 29). Moreover, the government was “doing its best to hide that its position [was] the position of [the gas company]” (ibid.). This chapter argues that such behaviour puts the government into a disadvantageous position and well illustrates the decision-­makers’ perception of the country’s vulnerability when it comes to relations with energy companies. The very supportive approach of the government towards energy companies is thus not specific only to the domestic arena. According to the interviewees, the Czech government is assisting these companies also abroad, by utilizing tools from the area of economic diplomacy (Interview 14). One of the primary aims of the State Energy Policy (the main strategic energy policy document) in foreign policy, is to “[s]trengthen the position of energy diplomacy” by focusing on “[i]mproving investment environment for Czech companies in the third countries” (Ministry of Industry and Trade, 2015: 79). Its other objective in this area is to support “production and import of energy sources for Czech industry” especially from countries outside of the EU (ibid.). In coordination with the Ministry of Foreign Affairs, as well as other state institutions, the Policy suggests

150   Business challenge reinforcement of energy diplomacy especially in transit and supply countries as well as in “countries of long-­term Czech energy business interest” (Ministry of Industry and Trade, 2015: 94). The Ministry of Industry and Trade as well as other state authorities (including the Ministry of Foreign Affairs, the energy regulator, etc.) are very active in energy diplomacy as documented by a report on the progress of the State Energy Policy objectives (Ministry of Industry and Trade, 2018). The Czech Foreign Policy Strategy (Ministry of Foreign Affairs, 2015) also lists economic diplomacy as one of the tools to support efforts in domestic economic subjects to develop contacts with third countries, especially those outside of the EU. This documents the government’s efforts to accommodate the needs and requirements of energy businesses at multiple levels. On the other hand, the willingness of the energy companies to support the government’s priorities is much less visible. Actually, according to one respondent, one of the main challenges for the Ministry of Industry and Trade, and the government in general, is connected to the permanent efforts of the energy companies to lower costs and not to invest in important, but at the same time also expensive measures (Interview 14). This, however, sometimes contradicts the government’s priorities, especially those connected to energy security. According to an interviewee, the problem is that the costs of active measures aimed at energy security increases are huge and the energy companies are not willing to cover those (Interview 22). However, energy security is traditionally one of the government’s key objectives in energy policy (Vlček and Černoch, 2013) belonging among the top priorities defined in the State Energy Policy (Ministry of Industry and Trade, 2015). In spite of this, the willingness of energy companies to cooperate with the government on this issues is, according to the respondents, rather low. This section has argued that the position of the Czech government towards energy companies operating on Czech territory can be described in terms of vulnerability. The relationship between these two partners is unbalanced and more advantageous for the energy companies, as the main objective of the Ministry of Industry and Trade, the principal energy policy actor at the governmental level, is to create a suitable business environment for energy companies carrying out their business in the Czech Republic. Moreover, the government uses also other tools at its disposal to help Czech energy companies abroad; it utilizes economic diplomacy to support the interests of these companies in third countries and adjusts its preferences presented at the EU level to better reflect the priorities of energy companies. On the other hand the energy companies are not particularly interested in supporting the government in its energy security efforts as they see this issue through a prism of huge costs.

Austrian mutually beneficial relations Once again, the perception of Austrian decision-­makers differs from the previous two cases. While Slovak and Czech representatives view relations of their countries with the dominant energy companies in terms of vulnerability, Austrian

Business challenge   151 decision-­makers have a very different perspective on the ability of their state to balance this relationship. The dominant perception sees the government as an actor capable of dealing with this challenge and developing mutually advantageous solutions when negotiating with energy companies. Although the role of the state is viewed very similarly – i.e. the government being responsible for developing a suitable environment for conducting an energy business – the difference is in the state’s ability to strike a balance between its own positions and those of energy companies. The structure of the Austrian government differs from the other two countries, as Austria is a federal republic and therefore there is an extra layer of governance, although the Austrian federal system is not very dominant and is moving in a centralist direction (Erk, 2004). OMV (Österreichische Mineralölverwaltung) has the central position in the Austrian natural gas market. It is a multinational energy company that is one of the key energy players not only within the country but also in the region as well as the EU. It was one of the key actors that enabled commencement of Russian gas imports to Europe at the end of the 1960s (Högselius, 2013) and kept its special relationship with this supplier (Nikiforov and Hackenmesser, 2018). OMV is nowadays partly owned by the Austrian government through OBIB (Österreichische Bundes- und Industriebeteiligungen) that owns 31.5 per cent of OMV’s shares. A further 24.9 per cent of shares are owned by International Petroleum Investment Company from Abu Dhabi, the rest by different private investors (OMV, 2018). OMV was a fully state-­owned company for several decades, a situation that was typical for the whole Austrian industry (Parker, 1999). The gas sector was significantly marked by the situation after the Second World War when the Soviet Union gained control over Austrian oil (and gas) production. The Soviets established Sowjetische Mineralölverwaltung (SMV) in 1945 to oversee the production and shipment of Austrian oil to the Soviet Union, which was seen as a war trophy (Högselius, 2013). After adoption of the State Treaty in 1955, followed by withdrawal of the Soviet army from Austrian ­territory, SMV was transformed into OMV, although the latter was formally based on a company established before the war. The situation in the electricity sector was different. The structure of this sector was given by the Nationalization Act of 1947 that created a system of nationwide as well as provincial energy companies (Hofbauer, 2006). The development in both the electricity as well as the natural gas sector thus contributed to the creation of a large state sector in Austria. Indeed, at the end of the 1980s, the country had one of the largest state sectors in the European Community (predecessor of the European Union) with eight out of nine of the biggest companies fully or partly owned by the state (Parker, 1999). Similarly to the energy companies in the Czech Republic and Slovakia, OMV underwent privatization, although these processes were different. Besides timing – Austrians privatized sooner – there was also a difference in the expected outcome of the process. The Austrian government was not looking for a strategic partner, as was the case with the other two countries. The privatization process started at the end of 1987 when 15 per cent of shares were sold to private investors.

152   Business challenge Further privatization rounds took place during the late 1980 and 1990s when more shares were sold (ibid.). The main governmental body responsible for the development of Austrian energy policy is, as of 2018, the Austrian Federal Ministry for Sustainability and Tourism, however, also other ministries like the Austrian Federal Ministry for Europe, Integration and Foreign Affairs or the Austrian Ministry for Transport, Innovation and Technology, share competences in this area as they are responsible for providing energy policy guidance in their specific sub-­areas (for example, foreign affairs or innovations). In 2018 the competences of several ministries within the Austrian government were changed and energy was included into the Federal Ministry of Agriculture, Forestry, Environment and Water Management that was renamed to the Ministry for Sustainability and Tourism, reflecting the fact that all these partial agendas were connected by the sustainability issue (BMNT, 2018). Energy policy was originally among the competences of the Federal Ministry of Economy, Family and Youth that was renamed within this reform to the Federal Ministry of Digital and Economic Affairs. At the same time energy was moved to the Ministry of Sustainability and Tourism. These changes, however, should not have a noticeable impact on the relationship between the central government and the energy companies as this has been developed during a longer period and therefore should be stable and not influenced by competence reshuffling. According to interviewees, the relationship between the central government and individual ministries on the one side and the energy companies on the other is very good. This is also the case at the level of individual federal states (Bundesländer). An energy expert underlined the high standard of relations between the state governments and local energy providers and described them as “very close” (Interview 41). The Austrian federalism was noted by the interviewees especially in connection to the ownership structure of local energy companies. In some cases, the local governments own significant shares in these companies (ibid.). However, the federalism does not have an important role from a broader perspective and has only a limited impact on energy policy. Although the constitution claims that Austria is a federal state, “in practice the country works as a unitary state” as “all political issues are set in a pan-­Austrian frame of reference” (Erk, 2008: 18–19, 29). Very good mutual relations based on balanced cooperation were noted also at the federal level between the central government and energy companies. This relationship is institutionalized within interest organizations like Österreichs Energie (Austrian Energy) and Fachverband für Mineralölindustrie (the Association for the Petroleum Industry) that provide a platform for discussion, information sharing and consultation. Because of the favourable nature of the relationship, the respondents believed that their country is able to successfully negotiate with energy companies operating on their territory. They perceive their country in terms of capability and not vulnerability, as was the case with the previous two cases. From the perspective of the theoretical model developed in this book, the interviewees view their country as able to deal with the business challenge.

Business challenge   153 Most of the observations about state–business relations in the Austrian energy sector were dedicated to OMV as the main actor in this area. There are also other companies that have an important influence on the government, however, these are from non-­energy sectors (Interview 43). The respondents evaluated the relationship as mutually beneficial and advantageous for both parties. While OMV receives support from the government at the EU level and also when it comes to the company’s foreign activities within Central and Eastern Europe (Interview 35), the government is able to utilize the “very strong position of OMV as a player in the international gas market” (Interview 41). The company is an important participant of the international energy market and knows how to negotiate with other actors, especially the energy suppliers. As explained by an interviewee, OMV has a “routine and [is] used to negotiate” with companies from third countries (Interview 40) that are important energy supplies (i.e. predominantly from the Russian Federation). This is a very important set of skills for the Austrian government as it supports its energy policy preferences, especially energy security.  Similar to the other two analysed countries, energy security has an important position within the energy policy in the Austrian case. It is “the primary objective of energy strategy” (BMWFJ, 2010: 25) and it has been one of the top three priorities – together with energy efficiency and renewable energy promotion – of Austrian energy policy since the development of energy policy guidelines in 1976 (Faninger, 2003). Moreover, OMV is one of the partners that developed the Nord Stream pipelines (Nord Stream, 2018) and was included also in Nabucco (and Nabucco West), although the company was not very vocal in promoting the latter within Austria (Interview 23) and “the situation around this project is not ideal” (Interview 35). Different approaches towards Nabucco were identified as a source of tension between the government and OMV as the latter was not happy with the low level of the support by the government for this project (Interview 44). While the energy company supports the government’s goals in the energy security area, the government also contributes to the fulfilment of OMV’s own goals as “OMV’s interests sometimes coincides with the interests of the federal government” (Interview 44). Especially at the EU level, the government’s positions often reflect those of the main energy players, as explained by an interviewee. The so-­called ‘group of eight’ that was developed as an opposition platform to the Commission’s position on full unbundling (see Chapter 5 for more detail) consisted of several countries including Austria. While the Austrian electricity market was fully liberalized already at the beginning of the 2000s, several years before EU-­wide liberalization reached such a level (Reiche and Bechberger, 2004), the liberalization processes within the natural gas market progressed much more slowly. From the perspective of the respondents, there was “no doubt” that the government reflected in its negative position on full unbundling the position of OMV, that wanted to keep at least some level of control over its transmission infrastructure (Interview 24). Such a position was based on an argument that full ownership unbundling is “a bad thing” and that

154   Business challenge “there should be other options” (Interview 24). This was, indeed, the result of the pressure of the group – besides two options for unbundling proposed by the Commission (full unbundling and the ISO model), a third one (the ITO model) that was very close to the status quo, was added to the third liberalization package (European Commission, 2010). The first two proposed models were “against the way of Austrian thinking in the energy business” and their adoption could have led to “high costs for Austria and Austrian companies” (Interview 26). The mutual relations between the Austrian government and the energy companies (especially OMV, which is the main energy player on the Austrian market) are marked by balanced cooperation and mutual understanding (there are seldom tensions between them). These two actors complement each other and therefore the principal perception of the decision-­makers is that of the state’s capability to negotiate with energy companies. While the government supports energy businesses at the multilateral level within the EU, where it protects the interests of the energy companies operating on its territory, the companies (predominantly OMV) support the state’s priorities in energy policy, namely energy security as they possess a unique skillset that enables them to negotiate with energy suppliers. Austria thus displays – the only one from the three studied countries – an ability to deal with the business challenge.

Conclusion This chapter examined relations between the governments of the countries chosen for the analysis and energy companies operating on their territories. It argued that the ability to successfully negotiate with energy businesses influences the position of small member states’ governments towards integration in the external energy security area at the EU level. Those countries whose decision-­makers perceive this relationship as mutually advantageous do not support transfer of competences at the EU level, as the current arrangements enable these countries to achieve their energy security goals in cooperation with energy companies that are a crucial component of energy security. On the other hand, countries whose representatives perceive this relationship in terms of vulnerability do support further integration as they consider common rules to be helpful when dealing with energy companies. The results of the analysis conducted in this chapter indicate that there are significant differences in this area between the individual examined countries. While Czech and Slovak decision-­makers perceive relations of their countries with energy companies in terms of vulnerability, the Austrian perception is different, guided by a perception of ability to negotiate mutually advantageous deals with energy businesses. Such a position is supported by the government’s ability to back up its energy companies, while at the same time, this contributes to the achievement of the government’s objectives. The interviewees identified energy security as being one of the state’s objectives which is supported by OMV’s specific skillset. The nature of mutual relations in the other two cases is

Business challenge   155 different – while the governments are developing a business environment that supports the energy companies’ goals and also supports them at the EU level, the relationship is not mutually fruitful, as the governments are having a hard time persuading the energy companies to help them to fulfil the states’ objectives. Therefore, this chapter concludes, while the relationship between the state and the energy companies can be characterized in terms of capability in the Austrian case, in the case of the Czech Republic and Slovakia the dominant perception is the one of vulnerability.

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Conclusion

The EU energy policy focused for a long time on the development of the internal energy market that was considered to be an appropriate solution to challenges existing in this policy area (Goldthau and Sitter, 2014). Indeed, the tools created in this process, like unbundling or third party access, helped to shape the EU energy market and strengthen the position of European customers that benefited from the transformation of rigid systems based on monopolistic suppliers to well-­developed liberalized markets where multiple energy companies compete. Since EU member states are dependent on imports of energy from abroad as their domestic production does not cover their total consumption, the EU also started to become active in external energy policy. It used the tools that were at its disposal and the relations with energy supplying countries were therefore governed by a set of rules developed for the internal market, an approach named ‘external energy governance’ (Herranz-­Surrallés, 2016). However, with the gas crisis of 2009 (McGowen, 2011) and serious deterioration of political relations between Ukraine and the Russian Federation that almost resulted in an energy emergency situation in the winter of 2014/2015 (Rodríguez-Gómez et al., 2016), the EU started to look for stronger tools to pursue its energy interests abroad. The Commission adapted the Energy Union project at the beginning of 2015 (European Commission, 2015a) that included a proposal for ‘speaking with one voice’ with third countries and named energy security as one of its principal priorities. This was supposed to address issues not only related to the then current development of stability of energy supplies threatened by the Russian–Ukrainian conflict, but also to broader issues of the EU’s dependency on energy imports from third countries and the Community’s unutilized potential as a strong energy market player. On the one side, the EU member states spend huge amounts of resources to import different types of energy from abroad; on the other one, they do not utilize the potential of such a market strength as there is no EU-­ wide policy (see discussion in Andersen et al., 2017 on a mercantilist approach to the Energy Union) and member states cooperate with their energy suppliers at bilateral level. The united position of member states suggested by the Energy Union is supposed to improve their negotiation potential, however, already in the preparatory

Conclusion   159 phase several countries indicated their reserved – or straightforward negative – positions towards ideas presented in this document (Szulecki et al., 2016). Immediate opposing reactions were provoked by a suggestion for the common purchase of gas that was part of the original idea for the Energy Union presented by Donald Tusk (Tusk, 2014), although this solution would have a potential to “vastly increase the bargaining power of the EU as a whole” and “prevent some EU member states from myopically pursuing their national interests and endeavouring to conclude more profitable bilateral agreements on gas with Russia to the detriment of a European common stance” (Leal-­Arcas et al., 2016: 442). A critical stance towards more general issues presented in the Energy Union proposal was presented by several countries (Kilisek, 2015) including the UK and the Czech Republic (UK and CR non-­paper, 2015). While there is strong support among member states for internal energy market measures to increase energy security (internal energy security), the positions of EU members towards similar measures outside of the EU’s territory (external energy security) varies with some of them being more favourable of such solutions and others opposing them. The divergence in member states’ positions towards the Energy Union illustrates this point well. Contrary to the internal energy market, external energy relations are not harmonized at the EU level and their further development thus concerns deepening of European integration. Member states’ positions are crucial for this process as they decide in which areas they will further strengthen integration within the EU. This book examined preferences of small member states that are becoming an increasingly influential group within the EU’s decision-­making process, not only because of their increased number following the eastern enlargement of the Union and their improved assertiveness, but also because after the United Kingdom leaves the community, the EU will lose one of its biggest members. The main research question of the book asked under which conditions small EU member countries support the transfer of competences in external energy security to the EU level, and when they oppose further deepening of European integration in this area. The book developed a theoretical model arguing that small member countries’ support for and opposition to further deepening of European integration in external energy security depends on their decision-­ makers’ perception about their ability to deal with energy challenges. If the countries are perceived by their decision-­makers as able to deal with these challenges, they do not support deepening of European integration as they are themselves able to cope with problems, and the domestic level provides flexibility and manoeuvrability advantages for these countries. On the other hand, states perceived by their decision-­makers as vulnerable and unable to face their energy challenges are looking for solutions at the EU level. They support development of common rules in the external energy security area as an appropriate platform for dealing with their perceived vulnerability. A decrease of flexibility within the domestic arena is in this case not considered to overshadow the positive consequences of a common approach and unified rules for all actors.

160   Conclusion

Main findings This book examined these assumptions by considering the case of three small EU member states that have different preferences in external energy security. Slovakia was identified as supportive towards future integration in this area, Austria is a strong opponent and the position of the Czech Republic has been identified to be between these two border cases. Such a wide range of positions enabled the analysis to examine the whole spectrum of possible preferences. The book argues that these different preferences cannot be explained by looking at the structural characteristics of these countries’ energy sectors, but we have to take into consideration their different perceptions of these characteristics – that are manifested in decision-­makers’ perceptions about their country’s ability to deal with energy challenges – to shed light on the preferences of small EU member states. A glimpse into the main characteristics of the natural gas sectors of the examined countries supports this claim. The data show that the level of import dependency does not explain differences in preferences towards integration in the external energy security area. Austria, the least supportive country from the studied group has the highest overall dependency on energy imports (62 per cent in 2016), much higher than the other two countries – Slovak dependency is 59 per cent while the Czech only 33 per cent. A high level of dependency suggests vulnerability and assumes support for strengthening of one’s position by joining forces with other countries within an integration project. This is, however, not the case as Slovakia with lower (although only a little) overall dependency is a much stronger supporter of integration in external energy security. When it comes to natural gas, the situation is more advantageous for Austria as it has a small domestic production covering about 14 per cent of its total gas consumption. However, the dependency fluctuates quite significantly (it was 104 per cent in 2011) and in spite of domestic production, the country is crucially dependent on imports (all data from Eurostat, 2018). Neither can the level of natural gas diversification explain differences in the approach towards integration in external energy security by the examined countries. The Czech Republic has the highest level of diversification (indicated by the lowest supplier concentration index, see Table 2.1 in Chapter 2), but is still more in favour of integration than Austria that has a lower level of diversification (see Chapter 2 for detailed description of energy sectors of the selected cases). The analysis presented in this book has the potential to explain the differences in the preferences of these countries and provide an answer to the main research question regarding the factors influencing small member states’ support for deepening of integration in external energy security. The examination identified differences between the studied countries in all three partial energy challenges that were used to operationalize the main energy challenge that – according to arguments developed in this book – determine a country’s position towards integration in external energy security. These are the external, internal and business challenge.

Conclusion   161 When it comes to the external challenge, Austrian decision-­makers perceive it as manageable, and view their country as able to deal with this challenge. The relations between Austria and the Russian Federation as the main external energy actor are perceived as very good and mutually advantageous. Czech decision-­makers similarly believe that their country is able to cope with this challenge and view the transit nature of their country as a guarantee of their energy security. Slovak decision-­makers, on the other hand, perceive the external energy challenge differently, in terms of vulnerability. There is a perception of difficulty in persuading Slovakia’s main energy supplier, the Russian Federation, to fulfil existing agreements. Although much has changed since the 2009 gas crisis in terms of route and source diversification of natural gas supplies, the perception remains almost unchanged. The uncertainty about the future of transit through Ukraine – and thus also via Slovakia – adds to such a perception, as transit is considered to guarantee stability of energy supplies. Similar, although not identical, differences between the three studied countries were identified also in connection to the second partial challenge. Taking small steps and learning from past experiences are the two main strategies that foster Austrian decision-­makers’ perception of their state’s ability to cope with the internal challenge. The Austrian approach is thus in line with Panke’s (2011) argument about the way small states are able to influence EU decision-­making. On the other hand, Czech representatives identified several limits of their country’s ability to influence the EU, especially in connection to its small administrative capacity. However, they have been working hard to overcome these and therefore they view their country as partially able to pursue its preferences within the EU decision-­making mechanism. Slovak representatives perceive this challenge in terms of vulnerability, as they view their state as a passive follower and not an active leader in energy policy within the EU. When it comes to the third, business challenge, Austrian representatives once again expressed very positive attitudes towards their country’s potential within relations with energy companies. The balanced and mutually advantageous relationship between the main energy companies and the government supports the overall perception of ability to deal with the business challenge. While the Austrian government supports the main energy companies at the international level and helps them with their activities abroad, Austrian companies are utilizing their experiences from negotiations with energy suppliers to help the government to reach its goals. When it comes to this challenge the positions of the Czech Republic and Slovakia are very similar, almost identical. Both governments are trying to develop a business environment that supports energy companies’ activities and are also functioning as a bridge for transferring these companies’ positions to the EU table. However, this cooperation is mostly one-­sided and these two states are not getting anything in return from the energy companies. For example, the Czech representatives believe that their government is trying to accommodate all needs of energy companies, which puts the country into a vulnerable position vis-­à-vis the energy business. The situation is similar in the Slovak case.

162   Conclusion The book argues that these differences in perception of the states’ ability to deal with three distinct energy challenges are able to explain the different preferences of these countries towards integration in external energy security at the European level. Austrian representatives perceive their country as able to deal with all three partial energy challenges. On the other end of the spectrum, the analysis showed that Slovak representatives perceive their country’s position in terms of vulnerability when it comes to all three challenges. So, while Austrian decision-­makers’ perceive their country as able to deal with the energy challenge, the Slovak ones view their country through a prism of vulnerability. The perception of the Czech decision-­makers differs from one challenge to another – while perception of ability prevails in connection to the external challenge, Czechs view their country as having a limited ability to deal with the internal challenge and as being vulnerable within relations to energy companies (energy business). The response to the energy challenge in the Czech case is thus mixed and we can locate it between the two previous countries. The identified differences in the perception of the countries’ ability to deal with the energy challenge can thus shed light on the differences in their preferences regarding deepening of integration in the external energy security area. Austrian opposition to further integration in this area corresponds to its ability to deal with energy challenges and Slovak support reflects a perception of vulnerability in dealing with these. The Czech mixed perception mirrors a middle position towards deepening of integration as the country supports the main idea, however, at the same time it sees certain limits to deepening cooperation within the EU.

Contribution to existing research The Introduction of this book identified its three main goals: (A) to analyse sources of EU member states preference towards European integration; (B) to contribute to small states scholarship; and (C) to examine EU member states energy policies. By developing an analytical model based on perception as an explanatory variable, the book aimed to contribute to the scholarship about the importance of ideational factors in explaining EU member states’ preferences in the external energy security area. The book’s important contribution to the existing debate is specific operationalization of the influence of perception on preferences. And while this is not directly applicable to other policy areas as it reflects the specificities of energy policy, which was necessary to encompass the policy in its complexity, the approach chosen in this book can provide a blueprint for examination of other policy areas that are being developed at the EU level. The starting point of the specific operationalization was the definition of energy security. This book developed a policy-­oriented definition of external energy security that focuses on the process of achieving (or improving) this type of energy security within the EU. The definition claims that three types of relationships influence external energy security at the EU level: with supply countries, with

Conclusion   163 other member states as well as EU institutions and with energy companies. Acknowledging the limits of the existing discussion presented in Chapter 1, the book opted for this type of definition as it enabled it to look into the factors that have an impact on the level of energy security. Because the EU strives to develop tools to improve member states’ (external) energy security, looking at the definition from a policy perspective enables us to take a closer look at different aspects of external energy security that come into play during its utilization in praxis. Consequently, these three characteristics of external energy security were then used to operationalize the energy challenge, the perception of which is – according to the arguments presented in this book – crucial for small member states’ preference formation in external energy security. The energy challenge thus consists of three partial challenges: external, internal and business. When it comes to the second aim of the book connected to small states scholarship, the book presented an empirical examination of three small EU states in a policy area that hasn’t been examined – to the best of the author’s knowledge – within the scholarship yet. It showed that small EU member states do not behave homogeneously in external energy policy and their preferences in this area thus cannot be directly linked to their size. Since external energy policy can be considered to be connected to security policy, the analysis in this book joins the discussion about security preferences of small states. This assumes small states are supportive of integration as they see larger communities to be better equipped to face security problems (Archer et al., 2014; Haugevik and Rieker, 2017). However, the analysis presented in this book claims that this does not have to be the case and that the perception of challenges that are faced by a country in a security area primarily determines the form of integration preferences. One limit of such a conclusion is given by the premise of applicability of assumption from hard security area on energy security that can be considered to be a soft security issue. Joining the fruitful, but at the same time heterogeneous and convoluted discussion on small states, the book sided with scholars arguing that relative weight is the best defining feature of small states (Grimaud, 2018; Long, 2017; Nasra, 2011). Criticizing definitions based on size of the territory or the population, the chosen definition underlines the importance of internal dynamics between small and big states. The disadvantage of such an approach is that it does not provide a final list of states belonging to neither of those two groups as the dividing line stays undefined. This book contributed to the theoretical discussion about small member states by discussing different approaches and categorizing them, moreover, it contributed also to the empirical knowledge about the activities of these countries within the EU. The book also made a contribution to the research on the energy policy of the EU and its member states and thus fulfilled also its third main goal. The book provided a unique point of view on external energy security by embedding it in the broader issues connected to relations with third countries, relations among member states and with EU institutions within the EU decision-­making process

164   Conclusion as well as relations between member states and energy companies. Such a perspective also included other issues into the examination of energy policy and framed the analysis in a much broader discussion. Moreover, from a strictly empirical perspective, the book provided detailed examination of three small EU member states that have so far received only a limited amount of attention from social science scholars in the energy policy area.

Policy implications The results presented in this book have important policy implications since they argue that the structural improvements of energy security do not have to be reflected in a changed approach towards this policy if the decision-­makers’ perception stays the same. Changes in energy security policy are thus more a result of changes in the perception of energy security level than changes in physical infrastructure or contractual relations. This means that new infrastructure does not automatically safeguard a change of a country’s position towards energy security – diversification thus does not have to lead to a changed willingness to conduct policies aimed at increasing energy security even if the level of energy security becomes sufficient. Only if diversification also leads to a change of energy security perception does it also change the country’s energy policy. Member countries can thus keep supporting diversification efforts of the EU even in situations when the energy security has reached the technical level required for sufficient supplies of the given country. New infrastructural projects supported by EU funds can thus only have a minor impact on the energy security policy of the involved countries as they don’t have to necessarily change their perception of energy security and thus also change the policy. However, these projects would still be an intensive investment and present a burden on the EU budget. This brings us to the financial consequences of diversification projects aiming to improve member states’ energy security. While it was necessary to improve diversification of several member states (especially) from Central and Eastern Europe, the improvement of energy security as one of the main preconditions of new projects’ inclusion into the PCI list, from this perspective can be problematic. While some member countries are still in need of diversification, others have significantly improved their energy security levels during the last period by diversifying their energy supplies and are in a different position compared to a period from several years ago. The EU member countries support new infrastructural projects developed by their TSOs and in many cases use energy security argumentation to back up these projects at the EU level. However, it is not always possible to differentiate between the need for diversification stemming from the structural deficiencies of the infrastructural system and those stemming from a perception of vulnerability without a clear link to structural weaknesses. This can lead to a situation where a less than ideal solution is being chosen. For example, while Slovakia was not identified by the 2014 stress tests as one of the most vulnerable EU member

Conclusion   165 countries (European Commission, 2014), analysis conducted in this book argues that its position in regard to external energy security is considered to be vulnerable by its decision-­makers. Energy security argumentation was used by the Slovak government to support the inclusion of the proposed Eastring pipeline among PCI projects (European Commission, 2018). However, energy security does not have to be the main reason behind governmental support of this project (Mišík and Nosko, 2017). Moreover, a rival pipeline, Tesla, that was parallel to Eastring and therefore its direct competition, was included in the second PCI list as well (European Commission, 2015b), similarly supported by energy security argumentation. Although the latter pipeline was later removed from the third list of PCI projects that are given high priority by the Commission, this example illustrates the influence of perceived vulnerability on the energy policy. By giving high priority to diversification projects improving energy security, the Commission created an opportunity not only for those countries that suffer from structural insufficiencies in their energy infrastructure, but also to those with perceived vulnerability in the area. However, the current tools have only limited ability to differentiate between these two, which has a negative impact on the Commission’s ability to support only those projects that have high diversification potential and provides room also for projects with only a limited impact on energy security.

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Appendix

List of interviews   1 Senior official, Ministry of Foreign and European Affairs of the Slovak Republic, Bratislava, 22 March 2012   2 Expert, Slovak Innovation and Energy Agency, Bratislava, 22 March 2012   3 Senior official, Ministry of Foreign and European Affairs of the Slovak Republic, Bratislava, 11 April 2012   4 Expert, Slovak Innovation and Energy Agency, Bratislava, 22 March 2012   5 Senior official, Ministry of Economy of the Slovak Republic, 7 August 2012   6 Former adviser to the prime minister, Bratislava, 7 August 2012   7 Senior official, Ministry of Economy of the Slovak Republic, 9 August 2012   8 Senior official, Ministry of Foreign and European Affairs of the Slovak Republic, Bratislava, 23 August 2012   9 Senior official, Ministry of Economy of the Slovak Republic, 7 September 2012 10 Senior official, Ministry of Economy of the Slovak Republic, 17 September 2012 11 Former state secretary, Ministry of Economy of the Slovak Republic, 20 September 2012 12 Senior official, Ministry of Economy of the Slovak Republic, 21 September 2012 13 Energy expert, Technical University of Ostrava, Prague, 13 November 2012 14 Senior official, Ministry of Industry and Trade, Prague, 12 November 2012 15 Senior official, Ministry of Industry and Trade, Prague, 14 November 2012 16 Official, Offices of the Government of the Czech Republic, Prague, 14 November 2012 17 Official, Offices of the Government of the Czech Republic, Prague, 14 November 2012 18 Senior official, Ministry of Industry and Trade, Prague, 15 November 2012 19 Energy expert, Institute of International Relations, Prague, 15 November 2012 20 Official, Ministry of Foreign Affairs, Prague, 15 November 2012 21 Official, Ministry of Industry and Trade, Prague, 15 November 2012 22 Energy expert, Prague Security Studies Institute, Prague, 23 November 2012

168   Appendix 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52

Energy expert, Austrian Institute for International Affairs, 18 September 2012 Senior official, E-­Control Austria, Vienna, 19 November 2012 Official, E-­Control Austria, Vienna, 19 November 2012 Senior official, Offices of the Government of Austria, Vienna, 20 November 2012 Official, Offices of the Government of Austria, Vienna, 20 November 2012 Senior official, DG Energy, the European Commission, Brussels, 26 November 2012 Energy attaché, Permanent Representation of the Czech Republic to the European Union, Brussels, 27 November 2012 Energy expert, The Centre for European Policy Studies, Brussels, 27 November 2012 Energy attaché, Permanent Representation of the Slovak Republic to the European Union, Brussels, 28 November 2012 Energy expert, Bruegel, Brussels, 28 November 2012 Energy attaché, Permanent Representation of Sweden to the European Union, Brussels, 29 November 2012 Energy attaché, Permanent Representation of the Netherlands to the European Union, Brussels, 29 November 2012 Senior official, Austrian Ministry of Foreign Affairs, Vienna, 4 December 2012 Energy expert, Institute for European Integration Research, Vienna, 6 December 2012 Senior official, Austrian Ministry of Economy, Vienna, 12 December 2012 Senior official, Austrian Ministry of Economy, Vienna, 12 December 2012 Official, Austrian Ministry of Economy, Vienna, 12 December 2012 Energy expert, Austrian Energy Agency, Vienna, 19 December 2012 Energy expert, Institute for Advanced Studies, Vienna, 15 January 2013 Energy expert, Institute for Advanced Studies, Vienna, 22 January 2013 Expert, Greenpeace, 29 January 2013 Energy Expert, Austrian Institute for International Affairs, Vienna, 12 February 2013 Senior official, SEPS, Bratislava, 6 May 2013 Energy expert, Masaryk University, Brno, 24 July 2013 Energy expert, Masaryk University, Brno, 24 July 2013 Energy expert, Masaryk University, Brno, 25 July 2013 Senior official, Česká energetická přenosová soustava, Prague, 30 July 2013 Senior official, Česká energetická přenosová soustava, Prague, 30 July 2013 Official, Česká energetická přenosová soustava, Prague, 30 July 2013 Senior official, Ministry of Industry and Trade, Prague, 31 July 2013

Index

2020 Energy Strategy 10, 74, 93 2030 Energy Strategy 74, 93 2050 Energy Strategy 25 acquis communautaire 26, 32 administration 36, 122–124; Austrian 143; small 39, 121 Algeria 60, 89 Atomausstieg 126 Austria 6, 14, 43–46; bidding zone 126; energy mix 61–63; energy sector privatisation 151; energy security priority 153; EU decision-making 131–135; liberalisation 125; and Nord Stream 110; opposition of nuclear 58, 63, 73–74, 124; reverse flow 105; and Russia 113–116; transit of gas 103, 112; Western European country 15 Baltic States 14, 39, 69, 94, 108 Baumgarten, natural gas hub 112, 116 Belgium 67; coal 83; and EMU 131; foreign policy preferences 41; and nuclear 58 Belorussia 9 bidding zone between Germany and Austria 73, 126; split of 134–135 Bidirectional Austrian-Czech Interconnector 126, 130, 134 big member states 13, 33; better negotiation position 39–40, 106; definition 35; dominance 37, 127; energy import 39; literature on 14 Bratislava-Schwechat Pipeline 147 Brexit 5; and Slovak presidency in the Council of the EU 104 Brotherhood pipeline 68, 107; and gas crisis 91; history of transit 103, 113; and Slovakia 104–105; transit contract termination 5, 109–110, 146

Budince entry-exit point, Slovakia 105 Bulgaria 4, 133; and the 2009 gas crisis 103; and nuclear 74, 88, 89 Bundesländer, Austria 152 carbon-fee 72–74; see also low carbon Central and Eastern Europe (CEE) 3, 30, 69, 87, 113, 134, 164; Austrian activities in 153; and diversification 108; EU membership 36, 122, 133; EU officials 128; and gas crisis 4; gas transit changes 110; nuclear energy 72–73; and privatisation 42, 145; region 15, 44 Central Europe 14 České energetické závody (ČEZ) 148 Chernobyl nuclear power plant 74, 87 Churchill, Winston 66 climate change 31, 42 climate policy 10, 25, 71; goals 95; and nuclear energy 74; and Poland 89 coal 24, 60, 66; and the Czech Republic 63; domestic production 28; and European integration 83; industry 45; Poland 72, 89 Cold War 1, 67, 68 common EU voice in energy 5, 90, 94, 95, 158 Common Foreign and Security Policy 25 Communism: fall of 14, 87; legacy 123 conditionality 88; and compliance record 128 Connecting Europe Facility 105, 130 Council of the EU: consensus 125; and Slovak presidency 104, 124, 135; and small states 34 counterstrategies, small states 15, 40, 41, 121 Crimea 4, 5, 94, 106, 107 Cyprus 30, 122, 125

170   Index Czech Republic 6, 30, 39, 43–46; communist legacy 123; diversification 108; and domestic lignite 72; energy mix 61–63; EU accession negotiations 73; EU decision-making 149; gas crisis 104; and Germany 130; image of a troublemaker 128; low coalition potential 129; Nord Stream 109–110, 130; nuclear 64, 73; oil 67; and the Russian Federation 108; small state 39; as transit country 109; and Visegrad Group 9, 122 Czechoslovakia: transit of natural gas 103, 105, 114 Denmark 30; and 1973 embargo 67; energy exporter 60 dependency 12, 60–61, 108; on energy import 11, 30, 59, 158; European Commission 8; on Russian supplies 89 diversification 6, 11, 68, 161, 164; Austria 115–116; and the Czech Republic 107–108; at the EU level 93–95; limited 5; and Nord Stream 38; Russia projects 105; Slovakia 45, 103 Donald Tusk 5, 94, 95, 159 Druzhba oil pipeline 114 E.ON Ruhrgas 38, 145, 146 early warning mechanism 92 eastern enlargement 3, 24, 32, 68, 159; accession process 87; changes in the voting system 34, 123; and coalitionbuilding 129; economic crisis 4; and EU energy policy 86–90; under-researched 7 Eastring pipeline 105–106, 146, 165 Economic and Monetary Union (EMU) 40, 131 economic diplomacy: and the Czech Republic 149–150 Électricité de France 42 electricity generation 64, 71; from coal 60; the Czech Republic 61; and Lithuania 65 emergency stocks of oil 84, 86 Enel 145 Energetický a průmyslový holding (EPH) 145 Energiewende 74 Energy and Climate Package see 2020 Energy Strategy Energy Charter Treaty 87 Energy Community 5, 25, 94

energy consumption 56–58 Energy Council: an extraordinary meeting 91 Energy crisis see gas crisis energy dependency see dependency energy diplomacy 25–26; and the EU 8 energy import 59–60 energy major 14, 37, 43, 83, 132, 144, 148 energy mix 11; and natural gas 14, 44 Energy NATO 9, 81 energy production 58–59 Energy Security Index 30 Energy Security Strategy 31 energy security: definition 27, 162; division between internal and external 29; environmental dimension 31; external 28; policy oriented definition 31; qualitative and quantitative approaches 30 Energy Union 2, 87, 93, 94, 158; establishment 65, 81; and gas crises 82; progress 83, 95; and Slovakia 102; speaking with one voice 95; see also common EU voice in energy energy weapon 38, 70 engie see Gaz de France Suez environmental policy 2, 25, 32 Estonia 61, 141; and oil sands 87, 89 Euratom 1, 66 Euratom Supply Agency 74 Europeäische Gas-Anbindungsleitung (EUGAL) 110 European Atomic Energy Community see Euratom European Coal and Steel Community (ECSC) 1; and coal crisis 83 European Commission (EC) 1, 24–25, 73, 81; activity after 2009 92; influence 33, 124; relations with energy companies 42; special relation with Germany 130 European Community 1, 28, 57; and oil 67 European Economic Area 61 European Economic Community 1 European Energy Security Strategy 93 European External Action Service 24 European Neighbourhood Policy 4 European Nuclear Energy Forum 72, 124 European Security and Defence Policy (ESDP) 41 Eurostat 56 eustream 103, 145 foreign policy 24, 41; tools 38, 90; see also energy weapon

Index   171 France 30, 34; consumption of gas 57; and nuclear 58, 74, 124; opposition to ESDP 41; relations with Russia 38 Fukushima nuclear accident 72; and the development of nuclear policy in the EU 124; and Germany 126 gas crises 4, 65, 68, 82, 90–95, 2006 and Austria 115, 2009 crisis 44, 86, 115, 158; and academic literature 24; expected crisis of 2014/2015 65, 81, 94; importance for the EU 65; and Slovak nuclear power plant 88 gas transit: via Austria 112; via Czech Republic 108; via Czechoslovakia 103; via Ukraine 4, 91, 94, 104, 106, 161; see also gas crises gas: technical characteristics 28, 65–71 Gaspool 111 Gaz de France Suez 145 Gazelle 109, 130 Gazprom 4, 38, 91; and Austria 115; and the Czech Republic 107; and liberalisation 39; and Slovakia 105, 145–146 Gazprom Export 103 Germany 30, 34; consumption of gas 57; and nuclear 73; relations with Austria 133; relations with the Czech Republic 127, 129; West 114 Great Britain 13, 34, 159; consumption of gas 57; naval superiority over Germany 66 greenhouse gasses 25 gross domestic product (GDP) 34, 57 group of eight 125, 153; see also unbundling hard coal 71, 102 Hungary 30; and emergency oil reserves 89; and Germany 126 Hydrocarbons 8 ideational factors 11, 15, 38, 162 Ignalina nuclear power plant 64, 74, 88 Independence liquefied natural gas terminal 109 independent system operator (ISO) 90, 154 independent transmission operator (ITO) 90, 154 informal rules in the Council of the EU 13, 123 information exchange mechanism on intergovernmental energy agreements 92, 101

Ingolstadt – Kralupy nad Vltavou – Litvinov (IKL) pipeline 108 innogy 142, 147 integration dilemma 37 interconnectors 6; between Slovakia and Hungary 105; between Slovakia and Poland 105 intergovernmental agreements (IGA) 25–26 intergovernmental negotiations 31 internal energy market 1, 25, 38, 80; establishment of 84 International Energy Agency (IEA) 1, 67, 72; its energy security definition 29 international relations 16, 33 Iranian revolution 66 Italy 30, 34; relations with Russia 38, 114 Jaslovské Bohunice nuclear power plant 74, 88 Juncker, Jean-Claude 4, 5 Kozloduy nuclear power plant 74, 88 liberal intergovernmental approach 13 liberalisation 64, 132; and companies 42; energy market 1, 2; rules 6 liberalisation packages 84; and Lithuania 65; third 32, 90, 125; see also unbundling lignite 71–72 liquefied natural gas (LNG) 7, 69, 93; Lithuanian terminal 9; low utilisation rates 60; underdeveloped 44 Lisbon Treaty 24, 34, 83; and energy mix 72; and EU energy policy 1, 92; and legal basis 1, 2; solidarity 130 Lithuania 9, 64; electricity import from the Russian Federation 65; interconnectivity 69 loop and transit flows 126, 130, 134 low-carbon 10 Luxembourg 30, 134 Maastricht Treaty 1, 37 Malta 30, 40 Matláry, Janne 7 Middle East 66 middle powers 37 migration crisis 122 Mittel-Europäische-Gasleitung (MEGAL) 109 Nabucco 25, 38–39; Austrian support 116; and OMV 153

172   Index Naftogaz Ukrainy 110, 146 national champions see energy major NATO 9; and Austria 113 natural gas see gas natural gas crisis see gas crisis Net4Gas 108, 148 Netherlands: and 1973 embargo 67; depletion of domestic sources 60; and EMU 131; role during climate change package negotiations 123 new member countries 81, 124; see also Central and Eastern Europe Nord Stream 4, 26, 38, 43, 105; and Austria 116, 133–134, 153; and the Czech Republic 109–110, 130; and Poland 130; and Slovakia 102 Northern Dimension Initiative (NDI) 32, 41 North-South Gas Corridor 126 Norway 12; Czech supplier 111; EU gas supplier 60 nuclear 24, 72; compensation 88; and the Czech Republic 45, 64; decommissioning 87; technology 10 oil crisis of 1973/74, 1, 70, 114 oil: reserves 89; technical characteristics 65–71 Organization of Petroleum Exporting Countries (OPEC) 66 Osterreichische Mineralölverwaltung (OMV) 112, 116, 142, 151, 153–154 Ostsee-Pipeline-Anbindungsleitung (OPAL) 109, 130; exemption 109 Piebalgs, Andris 125 Poland 30, 128; and coal 72, 89 Poland and Hungary Assistance for the Restructuring of the Economy (PHARE) 87 preferences 12, 15, 162; formation 23; security 36 presidency of the Council of the EU 32; Slovak 104, 124 price: energy 8; natural gas in Slovakia 145; oil 85 primary law of the EU 1; see also Lisbon Treaty Projects of Common Interest (PCI) 106, 126, 130, 164; and Eastring 146 pumped-storage power plants 71 Regulation on security of natural gas supplies (No. 994/2010) 92

Regulation on the Governance of the Energy Union 95 renewables 71, 74; and Austria 45; and climate policy 93; and Fukushima nuclear disaster 126; increase of production 57, 59 reverse flow 69; between the Czech Republic and Slovakia 104–105 Romania 30 Royal Navy 66 Russian Federation 4, 133; good relations with 112; main supplier 44, 60, 161; problematic supplier 12, 105, 108; relations with the EU 16, 38 sanctions against Russia 106–107 security of demand 28 security problematique 36 Šefčovič, Maroš 94 shared competences 2, 24, 83; see also Lisbon Treaty ship-or-pay 71 Single European Act 1, 17, 84 Single European Market 2 Slovakia 43–46, 2009 gas crisis 91, 102, 104, 105; and activity at the EU level 122; and Brotherhood gas pipeline 109; Central and Eastern Europe 15, 39; and energy majors 144–146; energy mix 61–63; energy supplies 103; and gas transit 103, 110; importance of energy policy 123; and nuclear 58, 89, 124; relations with Germany 125; sanctions against Russia 107; and transit flows 126 Slovenský plynárenský priemysel (SPP) 103, 142, 144 Slovnaft 147 small states: counterstrategies 40; definition 33–35 South Stream 4; Austrian support 116 Southern Gas Corridor 25, 38 Soviet Union 1, 67–68, 103, 113, 151 Sowjetische Mineralölverwaltung (SMV) 151 speaking with one voice see common EU voice in energy spot market 69, 111 Stability and Growth Pact 40 state interventions 82 storage 69; limited withdrawal capacity 91 Stork 2 pipeline 130 strategic commodity 82 stress tests 94, 164

Index   173 structural limitations 15 Suez Canal crisis 66 supplier concentration index 61 Sweden 30 take-or-pay 69, 71; see also ship-or-pay Temelín nuclear power plant 74 Tesla pipeline 165 third-party access 85, 158; see also unbundling Trans-Austria-Gasleitung (TAG) 112 Trans-European Networks for Energy (TEN-E) 85 Transgas see Net4Gas transmission system operator (TSO) 71 Transpetrol 147 Turkish Stream see South Stream Tusk, Donald 94, 95, 159 Ukraine 4, 103, 2009 gas crisis 91, 115; and Brotherhood pipeline 5, 68; conflict

with the Russian Federation 9; and Energy Union development 81, 93; reverse flow with Slovakia 105, 107; and stress tests 94 unbundling 32, 84–85, 158; and Austria 153–154; and the Czech Republic 148; and Slovakia 125, 145 United Kingdom 30 Veľké Kapušany 103 vertically integrated energy company 84, 145 Visegrad Group 9, 104, 122, 126, 130 vulnerability: perceived 10, 15, 23, 102; response to 37 West-Austria-Gasleitung (WAG) 112 Western Europe 1, 15, 44 Yamal pipeline 105, 109 Yom Kippur War 66