Germany and the European Union, Research Paper Example

Abstract

The consensus reason for the cancellation of the South Stream project is political control of an energy resource that impacts the economics of all of Europe. However, that is not the only reason. The primary reason for the South Stream project cancellation is three-fold. The first reason was bypassing the Ukraine because of the economic implications of running a pipeline through the Ukraine zone, the Russian political decision to prevent competition with Nabucco (bypass Russia) pipeline and the South Stream pipeline intermediaries had their own initiatives that would not be a benefit to the energy market of the Europe.

The South Stream Project

The primary reason for the South Stream project cancellation is three-fold. The first reason was bypassing the Ukraine because of the economic implications of running a pipeline through the Ukraine zone, the Russian Federation political decision to run the pipeline through the Black Sea and the South Stream pipeline intermediaries had their own initiatives that would not be a benefit to the energy market of the Europe (Kardas, 2011). Nabucco pipeline which has been named the Turkey-Austria pipeline is a suggested solution to the natural gas pipeline (Bulmer & Paterson, 2010). This Nabucco pipeline line would run from Turkey to Austria. The goal of the Nabucco pipeline is to find diversity in natural gas providers. Russian is against this pipeline route because it has pipeline routes that run through Europe and reduce the dependence on Russian controlled energy (Lunden, Fjaertoft, Overland & Prachakova, 2013).

The South Stream project was an abandoned pipeline project that transported natural gas from the Russian Federation to Bulgaria. This was a controversial pipeline because of the European sanctions imposed on Russia and Ukraine opposes any solution that bypasses their region. The project was canceled because of the feverous tension between the East and Moscow because the pipeline bypassed Ukraine (Durden, 2014). One of the primary problems is the role of the natural gas intermediaries, who interest was not to serve the best interest of each country. The intermediaries had their own initiatives that may or may not support the fair distribution of the natural gas. Another issues was the distribution of the pipeline to avoid one the areas that needed the natural gas energy which was Ukraine (NewsRx Staff Reporter, 2014). The South Stream gas pipeline project will transport Russian natural gas across Europe while the construction stretches across Russian territories. The South Stream pipeline was a strong rival of the Nabucco pipeline for supplies (Dieckhoner, 2012).  The control of the European energy resources is a major reason Russian wants to keep control over Europe.

Economic Impact

The decisions made by Russian to bypass Ukraine has a number of economic and political implications. The Ukraine will be compensated with revenues because the pipeline runs thought the richest part of Ukraine (Smedley, Glazov & Glazov, 2004). Naturally, Ukriane will want to share some of the lucrative agreements that Russia has shared with other international companies. The Europe incentives are based on finding a fair and equitable solution to providing energy resources to all regions not just benefiting the Russian interest (Chyong & Hobbs, 2014). The evolution of the South Stream pipeline has difference economic implications for each country.

The economic and political impact to Russia would be beneficial because they would save money from the deal with Ukriane. In addition, Russia would still have some control over the European Union because there demand for natural gas will need Russia’s support (European Business Review, 2013).  The pricing disputes from all countries involved are concerned with Ukraine’s perceived control over the pipeline however, there would be enough lucrative agreements for Russia, Turkey, Europe and Ukriane.  The best example of the profitability is Gazprom pipeline that shared agreements with all countries involved while signing lucrative long term economic and environmental contracts to benefit each region (Freifeld, 2009). The economic development of Ukriane is a driving factor and an economic barrier because Ukriane has past energy debt that must be cleared before new deals can be put in place. However, the South Stream pipeline would not allow Ukriane to benefit from energy solutions (Pipelines, 2013). The political fighting between Europe and Russian is hurting the economic growth of the new equitable energy solution that includes Europe gaining some control of their own natural gas resources.

Bypassing Ukraine

Russian does not want to lose control of the South Stream pipeline because the construction of the pipeline causes Russia to lose control of an energy resource and their positioning with Europe. The president of Russia Kremlin believes there are other options to running the pipeline through Ukraine such as an underground pipeline that avoids Ukraine territory (Soldatkin, 2014).  At the same time, Kremlin indicated it would be profitable for Russia to run the pipeline through Ukraine despite political problems. A respected energy analyst for Sberbank CIB has indicated that the deal would be profitable for Russia saving about 50 million, if they agreed on including the Ukraine (Soldatkin, 2014).  There other parties that want the South Stream project to bypass Ukraine such as the Gazprom, who is the largest extractor of natural gas in the world (Gazprom, 2015). The Gazprom is a majority own by the Russian government, who wants to continue to control the intermediaries, and protect their lucrative international agreements. Gazprom is threaten by new projects that would divert the control of energy resources (Kable, 2015).

The Russian leader and Gazprom has suggested that they can go around Ukraine by building an underwater pipeline. However, they are other solutions that benefit several regions such as Nabucco project because can deliver natural gas to the Middle East regions to the European. It makes for an equitable move because the pipeline will run through Bulgaria, Hungarian and Romania. This solution has already been backed by Europe and the United States. However, the deal may never be fully implemented because it bypasses Russia (Erdogdu, 2010). The bottom line the bypassing of Ukraine is not the most agreeable move but the overall improvement of natural gas solutions must be considered for all countries involved. The Russian’s relies on natural resources that contributes to their nation’s wealth and lucrative international agreements.

Political Impact

The political impact will be explosive because the Russian factions will fight for the control of the European natural gas resources. In the world of Russia, the loss of the control of natural gas resources is a loss of power, economics and energy oversight. The perfect solution to sharing the economic benefits of the natural gas outweigh the political positioning. Russia is not just protecting the control over the dependence of natural gas by Europe, but they are protecting the lucrative agreements and relationships with trade with other regions. Russia believe they should be protective because they Russian has the potential to access over 20% of the natural gas resources worldwide and 95% of Russia’s natural resources (Advantour, 2015).

The Ukriane leaders believe that any solution that does not include the pipeline running through their territory is not acceptable. They believe it is Russian that is holding on to old power policies instead of comprising for world energy initiatives. Russia wants to control Ukraine politically, economical and kept their military power presence in Ukriane. Ukraine leaders indicated the real battle is over the transport corridors for natural energy and Ukraine’s ability to control alternative routes for ease of transport (Ozpek,2013).Russia refused to accept Ukraine as a major player in the strategic location of the energy producers such Russia and the Caspian Sea location. Ukriane has political clout because they can provide underground space for natural energy storage as Europe’s demand for natural gas has grown. Russia already has control of natural gas reserves with Gazprom, who does not want the competition from Ukriane. There other players that understand the capabilities of Ukriane such as Chevron and Exxon that are looking for other deals outside of Gazprom. There is a war of natural energy in the last days of fossil fuels and monopolies by country like Russia. The moderation of the natural energy routes will have alternative routes that will be fought on the political fronts, however, Ukriane knows that have more control that Russia is willing to admit.

The primary goal of Ukriane is to become a viable option for Europe as their needs for natural gas increase yearly.  In addition, European political leaders have stated that they do not want Russian to continue controlling their natural gas needs into the future. Europe wants to become an independent controlling their own natural resources and be allowed to entered into long term economic contracts that benefit Europe not just Russia. The Ukraine wants to sign lucrative along term deals for the storage of natural gas instead of Russians taking all the economic benefits. There are other countries that want political and energy freedoms such as Serbia, who can have the lucrative deals with Russia however for the long term it may not benefit Serbia.

The political and energy conflict of the European Union and Russia is about diversifying Europe’s gas imports. Europe has openly confirmed they aim to break away from the status quo business model of Russia while strengthening the Ukraine’s energy security and overall economic growth. The opposers want harsher sanctions imposed on Russia to accept and negotiate a more modern energy world programs that benefit the world not just Russia’s financial bottom line. Russia has caused a strained politically and international with all 28 member states of the European Union (EU). Russia has the most political power making sure the EU never develops one voice to vote against the initiatives important to Russia. The EU committee members has the power to review the Russian energy polices but they can only make the South stream project be put on hold but they cannot prevent ban the project. The EU politically can only regulate the usage of the pipeline. Russian political machine used the reason Ukraine does not have a reliable natural gas foundation to support the overall growth and storage of natural energy. The power of Russia has withstood the sanctions including the EU energy ruling that the South Stream project is non-compliant. The political moves by EU included creating policy objectives to Russia that would make the new energy agreements more diverse for the entire world. The EU council has demanded diversification of natural gas imports because there are alternative routes that are more beneficial for Europe.

Conclusions and Recommendations

The Russian government should follow the EU suggested policies that would strengthen each nation’s position with natural energy while reducing over time the dependence of the Russia’s overall control (Timmins, 2004). The EU requested for Russian leaders to allow Ukraine’s infrastructure to implement new energy security initiatives. In addition, to allow Ukraine the freedom to create their own natural energy resources and strategies reducing their dependence on Russia. The EU has mandated and requested a policy be put in place for strengthening all energy reforms that benefit all nations not just one monopoly (Andres, 2010).  In addition, all monopolistic energy models by Russian become phased out as each country because more dependent, while promoting overall economic competition among Europe and Russia. In addition, Russia must allow any country a voice in their own economical futures and how they want to increase control of their energy solutions (Andres, 2010).

The EU policy includes agreement by Russia to help lower natural gas prices that are more competitive across the board instead of creating social stress because the high price of natural gas. In addition, they want an agreement that Russia will commit to industrial fairness that make sure the gas prices stay lower and competitive which are already three times higher than America natural gas prices(Verhoeff & Niemann,2011).

The EU is following policies which aim to lower, or at least contain, gas prices in order to strengthen overall economic-industrial competitiveness towards the US. European gas prices are two or three times higher than those in America. It is the hope of the EU that these energy initiatives can be implement on a political, economic and global platform to ensure that allows countries to share a voice in the future of their own countries instead of the control and energy decisions by Russia(Verhoeff & Niemann,2011). This will be a difficult political negotiations because Russian has the political power and the current control over energy solutions. However, the world needs to continue to apply political pressure to Russia to do what is best for the environment and the longevity of natural gas solutions into the future. The EU has the right idea to provide the sanctions to urge Russian to make better energy decision for the whole, however, the EU will need to gain one voice to make a difference.

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