A monopolistic consumer principle and the European energy policy

What are the main benefits of creating a European Energy Union? What chances does a proceeding European integration hold for the countries of ECE? Karlis Bukovskis responds, that the Union can act as a monopolistic consumer lowering and homogenizing prices for natural gas and oil for the region of ECE.

The European Union’s energy security is a strategic and geopolitical argument based on economic needs. These economic needs, and needs of the economy, are driving the choices countries are making not only in the energy sector per se, but also in their foreign policies. The birth and existence of the European Economic Community, and its successor the European Union, have been based on pooling and sharing economic and political resources. The initial pooling happened in the energy sector with the establishment of the Coal and Steel Community, and the European Atomic Energy Community. But more recent hurdles to establish a European energy policy were dominated by a nationally inward-looking state of thinking within the EU. Therefore a return to pooling and sharing of energy resources would mean a return to the founding ideas of European integration, enabling it to regain its original state. Replicating the ideas for common approaches to external factors (e.g. a single external tariff on imported goods), the European Union must set sail to a common position towards external suppliers of energy resources. Ideally the European Union could acquire the position of a monopolistic consumer towards energy suppliers outside the EU (or European Economic Area).

Monopolies (or natural monopolies) traditionally related to the energy sector are attributed to energy suppliers or energy producers. If an energy producer can in fact be a single physical entity, the consumer is a normatively constructed totality. A consumer can be a physical entity, a state, or an economic or political union. The larger the consumer, the better their negotiation position. In the case of energy supplies, because of existing infrastructure and the location of sources, a particular consumer can become a monopoly consumer. Practically, it means the European Union has the capacity to become a powerful “price and supply” security negotiator, if a common agreement between the EU and every energy supplying third party was negotiated. Russian energy supplies have traditionally been negotiated by the Federation, separately, with each country. This has resulted not only in vast differences in Russian natural gas prices, particularly in the European Union, but also an ability to seek political influence through that.

A monopolistic consumer situation is an ideal type (Idealtypus), or principle, to be reached in the European energy policy. It is a target for reaching a united price, or supply agreement negotiation position, for the whole EU – or another way of looking at it – having one common interest based negotiator for each EU member state with each external supplier, allowing the EU to exercise the advantages provided through being a monopolistic consumer of foreign energy resources. Namely, an EU-level negotiator with Russia would practically give smaller Central and Eastern European countries and their consumers (populations and businesses) a more powerful bargaining position. Hence, not only would a monopolistic consumer situation allow a better position for price and supply negotiations, it would also empower energy consumers and put the bargaining process in politically accountable hands.

According to 2012 data, 53.4 percent of EU energy resources are imported from third countries. Moreover, individual suppliers like Russia tend to constitute a significant share on their own, for example 33.7 percent of EU imported crude oil comes from Russia. In Latvia, 76.8 percent of natural gas comes from either Russia, Norway, or Algeria, while 53.6 percent of imported crude oil is from Russia, Norway, or Saudi Arabia.[1] Multiple EU countries that are importing energy resources from non-EU countries, be it Norway, Russia, Qatar, Egypt, Oman, Trinidad-and-Tobago, Libya, Algeria, or Nigeria, are contemplating the security of supplies and lower price as main arguments in their national energy policies. The negotiation capacity to reach better deals depends not only on the particular human resources involved in bargaining, but also on the size of the market, intensity, and projected increases in consumption. An excellent example is the recent Chinese-Russian agreement for natural gas supplies which resulted in China playing its potent market card to reach a lowered gas price. In the EU’s case, the same negotiation advantages can be applied because “European countries import 84 percent of Russia’s oil exports, and about 76 percent of its natural gas.”[2] Therefore, the capacity for using the EU’s energy consumer potential is still a viable option.

[1] European Commission, Eurostat, Energy Production and Imports, in the website of European Commission, Eurostat, http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Energy_production_and_imports.

[2] Russia’s trade ties with Europe. BBC News, 04.03.2014., http://www.bbc.com/news/world-europe-26436291

Foto credits: Margaret via flickr

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