27 Oct 2006

The Coming of the Russian Gas Deficit: Consequences and Solutions

Alan Riley

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This paper argues that the January 2006 gas cut off in the Ukraine encouraged EU policy-makers and the media to focus on the wrong Russian gas issue. The core issue for the EU is not the threat of a politically motivated gas cut off. Rather it is the prospect of Russia, through lack of investment, not being able to produce enough gas to cover Russian and EU demands. The paper considers the extent of the likely gas deficit and determines that if no action is taken by 2010 the EU may be facing a deficit close to or even beyond its current Russian gas import level. The damaging consequences of such a deficit are then outlined for Russia, the Central and Eastern European Member States and the older Western EU Member States. The goes on to argue that an over-arching liberalised market structure needs to be built in both Russia and the EU, underpinned by the strong investor protection provisions of the Energy Charter Treaty. The paper concludes by examining the short and longer term measures that can be deployed to close the deficit.