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Germany’s Energiewende and the Baltic Sea region: Public opinion and systemic interactions

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Dr. Thomas Sattich is an Associate Researcher at the Institute for European Studies at the Vrije Universiteit Brussel, where he is working on energy- and industry-related topics. With various publications on EU energy policy and Germany’s energy transition (Energiewende), his focus lies on the power sector, the integration of renewables and the adaptation of the electricity transmission infrastructure to the needs of Europe’s sustainability agenda.

Executive summary

Germany’s energy transition changes the demand for energy on regional and international energy markets. A major share of the country’s energy imports comes from, or passes through the Baltic Sea region, making Germany the area’s main energy importer. Public discourse does, however, not reflect this situation accurately. Imports of natural gas block the view on the importance of other energy carriers. The latter, especially oil and coal, are, however, equally important both as elements of the regional energy system and with regard to Germany’s energy future. This article therefore aims at going beyond the narrow focus on natural gas, and provides a more encompassing assessment of the impact Germany’s Energiewende is likely to have on energy flows in the Baltic Sea region.

Introduction

In 2011 Germany started enthusiastically into its Energiewende adventure. Since then it became clear that the goal of a nuclear free and carbon-neutral energy system is not to be achieved easily or cheaply. The international implications of the project have not received much attention in the beginning; yet in the energy sector things are per definition interrelated and not confined to the national level. Soon after the phase-out of the first eight nuclear power stations, the country hence saw itself confronted with the international dimension of the latest of its energy policy u-turns. But to the major surprise of the general German public, the idea of a quick nuclear phase-out and large-scale increase of renewables did not turn out to be an Exportschlager (export success).

On the contrary, the focus of countries, such as Poland, Sweden and Great Britain, remained on coal, gas and nuclear power. Others such as Spain even reduced their subsidies for renewables. But even though Germany’s energy transition causes only little enthusiasm in neighbouring countries, the Energiewende still has repercussions in the international energy system: being Europe’s largest importer of energy, the transformation of Germany’s energy system changes demand on international and regional energy markets. Moreover, electricity flows go through the interconnectors between national power systems, and thus have an impact on the emerging EU electricity market. It is thus very likely that the Baltic Sea region will not remain unaffected by the Energiewende.

The aim of this article is a twofold assessment of 1) the role of the Baltic Sea region for Germany’s Energiewende project and 2) the likely impact of this project on energy flows in the region. A short-term and a long-term scenario could serve as the basis for this analysis: according to Germany’s national energy strategy the nuclear phase-out is to be completed by 2022. At this point renewables should contribute with at least 18 per cent to meet national net energy demand, and with at least 35 per cent to electricity demand. The renewables are supposed to increase to 60 per cent of national net energy demand and 80 per cent of electricity demand by 2050 (BMWi 2014a). As the

Energiewende’s history suggests, sudden turns in Germany’s energy policy are possible. As a consequence, the article elaborates on the basis of a 2020/2022 short-term scenario.

What role does the Baltic Sea region play in Germany’s plans to transform its national energy sector?The following section provides an analysis of public discourse in Germany. Aiming at an assessment of those issues that will affect the region’s energy system in the following years, this analysis looks at the Baltic Sea region through the eyes of the country’s energy-interested public. Based on this assessment, the energy system of the region and the likely impact of Germany’s energy system itself is analysed. The focus of this step lies on import/export flows of different energy carriers.

Germany’s energy transition and energy flows in the Baltic Sea region: public opinion in Germany

The significance of a particular region for a country’s energy policy should be reflected in the national media coverage: the more important a particular region appears to journalists and experts to be as a source, supply route, and/or location for energy production of a given country, the more prominent its place in the energy-related media coverage should be. Similar patterns should be noticeable in the German case. On the basis of this assumption, the following analysis aims at assessing the relative importance of the Baltic Sea region for Germany’s Energiewende. It is based on a sample of 717 articles from five of Germany’s leading daily and weekly newspapers, covering the spectrum from centre-right to centre left and a time period from April 2005¹ to October 2014: Die Zeit (76 articles), Der Spiegel (63), Süddeutsche Zeitung (206), Die Tageszeitung (90), and Die Welt (282).²

How much attention does the Baltic Sea region receive in German debates around the Energiewende? From the sample of articles, 134 mention the term ‘Ostsee’ (the Baltic Sea), that is almost 19 per cent. However, this number shrinks drastically if the search term is amended with ‘erneuerbare Energie’ (renewable energy) or ‘Energiewende; only 33 (4.6 per cent), respectively 26 articles (3.6 per cent) discuss the role of the Baltic Sea for the country’s energy transition towards more renewables. In order to put these numbers – and hence the relative importance German press attributes to the Baltic Sea – into perspective, it has to be related to the prominence of other areas. Since Germany is not only a littoral state of the Baltic Sea, it seems logical to ask also about the prominence of the North Sea and other neighbouring regions in German energy-related press (Figure 1).

Based on the findings of this analysis, aforementioned search results appear in a different light. Even though other countries and regions rank higher on the echelons of energy-interested public awareness in Germany, a nevertheless considerable percentage of energy-related press articles seems to discuss the threats or benefits of the Baltic Sea for the country’s energy policy. It can hence be assumed that the Baltic Sea is considered an area of significant importance for Germany’s Energiewende project by German press (and thus the country’s energy-interested public). Moreover, this general interest in the Baltic Sea seems to increase (Figure 2). Yet the results of this analysis are indifferent with regard to the specific role the Baltic Sea plays in energy-related public debates in Germany; the relatively low number of articles in the year 2013, for example, cannot be explained on this basis. In order to provide a better view, a closer look on the specific targets of the Energiewende is necessary.

According to BMWi (2014a, 11), the Energiewende aims at distinctively changing central elements of Germany’s energy system: on the one hand, the share of renewables in Germany’s gross energy consumption is to be increased to 18 per cent until 2020 (60 per cent by 2050); on the other hand, the use of primary (fossil and nuclear) energy is to be decreased by 20 per cent (50 per cent by 2050). In sum, these and other measures are supposed to decrease green house gas emissions by 40 per cent in the same time period (80 to 95 per cent by 2050). The electricity sector has to play a fundamental role in this programme, with targets even more far reaching: power consumption is to be decreased by 10 per cent until 2020 (25 per cent by 2050), and full nuclear phase-out is to be achieved until 2022. By then (2020) renewables are to increase to a share of 35 per cent in gross final power consumption (80 per cent by 2050).

How does German press reflect these targets with regard to the Baltic Sea? While the percentage of newspaper articles from the sample generally reflect the significance of individual Energiewende targets, the Baltic Sea appears to be a blind spot in this regard: only a small fraction of those articles, which are dealing with Energiewende targets also mentions the Baltic Sea. A look at the different forms of energy explains why: German press mostly reflects on the Baltic Sea region with regard to conventional energies; most important in this context is gas and oil, but nuclear energy and coal also play a significant role. Renewable energy, such as solar, biomass and hydropower, on the other hand hardly appear at all (Figure 3). The exception that proves the rule in this context is wind power, as more than a third of those articles that mention the Baltic Sea deal with this form of power generation.

In a first approximation this analysis has examined the prominence of the Baltic Sea in German energy-related press; yet the search term ‘Ostsee’ (the Baltic Sea) is too narrow to include the entire region, that is those countries around the Baltic Sea. A deeper assessment therefore has to include the individual littoral states in German Energiewende-related press. There are slight differences between the numbers of articles that mention the search terms ‘Energiewende’, ‘erneuerbare Energie’ and individual countries around the Baltic Sea; yet all in all Poland, Russia, and Sweden appear to be at the centre of attention, whereas Denmark, Finland and Norway attain less attention and rank second in German press.³ Estonia, Latvia and Lithuania attract the smallest share of attention.Thus, a few preliminary conclusions can be drawn: if the prominence of the Baltic Sea in German press is taken as an indicator, it appears that the energy-interested public in Germany attributes only limited attention to this region in terms of the Energiewende targets. The interest is, however, growing. Moreover, by broadening the scope to include the littoral states of the Baltic Sea, the picture changes significantly, with individual countries, such as Poland, Russia, and Sweden attaining considerable attention by German press. Seen through the eyes of the German press, the Baltic Sea region is, however, of limited importance with regard to the primary targets of Germany’s energy transition, that is the reduction of (fossil) energy consumption and the increase of renewables. On the contrary, the German press perceives the Baltic Sea region mostly as a supplier for fossil energy, especially gas and oil, or as the location of conventional/nuclear energy based electricity generation capacity.

A closer analysis reinforces this impression: screening the sample of articles mentioning the Baltic

Sea for different search terms to appear in the same section as ‘Ostsee’ (the Baltic Sea), almost two thirds of the results account for the term ‘gas’, while only 18 per cent account for ‘wind’. Hence, not only do most articles in the sample largely cover fossil fuels; the particular sections within the articles that contain the search term ‘Ostsee’ also mostly cover the issue of natural gas which is mentioned. The conclusion of this analysis must hence be that gas largely predominates where public discussions in Germany mention the Baltic Sea region and the Energiewende. Given the Energiewende targets to decrease the use of carbon based energy carriers⁴, the following sections can hence be based on the hypothesis that – with the exception of wind power – the Baltic Sea region will lose some of its importance for Germany’s energy system.

Germany’s energy transition and energy flows in the Baltic Sea region: statistical facts and trends

Where the Baltic Sea region is mentioned, it is largely portrayed as a supplier or supply route for fossil fuels – namely gas – by the German press. In comparison, other forms of energy, such as nuclear energy or biomass, hold an inferior position. The construction of the Nord Stream pipeline might, however, have resulted in a place of gas imports in German public discourse disproportionate to its actual role. Beyond, renewables pose a serious challenge for gas-fired power plants in Germany. The role of natural gas might therefore decrease in the years ahead. The Energiewende targets to generally decrease the use of fossil fuels until 2020 and beyond. In order to provide a clearer idea of the interactions between Germany’s Energiewende and energy flows in the Baltic Sea, this section will therefore analyse the energy system of the Baltic Sea region in more detail. Basis of this analysis is Eurostat data on energy consumption and imports from 2010-2012 (see Annex at the end of this article).

If the territory of the littoral states is included in the analysis, the Baltic Sea region⁵ is an area rich in energy resources, with a three years (2010-2012) average surplus of primary energy production of 500.2 mtoe (million tonnes of oil equivalent). Unsurprisingly, the distribution of available energy resources is, however, highly unequal, with only three countries, namely Denmark (2010-2012 average surplus of 1.7 mtoe), Norway (2010-2012 average surplus of 169.6 mtoe) and Russia (2010-2012 average surplus of 602.5 mtoe), showing a positive balance between energy consumption and production. If one compares this (positive or negative) balance with gross energy consumption of individual countries, the seriousness of this situation becomes clearer: with the exception of the three net exporters, the countries of this region do not produce indigenous energy in numbers sufficient to supply the national economies (Figure 4). The energy supply gap of those countries⁶ with insufficient access to indigenous energy sources amounts to a (2010-2012) average of -273.7 mtoe.

With an index of -0.613 Germany is to be found amongst those countries that in the region with the smallest basis of indigenous energy. As a result of its internal energy situation and the size of the German economy, the country thus is confronted with a massive (2010-2012 average) energy gap of (-)198.1 mtoe, that is 72.38 per cent of the region’s combined energy supply gaps. 95.3 mtoe, or 48 per cent, of the necessary imports to Germany come from the littoral states of the Baltic Sea region.⁷ The Baltic Sea region can thus be described as the backbone of Germany’s energy supply, and should be of strategic interest for the country. Given that Germany also accounts for some 24 per cent of gross energy consumption in the Baltic Sea region (including entire Russia), any changes in the German system of energy production, imports and consumption can be expected to affect energy flows in the entire region (Figure 5).

Energy imports from the Russian Federation and Norway play a particular role in this regard, as they account for nearly the totality of imports from the Baltic Sea region to Germany, and hence fill almost half of the country’s energy gap. Including Norway and Russia in the analysis is, however, based on a very broad understanding of the Baltic Sea in terms of geography, as both countries stretch far beyond the geographical limits of that area. This analysis therefore requires a closer definition of the ‘Baltic Sea region’. In this regard, it is important to understand that Germany’s national energy system is located at the crossing point of several major Euro-Eurasian energy regions (Högselis, Aberg & Kaijser 2013, 56). German gas and oil imports from Norway, for example, come from fields in the North Sea, and cross that sea through different pipelines (via Europipe I, Europipe II, and Norpipe); from its entry points to the national German system – located at the shores of the North Sea – Norwegian gas then predominantly supplies areas in North-Western Germany (such as the Ruhr), which, in a more narrow sense, cannot be described as being part of the Baltic Sea region.

In the strict geographical sense, Norwegian gas (2010-2012 average of 25,003 mtoe) and oil (8.5 mtoe) supply to Germany can hence mainly be attributed to the North Sea Europe region (Högselis, Aberg & Kaijser 2013, 56); they are thus to be excluded from the following analysis. With energy from Russia, things are more complicated, as parts of the transit system are part of the Baltic energy system (Nord Stream, Yamal/Europol), whereas others (e.g. Brotherhood) pass through different regions. However, yearly transport capacities of individual pipelines⁹, and actual gas flows in these pipelines¹⁰ allow to infer an estimated 50 per cent of Russia’s gas and oil supply towards Germany passing through countries in the Baltic Sea region. The following analysis thus includes only those 50 per cent of German oil and gas imports from Russia that can be assumed to pass through the Baltic Sea region.

As a result of this, the overall picture of energy flows in the Baltic Sea region changes considerably, and leaves a clearer perspective on the interplay of Germany’s Energiewende with the flux of various forms of energy in the area (Figure 6). Accounting for approximately 79 per cent of energy exports, the predominance of Russia amongst the energy exporting countries remains largely unchallenged in this closer definition of the Baltic Sea region, whereas Norway’s role as energy exporter becomes far less important. Germany’s energy imports from the region reduces largely, to approximately 57.6 mtoe, that is a comparably small 36 per cent share. In other words, the importance of the Baltic Sea region for Germany’s energy sector diminishes if the analysis is based on a strictly geographical understanding of the geographic area.

Moreover, the perspective on different energy carriers as a commodity in the Baltic Sea region changes with an exclusion of Norwegian and Russian sources: while gas is most prominent in the German (Energiewende-related) press on the Baltic Sea region, its actual share amongst those energy carriers which are traded and shipped in the region, is small compared to other energy carriers, such as oil and the different forms of coal (see Figure 6). Compared to the flows of oil, gas is only the second most important energy in the energy system of the region, and depending on the share of coal among solid fuels¹³ it is likely that gas even ranks third. An analysis of the impact ofGermany’s Energiewende on energy flows in the region has to take this limited role of gas into account. Moreover, the place of electricity imports and exports in the region amongst other forms of energy flows has to be noted, as its relatively small share indicates that electricity generation still has a very strong national basis.

The impact of Germany’s energy transition on energy flows in the Baltic Sea region

Its scarcity of indigenous energy resources makes Germany irrelevant as an energy exporter.¹⁵

Regardless of major modifications of Germany’s energy system, such as the Energiewende, this is unlikely to change. As an importer Germany plays, however, an important role in different energy markets. With a yearly average of 57.6 mtoe (2010-2012) of energy imports, 25 per cent of Germany’s total imports of 176.4 mtoe (2010-2012 average) come from or pass through the Baltic Sea region.¹⁶ To put it differently, 36 per cent of the Baltic Sea region’s total energy flows enter Germany’s energy system. The Energiewende will affect this pattern (until 2020 and beyond), yet the question is, how and to what extent. Since Germany’s exports is unlikely to change significantly¹⁷, the reminder of this section focuses on energy imports.

Based on an energy scenario from 2010 (Prognos, EWI, GWS 2010)¹⁸ , it can be assumed that Germany’s energy imports from the Baltic Sea region will decrease by 27 per cent to 41.8 mtoe until the year 2020 (Figure 7). In today’s numbers, this implies that Germany remains the largest destination for energy flows within the region, but the country’s share of imports would reduce from 36 to 26 per cent. As a consequence, the region’s combined energy deficit of (-)273.7 mtoe (see Annex, Table 2) would be reduced by about 15 per cent. In other words, energy demand would decrease. Yet in order to infer from Germany’s national energy policy on future energy flows in the entire region, several factors need to be taken into account, namely economic growth, national policies of neighbouring countries, and energy prices.

Sound and continuing economic growth of Germany’s eastern neighbours, makes it, for example, possible that by 2020 Poland will be the region’s main importer of energy from the Baltic Sea region.¹⁹ In view of relatively large share of oil, development of road traffic and transport could be a decisive factor in this regard, both in Germany and other countries. National policies are very different in terms of their approach to road traffic: while Germany implemented programmes to promote the use of electric cars and increase their number from only 12,156 at the beginning of 2014 (Car Sales Statistics, 2014) to one million by 2020 (Bundesregierung), other countries did not. Depending on the success of Germany’s policy to convince consumers of the benefits of electric cars, oil demand will develop accordingly.

Other national policies, such as supply diversification programmes in Poland and the Baltic States – that is increased use of LNG from overseas and of indigenous shale gas, as well as the continued use of nuclear power (in Sweden and Finland) and/or the successful construction of new nuclear plants and the necessary grid infrastructure (in Poland and the Baltic States) – might generally reduce demand for gas in the region (largely gas from Russia). Whether Germany will actually retain its roleas the region’s main importer thus depends on the development of German demand for natural gas, bituminous coal, and solid fuels. Their place in Germany’s energy system is, however, very much unclear. The reason behind this uncertainty is to be found at the very core of Germany’s

Energiewende project – namely the phase-out of plants suitable for meeting base load requirements and increasing number of intermittent renewables.

Both technically and economically this combination of decreasing numbers of base-load generators and increasing numbers of peaking units such as solar and wind power is a complex issue, and – despite many scenarios and plans – there is no blueprint for a system where decentralised and intermittent renewables largely replace centralised base load plants. Flexible gas and biomass power plants are seen as the ideal technological link between the two elements; yet as the case of Europe’s most recent gas power plant in Irsching (FAZ, 2015)²⁰, illustrates, investments in state-of-the-art equipment and turbines becomes unprofitable under the economic conditions of the Energiewende: as renewables have priority access to the grid, they are growing in numbers and come with low prices at peak hours, therefore, market for gas and other fossil fuels is shrinking. Moreover, gas faces a double challenge, as coal still outcompetes gas due to lower prices.

The development of Germany’s gas imports hence largely depends on the question whether policy makers agree on a capacity market that provides an economic framework suitable to keep gas plants in the system. Such a step is currently under discussion (BMWi, 2014b). Outcomes of this discussion and their implementation will certainly affect Germany’s demand for coal and gas imports. Notwithstanding the results of this political process, the demand for biomass is likely to increase in Germany over the following years, because this form of energy – either used in decentralised plants or in form of co-combustion in existing fossil fuel plants.²¹ The share of biomass amongst energy imports is thus to until 2020. Depending on the availability of biomass and the outcomes of Germany debates on capacity markets, this energy source is hence – to a larger or smaller extent – to replace either coal or gas in Germany’s energy imports from the Baltic Sea region.

Conclusions

Against the backdrop of energy imports and exports patterns in Northeast Europe, this article analyses the place of the Baltic Sea region in Germany’s public discussions about the country’s energy future; natural gas imports from Norway and Russia largely dominate this public discourse. The construction of the Nord Stream pipeline is likely to be one of the reason for this highly topical nature of gas in German public discourse; it can hence be assumed that the perception of the Baltic Sea region by the German public is largely distorted. This article therefore attempts to broaden the discussion by expanding the focus of the analysis to include other forms of energy such as coal and electricity. On the other hand, this article attempts to focus on the energy system of the Baltic Sea region in the narrower sense. As Norwegian oil and gas exports to Germany come from and through the North Sea, they are hence excluded from this analysis. And as about half of Russia’s oil and gas exports to Germany pass through Central Europe, they are equally excluded.

The result of this analysis is, that the importance of the Baltic Sea region for the future of Germany’s energy supply is not fully grasped by German public. Individual countries, such as Poland and Russia

obtain varying degrees of attention, and so do the various forms of energy. But all in all the narrow focus on gas largely hides the role of other forms of energy coming to Germany from or through the Baltic Sea region, and thus the true role of the area for Germany’s future energy system. Taking the bigger picture of energy flows in the Baltic Sea region into account, the role of gas imports from Russia appears overestimated in German discussions concerning the role of the Baltic Sea region for Germany’s energy supply: even though Russia is the region’s main supplier of energy, natural gas is not the most important energy carrier. The focus of German media on this topic hence seems to obstruct the view on other important energy carriers, such as coal and – most importantly – oil, which are at least equally important.

As a response to the growing role of renewables, Germany currently discusses a new market design for fossil fuel power stations. Capacity markets for coal and gas-fired plants will be the likely result of these debates, as backup for the notoriously volatile renewables is needed. As Germany is the region’s largest importer of gas and coal, the design of these markets will largely determine the impact of Germany’s Energiewende on regional flows. The way Germany’s Energiewende will affect patterns of energy exports and imports in the region depends, however, on more factors. The future of the German transport sector will at least be equally important, as oil represents the largest share in energy flows in the region. Widespread use of electric cars could serve as a storage battery for intermittent wind and solar power; in 2014 the German government therefore renewed its support with a broad range of incentives for the use of electric cars.

It remains, however, to be seen whether the customers of the German car industry see electric cars as an attractive option. If they do, Germany’s role as an importer of energy from the Baltic Sea region could diminish largely. In this case, Germany’s place in the energy system of the Baltic Sea region will be determined by the results of current discussions about a capacity market for flexible fossil power stations. Depending on the exact outcomes of these debates, German energy imports could decrease according to official scenarios. In such a case, Germany might lose its role as the region’s main importer of energy. For those countries in the region which have only limited access to indigenous energy resources and hence can only play a minor role in supplying Germany’s energy system, such a development is not necessarily a bad one, as their bargaining position on the regional energy market would improve, especially if they successfully implement programmes to further diversify their energy supply.

References

Auer J. and Anatolitis V. (2014) The changing energy mix in Germany. The drivers are the Energiewende and international trends. Deutsche Bank Research. Current Issues, June 26, 2014.

BMWi (2014a) Zweiter Monitoring-Bericht „Energie der Zukunft“. Berlin: Bundesministerium für Wirtschaft und Energie BMWi.

BMWi (2014b) An Electricity Market for Germany’s Energy Transition. Discussion Paper oft he Federal Ministry for Economic Affairs and Energy (Green Paper). Berlin: Bundesministerium für Wirtschaft und Energie BMWi. Bundesregierung (n.d.) Leitmarkt und Leitanbieter für Elektromobilität. Retrieved from http://www.bundesregierung.de/Webs/Breg/DE/Themen/Energiewende/Mobilitaet/podcast/_node.html, date accessed: April 9, 2014.

Car Sales Statistics (2014) 2014 Germany: Total Number of Electric Cars, March 29, 2014. Retrieved from http://www.best-selling-cars.com/germany/2014-germany-total-number-electric-cars/, date accessed: April 9, 2014.

CIEP (n.d.) Russian Gas Imports to Europe and Security of Supply. Fact Sheet. The Hague: Clingendael International Energy Programme.

FAZ (2015) Energiewende. Irrsinn in Herrsching. Frankfurter Allgemeine Zeitung, March 17, 2015.

Gazprom Export (2015) Transportation. Retrieved from http://www.gazpromexport.ru/en/projects/transportation/, date accessed: February 11, 2015.

Högselis P., Aberg A. and Kaijser A. (2013) Natural Gas in Cold War Europe: The Making of a Critical Infrastructure. In

The Making of Europe’s Critical Infrastructure. Common Connections and Shared Vulnerabilities, edited by Per Högselius, Anique Hommels, Arne Kaijser, Erik van der Vleuten, 2761-101. Basingstoke: Palgrave Macmillan.

OECD and IEA (2004) Energy Statistics Manual. Paris: Organisation for Economic Co-operation and development, International Energy Agency.

Prognos, EWI and GWS (2010) Energieszenarien für ein Energiekonzept der Bundesregierung. Studie für das Bundesministerium für Wirtschaft und Technologie. Basel, Köln, Osnabrück: Prognos AG, Energiewirtschaftliches Institut an der Universität zu Köln, Gesellschaft für Wirtschaftliche Strukturforschung mbH.

Sattich T. (2014) Germany’s Energy Transition and the European Electricity Market. Journal of Energy and Power Engineering, 8(2): 264-273.

Annex

Table 1. Yearly energy production and consumption in the Baltic Sea region (2010-2012 average, in ktoe)

Country	Average consumption	Average production	Balance
DE	322773.17	124684.17	-198089
DK	18875.73	20578.53	1702.8
EE	6149.33	5019.9	-1129.43
FI	35892.37	17173.87	-18718.5
LI	6963.77	1306.27	-5657.5
LV	4514.33	2129.7	-2384.63
NO	30346.63	199960.77	169614.13
PL	99841.07	68491.9	-31349.17
RU	772254	1374802.8	602548.8
SE	50100.53	33757.9	-16342.63

Table 2. Yearly energy deficit/surplus in the Baltic Sea region (2010-2012 average, in ktoe)

Country	In per cent of national consumption	In per cent of regional deficit	In per cent of regional surplus
		(-273670.87 ktoe)	(773865.73 ktoe)
DE	-61.37	-72.38
DK	+9.02		0.2
EE	-18.37	-0.41
FI	-52.15	-6.84
LI	-81.24	-2.07
LV	-52.82	-0.87
NO	+558.92		21.9
PL	-31.4	-11.45
RU	+78.02		77.9
SE	-32.62	-5.97

The global gas market: An international perspective

Admin — Sat, 19 Sep 2015 14:27:17 +0000

Mr. Pål Rasmussen is the Secretary General of the International Gas Union (IGU) and has 25 years of experience form the gas industry. Rasmussen holds a master degree in economics and management. Executive summary Natural gas has become fundamental part of the global energy mix. The increasing reserve base and well developed technical and commercial infrastructure place natural gas in an excellent position to be part of the long-term solution in meeting the global energy challenges. Benefits of using natural gas range from improved air quality in towns and cities, improved working conditions, a cleaner and more efficient local economy, more competitive energy supplies with better security and the prospect of prosperity for all. From an international perspective, we see the global gas ‘revolution’ as an ongoing dynamic and evolutionary process in which natural gas technology, investment and trade continue to develop and spread throughout the world. In this article, we will review some of the step changes in economics and politics that have created challenges or stimulated the global gas market since the start of this millennium, and discuss the implications for key regional energy markets, such as the Baltic Sea region. We should also remind ourselves of the ‘gas chain’ that has been the fundamental basis for long-term natural gas investment and expansion. We are now entering a new era, in which shorter-term and smaller scale investment is equally important, and this has fundamental implications for new markets and new uses of gas in all its forms. IGU has no doubt that minimising pollution and mitigating climate change must be central features of sustainable energy policy, both locally and globally. But policy makers must not forget the important role that natural gas already plays in helping us achieve a low-carbon future. Not only is natural gas the perfect partner for intermittent renewable energy sources, switching to natural gas now, instead of using more polluting fuels, is often the most efficient and timely solution. Finally, we will look briefly at how companies are adapting to the continuously changing international energy business. There are exciting developments taking place in the Baltic Sea region. Although the gas market here is small-scale by global standards, the Baltic Sea region is at the cutting edge of technology and is developing a gas industry with potentially wide impact.

Events that have influenced recent gas market development Fifteen years ago, at the be- ginning of the millennium, the world had experienced a decade of economic growth built in part on increased international trade and supported by greater free- dom in global capital markets.

The current drive for a low-car- bon energy solution had its roots in this period too, with the 1992 UN Framework Convention on Climate Change, which commit- ted National signatories to reduce their emissions of Greenhouse Gases. This led to the adoption of the Kyoto Protocol in December 1997, which entered into force in February 2005. This was also the decade of new developments in information technology and web- based communication that were to survive the ‘.com bubble’1 and become the mainstay of many ac- tivities in the world today. During the 1990’s, the gas in- dustry continued to invest for the longer-term, and as we entered the 2000’s gas market growth, which had averaged 2.1% rate over the previous ten years, was set to increase to an average of 2.8%. People active in the gas industry could see the benefits of natural gas and there were optimistic fore- casts about even stronger growth of global and regional gas markets.

An important political event in the Baltic region took place in June 2004, when Estonia, Latvia, Lithua- nia, and Poland joined the European Union along with the Czech Repub- lic, Cyprus, Hungary, Malta, Slo- vakia and Slovenia. This profound enlargement of the European Union has brought further challenges and opportunities for the integration of the ‘Internal Energy Market’, not least for investment in natural gas infrastructure and diversity of im- ported gas supplies for Europe. But, let’s fast-forward a few years to 2007, when a financial crisis was starting to cause some of the world’s largest banks to fall into administration. At the same time commodity prices, including energy, were rising: the follow- ing year, oil peaked at over $140/ barrel (bbl) during the summer. Despite this, as seen in Figure 1, 2008 was the year that global gas demand reached 3000 bcm for the first time. But then, the effects of the global economic downturn started to bite and demand in sev- eral markets collapsed with severe

effects on manufacturing industry and on energy demand, notably in some developed economies. Furthermore, 2009 began in Europe with a disruption of Rus- sian gas supplies through Ukraine. Although this was resolved more quickly than the similar contrac- tual dispute in 2006, the disrup- tion led to concerns about supply security and a renewed interest in geopolitics and the need for energy diversity. Globally, the economic squeeze reduced energy demand even with oil prices tumbling to be- low $40/bbl and natural gas prices falling too. For the first time in re- cent history, annual global gas de- mand decreased significantly (by 2.3% in 2009 compared with 2008). The long-term outlook for the gas industry seemed very chal- lenging, particularly in Europe. Overall, however, the IGU 2030 Gas Industry Study, presented at the World Gas Conference in Bue- nos Aires, looked forward to natu- ral gas increasing its market share from 22% to 25% of global energy consumption, and an even higher percentage if Governments would properly recognise the environ- mental benefits of natural gas. The new decade started opti- mistically, but April 2010 was to be a month of disruption and disasters; Volcanic ash from the eruption of Eyjafjallajökull in Iceland led to the closure of airspace over most of Eu- rope and a few days later the Deep-water Horizon drilling rig explosion killed 11 people, caused the rig to sink and oil discharge in the Gulf of Mexico. The year overall saw a re- surgence of natural gas across the world, while in the US natural gas prices stayed low and production increased to over 600 bcm, support- ed by the increasingly successful exploitation of shale gas onshore.

On 11 March 2011, a 9.0 magnitude earthquake caused a tsunami wave, which severely damaged the Fukushima Daiichi nuclear power plant. There were almost immediate political reac- tions across the world, including a decision by Germany to perma- nently close all its nuclear capac- ity by 2022. Separately, on a socio- political front, popular uprisings and demonstrations spread across much of North Africa and the Mid- dle East in a phenomenon that be- came known as ‘the Arab Spring’. 2011 was the year that the Inter- national Energy Agency (IEA) asked the question “Are we enter- ing the golden age of gas?”. Cer- tainly this seemed to be the case for the global LNG market, which expanded by 10%. The shale gas ‘revolution’ was progressing rap- idly in the USA. With self- suf- ficiency of natural gas in North America established, instead of importing LNG the industry was now signing the first export deals for future US LNG exports broadly priced at ‘Henry Hub plus’.

By May 2012, Japan itself had shut down all its nuclear reactors, but thanks to LNG imports it was able to use natural gas to make up much of the 30% loss of power generation capability. Globally however, international gas trade changed little year-on-year and surprisingly LNG trade actually decreased. Whilst the global gas market had become better connected than ever before the high spot price for LNG and fierce com- petition with coal for power gen- eration was having a dramatic ef- fect. 2013 saw a return to modest gas demand growth of 1.4% in the global energy market. During 2014, probably the most significant event was the de- cline in oil prices from well over $100/bbl to a range of $50-60/bbl by the end of the year. This has profound implications for the nat- ural gas industry and we will look at natural gas price movements late in this article. At the time of writing, authoritative global de- mand data for 2014 is not yet published, but indications are that the gas market has continued to expand, despite a further squeeze in Europe caused by slow economic growth, highly-subsidised renew- able energy and warmer than av- erage temperatures that reduced demand for space heating. Natural gas consumption in the European Union actually decreased by 11% to 409 bcm in 2014, and the industry is seriously considering strategic adjustments for the future.

Throughout all this, the natu- ral gas industry has developed and adapted to change. As the gas busi- ness has grown globally the interac- tions across the world have become increasingly significant, in particu- lar with many more countries in- volved in LNG trade. International relationships and trade in natural gas will be even more important in the future. This is particularly the case in Europe, where the decline in indigenous gas production seems inevitable. Reshaping the gas mar- ket in Europe to be ready for future challenges may well need to take a new course. There will still be ‘mega projects’ in other parts of the world, and there may well still be signifi- cant natural gas resources to be found and developed in some locations in Europe, but we are already seeing a new approach to the gas value chain developing. So that we can explore this phenomenon, I would like to de- scribe briefly the traditional gas business, including some basic technical information, so that we can understand better the invest- ments throughout the gas business and how they have been linked into a value chain. This structure is now starting to behave like a global network, with new delivery routes, new market sectors and new market participants doing business in new ways.

The natural gas value chain Natural gas is a mixture of hydrocarbons, of which by far the largest component is the simplest hydrocarbon, methane (CH4). Methane is an odourless, colour- less, non-toxic gas which is lighter than air. Synthetic natural gas and bio-gas are examples of increas- ingly important components that are being integrated into natural gas systems, but conventional and unconventional natural gas pro- duction, still provides more than 99% of global gas supplies. The gas business throughout the world has involved long-term invest- ment ‘from drill bit to burner tip’ to bring natural gas to final cus- tomers. The IGU diagram (Figure 2) illustrates, in a simplified form, the main components of the tradi- tional gas value chain. Exploration, production and processing Most of the natural gas that has been discovered so far was al- most certainly formed by similar biogenic processes to those that created oil reserves. Over millions of years the residues of decom- posed organic material under in- tense pressures and temperatures, have become hydrocarbon miner- als, including natural gas. These hydrocarbon minerals can be found both in the original source rock where they were formed (including shale formations) and also in more porous reservoir rocks that are the conventional oil and gas fields.

Natural gas also includes some heavier hydrocarbons, such as ethane (C2H6), propane (C3H8), butane (C4H10), and there can be a wide range of different non-hy- drocarbon gases that also occur in the mixture in the reservoir rocks. Indeed, gas production has often been a by-product of oil produc- tion and is then termed ‘associated gas’. Three different types of natu- ral gas production can broadly be categorise by the type of reservoir.

‘Dry gas fields’ requiring very little processing of the reservoir fluids needed to achieve
pipeline quality gas;
‘Condensate gas fields’ in which the heavier natural gas hydrocarbons can be separated as
natural gas liquids (NGLs); and
Oil fields with ‘associated gas’, sometimes with a natural gas

cap that can be produced sepa- rately or temporarily re-injected to enhance oil production. Development plans and in- vestment decisions depend on the expected relative revenue streams from the gas and liquid hydrocar- bons, but even for dry gas fields the reservoirs themselves can vary in fundamental characteristics like the permeability of the reservoir rock. Extremely tight formations (for example shale gas reservoirs) require stimulation to enable the natural gas to be produced. Natural gas is abundant, but the reservoirs that are simple in struc- ture and closest to markets tend to be developed first. This means that investors may face a choice between developing remote conventional gas reserves or more difficult unconven- tional gas that is closer to the market and requires use of new technology. In practice both types of investment has occurred; as new technology is developed and proven the tech- niques can be applied more widely and the global economic reserve base increases.

Natural gas occurs in other forms, most notably as methane hydrate crystals. This is potentially a vast future source of natural gas, but for which at present production technology has not yet found an economically viable solution. Once produced the natural gas is likely to need some processing. If it is dry gas with very few impurities then it might be sufficient to check the gas quality and make sure that it is adjusted to the correct pressure and temperature for the next stage of its journey. More likely, however, is that it will also be necessary to treat the ‘wet’ gas that has come from the upstream reservoir to deal with one or more components that need to be removed to satisfy the gas quality requirements for on- ward transportation. International and national high pressure pipelines The locations of natural gas reserves are more diverse than for oil, but even so a large proportion of natural gas needs to be transported from the producing countries and regions with more gas than is need- ed internally like Norway, Russia, Qatar, the Caspian area and North Africa to the consuming countries and regions with demand that can- not be satisfied by indigenous gas

supplies, such as Japan, China and the European Union. International high pressure pipelines provide direct links from producers to consumers. Good relationships with any transit country (through which the pipe- line passes) are essential to main- tain high reliability of gas supply. Technically, these high pressure pipelines are immense feats of en- gineering that continue to be the main way by which vast interna- tional flows of gas are transported. Because the pipeline usually locks the gas producer into a particu- lar route to a certain market, the commercial and political condi- tions both in the transit countries and in the downstream market are crucial. This leads investors to fa- vour projects that are backed by long-term contracts in which one party has a strong market position midstream or downstream. Globally, however, there is, in total, far greater investment in gas transmission pipelines tak- ing place within individual coun- tries, for example in the USA and in China. The shale gas revolution in North America changed indig- enous supply patterns and led to many new onshore pipeline pro- jects to enable higher levels of gas production to be brought to mar- ket. In the USA, however, several of the main shale gas formations are relatively well positioned, ei- ther with good proximity to the final market or in economic reach of existing infrastructure. In con- trast, the geographical challenge to deliver indigenous natural gas to the main consuming areas has been far more demanding in Chi- na. The final length of the second West-East Pipeline linking gas production in the west to con- suming areas in the east was over 8,700 kilometres, including both east and west sections and eight branches, making it probably the world’s longest natural gas pipe- line. Construction of a third West- East Pipeline, to bring additional supplies from Turkmenistan as demand for natural gas in China continues to grow, is scheduled for completion before the end of 2015.

Liquefaction, LNG shipping and regasification Gas liquefaction, so that nat- ural gas can be more easily trans- ported by ship (or occasionally by road tanker) to the market where it is then regasified, has become almost as important as pipelines as a means of international deliv- ery of natural gas. Liquefaction involves pre-treatment to remove oil condensates, purify the natural gas from pollutants like sulphur or carbon dioxide, remove any traces of heavy metals and control the moisture level. Then the processed natural gas is refrigerated to reach a temperature down to approxi- mately minus 161 degrees Celsius.

This refrigeration process involves compression, condensation and expansion of refrigerants that ex- change heat with the natural gas until it becomes a liquefied natural gas (LNG) occupying 1/600th of the volume. A large enough LNG fleet of ships (or road tankers) is essential to prevent bottlenecks developing in the supply chain. Since January 1959 when the Methane Pioneer set off for Europe with its modest cargo of liquefied natural gas from the Louisiana Gulf coast of the USA, international LNG trade has developed a global fleet that now amounts to over 380 active ships, the largest carrying up to 266,000 m3 of LNG. Annual worldwide de- liveries are equivalent to well over 300 bcm of natural gas, about 10% of global consumption. Some countries have long been reliant on LNG, and like Japan and Korea have based successful downstream markets on a range of LNG supplies, but with the growth of international gas trade many more countries now have LNG re- ception terminals and there is a flourishing market in LNG deliver- ies and diversions to the markets with highest value. This flexibil- ity is of course only possible when there are sufficient ships available (a diversion may well result in a longer route) and sufficient capac- ity in the regasification terminals to where a ship might be diverted.

The capacity in the regasification terminal comprises not only the delivery slot to enable the ship to be unloaded, but also short-term storage of the unloaded LNG and regasification (in which LNG is warmed up) before compressing the natural gas into a national or local transmission pipeline. LNG is set to be an exciting growth area, with bold and inno- vative solutions being applied both upstream and downstream. An example of upstream innovation is the Shell operated Prelude gas field development off the NW coast of Australia. Rather than pipe the produced gas to the shore, the pro- ject involves a very large liquefac- tion ship that will float above the gas field and load LNG into con- ventional LNG carriers for onward delivery to market. Downstream, there are many more innovations in the LNG market, as illustrated in Figure 3, which is taken from the IGU 2015 LNG Review. The ‘re-export’ market from receiving terminals is evolving to distribute LNG as a fuel to further downstream mar- kets. Thus supplying off-grid net- works with gas and fueling the heavy trucking business (e.g. in China, the USA and Europe) and bunker business for barges notably in Europe. In the not too distant future we might also see the deep sea shipping fleet becoming an im- portant market for LNG.

Storage The ability to liquefy natural gas means that it can be stored and made available at very high delivery rates, but the process of liquefaction and storing LNG is often expensive. In many parts of the world gas demand is very sea- sonal and the storage of very large volumes of gas that are needed (for example for residential space heat- ing in northern hemisphere win- ters) is best achieved underground in natural geological formations, particularly if such structures can be found near the local pipeline grid that serves the centres of gas demand. Most of these structures used to be oil or gas reservoirs, which benefit from unproduced ‘cushion’ gas as well as confidence that the natural integrity has been proven for containing reservoir fluids at high pressures. Occa- sionally the geological conditions are right for gas storage in highly permeable rock that benefits from a hermetically sealed cap, like the sandstone formation in Latvia that allowed the development of the 4.4 bcm (2.3 bcm working volume) Inčukalns Underground Gas Stor- age (UGS) Facility, one of the largest in Europe. In all forms of UGS an im- portant component of the storage facility is the ‘cushion’ gas that remains in the store so that a rea- sonable withdrawal rate can be achieved. The ‘working gas’ in the store is injected (compressed) into the UGS on top of the cushion gas and it is this working volume that is taken out for the heating season or for other commercial reasons during the storage cycle.

Another form of UGS, which offers potentially higher delivery rates albeit sustainable perhaps over a number of weeks rather than throughout the winter months, is salt cavities. Here, the storage cavities of the optimum shape and size are leached out from the un- derground salt formation. The ability of storage facilities to add flexibility to the gas net- work and to help balance the in- puts and off-takes of gas suppliers is extremely important. Increased

use of intermittent renewable en- ergy sources creates more stress on energy grids. The ability of fast- response gas storage to respond to within-day fluctuations is allowing new dynamic ways to use storage, particularly for portfolio optimisa- tion and improvements in overall efficiency in liberalised markets. In comparison with the dif- ficulties of storing electricity or stockpiling coal, natural gas pro- vides very efficient and highly ef- fective ways of storing potentially vast amounts of energy with mini- mal impact on the environment and with the ability for rapid re- sponse through already connected networks. In aggregate this may also provide sufficient flexibility for national or regional ‘strategic’ purposes.

Local transmission and distribution The energy carried though a typical gas transmission pipe is far more than can be transmitted through the biggest high voltage electricity cables. Gas in the trans- mission system is at high pressure (typically 50-80 bar) and, depend- ing on the final use, may pass through a series of pressure reduc- tions, metering and quality checks leading to low pressure distribu- tion pipeline systems with their own pressure and flow controls and final metering at the supply point of the end consumer. Technology is enabling gas operations and gas markets to develop in ways that should lead to further efficiency improvements in grid operation and utilisation. Smart grid tech- nology as well as Smart metering still have a long way to go but have already demonstrated significant fuel savings through grid optimi- sation at Transmission level. The regulatory focus in com- petitive supply markets tends to be on the pipeline systems, with regional groupings of energy regu- lators aiming to enable third party access (TPA). In Europe, of course, we have ACER, the Agency for the Cooperation of Energy Regulators, which is instrumental in encour- aging a consistent approach to all

the gas transmission grids in the EU. Other regional regulatory ini- tiatives aim to foster competition and introduce incentives particu- larly for the interconnection or expansion of gas infrastructure in less developed markets. Whilst transmission and dis- tribution pipelines can become relatively safe cash-generating as- sets in a mature market, the ini- tial investment typically requires large capital input for a low-mar- gin business that is not provid- ing an economic return until the market has grown, and may take decades to reach payback. Initial downstream investment is often at least partially in public ownership, with the distribution (pipeline) ac- tivity in the same company as the local monopoly gas retail business. Clarity about government policies for public and private ownership is essential to avoid problems for po- tential investors. The regulatory regime must also be clear, so that the access conditions are under- stood and the tariff structure does not distort the market. LNG provides an alternative approach to the local distribu- tion of natural gas, by LNG road tanker (sometimes referred to as a virtual pipeline). As the markets expand for natural gas as a land vehicle fuel, either as LNG or CNG (Compressed Natural Gas), as well as fuel for ships, the use of these ‘virtual pipeline’ routes could add greater flexibility and security to the energy system as well as ena- bling locations to be serviced that might otherwise be sub-economic.

Utilisation The economic availability of natural gas combined with its quali- ties of efficiency, quality, reliability, convenience and responsiveness to the consumers’ needs make it an ideal choice for a wide range of uses in many part of the world. High efficiency gas boilers are the mainstream residential gas appliance in many countries. Commercial customers also pre- fer natural gas for space heating, either directly or as the fuel for a Combined Heat and Power system. Gas is also an ideal fuel for district heating systems and makes an excellent partner with intermit- tent renewable energy sources like wind and solar power. Industrial gas demand requires a more competitive offering in rela- tion to other fuels, but the proven high efficiency appliances that al- ready exist for natural gas could be a springboard for further growth in the manufacturing sector. Natural gas is also a useful feedstock for the petrochemical industry, and there are indica- tions that this use is developing in some producing nations as an alternative to exporting LNG or constructing a new international pipeline.

Whilst at a relatively low level, the use of natural gas as a trans- port fuel is possibly the most rapid- ly growing sector across the world. There are encouraging signs both onshore, with compressed natural gas fuelling millions more cars, trucks, busses and lorries, and off- shore with LNG-fuelled ships be- ing favoured over more polluting rivals in environmentally sensitive areas like here in the Baltic Sea re- gion. The Gas Target Model for Eu- rope, published by the Agency for Cooperation of Energy Regulators in January 2015, includes projec- tions of new uses of gas in the EU across four main areas, which are closely linked either with renew- able energy or LNG: • Natural Gas Vehicles (NGVs) using CNG or LNG; • Water transportation; • Power to Gas (P2G) technologies, using surplus renewable energy; and • Virtual Pipelines (Truck loading of LNG). With the right political support and economic stimulus, Fig- ure 5 shows that the contribution from these sectors could be very significant on a European scale within just five years. Globally, however, the use of natural gas for high efficiency, low-emission power generation re- mains the largest and most impor- tant growth sector, but the pros- pects vary across different regions of the world. How much and how rapidly the global gas market will grow is dependent on fundamen- tal economics, which in turn are influenced by political attitudes to energy and to climate change.

Wholesale gas prices and how they are formed? Natural gas prices, and how they are formed, influence the economic viability of investment and market development. One as- pect of the IGU Committee work over the last ten years has been to monitor wholesale gas price trends. There are several aspects to this work, which are described in detail in the 2015 Report by the IGU Strategy Committee. Whilst the global energy markets are better connected than ever before, the average wholesale natural gas prices at the beginning of this year at Henry Hub in the USA were under $3/million British thermal units (mmBtu), Europe was around $7-8/mmBtu and Japa- nese LNG over $15/mmBtu.

Figure 6 shows how natural gas prices rose in these three mar- kets during 2007 and 2008, and then collapsed following the oil price fall in summer 2008. Whole- sale gas prices are formed in dif- ferent ways throughout the world. Where price formation is based on traded gas markets, as in the USA and the United Kingdom, an adjustment to the perception of available supply and demand for natural gas is quickly reflected in the wholesale price. Price forma- tion that contractually links the natural gas price to an index of a competing fuel (e.g. crude oil as in many Japanese LNG purchase con- tracts, or oil products as in many Russian international sales con- tracts) both delay and dampen the changes. By the summer of 2009 natural gas wholesale prices across the world had ‘bottomed- out’, but with the oil-indexed prices re- maining significantly higher than the traded gas market prices.

Then, in 2010 divergence into three clear pricing areas occurred, with the US shale gas surplus keeping Henry Hub prices low and, with no physical ability to export the surplus gas (instead the USA exported some displaced indig- enous coal) while the gas prices in Europe and Asia were pulled up

by the higher oil price and the in- creased gas demand. IGU has carried out several sur- veys to determine how the methods of gas price formation have changed over the last decade. During this time there has been a slow move- ment away from ‘oil’- indexation and an increase in gas market based pricing where this is technically pos- sible. Regulatory and government determinations of wholesale gas prices still remain important, par- ticularly in less developed markets, but the types of regulatory controls are themselves changing to more cost- reflective methods. The trend towards wholesale natural gas prices being based on the prices in traded gas markets has been driven by the expansion of gas-on-gas competitive markets in which consumers have been able to seek suppliers with the lowest price offerings. At the same time, the contractual linkage of the nat- ural gas price to relatively high- priced oil products has placed the agreements with traditional large gas supplying countries like Russia under considerable pressure. With the fall in oil prices the differen- tial between oil-indexed and gas hub traded prices is now changing. But already in Europe2 overall, as shown in Figure 8 there has been sufficient confidence in the traded gas markets to link more than 60% of the physical wholesale gas sales to the prices at gas hubs in com- petitive markets.

A partnership with renewable energy There is a growing realisa- tion that natural gas can be a per- fect partner for renewable energy. There are, however, difficult chal- lenges in making investment deci-

sions in capital intensive projects when the plant is not expected to operate most of the time. Some bespoke projects already successfully combine gas and re- newable energy because of the lo- cal circumstances, but in general an energy market design is needed to ensure that there can be widespread and large-scale implementation. The way natural gas is priced can also influence whether the best environmental choice are made, and this can work both ways. Where the wholesale natural gas price is too high then efficient low emission gas-fired CCGTs can- not compete with cheap coal-fired plant, whereas if the gas price were unusually low (as occurs in parts of the Middle East, for example) then worthwhile renewable energy pro- jects face undue economic barriers. Governments or their agen- cies have an important role to help the market achieve the best eco- nomic solutions for sustainable and secure development of the energy system. Among the things that IGU has recommended are:

to encourage investment in re-search and technology to deliv-er their political objectives;
to avoid picking winners and losers, but rather to incentivise those industries that deliver re- sults (e.g. better to have a ‘cost for carbon’ than ongoing sub- sidy of a particular source ofenerg y);
to ensure that there are no un-due subsidies or taxes that dis-tort the market; and
to see first if the removal ofexisting incentives or obliga- tions would be a more efficient solution than adding a new in- centive or obligation on energy companies.There are already signs that, with such good practice, the world might be turning a corner and get- ting CO2 emissions on a downward trend. In March 2015, the IEA an-

nounced that global anthropogenic CO2 emissions had stabilised in 2014 while world GDP increased (by 3%). This was the first time in 40 years that the global economy grew without increasing emissions, and was attributed to changes in ener- gy consumption patterns in China and OECD countries. Increased use of solar and wind energy no doubt contributed to this success, but the continuing shale gas revolution in North America combined with the expansion of the Chinese natural gas market were probably decisive factors that have enabled CO2 re- ductions from the world’s two dom- inant energy consumers. Adapting gas business models to the changing energy world Investor groups associate companies with a particular part of the natural gas value chain be- cause the risks, required skill sets, and critical success factors vary considerably. Often there are dif- ferent laws and fiscal systems gov- erning the upstream, midstream and downstream components. To manage the commercial risks, however, companies have often sought to integrate along the value chain, particularly if there are is no developed trading hub availa- ble to enable them to manage price and volume risks.

Throughout the gas chain the investor assesses and manages the risks in the hope of achiev- ing a return on their investment. Commercial risk relates primarily to the investment and operating costs and the volumes and prices of gas. Political and regulatory un- certainties can be the determin- ing factor as to whether or not the commercial risk is acceptable.

Whatever the prevailing ide- ology and legislative systems, suc- cessful natural gas development and continued industry growth needs to be based on co-operation and mutual commercial prosperity all along the value chain. Business models, however, continue to change. Physically, the gas industry still relies on large infrastructure to create the back- bone of the business, but increas- ingly there are many smaller pro- jects that, joined together, create an even stronger market. We can image this as a large single chain being slowly replaced by a woven mesh that is both more flexible and more resilient for the benefit of the final customers. Within this mesh there should be room for local en- ergy sources, whether synthetic natural gas, bio-methane or shale gas, as well as a diversity of tradi- tional and conventional deliveries of LNG and pipeline gas.

In conclusion: the Baltic Sea re- gional gas market in focus The gas market in the Baltic Sea region is quite diverse internally, but until re- cently it was characterised by a lack of connectivity with the rest of Europe and a lack of supply diversity in most countries. There have already been some investments made to address these issues, notably with the LNG reception terminal at Świnoujście in Poland and the Klaipėda floating LNG storage and regasification facil- ity in Lithuania. Since 2010 Finland has had an LNG production facility in operation at Porvoo in the South of the country. Plans for LNG terminals at the port of Turku and at Tornio in BSR Policy Briefing 1 / 2015 the North aim to bring LNG directly to Finland, making the gas and fuel markets more versatile and supplying LNG for vessels operating on the Baltic Sea. There are several other LNG im- port, storage or redistribution pro- jects under consideration, including a large-scale terminal at Inkoo near the landing point of a proposed Bal- tic Interconnector offshore pipeline linking the Estonian and Finnish gas markets. A further dimension would be a St Petersburg LNG facility. This idea was re-launched last year as a project in which the plant’s output would be supplied to the Kaliningrad area and also used for bunkering and

small LNG cargoes in the Baltic Sea region. Encouraged by the new SECA (Sulphur Emission Control Areas) rules, ferries are changing fuel to LNG. In Sweden (Gotenburg), fer- ries have already switched to LNG as bunker fuel, being much more environmentally friendly than the Marine Fuel Oil that was previously used In addition to the well-known Nord Stream offshore pipeline de- velopment, there have also been enhancements to the onshore pipe- line systems to allow reverse flow from Germany to Poland, and to in- crease the capacity to Denmark and Sweden. Plans for further intercon- nection seem limited because of un- certainty about future gas demand growth in the region. Transporting gas as LNG may well allow better economic options in such cases. In Poland, where natural gas is recognised as an environmentally advantageous replacement for coal- fired power generation and where indigenous shale gas production remains a real possibility, the na- tional demand for natural gas is ex- pected to rise significantly. In some countries in the Baltic Sea region however, the national energy plans suggest that natural gas consump- tion is expected to be displaced by renewable energy. Each country may well have a different optimum balance, but we can learn two les- sons from what is happening in the rest of Europe and indeed through-out the world. Firstly, gas markets that are better connected can sup- port each other at times of stress or disruption of the energy markets, and secondly the increase in the use of intermittent renewable energy sources requires a reliable low-car- bon partner such as natural gas. For a sustainable future it is important to retain, and better to grow, the share of gas in the energy mix.

Technology continues to de- velop and to provide solutions for the variety of energy challenges faced in the region. Here you are at the cutting edge, breaking new ground with the Klaipėda floating LNG terminal in Lithuania, exploit- ing bio-gas potential for vehicle transport in Sweden and creating Synthetic Natural Gas from wood in Finland. Developments in the fuel and bunker market already make this the primary local growth area Notes:

for LNG. Further developments in utilisation of gas in all its forms will help to expand the global market and establish natural gas new sec- tors with overall benefits for energy efficiency and the environment. We live in a complex world of change, with wide ranging risks that are faced by countries and com- panies. Here in the Baltic Sea re- gion, as in the rest of the world, we need to strive for closer cooperation and to improve our shared commer- cial and technical understanding of what is needed to facilitate invest- ment in the gas market. This will help to deliver a secure low-carbon energy future for us all. Let the dynamic evolution continue! Published in BSR Policy Briefing 1 / 2015, Centrum Balticum, www.centrumbalticum.org

The Coastal Factor In The Socio-Economic Development Of A Territory (Based on the example of Kingisepp District of Leningrad Oblast)

Admin — Wed, 16 Sep 2015 18:14:56 +0000

Druzhinin Alexandr Georgievich — Doctor of Geography, Professor, Director of the Northern-Caucasian Research Institute of Economic and Social Problems of the South Federal University.

Lachininskii Stanislav Sergeevich — PhD in Geography, Research Fellow at the Laboratory of Comprehensive Studies of the Spatial Development of the regions, Institute of Problems of Regional Economics of the RAS; Assistant Professor of the Department of Economic and Social Geography, Saint-Petersburg State University.

This article was prepared based on the materials of the expedition studies in the framework of research grants of the Russian Scientific Foundation (#15- 18-10000) and the Russian Humanitarian Scientific Foundation (#15-02- 00002).

The aim of the study was to identify the role of the coastal factor and the location factor in the transformation of the socio-economic system of Kingisepp District.
The scientific and practical significance of the proposed research concerns synthesis of analytical, statistical, expert estimates and projections, as well as consideration of the position of the local authorities, views of major economic players and port operators.

The study aims to contribute to the regional economy and social geography, united by a common geospatial paradigm. Russian scientific literature provides little research performed on the level of municipal districts, which greatly decreases our understanding of the socio-economic processes in the field. Kingisepp district of Leningrad Oblast is a unique area that combines several important spatial characteristics — «cross-border-ness», «seaside-ness», and «periphery-ness». The seaside part of the region (which has 114 km of the sea coastline) has gained a powerful impetus to its formation due to implementation of the project of the Ust-Luga sea port. This sea port continues to increase its influence not only on the surrounding areas, but also on the whole historical main area of economic and residential development of the municipality (along the axis of «Ivangorod — Kingisepp»). This became possible due to improvement of road and transport infrastructure, outlooks for development of industrial zones, housing development, and due to an increase in labour “push-pull” migration. The article describes the most important aspects of the transformation of the socio-economic system in the context of marine economic activities that correspond to the port development.

Introduction

“The shift to the sea” of the economy, population and infrastructure is a fundamental, universally manifested trend of the territorial organization of the modern society. Marine economic activities are based on the powerful economic potential of the world’s oceans (according to the most conservative estimates, the value of their resources totals 24 trillion USD [1]), and correspond to globalization (it is symptomatic that 90% of international trade is carried out through seaports [2]). In this regard, in the scientific literature there have been cultivated for decades notions of the economic and social specificity of coastal regions, of the “coastal zones” as specific socio-geographical phenomena; attempts have been made to identify and delimitate them. At the same time, formal geospatial criteria for a “coastal zone” (a direct “access” of a territorial socio-economic taxon, merged by this coastal zone, to the coast, as well as a small, usually in the range of 50 to 200 km distance from the coastline [3-9]), as we believe, should always be complemented by the actual impact of the “coastal factor” on the territorial socio-economic dynamics, and by recognition of the determination of the coastal zone (including its spatial scope and contours) specifically by its marine economic activities (including development of modern port, logistics and industrial complexes [10, p.55]).

A striking example of the renovation of the coastal zone, its “compressing” and “expansion” (as well as the overall “coastal factor” in the social and economic development), is Kingisepp District of Leningrad Oblast. Here, a major project of the Ust-Luga sea port has been successfully implemented for already more than two decades. With the growth of the port and industrial activity and developing of the necessary infrastructure, it provides an increasing impact on theeconomic and residential architectonics of the territory.

The port of Ust-Luga as the “pole” of the socio-economic activity in water and on land

Construction of the sea port of Ust-Luga is carried out in accordance with the decree of the Government of the Russian Federation dated April 28, 1993 #728-r with the aim to create powerful, high-performance complexes for handling bulk to large vessels with the carrying capacity of over 30 thousand tonnes. The port was kind of an “answer” of Russia to the growing geopolitical and geo-economic risks from transit countries (first of all, from the Baltic States). At the same time its construction was a logical step in the development of the north-west (Baltic) transport communication corridor of Russia and in the reconstruction (expansion on a new site) of the Saint-Petersburg sea transport hub.

Unlike the old sea ports – Saint-Petersburg, Novorossiysk, Rotterdam, Antwerp, Hamburg, Le Havre and others, Ust-Luga was originally designed as «greenfield». This means that it was designed as a new project from scratch in a new place, which determines not only its high-tech capabilities, but also opportunities for further expansion of transport and logistics activities and, which is even more important (also due to the potential impact on the surrounding areas), opportunities for the development of the port industry. This project is a good example of the successful practical implementation of the Russian geo-economic strategy by the State and its business in the very complicated geo-economic, economic, financial and institutional conditions. German researcher Hans Kundnani, when discussing such behavior of states (in his studies – Germany), interprets it as a “geoeconomically active state using its geoeconomic power” [11].

Figure 1

Turnover growth dynamics, 2003-2014 (tonnes)

Compiled based on [12]

Currently, the port of Ust-Luga (with a turnover of 75.7 million tonnes in 2014 – Fig. 1) is the largest port not only in the region (to put this in perspective, the port of Saint Petersburg has a turnover of about 58 million tonnes, oil loading port Primorsk – up to 75 million tonnes), but also in the entire Baltic Sea, being second in the whole country only to the sea port of Novorossiysk. Developing on a single site, the port of Ust-Luga is in fact an established transportation and logistics cluster, uniting 15 independent terminals:

“Rosterminalugol” JSC (employing 308 people; overload of Kuzbass coal for export with the design capacity of 4 million tonnes of coal per year; by August 2015 it has handled almost 10 million tonnes);
“Universal Handling Facility” LLC (design capacity – 3 million tonnes; the terminal specializes in receiving, storage and shipment for export (import) of general and bulk cargo, including – cast iron ingots, coal, nonferrous metals, bulk goods);
“European sulfur terminal” JSC (design capacity – 9 million tonnes per year; sulfur comes by rail from Orenburg and Astrakhan);
“Baltic fertilizer terminal” LLC(Transshipment of general cargo and fertilizers with the capacity of over 5 million tonnes);
“Ust-Luga Oil” JSC (employing 600 people; the design capacity – 30 million tonnes of oil products per year, of which 20 million tonnes – dark oil products and 10 million tonnes – light petroleum products; the tank farm provides storage for 960000 m³ of petroleum products; the terminal performs transshipment of oil products from companies of the following cities and towns: Kirishi, Yaroslavl, Surgut, Ryazan, Nizhnevartovsk, Orenburg, Saratov, Samara, Syzran, Achinsk, Kazan and Pavlodar);
“Spetsmornefteport” LLC (LLC “Transneft – Port of Ust-Luga” is focused on receiving of oil from the main oil pipeline, storage and shipping of oil into tankers in the interest of oil companies of the Russian Federation and is aimed at ensuring a continuous process of transfer of oil for export; the tank farm of Ust-Luga is an endpoint of the “Baltic Pipeline System – 2″ (BPS-2));
“Neva Pipeline Company” LLC (provides handling of up to 30 million tonnes of Russian oil for export);

8. “Commercial sea port Ust-Luga” JSC (Multipurpose Transshipment Complex MTC Yug-2 is designed to handle a wide range of goods: new imported cars, large rolling machinery, containers, project and general cargos, including military equipment for export; shipment of cars from the terminal is carried out by car and rail);

9. North-Western Basin Branch of the Federal State Unitary Enterprise “Rosmorport” (servicing terminal for the port activity);

“Ust-Luga Container Terminal” JSC (the first deep-water container terminal in north-west Russia; with its full development it will become the largest and most technologically advanced Russian terminal with a depth of up to 16 m at berth and a carrying capacity of 2.6 million TEU per year; currently the volume of transshipment totals 440 thousand TEU[1]);
“Sibur-Portenergo” LLC (subsidiary of “SIBUR Holding” JSC, managing a complex for transshipment of up to 1.5 million tonnes of liquefied petroleum gas (LPG) per year and up to 2.5 million tonnes of light oil products per year in the commercial sea port of Ust-Luga);
“NOVATEK Ust-Luga” LLC (complex for fractionation and transshipment of stable gas condensate; enables processing of stable gas condensate in the light and heavy naphtha, kerosene, diesel fractions and fuel oil, and shipping of finished products for export by sea; capacity of the complex is 6 million tonnes of raw materials per year);

13. Forest Terminal “Factor” JSC (has a timber transshipment capacity of about 290 thousand m³/tonnes with the prospect of handling pallets up to 400 thousand tonnes per year);

“Terminal New Haven” LLC (the terminal is designed to receive Ro-Ro and general cargos; the terminal capacity allows storage of up to 10,000 cars at the same time with the ability of loading up to 240 car haulers per day);

15. “SmartBalk Terminal” LLC (a joint venture of “FosAgro” JSC and “Ultramar” LLC, stevedoring and terminal service company for transshipment of mineral fertilizers in the port of Ust-Luga. The freight turnover is 3 million tonnes of phosphate fertilizers per year).

Additionally, the “Baltic ferry” project has been launched in Ust-Luga. This is a railway-car ferry line Ust-Luga – Baltiysk – Sassnitz (Germany). It is important to emphasize that this ferry crossing, while providing stable sea links with the Kaliningrad Region, also becomes the basis for the development of the cross-border transport and logistics cluster on the shores of the Baltic Sea, which is very important for Russia. In particular, at a meeting of the Governor of the Leningrad Region A. Drozdenko with the Head of Mecklenburg-Western Pomerania E. Sellering in June 2015 it was decided to set up a logistics center in the port of Sassnitz-Mukran (Germany).

Currently, there are three vessels operating on the ferry line Ust-Luga – Baltiysk – Ust-Luga. They are owned by subsidiaries of the Russian Railways and make 7-8 voyages per month. Over the entire period of the functioning of the ferry line Ust-Luga – Sassnitz there have been transported about 254 thousand tonnes of cargo, including 861 units of vehicles and 4171 carriages. According to experts [13], in the next 15 years many countries, including France, Denmark, the Netherlands, Belgium and Austria, will become interested in this ferry crossing, as already now there is reciprocal cargo traffic with Russia with the volume of about 20 million tonnes.

With the growth of its transport and logistics potential, the port of Ust-Luga is becoming an increasingly attractive platform for the implementation of major industrial projects. First of all, this involves localization of the gas- and petrochemical cluster in the port area with further intensification of specialization and cooperation and with the growth of the added value of products. It is significant that this is not for the first time that petrochemical and gas chemical industry becomes the driver of a port and industrial complex. For example, Houston (USA) is one of the largest manufacturing centers in the world for petrochemical industry. Houston has more than 3,700 organizations working in petrochemistry, as well as 9 refineries, processing 2.3 million barrels. In total, Houston has 719 enterprises producing chemicals and plastics [14].

The decision of “Gazprom” JSC to build the “Baltic LNG plant” is strategically important for the creation of the gas and petrochemical cluster. The project has been preliminarily approved in the following format: two lines of 5 million tonnes of LNG per year each with a possibility to build a third one. The in-service date of both lines is the fourth quarter of 2020. The volume of investments was estimated at 10 billion USD. Gazprom’s partners can become the Anglo-Dutch «Shell» or Japanese «Mitsui», «Mitsubishi», «JGC Corporation», which possess the necessary licenses and gas liquefaction technologies. All of them are already involved in Russian LNG projects. A strategic partner will get a share of up to 49%. The plant will be located in Ust-Luga, which will require a gas pipeline of 360 km from Volkhov with the capacity of 25 billion m³. It is expected that the construction phase will provide about 4,000 job vacancies [15].

As part of the development of the industrial zone “Ust-Luga”, there has started development of the project for production of ammonia and carbamide – “Baltic carbamide plant” LLC (near the village of Vistino) of the group of companies “East” with the capacity of more than 1 million tonnes of carbamide. The estimated volume of investments exceeds 1.5 billion USD. The construction of the plant will create 780 jobs in the area. To implement this project, the company rents an area of 160 hectares in the eastern part of the industrial zone “Ust-Luga”. The future plant of the “East” group for production of granulated carbamide will be located here. Thesiteareawillbeabout 55 hectares. The project also involves creation of a sea terminal with the length of the quay wall of 300 meters and a depth of 16 m (the transport corridor from the plant is 8 km). If necessary, it will also involve construction of its own branch of a gas offtake from the existing gas pipeline “Kohtla-Järve – Leningrad”, the reconstruction of which is incorporated in the plans of “Gazprom”. The terminal complex and a carbamide plant will be connected by a corridor of communications [16]. An ammonia plant for 700 thousand tonnes,ownedby”EvroChim” JSC,should become an important part of the port and industrial complex.

The already built and planned port terminals, as well as production capacities near the port designed for construction are a strong “pole” of the localized marine economic activity. Thus, they foster renovation of the coastal zone, expanding the impact of the “coastal factor” virtually over the entire territory of Kingisepp District, which becomes, in this regard, not only formally, but also actually (structurally, due to the configuration of centers and flows) a coastal area.

The main local socio-economic effects of the “compressing” and “expansion” of the coastal zone

The variety of regions and territories determines various models of social and economic development. Situation factors significantly adjust such development and expand the “corridor” of opportunities. At the same time, the economic, geographical and geo-economic situation is no longer a “destiny”: it can and must be adjusted (for more details please refer to [17]). The near-border and seaside location can change most successfully, primarily due to the development of cross-border infrastructure (including international automobile border-crossing points, warehouse and logistics infrastructure, commercial areas), as well as port and industrial facilities.

As O.A. Kuznetsova rightly notices, “an economic and geographic position can be assessed as favorable in case of vicinity to major economic centers and large sales markets; in case of a seaside location (maritime transport remains the cheapest, therefore sea ports are actively developing due to the port activity itself as well as due to production facilities associated with imported components and/or delivery of products for export); in case of a near-border location in proximity to economically developed countries (which become sources of investments) [18, p. 128]. It is also worth referring to the opinion of S.S. Artobolevsky, who notes that in modern Russia “one can distinguish three types of areas of growth, formed under the influence of globalization, agglomeration and resource factors: the largest urban agglomerations; export and resource regions; port near-border regions on the main routes of foreign trade “([19], p. 82). Indeed, the territory under investigation falls under the strong influence of Saint-Petersburg; the western part of the area, along with the district center, is part of the Greater Saint-Petersburg (with a population of about 6.5 million people). In addition, the near-border position provides promising opportunities for the development of global economic cooperation. However, under the current circumstances of the sanctions confrontation, many near-border and bilateral projects with Estonia and the EU in general have been frozen. In this situation, the use of the potential of the seaside position, in the first place for its port and economic and port and industrial activities, is undoubtedly a dominant factor in the development of Kingisepp District.

With the focus on Kingisepp District, it should be emphasized that the development of the port of Ust-Luga was accompanied by multidimensional impact on the entire local social and economic system. Just during the period of 2012-2014, the volume of goods and services, produced on the territory of the district, almost tripled. The unemployment rate is steadily declining and now is less than 1%. The average salary in the district in 2014 was 39,500 RUR – this holds the fourth place among the municipalities of the Leningrad Region [20]. To put this into perspective, the average monthly wage in the district in 2010 increased by 19% and nominally amounted to 27,701 RUR in 2011 [21]. At the same time, in 2014,the average monthly wageof employees in largeand medium-sizeprocessing industries on the territory of the districtcompared to 2013increased by10.0%, reaching 40,979 RUR. In largeand medium-sizeenterprises ofall forms of ownership the wage growthwas 8.4%; the average monthly wagefor2014 is 40,564 RUR. Wagesabove averagein Kingisepp District are found in organizationsinvolved in construction(139.7% compared to the average level forthe district) and in transport and communications services(157.7%) [20-21].

The most striking positive social and economic situation in the district is reflected by its considerable migration attractiveness (Table 1).

Table 1

Population migration in Kingisepp District and in certain areas of Leningrad Oblast (2011-2014) *

District	District population in 2011 (thousand people)	Indicator (people)	2011	2012	2013	2014
Lomonosov District	64689	Arrived	1398	1924	2658	2480
		Left	1230	1803	2196	2621
		Change	168	121	462	-141
Luzhsky District	78284	Arrived	2264	2791	2761	3139
		Left	1771	2547	2925	2658
		Change	493	244	-164	481
Kingisepp District	78329	Arrived	2808	3032	3574	3746
		Left	1446	2471	2705	3405
		Change	1362	561	869	341
Tosnensky District	123188	Arrived	6023	7758	7825	8359
		Left	2307	3795	5432	6594
		Change	3716	3963	2393	1765
Gatchinsky District	233682	Arrived	9589	11933	12660	13236
		Left	4280	6823	8516	10021
		Change	5309	5110	4144	3215
Vsevolozhsky District	261145	Arrived	11244	16911	21627	25072
		Left	4855	8002	9619	13406
		Change	6389	8909	12008	11666

*Compiled based on [22]

Kingisepp District is a part of the so-called “belt” of four districts, located to the south of Saint-Petersburg (Fig. 2), which is characterized not only by a significant migration increase, but also by large-scale modernization of the basic infrastructure [20-22].

Figure 2

Compiled based on [22]

(Награфике):

Structure of the migration balance in Leningrad Oblast in 2013

Vyborgsky District

Priozersky District

Vsevolozhsky District

Kingisepp District

Slanzevsky District

Luzhsky District

Volosovsky District

Sosnovy Bor

Lomonosovsky District

Gatchinsky District

Tosnensky District

Kirovsky District

Kirishsky District

Volkhovsky District

Tikhvinsky District

Boksitogorsky District

Lodeinopolsky District

Podporozhsky District

General migration balance

Migration structure of Kingisepp District:

International

Interregional

Intraregional

Therefore, influence of the port is most significantly reflected in social indicators of the development of the territory: unemployment rate, wages (especially in construction and transport), positive migration balance. However, it should be noted that the port turnover, which has substantially increased in recent years, still poorly corresponds with the general demographic and economic characteristics of Kingisepp District, which is quite noticeable when compared to some foreign “near-port” territories (Table 2).

Table 2

Social and economic potential of Kingisepp district compared to some similar territories*

Territory	Population, people, 2015	Area, km²	Population density, person per km²	GDP per person (euro)	GRP, mln euro, 2012	Main port
Kingisepp District (Russian Federation)	79647	2907	27,20	7423	810	Ust-Luga(78 mln tonnes)
Kymenlaakso (Finland)	180900	5148	35,24	32095	5806	Kotka-Hamina (13,41 mln tonnes)
Ostvorpommern (Germany)	105036	1899	55,00	16975	1783	Rostock(21,1 mln tonnes)
Klaipeda District (Lithuania)	333000	5209	63,93	12613	4200	Klaipeda(35,2 mln tonnes)
Kurzeme (Latvia)	301621	13596	22,20	6153	1856	Ventspils(30,4 mln tonnes)

* compiled by the authors based on [12, 23]

The “coastal factor”, implemented due to the development of the port, also impacted the basic center-peripheral architecture of the territory. The emergence of a new “point” of the social and economic growth in the ex-periphery of the municipality (degradation of fisheries, as well as border and environmental constraints, complemented by a lack of transport and other infrastructure, which was overcome only due to the construction of the port, secured such a status for coastal areas) determined the socioeconomic bipolarity of the area. Meanwhile, its traditional center (Kingisepp) became increasingly involved in ensuring implementation of the transport and logistics Ust-Luga project, acquiring features of a “coastal” settlement.

It is indicative that at an early stage of the development of the transport and logistics project it was believed that it is the seaside village of Ust-Luga that in the long run will become the economic center of the area and will draw investment and human resources from Kingisepp. Such a vision was partly caused by the partial degradation of the town-forming basis of the district center (its largest enterprise “Phosphorit” was downsized), which occurred in 2003-2008.

However, as Kingisepp was integrating into an expanding coastal zone, it managed to keep its position. The fact is that the port of Ust-Luga currently employs 3500 – 4000 people; at the same time, there are no more than 3000 people living in the nearest village of the same name (according to the situation in 2015). The vast majority of those employed in the port, in the end, is settled primarily in the district center, where there has been extensive residential construction in the recent years (Residential Complex “Karat”, Residential Complex “Yamburg-City”, Residential Complex “Yamburg”, Residential Complex “Prestige”, residence on Krikkovskoe shosse, microdistrict #6). It is also symptomatic that the district, by the volume of retail space, exceeds the standards already by 4 times. It is exactly Kingisepp where large national retailers come to open their stores.

The settlement of Ust-Luga (located only 12 km away from the port terminals) has also a town-planning perspective. Despite a persisting lack of infrastructure (problems with water supply, gas supply, sewage systems, lack of modern socio-cultural and shopping facilities, etc.), construction of modern residential areas is under way. Such residential areas are designed primarily for port workers.

Implementation of the largest transport and logistics project and an adopted strategy for the development of the port industry have more clearly highlighted the general shortage of land resources (typical of the area with its large surface of wetlands), as well as a conflict of interest among various alternative directions of land use (industrial, transport and storage, residential, agricultural, recreational, and environmental).

Construction of the port of Ust-Luga caused significant imbalances on the local labor market, highlighted a lack of the necessary human capacity (including specialists specifically for work in the port – dock workers, repairmen, installers, riggers, etc.). Currently, Kingisepp District has about 1500 job vacancies (about 10% of those active in the economic activity). Misalignment in the labor market also affects the level of the average salary in the region, which (in certain specialties) can reach 60,000 RUR. At the same time, the level of wages in the port is significantly higher than the average wage in the area (on average, it is higher by 20-100%, depending on the nature of labor and qualification). The current situation led to the opening of a Kingisepp branch of the State Enterprise “Training center of Leningrad Oblast”, aimed at preparation of dock workers, sling operators, crane operators, engine drivers, technicians, boiler facility operators and of other technical professions.

Prospects of transport and logistics and port and industrial activity in Kingisepp District in the new geoeconomic reality

At present, our country is fully experiencing the effects of the destabilization of the geopolitical situation in Eurasia, the consequences of illegal sanctions adopted by the political leadership of the United States, the European Union and several other countries, as well as sharp decline in world prices for major export commodities from Russia – oil and natural gas, which resulted in a nearly twofold decrease in the national currency rate. The geopolitical and geoeconomic context leads to implementation of programs of forced import substitution and enhancement of domestic production in the Russian Federation. This might suggest recalling an interview of London School of Economics Professor Carlota Perez about Russia: “The key issue of the current agenda is what to produce? We have three options: industries of the current technological structure, for example, information and communication technologies; industries of the future technological wave (bio-, nano-, “green” technologies); and finally, industries of former technological structures – from services to agriculture. Which one to choose? The correct answer is that you have to select all of these three options at once. Youshoulddoeverything!” (Cited from [24]).

In the 2000s, signs of new industrialization were seen in the Saint-Petersburg coastal region, including Saint-Petersburg and the western part of Leningrad Oblast. Up until 2013-2014, it was carried out mainly by foreign companies, which were bringing their production in the region. This production was focused on the growing domestic demand. However, due to the significant reduction in effective demand and a high dollar exchange rate, enterprises of the northwest (primarily, those that are the “closest” to the major ports) gained an additional competitive advantage in foreign markets, their products became relatively cheaper. It is no coincidence that some car manufacturers, such as, for example, “Hyundai Manufacturing RUS”, begin to look closely at external markets. In particular, they launched production of “Hyundai Solaris” cars for Egypt and Lebanon, which soon will be exported. By the end of 2015, more than four thousand customized “Hyundai Solaris” cars are planned to be shipped to Egypt and Lebanon [25]. Chances are high that the port of Ust-Luga will handle these shipments.

Many other manufacturers of Saint-Petersburg and Leningrad Oblast are also expanding their export potential.

In 2014, export earnings of the company “Nokian Tyres” LLC, which holds the 13th place among the leading exporters of the Northwestern Federal District, amounted to 690 million USD, which showed an increase of 13% in comparison to 2013. In 2014, “Hyundai Manufacturing RUS” LLC for the first time achieved its export earnings of 650 million USD, and “Atomproekt” JSC (“Rosatom” SC) increased its indicators up to 470 million USD [26]. In 2015, the “Siemens Gas Turbine Technologies” company (SGTT) launched its production in the settlement of Gorelovo. The company immediately announced its export orientation and a desire to ship their products through Ust-Luga.

The military-industrial export of Russia is growing. In 2014, it amounted to 15 billion USD, which showed an increase by 45% compared to 2010. The total order portfolio for the end of 2014 was 49 billion USD [27]. The share of the military exports in the total exports of the Russian Federation in 2014 was 3% (in 2010 – 2.6%). The port of Ust-Luga also has a priority position for its support.

It should be noted that the prospects for expanding industrial exports of Russia in general and of the Saint-Petersburg coastal zone in particular depend on bringing industrial production “closer” to the already established port infrastructure. The latter, at the same time, will become significantly more attractive not only for Russian investors, but also for foreign ones. The appearance of the first foreign state fund of the United Arab Emirates «Mubadala Development» [28] in the port of Ust-Luga could mark a new stage in the development of the whole port and logistics complex. This could create an example for other companies and funds of the Middle East and South Eastern Asia, that are able to invest in projects on the territory of the Saint-Petersburg coastal zone.

Other perspectives are associated with the positioning of Kingisepp District in the global production, information and communication links. First of all, this concerns the Trans-Eurasian Corridor “One Belt, One Road” (“New Silk Road”), which aims to connect China and Europe – inter alia, via Russia. The route of the northern railway corridor goes from Western China to Europe via Kazakhstan and Russia to the Baltic Sea; from there its western branch will go via Belarus and via Poland to Germany and the Netherlands. It is evident that the Russian ports on the Gulf of Finland will be connected to this global artery. Under these circumstances, the role of the coastal zone in the territorial socio-economic development will increase both at the microlevel (separate urban settlements, administrative districts) and at the mesolevel. The range of various effects of marine economic activity will expand even further.

About the authors:

A.G. Druzhinin – Doctor of Geography, Professor, Director of the Northern-Caucasian Research Institute of Economic and Social Problems of the South Federal University.

S.S. Lachininskii – PhD in Geography, Research Fellow at the Laboratory of Comprehensive Studies of the Spatial Development of the regions, Institute of Problems of Regional Economics of the RAS; Assistant Professor of the Department of Economic and Social Geography, Saint-Petersburg State University.

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Doklad glavy administracii MO «Kingiseppskij rajon» V.Je. Geshele na soveshhanii po itogam social’no-jekonomicheskogo razvitija Kingiseppskogo rajona v 2014 g. i zadacham na 2015 g. URL:// http://www.kingisepplo.ru/documents/ dokladi_glavi.htm
Doklad glavy administracii MO «Kingiseppskij municipal’nyj rajon» na soveshhanii po itogam social’no-jekonomicheskogo razvitija v 2011 g. i zadacham na 2012 g. URL://www.kingisepplo.ru/documents/dokladi_glavi2012.htm
Bazy dannyh municipal’nyh obrazovanij-2013. St. sbornik. – M.: Goskomstat Rossii – Rosstat, 2014 g.База Евростата-2011-2014 гг. URL: // ec.europa.eu/eurostat/web/regions /data/database
Эксперт №25 (856) от 21.06.2013, URL://expert.ru/expert/2013/25 /konsensus-ne-dostignut/ (Accessed on: 28.08.2015 г.)
Rossijskaja gazeta. URL://www.rg.ru/2015/08/25/hyundai-site.html (Accessed on: 28.08.2015 г.).
URL://expert.ru/ratings/top-50-krupnejshih-eksporterov-szfo-po-itogam-2014-goda-mln-rub-mln-dollx-eksportnaya-vyiruchka_xx/ (Accessed on: 28.08.2015 г.)
Federal’naja sluzhba po voenno-tehnicheskomu sotrudnichestvu RF, OAO «Rosoboronjeksport»
URL://portnews.ru/news/205305 /( Accessed on: 31.08.2015 г.)

[1]According to our calculations, in accordance with the O. Merck Index (1 TEU, which equals 28200 kg in the metric system, generates 2538 USD of the added value in services), therefore the Ust-Luga Container Terminal should generate about 1.12 billion USD in the port per year.

The crisis of the European integration project: lessons for everyone and for Baltic countries

Admin — Thu, 10 Sep 2015 12:34:40 +0000

Mezhevich Nikolay Maratovich — Doctor of Economic Sciences, Professor of the School of International Relations, Head of the International Master’s Program “Baltic and Nordic Studies” at the Saint-Petersburg State University, Chief Researcher at the Institute of the Problems of the Regional Economy of the Russian Academy of Sciences, Saint-Petersburg.

Sazanovich Liudmila Sergeevna — PhD student of School of International Relations Saint-Petersburg State University, Saint-Petersburg.

Currently, many researchers have noted that the European Union is in crisis. Obviously, at this stage, the original conception of the founders of the EU is no longer relevant: the rapid expansion of the borders, European integration, causing internal political and economic problems, security problems and many other undermine the stability of the Union. The aim of the article is an attempt to analyze the negative factors, influencing the development of the EU, as well as to suggest possible scenarios of its further development. The relevance of this study lies mainly in the fact that it combines the study of political, economic, social and security aspects. To achieve the objectives of the study one has chosen a systematic approach to the study of international relations. It is important to note that for further successful development and existence of the EU it is necessary to resort action in the present time, primarily to stabilize relations with Russia.

The European Union is going through a difficult time. Trying to forestall instability on its borders, it becomes a source of turbulence. Less flexible and slower, the EU is increasing the apparatus of bureaucratic pressure, trying to silence the growing dissatisfaction. As if caught in the trap of “bad infinity”, the European Union can not find a solution to internal and external problems, growing like a snowball.

The famous British historian Eric Hobsbawm, with reason, “cut” the twentieth century by 23 years. From his opinion, it began in 1914 with World War I and ended in 1991 after the collapse of USSR.¹ This approach is debatable but understandable. The significance of both 1914 and 1991 for the European, and world history is obvious.

The beginning of the European integration is now described in the textbooks – The Schuman Declaration, who on May 9, 1950, being the French Minister of Foreign Affairs at that time , addressed the Government of Germany with a proposal to create a French-German Coal and Steel Community. The importance of the Schuman Declaration rapidly emerged beyond the bilateral relations between France and Germany. The concept of “general framework of economic development, which would be the first step towards the European federation” had such potential that it was enough for the rest of the policies and practices of the European Economic Community – the European Union up to the end of the XX century. Approaches of Schuman – Monnet were simple but revolutionary at that time. Overcoming the old tradition of nationalism by creating a united Europe on the principles of democracy, economic prosperity and social consensus, peace and equal cooperation, the architects of the EU hoped for a long and successful life of the European project in the XX century. The twentieth century of European integration began in 1950 and ended in the early years of the new century.

It seemed that new XXI century of European integration began in advance with the conclusion of the Treaty on European Union, which was signed on February 7, 1992 in the Dutch city of Maastricht and entered into force on 1 November 1993, but this period turned to be surprisingly short. Beneath our eyes, in summer 2015 the European integration project suffered tardy resuscitation and … died. It died in the proper sense of the word: the EU died in the form in which it had been planned by Schumann and Monnet. However, the death of the integration project in the post-shumann model does not mean the collapse of the great European idea, and does not necessarily lead to the collapse of the whole Europe. Europe has been and will be, but it will be different. The current model has as much in common with great European ideas as the ideas of utopian socialists in France and UK with the North Korean practice. Why?

The EU Treaty proclaimed as the key objective the creation of Economic and Monetary Union and the introduction of the single European currency, which could potentially bring economic integration to a new level. However, at the same time it launched a campaign of large-scale expansion of the European Union. In 1993-2007 the number of EU members doubled. Only the entry of Finland, Sweden and Austria may be regarded as a simple quantitative increase. Extensions in 2004 and 2007 significantly worsened the economic performance of the EU. At the same time Greece, Portugal and Spain faced the problem of financial equilibrium. “Because of the scale of the expansion the European Union faced the problem of “assimilation” and therefore became more focused on its own challenges”.² A new class of euro wanderers-bureaucrats, even without reading M. Djilas and M. Voslensky, formed precisely in line with their expectations, but not on the Yugoslavian or Soviet base, but in the heart of Europe: Brussels, Strasbourg, Frankfurt am Main, Mons. For them progress on the European career was more important than issues of national economy and analysis of the integration problems. We are seeing the result: the process of European integration has created a supranational bureaucratic monster that subjugated not only local government circles, but also the idea of integration itself. Now the result has gone to the second plan, the most important things are process, operation, reproduction, “sealed” in a closed-loop circulation of bureaucracy.

The more time passes from 2004, the more evidence there is that it was the end of the first era of European integration and the beginning of the second. The first, in fact, was the Western European and successful, the second, with a certain degree of conventionality can be called eastern European and its success is a big question. EU-12 (as of 1995 EU-15) and EU-27 are qualitatively different integration associations. Despite the validity of the new strategic program of expansion and deepening of integration, adopted in the early 1990s, the scale of the consequences of this decision and qualitative changes in the EU were not interpreted as they deserved. They were underestimated, probably for the reason that the political “summit” of EU member states, predominated complete confidence in the value of the European project and the ultimate success.

EU, really achieved a high level of cohesion, could have begun the optimization of achieved, but instead became interested in the policy of expansion, the neighborhood and so on. It had excessively bloated ambitions and virtually no funds for large-scale geopolitical projects, and certainly no adequate political analysis. The fact that the Baltic States were appointed as the major European “progressors” in the framework of “Eastern Partnership” did not require any additional comments. Based on the logic “if the system works, why it should be changed”, they wanted to integrate Ukraine in the same way as Estonia. However, local Ukrainian specificity was not taken into account.

And there is specificity. The economic potential of the Soviet Ukraine was second only to four big European countries. But today’s GDP of Kharkov region, for example, is more than Estonia’s GDP (of course, the earned part, not what is sent from Brussels).

Awareness of the problems in assessing the validity of reality happens in Europe after a long delay. The quote from the analytical report of the Affairs Committee of the House of Lords: “EU and Russia: before and after the Ukrainian crisis” (2015): “The Committee believes that the European Union and therefore Britain are guilty, that they have entered into this crisis, without being aware of what is happening, like a sleepwalker. Lack of strong analytical resources, both in the UK and the EU, in fact has led to a catastrophic misunderstanding of climate on the eve of the crisis”.³

However, the main problem is not the analysis, but that the West, considering itself a global center, strives to new peripheral space, even, in fact, without its sole purpose – to find new markets for its products, to ensure the influx of cheap labour and access to other resources. Along the way, it solves the problem of preserving the attractiveness of the EU as an integration project – it is important in terms of intra-European political process, so it uses any means. Thus, the problem lies not only in adequate quality of evaluation of integration. An ambitious program of “Eastern Partnership”, which implies a de facto extension of the EU’s borders to the Caspian Sea, is not only dead, but did everything to ruin the whole working model of European integration. “The fear and anger of the fathers of EU diplomacy, that Russia is once again becoming too powerful and rich, and therefore dangerous for Europe, led to a fatal error: “Eastern Partnership” from the original project of European integration of post-Soviet space, has become a platform for attempts of political and economic isolation of Russia. It eventually provoked an acute crisis in Ukraine. So current problems of the EU are to a large extent the work of its own hands.⁴

Problems of European integration are evident today not only to Europeans, but also for the whole world. The former model of European economic and political integration has exhausted itself. Based on modern Greek history, Aeschylus, Aristophanes and Euripides could have created decent work – a comedy, a tragedy and a drama. What looked like a triumph of the EU, caused mixed consequences and obvious failures, and the expansion speed to the new frontiers of European integration seemed to be haste. Of course, the external factor – global financial crisis – has played a huge role in the current misadventures of EU: “Strategies, built on ideas from the past, including problem-solving through the manipulation of competitive exchange rates, are failing”.⁵

However, the first difficulties arose prior to the crisis, and the root of this “emergency” state of the EU should be found inside it. United Europe is developing much slower than the global economy. In 2015 and in the coming years, the economy of European macro-region will be in a very difficult situation. Europe cannot respond quickly to the changes. Despite the diversity of the structures of European economies, the industrial sector in Europe in the whole is stagnant, so the potential for a return to a sustainable growth is limited. Although the EU remains a key industrial entity, since 2008 the industry cut 3 million jobs, while industrial production fell by 10%.⁶At the end of 2014 the total economy of the 18 countries using euro, rose only by 0.9%.⁷

In 2015, economic recovery of the European Union will be even more uncertain. The weakness of demand is a chronic disease. Germany will remain the driving force of the European economy, but it will not have such power, as two years ago. In France, economic growth will be around 0.7%. Italy must overcome the remains of the crisis, but the euro zone as a whole is unlikely to reach more than 1% growth and will not significantly change the official unemployment rate, which now stands at 11.7%.⁸

The head of the European Central Bank Mario Draghi stated, that in 2015 the European Union can face the threat of deflation and the risk to maintain low rates of economic growth, but the term “crisis”, according to him, does not currently fit to describe the situation in the economies of eurozone.⁹ It was said in January, when all economic parameters were approximately the same as in June. So now, in autumn 2015, is it also not a “crisis”? According to forecasts, recently published by IMF, the growth rates in 2015-2016 in the EU will not exceed 1.5-1.6% (assuming that the crisis in relations with Greece will be settled). In the developed world as a whole, they will increase from the current 1.8% to 2.4%.¹⁰ Thus, if the situation in the global economy is not ideal, the European is just bad. And M. Draghi’s comment about “no crisis” in this sense, is comparable only to that of the known expression of the hanged and the rope.

Constraining factors also lie outside the economy – in political and socio-cultural spheres. Historical memory, cultural heritage of Antiquity and Christianity, suffered by Europe losses in two world wars influenced the formation of European values to a large extent. It should be noted again: it is not a crisis of the European idea, it is a crisis of specific practice of its implementation in the political sphere. Not the dip of the European Constitution led to the growth of euroscepticism, but euroscepticism, based on an understanding of the ineffectiveness of post-Maastricht model of EU led to the failure of the European Constitution. Errors in internal and external relations, economic failures, consequences of arrogant decisions taken on the basis of geopolitical, “value” and not pragmatic reasons: “The EU from a sample of reasonable foreseeability became, in fact, one of the most obvious sources of global uncertainty”.¹¹ Therefore the destruction of the current model of European integration is inevitable.

The report of Notre Europe, dedicated to the restructuring of the EU-USA relationship, written in 2010, noted: “In the absence of a common foreign policy on major strategic issues, the EU is unable to influence events beyond its borders”.¹² Among the authors of the diagnosis are P. Prodi, G.Verhofstadt, Buzek, Y. Fisher and others. Now, in autumn 2015, it should be clarified, if the EU is able to set the agenda in its borders.

At present time there is a discussion about the so-called “realistic European force”, partly written with the American approach to “smart power”. As in the American case, we are talking about a combination of “hard” and “soft security”. However, it is not difficult to notice fundamental differences of the European prerequisite from US realities. Important, however, is not adequate theory, but realistic practice. “American leadership after the Cold War and NATO’s eastward expansion hoped that the Old World would be able to solve at least its own problems, but time after time it turns out – whether Balkans, Middle East, or single currency – that Europe is not in a position to do it”.¹³ But could it be otherwise?

In Europe there can be no effective «hard security». Is it possible to build an independent foreign policy based on borrowed security from overseas? One should recall the article of the American political scientist Robert Kagan “Power and Weakness,” published in 2002.¹⁴ His idea is the following: the US created hothouse conditions for the European Union. America carries on its shoulders the burden of responsibility, and the EU is engaged in chatter and mutual persuasion. Counting on the law, it actually mired in complacency and conformism. Personal and social status of R. Kagan obliges us to be attentive to his estimates.

Patterns of American neocons, unfortunately, are demanded by the European Union. Robert Cooper, director general of the Department for External and Politico-Military Affairs of the Council of the EU, said: “NATO and the US’ military presence in Europe gave confidence that the US would protect them from the Soviet Union. (…) NATO summed everyone to voluntary dependence on the military power of the United States. NATO managed to establish a system of collective security in the best sense of the word – security requirement, which for centuries separated Europe, now has united it. So it’s how the European Union appeared.¹⁵ He calls NATO as the defense against chaos as the key element of “post-balanced” Euro-Atlantic security system (after the reunification of Germany, the end of the Cold War and the collapse of the Soviet Union). “And the most logical way to end the chaos is the colonization”.¹⁶ Economic toolkit of the EU is derived from military might of NATO forces, controlled by the United States and stationed in Europe. Not Coal and Steel Union, but namely NATO is the backbone of the modern European Union. This is another symptom, confirming not only inevitable death of the European project in the current form¹⁷, but also the impossibility of joining the Eurasian and European projects in modern conditions.

Membership in the European Union is no longer the final aim of integration aspirations of a country to the West, but only an intermediate step on its way to the main goal – NATO membership. The signing by Ukraine, Georgia and Moldova Association Agreements with the European Union was presented as a purely economic event, but in fact turned out to be one of the hidden ways of NATO expansion: the retraction of the countries in the military-political cooperation with NATO is formally done through rapprochement with the EU.¹⁸

This circumstance is one of the main obstacles to expand the process of economic cooperation between Russia and the EU at full – in this tango, apparently, there would be the third party for long. This third is the United States, and through it – NATO.

The assessment of the impact of NATO in the system of foreign policy-making in Europe should be based on the principle of actually used three keys, each of which is sufficient to achieve a decisive influence on the foreign policy of a European state. The first key is direct control over the foreign policy of the state. It works in case of a country within the block, and in relations with formally neutral states outside NATO but participating in affiliate programs of the Alliance. The second key is control through the structure of the NATO. The third key is cooperation through the coordination structures of the European Union focused on foreign policy and defense decisions. The combination of these keys provides the US and NATO control over not only military, but also economic projects in Europe.

One should note the contradiction of political and economic goals of the United States towards Europe. In economic terms, Europe would be consistent with Canada’s status and the nature of economic growth in Europe in such case would depend on the United States to the same extent as it is happening in contemporary Canada. However, from the standpoint of policy, the United States complies with the rules of the game last few decades: Europe pretends it has foreign policy and the US continues to manage it.

The United States, who has been perceiving Europe only as junior partner for a long time, doesn’t have any illusions about the real situation in the EU. As an example, one can refer to a publication in the prestigious American edition «Foreign policy», where the author proves the existence of five problems of the European Union: 1) excessive expansion; 2) collapse of the Soviet empire; 3) euro crisis; 4) deterioration of the situation in the region; 5) sustainable nationalism.¹⁹

Of course, let’s not overlook the fact that the vectors of geopolitical interests of the leading states of the EU are often different. German policy in the Balkans, French in Africa, do not “overlap” with the policies of other European centers of power. In other cases, the apparent intersection could be noted. A classic example is Ukrainian conflict. Plus in the European Union there are neutral (or trying to be) states: Italy, Austria, Finland, and partly Hungary, Slovakia and the Czech Republic, for example. Their voices are quite significant. And a number of new Member States rightly regard foreign policy initiatives of “old” Europe as a threat to subsidies in the address of the European budget.

However, it doesn’t affect general line against Russia and its integration initiatives (other than the “integration of integration” and it is worth recalling the idea of D. Medvedev of a common Euro-Atlantic security system, so categorically rejected by the West). During 2014, EU leaders have repeatedly said they would not change its policy with regard to Russia, instead they planned to change the foreign policy of Russia, even if it affected the economy of Eastern Europe.

In this context, economic suicide of the Baltic states is significant: countries, loudly demanded to “punish Russia,” are suffering now from the sanction war most of all (turnover of the port of Tallinn, “dipped” by 20.7% in the first half of 2015, compared with the same period last year. There are growing problems in Riga and Ventspils. Export to Russia is continuously reducing, Russian tourists are leaving the market of the Baltic states).

Various tools to “punish Russia” can certainly aggravate the efficient development of our country. However, one should keep in mind the warning of two senior experts, recently officials of US State Department: “So far, the West was more aimed at punishing Russia and its leaders … than at solving the problems in the relationship, which brought the parties to a dead end”.²⁰ The practice of realization of the “Eastern Partnership” by West expected work on a well-known principle of “Me – head, you – fool”. Minsk, Yerevan, Baku didn’t agree with this approach. Finally Kiev, put by the European Union in a situation of “either with us or against us”, has been forced to postpone the issue of European integration until 2016. This practice meets huge resistance in Chisinau and Tbilisi. Symptomatic detail: according to the US National Democratic Institute in May 2015 about a third of Georgians supported integration into the Eurasian Union (31%)²¹, in August 2014 the figure was 20%, and in November 2013 – 11 %.

What are the possible scenarios of European integration? The choice is not rich.

1. The destruction of the current model of European integration. The unification of Europe, at least in its current form, cannot give a synergistic effect and is not able to bring it to a new level of global influence, relevant to the existing potential. Economic policy of the EU is a problem which has no practical solutions. Its current model is operating at full capacity.

2. “Cosmetic” repair of the current model of European integration. Reform of European integration, understood as a limitation of spatial expansion, rejection of the expansion of the eurozone at any cost, removing the UK “outside European integration”, establishment of effective cooperation with all economic partners and, above all, with Russia are the minimum key points of the reform today.

List of References:

Hobsbaum E. Epoha krajnostej: Korotkij dvadtcatyj vek (1914—1991). M.: Izdatelstvo Nezavisimaia Gazeta, 2004. 632 s.
Hirdman S. Rol Rossii v Evrope // Moskovskij centr Karnegi. M, 2006. – s.19.
See more: The EU and Russia: before and beyond the crisis in Ukraine / House of Lords, European Union Committee. 6th Report of Session 2014–2015. London, February 2015. URL: www.publications.parliament.uk/pa/ld201415/ldselect/ldeucom/115/115.pdf
Urbanovich Ia. Voinstvennye strahi Vostochnoj Evropy. 03.04.2015. URL: http://ria.ru/analytics/20150403/1056439589.html
Dixon H. How to counter Europe’s rising populism // International New York Times, November 24, 2014. – P. 22.
Alvaru Santush Pereira, Hose Manuel Soria, Korrado Passera, Arno Montebur, Philipp Resler Novaia industrial`naia politika Evropy // «Ekspert», №7 (839), February, 18 2013.
Manukov S. Hermaniia podtianula evropejskuiu ekonomiku / «Expert Online», February, 14 2015. URL: http://expert.ru/2015/02/14/ne-vse-tak-ploho/
Evropa 2015: god neuverennosti http://euroua.com/europe/eu/3557-evropa-2015 02.01.15
Dragi: ekonomiku ES zhdet zatiazhnoj period slabosti. January, 2 2015. URL: http://dv.ee/novosti/2015/01/02/dragi-jekonomiku-es-zhdet-zatjazhnoj-period-slabosti
Jean-Pierre Robin. Le FMI estime l’Europe en voie de guerison // Le Figaro, 15 avril 2015. – p.23.
Lukjanov F. Oborotnaia storona Gretcii / Rossijskaia gazeta. July, 8 2015. URL: http://www.rg.ru/2015/07/07/kolonka.html July, 8 2015.
Reshaping EU-US Relations: a Concept Paper. Reflection Group: Romano Prodi, Guy Verhofstadt (co-chairs), Jerzy Buzek, Etienne Davignon, Jacques Delors, Joschka Fischer, Paavo Lipponen, Tommaso Padoa-Schioppa / Notre Europe, 2010. – p. 12.
Lukjanov F.A. Stabilnost radi vyzhivaniia // Rossiia v globalnoj politike. July, 13 2015. URL: http://www.globalaffairs.ru/redcol/Stabilnost-radi-vyzhivaniya-17579.
Kagan R. Power and Weakness // Policy Review, № 113, 2002.
Cooper R. The European Union and the Habsburg Monarchy // Transit. Europaische Review, 10.12.2012. URL: http://www.eurozine.com/articles/2012-12-10-cooper-en.html
See more: Cooper R. The breaking of nations: order and chaos in the twenty-first century. New York, 2003.
See more: http://www.format-a3.ru/events/event-212/
Ukraina, Gruziia, Moldaviia: put v NATO cherez Evropejskij soiuz. K sammitu NATO v Uelse September, 4-5 2014 goda. Analiticheskij obzor / Centr mezhdunarodnoj zhurnalistiki i issledovanij «Rossiia Segodnia». 2014 g. 74 s.
Stephen M. Walt, Does Europe Have a Future? // Foreign Policy. July 16, 2015. URL: http://foreignpolicy.com/2015/07/16/does-europe-have-a-future-stephen-walt-testimony-house-foreign-affairs-committee/
Charap S., Shapiro D. Kak izbezhat novoj holodnoj vojny // Rossiia v globalnoj politike. October, 14 2014. URL: www.globalaffairs.ru/ukraine_crysis/Kak-izbezhat-novoi-kholodnoi-voiny-17041
Za ES – 68%, NATO – 65%, Evrazijskij Soiuz – 31% – rezultaty oprosa NDI. 11.05.2015. URL: http://www.apsny.ge/2015/soc/1431371449.php\

List of literature:

HobsbaumE. Epohakrajnostej: Korotkijdvadtcatyjvek (1914—1991). M.: Izdatelstvo Nezavisimaia Gazeta, 2004. 632 s.
Hirdman S. Rol Rossii v Evrope // Moskovskij centr Karnegi. M, 2006. – s.19.
See more: The EU and Russia: before and beyond the crisis in Ukraine / House of Lords, European Union Committee. 6th Report of Session 2014–2015. London, February 2015. URL: www.publications.parliament.uk/pa/ld201415/ldselect/ldeucom/115/115.pdf
Urbanovich Ia. Voinstvennye strahi Vostochnoj Evropy. 03.04.2015. URL: http://ria.ru/analytics/20150403/1056439589.html
Dixon H. How to counter Europe’s rising populism // International New York Times, November 24, 2014. – P. 22.
Alvaru Santush Pereira, Hose Manuel Soria, Korrado Passera, Arno Montebur, Philipp Resler Novaia industrial`naia politika Evropy // «Ekspert», №7 (839), February, 18 2013.
Manukov S. Hermaniia podtianula evropejskuiu ekonomiku / «Expert Online», February, 14 2015. URL: http://expert.ru/2015/02/14/ne-vse-tak-ploho/
Evropa 2015: god neuverennosti http://euroua.com/europe/eu/3557-evropa-2015 02.01.15
Dragi: ekonomiku ES zhdet zatiazhnoj period slabosti. January, 2 2015. URL: http://dv.ee/novosti/2015/01/02/dragi-jekonomiku-es-zhdet-zatjazhnoj-period-slabosti
Jean-Pierre Robin. Le FMI estime l’Europe en voie de guerison // Le Figaro, 15 avril 2015. – p.23.
Lukjanov F. Oborotnaia storona Gretcii / Rossijskaia gazeta. July, 8 2015. URL: http://www.rg.ru/2015/07/07/kolonka.html July, 8 2015.
Reshaping EU-US Relations: a Concept Paper. Reflection Group: Romano Prodi, Guy Verhofstadt (co-chairs), Jerzy Buzek, Etienne Davignon, Jacques Delors, Joschka Fischer, Paavo Lipponen, Tommaso Padoa-Schioppa / Notre Europe, 2010. – p. 12.
Lukjanov F.A. Stabilnost radi vyzhivaniia // Rossiia v globalnoj politike. July, 13 2015. URL: http://www.globalaffairs.ru/redcol/Stabilnost-radi-vyzhivaniya-17579.
Kagan R. Power and Weakness // Policy Review, № 113, 2002.
Cooper R. The European Union and the Habsburg Monarchy // Transit. Europaische Review, 10.12.2012. URL: http://www.eurozine.com/articles/2012-12-10-cooper-en.html
See more: Cooper R. The breaking of nations: order and chaos in the twenty-first century. New York, 2003.
See more: http://www.format-a3.ru/events/event-212/
Ukraina, Gruziia, Moldaviia: put v NATO cherez Evropejskij soiuz. K sammitu NATO v Uelse September, 4-5 2014 goda. Analiticheskij obzor / Centr mezhdunarodnoj zhurnalistiki i issledovanij «Rossiia Segodnia». 2014 g. 74 s.
Stephen M. Walt, Does Europe Have a Future? // Foreign Policy. July 16, 2015. URL: http://foreignpolicy.com/2015/07/16/does-europe-have-a-future-stephen-walt-testimony-house-foreign-affairs-committee/
Charap S., Shapiro D. Kak izbezhat novoj holodnoj vojny // Rossiia v globalnoj politike. October, 14 2014. URL: www.globalaffairs.ru/ukraine_crysis/Kak-izbezhat-novoi-kholodnoi-voiny-17041
Za ES – 68%, NATO – 65%, Evrazijskij Soiuz – 31% – rezultaty oprosa NDI. 11.05.2015. URL: http://www.apsny.ge/2015/soc/1431371449.php\