Anticipatory strategies for Eastern European natural gas security
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Countries asymmetrically dependent on the import of energy resources are potentially vulnerable to coercion from supplier states. Anticipating the potential for coercion, asymmetrically dependent states will make infrastructure improvements to substitute supply if the cost of these improvements is lower than the potential cost of coercion. This thesis provides a pricing framework for members of the European Union to estimate substitution strategies in order to reduce dependence on and the potential for coercion by Russia. Currently, Russia provides roughly 30% of the EU’s natural gas consumption and half of this gas is transported by pipeline through Ukraine in order to secure gas security. In 2006 and 2009, supply disruptions occurred due to a breakdown in negotiations between Russia and Ukraine, and EU members responded by constructing the necessary infrastructure to substitute Russian gas transited through Ukraine. The infrastructure improvements employed by the EU and its member states are examined to provide a pricing framework for countries still asymmetrically dependent. These strategies include LNG import facilities, new pipeline construction, reversing the flow of existing pipelines, and adding natural gas storage. This thesis applies the pricing framework to Finland and Bulgaria to evaluate which strategies would be most effective in terms of cost and the provision of natural gas security. Further interconnection to the EU internal market is lowest in cost, but requires the cooperation of transit states in order to be effective. LNG import is reasonable in terms of capital expenditure and provides a viable short-term response to disruption, but the additional operating cost of LNG versus pipeline supply makes long term substitution via LNG too costly. Overall, countries can apply the pricing framework to evaluate their natural gas security and to reduce coercive vulnerability.