Q: Europe is facing a serious energy crisis. So far, the EU is working to cut back energy use and seek deals for alternative supply. As winter approaches and energy demand increases, what are Europe’s options to address potential energy shortages?

Morningstar: “To make a long story short, and maybe to state the obvious, they’re trying to do everything they can to get as much alternative gas as they can—gas is the issue here. They are getting a certain amount of gas from the U.S., and some from other sources. They may pick up small amounts here and there elsewhere, but they basically are where they are. 

If you check the news today, the EU energy ministers made some decisions yesterday as to things that they can do. One is to require member states to reduce demand by five percent. They are looking to tax the windfall profits companies have made because of the high prices—including renewable energy companies. Strangely enough, electricity pricing, even from renewables, is often indexed on gas and oil prices. So even the companies that are doing renewables are making a significant profit because of that. They’re coming up with a proposal that will be finalized in the next week or so to tax some of those profits and use them to subsidize people who will have a hard time affording energy. They have decided not to put caps on the price of gas imports. They have built up their storage, so right now, they have more than the usual amount of gas stored. Much will depend on the weather and how cold it gets.”
 
Q: Are these long-term solutions or is the EU merely trying to deal with the situation at hand?

A: “Well, I guess I would say it is all of the above. They have to deal with things in the short term and there’s a limited amount they can get done by this winter. But then, they have to be concerned about next winter and then looking further ahead into the future. Whatever happens in Ukraine, they will never ever let themselves become reliant on Russian energy ever again. But in the short-term, they expect that this winter, they will have a shortfall of gas by about 45bcm, considering that the European Union typically imports 155bcm per year from Russia. And that 45bcm deficit is if a lot of things go right.

Q: What are some general trends you foresee with regards to the Caspian region and its role in global energy supply in the short and long terms?

“With respect to the Caucasus and Central Asia, they can help, but that’s more of a mid-term solution, and that’s only part of an overall solution. Azerbaijan thinks it might be able to increase exports— in the short-term—about 1-3bcm, which obviously helps. They presently export to Europe through the Trans-Anatolian Pipeline and Trans-Adriatic Pipeline. There is 16bcm today that flows through Azerbaijan. Ten bcm goes to Europe, and 6 bcm goes to Türkiye. They might be able to up that by a couple bcm. But they agreed, in principle, to double the amount that would go to Europe, which would bring it to 32 bcm. To do that, they have to expand the pipelines’ capacities and take the necessary steps to produce more gas. The timeline for that would be between 2025-2027. 

As for the role of countries like Kazakhstan, Azerbaijan, and to some extent, Turkmenistan—the question is whether they still have to fear Russia or whether they have a freer hand because Russia is so tied up in Ukraine. [Russia] has handled Ukraine so incompetently that they may feel they have some freer action. 

In the case of Azerbaijan, that gets all tied into Nagorno-Karabakh, the politics of which you can’t really separate from these issues. While Russia has peacekeepers in Nagorno-Karabakh, again, with Russia dealing with everything in Ukraine, Azerbaijan may have more freedom of action, and military superiority has shifted to them from Armenia. Part of that is because of all the energy resources Azerbaijan has and the strength of their relationship with Türkiye. We could go on forever on some of that stuff.”

Q: I’d like to come back to what you said regarding whether countries in the region will fear or feel as though they have a freer hand now that Russia is occupied with happenings in Ukraine. In July, Russia halted Kazakh oil supplies through the CPC pipeline. Especially now that the EU is seeking alternative resources in the region, will Russia be more aggressive in the sense that they will attempt to meddle with these countries' exports to Europe?”

“I think they would like to, but is unclear whether they can. It’s a question that is dependent on what happens in the coming months or years with the war in Ukraine. 

The question with respect to the CPC pipeline is really interesting. There’s another actor with interests involved—China. I think what happened there is that Russia did want to cut off oil coming from Kazakhstan and they came up with environmental excuses to shut down the pipeline. A higher court overturned it so it didn’t last for more than a week or two if I remember right. 

That just doesn’t happen in Russia from the standpoint of rule of law. My best guess as to what happened is China said to Russia, ‘don’t mess with Kazakhstan.’ In that part of the world, in the past, Russia has sort of handled the political and security issues while China has had a free hand economically. And [China] is getting a lot of gas from Turkmenistan and they are building their relationship with Kazakhstan. 

I think [China] is using Russia’s weakness right now to increase their role and influence in the region. It’s not that China is going to directly benefit from Kazakh oil going through the CPC pipeline.  I think that China may well have determined that they are going to protect Kazakhstan and they want to have a good relationship, and they’re saying to Russia, ‘if you want our support, you better leave Kazakhstan alone.’ Of course, this is speculation on my part.”

Q: That being said, with this shift away from Russian energy resources, Russia acting to oppose these efforts, and China potentially stepping in, what has or should be the West’s role in this? What are some of the challenges that need to be overcome in this regard?
“There’s always been criticism of the U.S. for not giving enough attention to that part of the world. Part of it is that the region is in Russia’s backyard, and these were countries that were in the Soviet Union. It’s also that Central Asia is China’s backyard, too. China wants to have a major role there, and we’re far away. 

I think that there has been, to some extent, a limit to what we can do. We haven’t always helped ourselves, and we can do more. We are never going to be the primary big power in that region, but we should strive to make sure that these countries’ strategies are to maintain a balance of some kind.

I think Azerbaijan and the EU are very happy to brush aside their [differences] because of their need to trade Caspian gas. There are many areas in foreign policy where we ought to be together. We need to continue to cooperate on energy. [The energy deals] are a way to have a good, cooperative relationship.

There’s no single answer to the European energy crisis. You have to look for small amounts of energy in a lot of different places. You have to look at increased deployment of green technologies. You have to look at gas from other sources—of which Azerbaijan can be one. You also have to look at new fuel sources like hydrogen—much of this will take a lot of time. 

Q: You said you think the transition away from Russian energy is a permanent one. The transition away from Russian energy has been a topic of conversation for many years—what makes you think there will be a permanent change?

“We, the United States, have argued for years and years that Europe was relying too much on Russian energy—that goes back to the nineties. That’s why we felt strongly that the oil pipeline from Azerbaijan should not go through Russia. It ended up going into Georgia and into Türkiye. There should be a diversity of pipelines. 

In the first few years of the Obama administration, my job was trying to work with Europe to build alternative pipelines. It’s how we ended up with the Southern Gas Corridor. Europe made some progress between 2010 and now, but they didn’t make nearly enough. 
The Germans were particularly difficult with the Nord Stream pipelines, and took the position that getting gas from Russia was solely a commercial relationship, not recognizing there was a political overlay to it. You can’t separate the two, you have to take both into account. And they have finally admitted that they were wrong. 

There’s much more of a commitment today toward eliminating dependence on Russian energy than before the war in Ukraine. They’re suffering because of it but I don’t think they will ever go back. I think Europe will stay united, even though it’s difficult.”