Stepping on the gas

May 6, 2014


G7 energy ministers meet in Rome with EU energy commissioner Oettinger to discuss energy security.

Some in Europe are saying the need for it to secure its energy supplies could be the impulse needed for the next wave of integration within the bloc. But Vienna’s deal with Russia to direct the disputed South Stream gas pipeline to Austria instead of Italy indicates the internal EU tensions over gas supplies, and suggests otherwise.

EU officials have been poring over various possibilities to wean the bloc off Russian energy such as increased use of shale gas, better storage, a drive to reduce demand and other fuels such as coal, which is far more polluting than gas. The aim is to develop an agenda for an EU leaders’ summit next month.

With more than a third of its gas needs supplied by Russia much of it via Ukraine, the EU is finding it difficult to speak with one voice, with member states pursuing their own interests. The European Commission says South Stream project flouts EU law.

None of that helps Ukraine. Russia’s Gazprom says it will reduce gas supply to Ukraine in June if it receives no prepayment in May. It says Kiev now owes it $3.5 billion, more than the initial disbursement of IMF aid.

Fighting appears to be intensifying on the ground. Pro-Russian rebels shot down a Ukrainian helicopter in fierce fighting near the eastern town of Slaviansk on Monday, and Kiev drafted police special forces to the southwestern port city of Odessa to halt a feared westward spread of rebellion.

Kiev says more than 30 separatists were killed near Slaviansk.

NATO’s top military commander in Europe said he no longer thought regular Russian troops would enter eastern Ukraine, predicting Moscow could achieve its goals through the unconventional forces stirring up trouble there.

Japanese Prime Minister Shinzo Abe will deliver a speech at NATO HQ in Brussels later. Abe is treading a delicate line between standing with G7 partners on the sanctions front while maintaining working ties with Moscow as Tokyo seeks to diversify energy imports after the 2011 Fukushima nuclear disaster. That could inform his other main objective – trade talks with the EU.

Abe also speaks at the OECD in Paris this morning ahead of Wednesday’s EU/Japan summit, at which he is likely to try to convince of his commitment to free-trade talks a day before EU trade ministers decide whether Japan has done enough to continue negotiations.

Despite opposition from European carmakers who fear greater competition in their backyard without improved access to the Japanese market, we got hold of an EU document which concluded that Tokyo has complied with, or is in the process of complying with, the majority of its commitments to help reach a trade pact that could encompass a third of global economic output.

The OECD will release its twice-yearly economic forecasts for the world’s major economies. Yesterday, the European Commission cut its forecast for euro zone inflation to just 0.8 percent this year and forecast growth of 1.2 percent. It also said France would miss its 2015 budget deficit target unless it makes rapid policy adjustments.

French President Francois Hollande, seemingly launching a new media offensive, will be interviewed for an hour by a French radio station and a TV channel.

That follows a Sunday newspaper interview in which he said economic recovery was looming larger and will give him opportunity to respond to new EU growth and deficit forecasts that are marginally less positive but fairly close to those of his Socialist government.

Service sector PMI surveys for most euro zone countries will provide the latest economic snapshot.

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