The recent tour of the Western Balkans by the President of the European Commission Jean-Claude Juncker and the High Representative of the Union for Foreign Affairs Federica Mogherini has brought back into focus the last corner of the continent that remains outside the European integration process. The Western Balkans, which emerged from the painful and bloody process of disintegration of Yugoslavia twenty years ago and is still a hotbed of political tensions today–suffice to think of Kosovo and the Republic of Macedonia–, is also an evolving energy market as well as a strategic crossroads for energy flows towards the Old Continent.
The (long) road towards integration
The key message emerging from the European leaders' recent tour is that Europe is the natural destination for the six Western Balkans countries that are still outside the Union–Albania, Bosnia Herzegovina, Kosovo, Montenegro, the Republic of Macedonia, and Serbia. And their path towards European integration–at varying speeds according to each case–will be defined and determined by a series of political, economic, social and institutional reforms set down by the European Commission in its “EU-Western Balkans Strategy” published at the beginning of February.
The priorities of Juncker and his associates focus primarily on strengthening the rule of law and democratic institutions, the fight against corruption, the protection of human rights, the consolidation of a competition based market economy and, more generally, the resolution of a series of ongoing bilateral disputes between the countries in the region. As regards energy, the E.U. leaders' messages are somewhat weak, not to say absent, despite the fact that the strategy places some emphasis on expanding the Energy Union to the region and on integrating the electricity market, first at the regional level and later at the European level.
A market under transformation?
Although the six countries are members of the European Energy Community, developments on the energy front in the Balkan region often go unnoticed, while the available data and statistics make it difficult to evaluate in detail the region’s current energy paths. An analysis of the macro data suggests that the Western Balkans still constitute an energy market of limited size but with considerable transformation potential towards a low carbon energy system.
In 2015, primary energy consumption in aggregate terms was at around 30,000 tons of oil equivalent–approximately one fifth of the annual consumption of a country like Italy, or one tenth of Germany's–and remained essentially stable in the five year period 2010-15. The regional energy mix is especially significant. The Western Balkans are in fact still heavily reliant on the use of mostly locally produced coal and lignite, which accounts for over 50 percent of total energy consumption. In addition to these energy sources and besides traditional oil consumption, an significant contribution comes from biomass and waste fuels, which cover 11 percent of primary demand.
Notably lacking from the Balkan's energy scene is natural gas, with a 6 percent share of total consumption and almost exclusively concentrated in Serbia thanks to the role played by Petroleum Industry of Serbia (NIS), in which the Russian gas giant Gazprom holds a majority stake. Elsewhere in the region, the gasification level is virtually non-existent, as is the level of penetration of non-hydropower renewables, a sector in which attempts by European institutions to attract investment have met with little success.
The transformation of the regional energy market is certainly key for the Western Balkan countries' prospects of accession to the European Union. They have in fact undertaken some commitments on decarbonization within the framework of the Energy Community and, once inside the European Union, they will be required to align with Brussels’ policies in this regard, thereby opening major market opportunities for low carbon energy sources such as renewables and gas.
A strategic hub
The availability of these energy supplies, however, especially of natural gas, is anything but certain. While, on the one hand, the region needs an internal transport structure–possibly an integrated one–involving strategic planning and major financial investments, on the other, it is essential for the six countries, all net energy importers, to have secure, stable and competitive access to supply sources from third countries.
Thus far, however, the role of the Balkans has been primarily connected with the European Union's energy supply diversification strategies and supply routes. Particularly when considered as a whole, the Balkans have been, and remain, at the heart of one of the European Union's major international energy initiatives. The now defunct Nabucco pipeline project was due to run through Bulgaria and Romania, while the Trans Adriatic Pipeline (TAP) –the cornerstone of the Southern Gas Corridor promoted by Brussels–transports gas from Azerbaijan to Italy via Greece and Albania.
In terms of regional access to resources, the Ionian Adriatic Pipeline (IAP), with which the Trans Adriatic Consortium signed a Memorandum of Understanding in 2016, could also be connected to the TAP. The IAP project–which has been supported by a EUR 2.5 million grant from the European Union (through the Western Balkan Investment Framework, WBIF)–aims to extend gas supplies from the Southern Gas Corridor, if available, to Montenegro and Bosnia Herzegovina (with Croatia as the final destination), and promote gasification of the two countries thereby reducing the impact of coal in their respective energy sectors.
New opportunities to cater to energy consumption in the Balkans could also arise from the TurkStream pipeline project, launched by Gazprom in order to replace South Stream and completely bypass transit in Ukraine. At present, the project is due to initially supply 15.5 bcm per year to the Turkish market, but Moscow has made no secret of its intentions to reach Europe. And while, on the one hand, Italy is an appealing destination–through the IGI Poseidon project–, on the other, the Kremlin could try to enter the Western Balkans, taking advantage, among other things, of its Serbian stronghold and the difficulty of securing further resources through the Southern Corridor.
The scenario in the Western Balkans is still evolving, and integration processes, market trends and geopolitical rivalries offer major opportunities in the region but also wide margins of uncertainty.