The European Commission on Jan. 10 issued a set of proposals aimed at mitigating Europe's long-standing reliance on third parties, especially Russia, for energy supplies. The plan, to be presented to all 27 member countries at the EU summit in March, focuses on heightening cross-border cooperation and reducing Europe's dependence on oil and natural gas. Russia, which supplies a quarter of the European Union's oil and natural gas, has twice cut off supplies to Europe over the past year. In January 2006, Moscow stopped the flow of natural gas to Europe by cutting off supplies to Ukraine. Considering that 80 percent of Russian natural gas exports to Europe go through Ukraine, the move caused serious jitters in Europe. Most recently, an oil dispute between Belarus and Russia resulted in a cutoff of supplies to Germany, Lithuania, Slovakia, Czech Republic, Hungary, Poland and Ukraine via the Druzhba pipeline Jan. 8. About half of the Russian oil to Europe passes through Belarus via the Druzhba pipeline, which supplies the continent with 1.8 million barrels per day. Both of these incidents highlight the need for an overhaul of Europe's energy sector, and the plan proposed by the European Commission is a decent step in that direction. Europe, however, will have to consider other energy opportunities in order to ensure steady supplies in the future. Beyond its 120 days worth of emergency oil stockpiles, Europe had no possibility of looking inward to mitigate the latest energy crisis. Europe is the largest importer of natural gas and oil in the world, and with the depletion of the North Sea reserves, Europe has needed to look even farther for resources. It purchases 82 percent of its oil and 57 percent of its natural gas from third-party states. These numbers are projected to rise to 93 percent and 84 percent respectively over the next quarter-century. One of the primary — and most controversial — European Commission proposals involves "unbundling" the energy sector to ensure that both power generation and power distribution are not owned by the same company. The new plan also includes some sweeping proposals aimed at reducing dependence on natural gas and oil. It recommends budgeting $1.3 billion over the next six years for research into renewable energy and plans to have 20 percent of all EU energy sourced from renewable power by 2020. (At the commission level, the European Union remains uncommitted on nuclear energy, allowing individual countries to make their own choices about whether to go nuclear). In addition to switching energy sources, the proposal prioritizes improving energy efficiency, calling for Europe to burn 13 percent less energy by 2020 — and thus save $130 billion annually. Most of these proposals are not just nice ideas, but necessary steps (though not the only ones) if Europe is to maintain sufficient energy supplies. The plan calls for two primary solutions: Reduce energy consumption and use alternative sources. The proposal to improve efficiency is one key to Europe's success, simply because it decreases the amount of oil and natural gas necessary to operate. If Europe manages to meet the goal of burning 13 percent less energy by 2020, it has that much more leeway in dealing with energy-related issues. The plan to unbundle the energy sector would be quite revolutionary — if it were to pass. However, considering the hard-line opposition the proposal will face as France and Germany fight to protect their energy companies (E.On and RWE from Germany and France's EDF), this recommendation is unlikely to advance. Although the commission is on the right track, the plan could solve only some of Europe's energy woes. The European Union has a choice in the matter: It can stick to these restricted (albeit necessary) proposals and remain dependent on unsavory powers such as Russia, or it can take a few more steps to reduce its energy needs and seek out new sources. Reducing dependence on natural gas — at least from Russia — could mean seeking out another type of natural gas: liquefied natural gas (LNG). The fact that natural gas can be easily transported only via pipelines puts most of the world's natural gas out of Europe's reach. However, once natural gas is supercooled into liquid form, it can be loaded and shipped on tankers to specialized import facilities in Europe, then fed into the existing distribution networks. Europe's LNG import facilities can currently handle only 76 billion cubic meters (bcm) per year. By adding more LNG import facilities in Europe, the European Union could increase imports from other countries not closely connected geographically to the union — ultimately reducing dependence on Russia. Europe also has the option of building new pipelines. However, this alternative is both costly and time-consuming. For instance, even a rush job on the Poseidon (or Turkey-Greece-Italy) and Nabucco pipelines would not get the lines up and running until years from now. Construction on both is slated for 2008-2011, at a total cost of $7 billion. However, the natural gas the pipelines bring will be well worth the cost — the Poseidon pipeline will bring in 8-10 bcm annually while Nabucco will reach 25-30 bcm annually at full capacity in 2020, after starting at 4.5 bcm in 2011. Given that Europe consumed almost 500 bcm in 2005, it could take quite a few more pipelines to make a real dent. More important, Europe will need to go beyond its near abroad if it is really serious about chipping away at its piped natural gas problems. That means not just dealing with politically touchy locations such as Algeria, Iran and Egypt, but also with Nigeria. Libya also could be an option, albeit a minor one. Although it is not known as a major natural gas player (it mainly deals in oil), there is some natural gas in the Libyan desert. Bringing it to market, however, would take years and require the construction of pipelines under the Mediterranean — all for potentially only a few billion cubic meters of natural gas per year. Oil is a bit of a different story. Supplies are fairly easy to ensure in the short term; the problem is the long term. In addition to using up reserves to ensure supply in emergency situations (the European Union has 120 days of import cover), oil is also pretty easy to ship in, even if that is not the most economically viable solution for the long term. When it comes to oil, then, Europe really has little room to maneuver. Its best option is to work to massively reduce demand by developing efficient technologies (much like the current proposal recommends) while finding other sources of supplies. Europe, however, is in a bind when it comes to oil suppliers. Following the Organization of the Petroleum Exporting Countries (OPEC) crises of the 1970s, Europe turned to the North Sea and Russia to diversify its oil supplies. Today, the North Sea reserves are dwindling, while Russia has shown itself to be a less-than-stable supplier. Europe might need to diversify away from Russia — and back to OPEC, at least to some extent. Europe could benefit from seeking new oil supplies — as it did in the North Sea. That, however, would mean competing more fiercely with third-party countries other than friendly Norway, as it is unlikely to find more reserves in its own backyard. In this regard, deep sea drilling could be a promising option. Norway's Statoil, for instance, already has offshore experience in the North Sea and could potentially take its know-how to new areas. Although this option would take years — and billions — to pursue, the long-term benefit of having an alternative secure source of oil should outweigh the immediate cost. Europe's heavy reliance on oil and natural gas imports, particularly from Russia, is beyond bothersome — as the past year's cutoffs demonstrated. The European Commission's energy strategy — focusing on energy efficiency and alternative energy in order to reduce dependence — is a necessary step, though not the only one Europe could take to begin reducing some of its dependencies. THAILAND: Thailand's Cabinet approved a proposal Jan. 9 to amend the Foreign Business Act in an effort to clarify regulations that limit foreign investment in segments of the economy deemed vital to national security. In response, the Stock Exchange of Thailand (SET) fell 2.7 percent. Although the regulations affect relatively few foreign operations in the country, foreign investors are noticeably jittery thanks to the coup in September, the New Year's Eve bombings in Bangkok and the implementation (and reversal) of a "lock-up" program to limit capital flows into the Thai economy, which resulted in a temporary 15 percent drop in the SET. VIETNAM: Vietnam became the 150th member of the World Trade Organization on Jan. 11. In anticipation of the event, foreign companies have been increasing their presence in the country, resulting in a record $10 billion in foreign direct investment in 2006. Vietnam experienced an 8.4 percent increase in gross national product in 2006, partially because of foreign involvement, and it is expected to continue its growth this year. Overall, Vietnam looks to be a promising investment. RUSSIA: Russia reopened the Druzhba trunk pipeline in Belarus on Jan. 10, resuming transit to Poland, Germany, Ukraine, Slovakia, Czech Republic and Hungary. Russia cut oil supplies to Belarus — and hence Europe — on Jan. 8 after Belarus imposed a transit duty of $6.14 per barrel on Russian oil. Belarus was acting in response to an increase in Russian natural gas prices from $46 per 1,000 cubic meters to $100 per 1,000 cubic meters in 2007. The price is to increase to the full European average — currently around $280 per 1,000 cubic meters — by Jan. 1, 2011. The dispute further highlighted Europe's need to diversify energy sources away from Russia. VENEZUELA: The Venezuelan government will nationalize its electric, water and telecommunications utilities, and will seek at least a 60 percent stake in the country's oil-rich Orinoco Basin operations, President Hugo Chavez said Jan. 8. Chavez also seeks full political control over the country's central bank. Ricardo Sanguino, leader of the National Assembly's Finance Committee, said Jan. 10 that Venezuela intends to compensate all firms affected by Chavez's nationalization plans using Venezuelan foreign reserves. Targeted companies include Caracas Electricity — the largest private electricity firm in the country (in which U.S. firm AES Corp. holds an 85 percent stake) — and telecommunications firm National Telephone Company of Venezuela (CANTV), the only Venezuelan company traded on the New York Stock Exchange. In Orinoco, there are four crude upgrading facilities partly owned by U.S. oil giants ExxonMobil Corp., ConocoPhillips and Chevron Corp., along with Norwegian firm Statoil, France's Total and the United Kingdom's BP, for a total investment of about $17 billion. AUSTRALIA: A stoppage in nickel mining output from around Jan. 4 to Jan. 6 by Australian mining giants BHP Billiton and Minara Resources Ltd. because of heavy rains coincided with a 4.4 percent increase in nickel prices. Commodities enjoyed a steady rise in 2006, but continue to drop in 2007. For the week, aluminum is down 3 percent, copper is down 11 percent, lead is down 7 percent, nickel is down 2 percent, tin is down 12 percent, zinc is down 13 percent, crude oil is down 8 percent, corn is down 6 percent, cotton is down 2 percent, silver is down 3 percent, soybeans are down 4 percent and wheat is down 4 percent. CANADA/U.S.: Canada issued a World Trade Organization (WTO) request for consultations over U.S. agricultural subsidies Jan. 8, singling out the $9 billion paid annually by the U.S. government to corn farmers in export credit guarantees. Under WTO rules, consultations will probably last 60 days before the dispute can proceed. This case builds on a dispute successfully brought by Brazil in 2005 challenging U.S. cotton subsidies. These cases could set a precedent for future cases brought against U.S. agricultural subsidies.