The gas row revealed Europe's vulnerabilities, writes Jamie Smyth, European Correspondent

There was relief in Brussels this week as Russian gas supplies to the EU returned to normal after serious disruption caused by a dispute between Russia and Ukraine.

Several EU states experienced big falls in gas imports on New Year's Day as the Russian gas giant Gazprom cut off exports to Ukraine.

Austrian and French energy companies reported that gas supplies dipped by a third while Germany, Poland and Hungary also lost imports as supplies carried over Ukraine's pipelines dipped sharply.

Russia insisted it did not cut gas supplies to the EU and blamed Ukraine for stealing gas destined for the EU while it was in transit over pipelines crossing its territory.

The two sides struck a compromise deal on Wednesday, which will see Ukraine increase the amount it pays for Russian gas while receiving extra money in transit fees for carrying gas to the EU.

EU energy commissioner Andris Piebalgs welcomed the supply deal. However, he also warned that the EU needed to learn important lessons.

"It is clear that Europe needs a clearer and more collective and cohesive policy on security of energy supply," said Mr Piebalgs, who revealed that a comprehensive review of EU energy policy and reliance on gas and oil imports would begin immediately.

The European Commission plans to publish a new green paper on energy policy before a conference of EU leaders in March. It also intends to submit new proposals to increase security of energy supply before the end of the year, said Mr Piebalgs, who criticised member states for watering down previous attempts to harmonise EU energy policies.

Europe sources about a quarter of its natural gas imports from Russia, although this is expected to increase to about 75 per cent by 2020 when North Sea gas stocks run low.

Russia is also a big supplier of oil to the EU, accounting for a quarter of all imports.

"The dispute really highlighted how vulnerable Europe is in terms of energy supplies, says," says Finlay Thompson, an energy analyst with investment bank ABN Amro in London.

"The problem is that the vast majority of oil and gas reserves are held by unstable states . . . so the Russia/Ukraine dispute definitely spooked the oil markets."

Oil and gas prices both spiked higher during the dispute and, at $62.42 per barrel, oil is still well above levels before tensions rose in late December.

Growing demand for oil and gas from China and India and fewer discoveries of new energy resources are also pushing energy prices upwards, says Mr Thompson, who predicts that the EU will have a difficult job to diversify its oil and gas suppliers.

At an emergency meeting of EU energy experts in Brussels on Wednesday, officials backed a policy of diversifying the pipelines that transport gas to the EU.

For example, it backed a 2011 start-up date for the new Nabucco pipeline project to transport gas from the Middle East and Central Asia via Turkey to Austria, which could reduce Europe's dependency on Russian gas.

It is also considering a plan to ship liquefied natural gas in tankers from the Middle East to an entry point on the Adriatic coast, where it could be transported via a proposed new pipeline directly into the EU.

It is hoped that by diversifying the transit routes that gas must take to enter the EU, it will reduce the risk of geopolitical events endangering supply.

But many analysts believe there are simply not enough natural gas sources available to enable the EU to reduce its dependency on Russia. They also point to the long-term contracts agreed between Gazprom and EU energy companies such as Gas de France as evidence that Russia's importance as a supplier of gas to Europe will grow further.

"The EU can look but, long term, the dependency on Russian gas can only increase," says Daniel Gros, a director of the Brussels think tank Centre for European Policy Studies, who notes that political relations between Russia and the EU are often strained.

"The EU is really a large bureaucratic machine whereas Russia works on the basis of power politics so there are often difficulties in the relationship between them."

With few new fossil fuel sources available to the EU, member states are considering stepping up the drive toward energy efficiency and alternatives, such as nuclear and renewables.

Yesterday French President Jacques Chirac announced plans to cut oil consumption and increase France's commitment to nuclear energy.

He unveiled plans for France's fourth generation of nuclear reactors and predicted that French trains would not use a drop of oil in 20 years time. France is now the world's second biggest nuclear power after making a policy decision after the 1970s oil crisis to go nuclear.

British prime minister Tony Blair has also signalled that he is interested in expanding Britain's nuclear industry to provide future power requirements and reduce its reliance on fossil fuels.

Nuclear fuel will not form part of the energy debate in the Republic, which is scheduled to begin following publication of Government reports on the electricity and the wider energy sector in coming months.

But a faster push for renewable energy is likely to become a priority for Ireland, which relied on imported oil and gas for 73 per cent of energy use in 2004.

It is predicted this figure will rise to 90 per cent in 2020 even if Corrib gas is available in the future.

So while most EU diplomats expressed relief at the quick end to the dispute between Ukrain and Russia this week, there is also a growing recognition that securing energy supplies will be a critical element of EU and national politics over the next two decades.