The lack of a cohesive European Union energy policy is undermining efforts to establish security of supply in the region, senior industry and government figures said at a conference Monday.

It is vital that member states form a cohesive energy policy and speak with one voice, said industry figures at an energy conference at Chatham House, London, ahead of an E.U.-Russia summit May 18. But the slow pace of market reform and a series of bilateral deals between member states and Russia are undermining such efforts, they said.

"We need to work together if we are to deliver the objective of sustainable and secure energy," said Alistair Darling, U.K. Secretary of State for Trade and Industry. "Europe not only needs a common approach, it needs a common voice."

"We will be better able to negotiate deals and protect our interests if we show solidarity," said Dr Jamie Shea, Director of Policy Planning at the North Atlantic Treaty Organization, a political and military alliance joining much of Europe and the U.S.

Europe's key priority is to counter the growing power of Russia and its gas monopoly OAO Gazprom (GSPBEX.RS), industry officials said. Gazprom provides over a quarter of Europe's gas, and the total is still growing. Dr Herbert Unger, Director of European Commission's Competition Directorate said dependence on Russian gas is the "Achilles heel" of Europe's energy security.

"Meeting Gazprom's market power needs European coherence," said Dieter Helm, Professor of Energy Policy at the University of Oxford in the U.K. As the sole consumer of Russia's gas exports and provider of the majority of Gazprom's revenues, the E.U. and Turkey could have considerable clout in negotiations if they can present a "common front," Helm said.

However, the enthusiasm of some European countries to cut bilateral deals with Russia over gas supplies is preventing the formation of a unified position, he said. Helm highlighted the "special relationship" between Russia and Germany, based on the Nordstream pipeline, as an example.

Nordstream is a joint venture between Gazprom and German companies Wintershall AG and E.ON Ruhrgas, a subsidiary of utility E.ON AG (EON). The EUR5 billion pipeline, which has yet to begin construction, will run from Russia direct to Germany along the bed of the Baltic Sea. It is planned to deliver up to 55 billion cubic meters of gas a year by 2012. The pipeline bypasses other E.U. member states Poland, Latvia, Lithuania and Estonia.

"The Baltic and Blue Stream proposals are successful examples of Gazprom picking off countries one by one," said Giles Chichester, a member of the European Parliament and coordinator of Industry, Research and Energy Committee for the European Democrats.

In March Hungary's government decided to support Russia's plans for expansion of the Blue Stream pipeline, which would transport gas through Turkey into Central Europe. Hungary would serve as a hub for Russian gas exports through the pipeline into neighboring countries.

Industry analysts said Hungary's backing for Blue Stream could scupper the E.U.-supported Nabucco pipeline project designed to bypass Russia in transporting Iranian and Central Asian gas to Europe.

Nabucco's lead partner, Austrian utility OMV AG (OMV.VI), has even been in talks with Gazprom to supply the pipeline with some of its gas. Gazprom has also recently cut long-term gas supply deals with France and Italy.

"No one country can ever set its energy policy in isolation," said U.K. Secretary of State Darling, although he added that he sees no reason why countries can't make bilateral agreements if they operate within E.U. rules.

If Europe seems unable to form a coherent approach to energy, it is also ill-equipped to deal with the risk arising from that policy failing.

"Risk management means diversification of risks," said Unger of the European Commission. No single country or company can manage all the risks Europe faces over its energy supply, Unger said, so a Europe-wide integrated energy market is very important.

But the slow and incomplete application of reforms to make the E.U. energy market more open and competitive is preventing the sharing of supply risk, he said.

There is a "systemic conflict of interest" in countries such as France and Germany where national incumbent utilities still own power and gas supply and distribution assets, he said.

Investment in an integrated cross-border gas and electricity network that could mitigate the risk of supply disruption, but also open up incumbents to greater competition, has not been forthcoming, said Helm of Oxford University. The European gas and power market is still a series of limited bilateral linkages, not an internal market, he said.

The apparent goal of some European countries to build up national energy champions big enough to take on a behemoth like Gazprom is also likely to fail, said Stephane Kirkland, Head of European Business Development for U.K. utility Centrica.

Despite a series of European utility mega-mergers, "no purchaser is large enough to significantly impact the geopolitical balance of tomorrow," Kirkland said.

The recent experience of Royal Dutch Shell PLC (RDSB.LN) and BP PLC (BP) in Russia shows that even the biggest global companies struggle to compete with Gazprom.

Shell recently lost control to Gazprom of its flagship Sakhalin-2 gas project in Russia's far east, after a long period of pressure from the Kremlin. The largest gas field of BP's Russian joint venture TNK-BP (TNBP.RS) looks likely to suffer a similar fate.

"We need to focus on European interests, rather than the interests of single countries," Kirkland said. However, the Russia-E.U. summit next week seems unlikely to achieve this.

German Foreign Minister Frank-Walter Steinmeier flies Tuesday to Moscow for last-ditch talks with Russian President Vladimir Putin to salvage the summit, which aims to deepen cooperation over trade and energy. But disputes over trade between Russia and Poland and Lithunia, and a spat over a Soviet war memorial in Estonia look likely to dominate proceedings.

"We have a whole series of problems to overcome before the negotiations can start," said German Chancellor Angela Merkelin Berlin Monday.

The need for greater European unity on energy will only grow more urgent. "Energy independence is not attainable," said Shea of NATO. Increasingly, oil and gas resources are concentrated in the hands of national energy companies and there is, "the danger of both oil and gas cartels controlling supply and price," he said.

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