European energy security

Conscious uncoupling
Reducing Europes dependence on
Russian gas is possiblebut it will
take time, money and sustained
political will

Following bribery by Vladimir Putin on Viktor Yanukovych, President
of Ukraine, and the treaty signed with the EU, gas was cheaper. The
russian gas from Ukraine burn is wasteful of energy (268.5 dollars
per thousand cubic meters TCM that the total of 28 billion cubic
meters in 2013, works BCM 7.5 billion). Since the revolution in
February when Yanukovych was ousted, the gas price was
increased by 44% ($385.5 per tcm). This is a bad news for Europe.
Ukraine owes Gazprom $ 1.7 billion. If Ukraine will not pay, the gas
may be cut off. This dispute should not impede the passage of gas to
other countries in West Europe. But if Ukraine continues to not pay
their bills, the gas flow may be restricted in Europe. Europe uses
24% of Russian gas. A dispute between Russia and Ukraine in 2009
led to the closure of gas pipelines. On short term, such a disruption is
not so bad. But in the medium term (several months or years),
Europe remains extremely vulnerable to Russian control over gas
supplies. This vulnerability is one of the reasons why Mr. Putin thinks
that Europe will not act decisively against the annexation of Crimea.
But in time, this vulnerability can be reduced, and Russia may lose
some of her exploitation.
At the moment, things could change in favor of Europe. The
european countries are not dependent on Russian gas during the
summer or during the mild winters. Total storage capacity of gas in
Europe is 75 bcm, with 36bcm already stored gas. But it can be also
a weak point. Some countries have large gas storage space
(Latvia), while others have not (Moldova, Macedonia). Thus, we
have to find a way for countries to give opportunities to those who
do not have gas and possibilities. But the piping is not well suited for
this. A free flow of gas means consumers broader choice and lower
price, according to the national gas companies. But pressure from
the EU, particularly in the form of "third energy package" of
liberalization and a growing concern in 2009 about the risks of
relying on Russian gas means that more interconnectors were
constructed.
Poland was connected with the Czech
Republic through the small pipe Stork
in 2011 and works for a capacity of up
to 10bcm before 2017. Slovakia has just
opened a pipeline to Hungary. Germany
can now send gas to Italy, Poland and
the Czech Republic. Currently, the
means of mutual support in connection
with gas transmission are improved
Estonia, Latvia and Lithuania, although they are
not connected to a gas source are very
important countries for Russia (especially
Latvia-arming). In 2018 could start the work on
a pipeline linking Poland to Lithuania. Bulgaria
also has a special problem because it has a
very small space for gas storage. This country
rushes to build interconnectors with Serbia for a
liquefied natural gas terminal (LNG) from
Greece.
But what would happen if Ukraine would stop
the gas supply and the gas stored would end?
A relief may be Russia. If Russia would shut
down pipelines in Ukraine, with the main
purpose to hurt Ukraine itself, it will probably
continue exporting gas to other channels. One of
them, fairly new, the Nord Stream channel build
on the Baltic Sea bottom. This channel was
designed to obtain gas from Russia directly to
Germany. At this point, only about 30 bcm gas is
used from the overall capacity of the channel
(55bcm). The others 25bcm might make a good
piece of deficiency where it supplies via Ukraine
would be halted.
Help is round the corner
Might as 10 bcm of gas to
come from Norway. Shares of
Statoil, Norway's state energy
company, were increased by
7% from the revolution in
Ukraine. But the scope for EU
production is limited. In the
Netherlands and Great Britan
the public wants the country to
pump less gas, not more,
because of concerns about
carbon emissions and a series
of minor earthquakes. Also,
North Africa could be a reliable
supplier, despite terrorist
attacks. The imports from Italy,
Libya and Algeria have
declined in recent years.
The imports from other
countries more distant it is
difficult because they sell gas
at higher prices in Asia. For
example Japan needs gas
for its nuclear power plants.
If Europe would find another
source of gas, it would be
twice more expensive than in
Russia.
There is also the option of
generating electricity from
coal instead of gas.
Currently, there are no large
capacity tank for storing coal.
With all these 50bcm of gas, Europe would have a deficit
of 30 bcm (less than half of the annual consumption of
Germany) if it would turn off the power in Ukraine. If we
find suppliers from Asia, they will double gas prices in a
short period of time (disadvantage for cold winters).
Rather than th confront with the lack of gas crisis,
Europe would prefer to help Ukraine to pay its debts.
Currently, Ukraine is producing 20bcm of gas.
Europe will also seek solutions to reduce dependence
on Russia in the longer term. This is a tough challenge
because the demand for gas is spread over a future
period of 10 years. Imports will rise from 327bcm today
to 413bcm in 2020.
Bigger, stronger
In March, EU Heads of
Government told the committee to
produce a plan in June to reduce
energy dependence, to increase
storage capacity, to develop
interconnections and to require
European countries to maintain a
strategic reserve of gas. It will also
analyze the construction of
pipelines (for example South
Stream pipeline from Russia,
Trans-Adriatic pipeline).
Europe could also develop
reserves of shale gas but the
drilling, the mining kit and the
transport facility are missing.
However, it would be insufficient
and gas production would also
decrease.
All these things depend on investors' money. But the private
investors would be unwise and invest money in expensive terminals
that may not be used if Europe slips back and accept Russian
cheaper gas. And although the crisis in Ukraine has fueled
America's desire to help the Allies, there is an internal lobby
believes that restricting exports will keep domestic prices low. Also,
in the longer term, liquefaction plants that use electric motors seem
to reduce the size of the capital costs and export terminals.
Since Europe uses 31% of its gas to make electricity, it is also
possible to reduce dependence on Russia, to change the generating
technology. But at this point they need energy renewable fossil
fuels. Also, the interconnected hydro plants could help (power plants
based on gas)-for example from Norway and North Africa.
Eventually, the Kremlin needs its
European customers at least as
much as they need imports from
Russia.
Oil and gas exports make up 70%
of the 515 billion annual exports of
Russia, and 52% of the federal
budget. Europe's role as the largest
gas
market in Russia already provides
some power.
Oil (as opposed to gas) is easy to
store. But to sell oil easy, Russia
needs access to the world financial
system. Companies need to borrow
on the bond market, and they want
their shares traded on international
exchanges. They also need to
process payments in dollars (the
currency in which transactions are
charged nearly all international
energy). If this system is elected, it
will link Europe and America. Also,
Rosneft, the largest oil company in
Russia, could be seriously affected if
it be delisted from the London and
New York stock exchanges. The
financial penalties could be also
difficult for Russia to sell oil to third
parties.
In theory, Russian gas exports to Europe are a weapon
that indicates otherwise apply. Where Russia is involved
in Ukraine or try their chances in Moldova, Georgia and
the Baltic states, Europe will have to take strong action.
Thus, exports could close completely and would do great
damage to the EU. However, the Kremlin can not
continue to run the economy uncompetitive ubredai to
Russia without his income most important export.
The shock received from the Crimean annexation
should accelerate European decisions on storage,
networking, diversification, liberalization and efficient gas
shale gas systems. And although policy makers may be
unpleasant for Mr. Putin in private, Europe will recognize
that he can help.