Europe's dangerous addiction to Russian gas needs radical cure - FT.com - 0 views
-
Europe’s dangerous addiction to Russian gas needs radical cure
-
“It really boils down to this: no nation should use energy to stymie a people’s aspirations,” Mr Kerry said in Brussels, just as Russia’s Gazprom raised the price it charges Ukraine for gas.
-
Bernstein Research has calculated that to do so, Europe needs to eliminate 15 bcm of residential and industrial gas demand, invest $215bn and incur $37bn of annual costs in the form of higher-priced energy. That works out as $160 for every single person in Europe.
- ...12 more annotations...
-
A new energy corridor has just been sanctioned that will bring Caspian gas being developed by a BP-led consortium into the heart of Europe.
-
Import terminals are being built to receive liquefied natural gas (LNG) from places such as Qatar and Nigeria.
-
And countries such as the UK are moving ahead with developing their substantial reserves of shale gas.
-
There are 20 operational LNG regasification plants in the EU, with a combined import capacity of about 198 bcm of gas per year. A further 30 bcm/y are under construction. But Europe’s terminals are conspicuously underused. Imports of LNG have fallen sharply, partly because of the 2011 Fukushima nuclear disaster, which prompted Japan to switch to gas-fired generation and diverted LNG cargoes from Europe.
-
The question is: are European customers prepared to pay Japanese prices for LNG?” says one Brussels-based European gas industry official.
-
Arguably a more urgent task is to improve energy security by unifying the EU market – in particular, linking up the countries of eastern Europe.
-
If Europe is serious about reducing its dependence on Russian gas, it will have to take radical measures. Bernstein’s Mr Clint lists some: switching from gas to diesel power, closing gas-intensive industries such as oil refining, reducing gas consumption in heating and adding more coal-fired generation – which would inevitably increase carbon emissions.
-
Added to that, Europe is contractually obliged to continue taking delivery of Russian gas. Bernstein makes the point that Gazprom has about 120 bcm of take-or-pay contracts – with companies such as ENI, Edison and RWE – that require Europe to continue paying about $50bn for Russian gas. Many of these stretch way beyond 2020.
-
Europe accounts for half of Gazprom’s gas revenues, according to the company, and 71 per cent of Russia’s crude oil exports, according to the International Energy Agency.
-
“Gazprom has heard it all before,” said Jonathan Stern, director of gas research at the Oxford Institute of Energy Studies. “For the past 20 years Europe has been trying to diversify away from Russian gas and failed.”
-
A growing share of oil, largely from Rosneft, is flowing directly to China by pipeline. Lukoil last week started commercial production at its enormous West Qurna field in Iraq – much of whose production is likely to be sold in Asian markets, analysts say. And Novatek, together with CNPC of China, is building an LNG terminal that will help shift gas exports towards Asia.
-
Any reduction in imports from Russia thanks to Europe’s diversification strategy “is not a prospect for the next few years,” he said. “And by that time I think Russia will find alternative gas export markets, especially in an environment of strong Asian demand for gas.”