August 2014, Vol. 241, No. 8

Features

How Europe Freed Itself From Relying On Russian Gas

Each time there is a fallout between Russia and Ukraine, urgent calls are made for the European Union to free itself from Russian gas. The reality is that the EU is in a better state than it has been for two decades.

The EU has diversified its sources of gas considerably since the 1990s. More than 80% of the growth in imports now comes from countries other than Russia – especially Norway, Algeria, Nigeria and the Middle East.

Dependence on Russian gas almost halved in less than two decades, declining from 61% in 1995 to 34% in 2012. However, Russia remains the supplier which arouses most concern among European states.

The EU’s primary energy mix remains dominated by fossil fuels. Natural gas accounts for about 25% of the EU’s main energy consumption. The rest is provided by oil (37%), coal (18%), nuclear (12%) and renewables (10%).

The importance of natural gas, however, differs substantially from one country to the other. For instance, five of the EU’s 28 members account for 68% of the EU gas demand – the UK (18%), Germany (17%), Italy (16%), France (9%) and the Netherlands (9%). In other European countries such as Malta and Cyprus, natural gas is absent while Sweden’s share is barely 3%.

More than 75% of domestic gas production is concentrated in two countries: the Netherlands and the UK. These two countries also account for 71% of the EU’s proven gas reserves. Overall, the EU produces about 34% of its gas demand needs. The remaining 66% is met by imports, compared with almost 50% in 2002.

The EU’s dependence on gas imports is expected to maintain its increasing momentum. Imports by pipeline are the dominant route; the rest is delivered by LNG, mainly from Qatar, Algeria, Nigeria, Norway, Trinidad and Tobago, Peru, Egypt and Equatorial Guinea.

Europe has built an extensive network of pipelines connecting it to major gas producers like Algeria, Libya, Norway, Russia and the UK. But the problem with pipelines is that the more countries they cross, the greater the risk of disruption.

Pipeline imports are delivered through three main gas corridors: the Eastern corridor (Russia); Northern corridor (Norway) and Western corridor (North Africa). The EU has been planning for a fourth, Southern corridor, which would bring natural gas from the Caspian region, the Middle East and East Mediterranean basin.

The Southern gas corridor was described by the European Commission as one of the EU’s highest energy security priorities.

One additional pipeline has been causing controversy: Russia’s South Stream. It is designed to take Russian gas under the Black Sea – avoiding Ukraine – to the Balkans and on to other European countries. Construction is due to begin this summer.
The EU recognizes the importance of LNG in terms of offering greater flexibility and diversity of access routes which are the golden key to security and reliability of gas supplies.

European LNG import facilities have been underused, giving Europe the physical capability to import additional volumes. Some experts argue that LNG is not an attractive option because of the high price under existing tight markets conditions. But prices do adjust when market conditions change and the LNG market is undergoing important changes.

On the demand side, Japan, the world’s largest LNG consumer, recently announced it would reinstate nuclear energy into its economy. If this materializes, the Japanese thirst for LNG, which has kept prices high since the Fukushima disaster in 2011, would ease.
On the supply side, several LNG projects are expected to come on stream in 2015-2017, mainly from Australia and North America. While most of these new supplies would not end up in Europe, their impact would be felt there, as they would put downward pressure on prices.

The fate of shale gas in the EU remains unclear. Shale gas seems to be unlikely to make a material difference in terms of diversifying Europe’s gas supplies in the short to mid-term.

Countries like the UK and Poland have implemented new policies to unlock their shale potential and try to replicate the success of the North American experience. If countries outside the EU take active steps to exploit their shale resources, the impact of new supplies would also be felt in Europe.

Author’s Note: Reprinted by permission from Geopolitical Information Service. Geopolitical Information Service authors provide intelligence consulting services. For more information, visit wwwgeopolitical-info.com.

European Energy

• Spain has the largest number of LNG terminals (6), accounting for the EU’s highest capacity for both regasification and storage, followed by the UK (3) and
• France (3).
• Germany is Russia’s largest European natural gas customer. Russia provides about 38% of Germany’s natural gas imports.
• Lithuania built a US$330million floating LNG import terminal which will start working by the end of 2014. Poland is due to complete a large LNG terminal this year.
• U.S.-based energy company Cheniere, which is building an LNG export terminal in Louisiana, has committed some cargo to Asia but has also signed deals with European energy companies such as BG and Centrica of the UK.
• Around 16% of the gas consumed in Europe flows through
• Ukraine, from Russia.

Norway Supplies More Than 20% of Europe’s Natural Gas Needs

Norway is the world’s third-largest natural gas exporter, after Russia and Qatar. In 2013, Norway supplied 21% of total European natural gas needs. Norway’s natural gas reaches the Continent mainly via its extensive export pipeline infrastructure (see accompanying map) , while a small fraction is exported as LNG by tanker. The largest recipients of Norway’s natural gas exports in 2013 were the United Kingdom, Germany, France, the Netherlands, and Belgium.

EIA estimates that Norway produced 3.97 Tcf of dry natural gas in 2013, a decline of 0.18 Tcf from 2012. EIA also estimates that Norway’s net exports for 2013 were 3.8 Tcf of natural gas, which, because of its modest domestic demand, was 96% of its production.

Norway’s single largest natural gas field is Troll, which, according to estimates from the Norwegian Petroleum Directorate, produced 1 Tcf in 2013, representing 27% of Norway’s total natural gas production that year. Three other major producing fields in 2013 were Ormen Lange (0.76 Tcf), Asgard (0.34 Tcf), and Kvitebjorn (0.24 Tcf). These four fields accounted for just over 60% of Norway’s total dry natural gas production in 2013.