Today in Europe the most important energy security issue is the region’s dependence on imported natural gas, which leaves Europe beholden to the political and economic interests and whims of its suppliers, especially Russia.
For Europe, natural gas imports today comprise about 46 percent of demand, while for the European Union (EU) gas imports account for about 59 percent of demand. Russia is a significant factor in these imports, providing about 25 to 26 percent of total gas demand for Europe and the EU. Although the International Energy Agency (IEA) expects slow growth in European and EU gas demand through 2030—about 0.7 to 0.8 percent per year—in absolute terms more gas will be necessary. Unfortunately, for Europe and the EU, internal production is declining, except for Norway, leaving Europe and the EU increasingly dependent on foreign sources.
As a sign of the significance of the issue, Europe and the EU’s natural gas dependence was highlighted at the 11th IAEE European Conference “Energy Economy, Policies and Supply Security: Surviving the Global Economic Crisis” in Vilnius, Lithuania.
Looking to the future, gas import dependence will likely grow rapidly. By 2015, European gas imports will increase to 49 percent and by 2030 to 66 percent. For the EU, gas import dependence will be even greater, reaching 69 percent by 2015 and 83 percent in 2030. A major difference between European and EU dependence is Norway, a part of Europe but not the EU. Norway, whose production is expected to increase through 2030, is a major gas exporter to the rest of Europe. European imports also come from North Africa (Algeria and Libya). Internal supplies come from the Netherlands and the United Kingdom, which are both experiencing declining production.
Dependence on Russian imports will increase as well, rising in Europe to 29 percent in 2015 and 36 percent in 2030. For the EU, Russia’s share of the gas import market will increase to an estimated 30 percent in 2015 and 38 percent in 2030. By 2030, Russia will be supplying more gas to Europe and the EU in absolute volumes than any other source, a terrifying prospect for today’s policy makers.
Still, Russian gas dependency differs considerably among European countries. Three countries, Finland, Macedonia and Slovakia, are completely dependent upon Russia for their gas supplies. Several others, Bulgaria, Greece and Serbia-Montenegro, are more than 80 percent dependent. Additionally, nine countries (Austria, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovenia and Turkey) rely on Russia for at least 50 percent of their natural gas supplies. For Germany, France and Italy, Russian gas imports range from 20 to 36 percent, although the total volume that Russia supplies is substantial.
Most of future gas imports will be used for electric power generation, which is expected to grow faster than total gas demand. Europe’s emphasis on reducing its carbon footprint and the fact that natural gas is the least harmful of fossil fuels will result in more demand for gas in the future. As electric power demand continues to grow in the coming decades, natural gas will likely be the fossil fuel of choice rather than coal or oil. Europe is relying on demand reduction strategies and enhanced reliance on renewable energy to meet its climate change goals; however, gas will continue to play an important part of its energy strategy.
With the shift to natural gas, import dependency, especially reliance on imports from Russia, looms as a growing political issue. There are good reasons for the concern. In the past four years, European gas supplies from Russia were severely disrupted twice. In January 2006, Russia and Ukraine had a dispute over gas prices. Russia turned off its gas valves for several days, and Ukraine did not send on to Europe the gas transiting its country. As a result, Europeans froze. In January 2009, a similar Russian-Ukrainian gas dispute led to a two-week shutdown of the gas transit system. Europeans felt the frigid impact again until the dispute was settled, even though the EU was better prepared for this disruption. A minor dispute in Belarus in June 2010 did not lead to a disruption but was another reminder of constant problems.
Disruptions in Ukraine and Belarus are important since 80 percent of Russian gas exports to Europe go through Ukraine, with the remainder going through Belarus. Russia and Ukraine resolved their natural gas contractual dispute in April 2010 (two months after a pro-Russian government was installed in Ukraine); however, future natural gas pricing and other contractual disputes cannot be ruled out. These incidents underlie the concerns in Europe and the EU on increasing dependence on Russian gas. Where Russia used to be a reliable supplier to Europe, politicians and policy makers now view Russia with skepticism and uncertainty.
Both Russia and the EU are advancing different energy systems to solve the uncertainty. Russia is proceeding with two different pipeline bypasses that would eliminate the need to cross Belarus and Ukraine. The northern pipeline bypass is Nord Stream that will transport gas from Russia under the Baltic Sea to Germany. The first of two lines is under construction and is expected to open in 2011, while the second line is expected to open in 2013 or 2014. The second pipeline system is South Stream that would originate in Russia and transport gas under the Black Sea to Bulgaria and, eventually, to the European gas hub in Austria. Russia continues to announce progress on South Stream. But its expense, in the $15 billion range, and the uncertainty in gas supplies, leave many in Europe skeptical of this system. Russia has another option: using the existing Blue Stream gas system from Russia to Turkey as a way of bypassing Ukraine and transporting gas to Europe. Blue Stream is underutilized, and using this system would require the cooperation of Turkey and other transit countries.
The EU is looking to the Caspian and the Middle East for potential new sources of natural gas, with the Nabucco Pipeline as the primary transportation system. This system is in the advanced planning stages; however, many obstacles remain, including gas supply sources, transit agreements and financing. Neither South Stream nor Nabucco are certainties.
In the meantime, Europe and the EU have been diversifying their gas imports by turning to liquefied natural gas (LNG). This allows access to a variety of sources in Africa, the Middle East and the North Atlantic. Using LNG can increase flexibility when demand is uncertain, and LNG facilities can serve as storage facilities, again enhancing flexibility during times of uncertainty.
As the EU and Europe look toward the future, several important questions must be answered: Will Russia again be a reliable partner or will it exacerbate the EU and Europe’s import dependence problems? Can the EU’s development of Nabucco be a part of the solution to future gas import uncertainty? Will Europe be able to develop its unconventional gas resources as the U.S. has done, allowing it to increase internal production while limiting future gas imports? Will LNG become a greater part of the diversification strategy, again limiting increases in pipeline gas deliveries? All of these questions raise interesting and important issues for EU energy security. Until more definitive answers are provided by key European, EU and Russian leaders, Europe and the EU will continue to worry about their future natural gas supplies.
Analysis by Abraham Energy Report Contributing Editor Leonard L. Coburn who spoke at and moderated a panel at the 11th IAEE European Conference “Energy Economy, Policies and Supply Security: Surviving the Global Economic Crisis.”