Editor in Chief: Moh. Reza Huwaida Thursday, March 28th, 2024

EU Gas Imports from Russia Could Drop A Quarter By 2020

EU Gas Imports from Russia  Could Drop A Quarter By 2020

LONDON - Europe is stitching together a patchwork of measures that could reduce its natural gas imports from Russia by over a quarter by the end of the decade as a result of the Ukraine crisis, halting Moscow's tightening grip over the region's energy.

Russia's seizure of Ukraine's Crimea region has chilled political relations between Russia and the European Union, prompting governments across the bloc to look at ways to cut demand, find alternative supplies and switch to other fuel sources such as coal and renewables.

Reuters calculations suggest these steps could slash imports from Russia by around 45 billion cubic meters (bcm) by 2020, worth $18 billion a year, equivalent to a quarter of what Russia currently supplies.

Past hopes of loosening Moscow's grip have been dashed, not helped by Germany's decision to give up on nuclear power, with Russia's share of EU supplies rising 10 percentage points to over a third since 2010, and before the current crisis Russia's gas share in Europe was expected to remain stable at current levels.

The crisis in Ukraine has shaken policymakers awake across Europe's capitals, and several emergency meetings over energy security have been held in the past weeks.

"We are serious about reducing our energy dependency ... We need a new way to do energy business," said European Council President Herman Van Rompuy, who represents EU governments in Brussels.

At the forefront of these plans are Germany and Italy, Russia's biggest gas clients in the EU, but also Poland.

German Chancellor Angela Merkel said in late March that "energy policy will have to be newly considered".

Germany is Europe's biggest gas user and Russia's most important customer, using over 80 bcm of gas a year and meeting around a third of its demand through imports from Gazprom, a share that has steadily risen over the past 20 years.

Germany's most immediate plans to reduce Russian gas imports are to ramp up alternative supplies and reduce demand through improved energy efficiency.

Germany already has something of a mountain to climb, having shut down 7 gigawatts (GW) of nuclear power in response to the nuclear meltdown disaster in Japan in 2011, with plans by 2022 to shut down its remaining nine reactors, which generate 12 GW, according to the World Nuclear Association.

There appears to be no prospect of Germany reconsidering its nuclear withdrawal.

The majority of the lost capacity is planned to be filled by coal and renewable facilities.

Between 2014 and 2015, German utilities plan to connect almost 6 GW of new hard coal power capacity to the grid and 2.7 GW of new offshore wind installations.

It only plans to add 0.5 GW of new natural gas, and with several older gas stations being retired, there will be a net decline in gas use.

Similar efforts are being made in Italy, which uses over 70 bcm of gas a year and is the EU's second biggest importer of Russian supplies.

The Ukraine stand-off has already put a question mark over the future of the 2,400 km (1,500 mile) South Stream pipeline project, which will pump Russian gas to Italy later this decade.

"The developments of the Ukraine crisis could put at risk the construction of South Stream," Italy's Industry Minister Federica Guidi told parliament in late March.

The head of Italian oil and gas company Eni had already warned a week earlier that the Gazprom-led project was in jeopardy.

Minister Guidi said the government had plans to reduce energy consumption via efficiency measures by 20 percent this decade, and that it would remove red tape to expand its import capacity of non-Russian liquefied natural gas (LNG) as well as complete the Trans-Adriatic Pipeline (TAP) gas corridor that will bring 10 bcm of Azeri gas to Italy towards the end of this decade.

Guidi also said it wanted to attract investors to look for oil and gas in Italy by simplifying the permitting process.

Many Mediterranean countries are hoping to repeat the success of Israel and Cyprus in finding offshore gas.

Almost 1 trillion cubic meters of recoverable natural gas has already been discovered in the eastern Mediterranean Levant Basin, enough to supply Europe with gas for over two years.

Although most of the Mediterranean gas riches will end up in higher-paying Asia, Turkey and Egypt, some could also go to the EU.

Analysts also said the global LNG market would have more supplies available for Europe towards the end of the decade.

"Europe might be just lucky enough that the global LNG market rebalances towards the end of the decade," said Massimo Di-Odoardo, senior analyst at energy research and consultancy firm Wood Mackenzie.

"There are currently around 150 bcm of LNG projects under construction globally, and we don't believe there is enough additional LNG demand outside Europe. This means that a lot of the LNG from the Atlantic and Middle East now being diverted to Asia will eventually come back to Europe," he added.

The urge to reduce Russia's energy grip is particularly keen in central Europe, where memories of Soviet dominance are still fresh and almost all gas is supplied by Russia.

Poland plans to start a 5 bcm per year capacity LNG terminal by next January to import gas from overseas countries such as Qatar and, later this decade, the United States and Canada, where a shale gas production boom has led to a supply glut.

"Poland will never be subject to any blackmail in this respect," Prime Minister Donald Tusk said last month.

Since 2009, when Russia supplied over 91 percent of Poland's gas, Poland has doubled the capacity of a pipeline link with Germany and built a new link to the Czech Republic.

Despite these steps and efforts to explore for shale gas, Poland still relies on Russian imports for roughly two thirds of its annual gas usage of 15 billion cubic metres.

Tusk said his government had therefore approved a new shale gas bill that would help encourage investors by reducing red tape and regulatory hurdles.

Poland also has plans to use more of its large domestic lignite coal reserves.

Other countries in the Baltic region are also planning to begin LNG imports soon.

Finland and Estonia, who both import all their gas needs from Russia, signed an agreement in late February to build two LNG terminals on either side of the Gulf of Finland and a pipeline connecting the two countries.

Lithuania, another Baltic country that relies entirely on Russian imports, also plans to introduce a floating LNG facility that will allow imports of 2-4 billion cubic metres of natural gas per year from 2015.

Deeper into southeastern Europe, where Russia's grip is also tight, U.S. energy major Exxon Mobil and OMV Petrom plan to produce 6.5 bcm of natural gas from Romania's Domino field by 2020. (Reuters)