Oil may be headed for $200
a barrel and the price of
everything from wheat to gold
set to cause yet more ructions
in world commodities markets,
but for European businesses,
households and governments, natural gas
may be the next big headache. Like oil, the
price of this fossil fuel is rising dramatically.
Now EU officials and others in the industry
are warning that Europe is facing a supply
crunch as well, whatever the price.
Europe is “sleepwalking” its way to a
“staggering dependence on imports,” Paulo
Scaroni, chief executive of Italy’s national
energy company, Eni, told the World Energy
Congress in Rome late last year. By 2020 gas
demand could be 40% higher than in 2007,
at a time when production in the 27-nation
EU was “expected to halve.” The result, he
stated, will mean doubling Europe’s annual
imports from 300 billion cubic metres to 600
billion cubic metres. “We clearly run the risk
of a gas shortage in the future,” he added.
His words came shortly before the EU
released its long-awaited report on a Priority
Action Plan for achieving energy security in
Europe. It followed a worrying stand-off two
years earlier between Russia’s gas monopoly,
Gazprom, and Ukraine over transit fees and
gas pricing. Supplies to western Europe were
cut for several days, causing an urgent rethink
in Brussels about energy security, as well
as the need to tackle energy integration in
Europe and climate change. The Plan, launched
in December, noted that Russia supplied
more than half of the EU’s gas imports and
suggested measures to diversify supply. It
also called for expanding the continent’s gas
transport and processing facilities, as well as
stepped-up efforts to promote integration
and investments in sustainable energy.
“One of the main tools we have to improve
our security of supply is diversification,” says
EU energy commissioner Andris Piebalgs.
“Establishing stable frameworks for energy
cooperation with potential new suppliers is
therefore a priority for us.” Brussels estimates
that imports will need to rise 85% by 2030.
In addition to Russia, Algeria and Norway –
Europe’s other main suppliers – new sources
are urgently being sought in Iraq, Egypt, Libya
and west Africa, as well as from the Caspian
Sea via Turkmenistan and Azerbaijan. More
than €3.2bn has been allocated to help gain
more imports from the Mediterranean alone.
Since the Plan was announced, the
seriousness of the potential crisis has been
highlighted by industry experts and analysts
as well. While supplies should be “overall
balanced” for the next few years, thanks
in part to imports of liquefied natural gas
(LNG) from Qatar, there could be a real
crunch “once past 2012,” Cynthia Poynter,
a senior manager for IHS, the global energy
information company, told a conference in
London in April. By 2020, Europe will need
another 150 billion cubic metres of gas, a 27%
rise over the 2007 figure of 550 billion cubic
metres, according to IHS estimates.
“Given the kind of volumes of gas that
Europe is going to need over the next decade
and a half, it’s very difficult to see where
it is going to come from,” observes Alex
Forbes, senior consultant for Gas Strategies
in London. Qatar, which has the world’s
third largest reserves of natural gas, behind
Russia and Iran, has announced a moratorium
on future projects, he says, and has made it
clear that it wants a diverse customer base
spanning Asia, the US, and indeed other Gulf
states, which are all faced with spiralling
energy needs of their own.
Ironically, part of the reason for the increase
in Europe’s appetite for gas is the EU’s latest
environmental policies. Although a fossil fuel,
gas emits fewer particulates when burned and
less CO2 than oil or coal. Power generators
such as RWE of Germany, EDF Energy of
France, Iberdrola of Spain and Centrica of
the UK, all find themselves eager for quick
fixes to their perceived green credentials and
natural gas is part of the mix. Rapid economic
development, particularly in south-eastern
Europe and Turkey, is adding to the increases
in demand, industry experts say.
In the electricity sector “there is a big trend
toward gas-fired generation,” observes Stan
Reid, an Edinburgh-based product manager
for European gas at global energy consultants
Wood MacKenzie. This will increase once “the
carbon market is in place,” he adds, referring
to the EU-wide cap-and-trade carbon trading
system that formally begins this year and
punishes dirty power generators if they
pollute beyond their permitted allowance.
For European consumption, “the range
of forecasts for 2015 is an increase of
[between] 25 and 125 billion cubic metres
compared to 2007,” says Shankari Srinivasan,
a Paris-based senior director for European
gas at Cambridge Energy Research Associates
(CERA). “The challenge will be in obtaining
supplies.” Despite the EU’s efforts to form a
united front, she feels that “competition will
prevent a common policy on procurement.”
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