Ukrainian crisis: can Europe do without Russian gas?

The current tensions between Russia and Ukraine might raise fears about Europe’s natural gas supply as winter approaches. Given that 50% of Russian gas to Europe currently passes through Ukraine, what might be the consequences for European countries if this crisis continues? What strategy can the EU adopt in order to guarantee its security of supply?

 

Dependency on Russian gas that varies between EU countries.

Russia has long been the world’s biggest gas producer. For several years, with the development of shale gas, Russia has been in the second position after the United States (with 16% of the world production in 2015)..

In Europe, Russia remains an essential player in the gas industry. Indeed, Russian gas represents 45% of natural gas imports into Europe,[1] ahead of Norway with 31%.[2]

 

importsnaturalgasintoeu       

Natural gas imports into the EU [3]

 

However, this average conceals a great deal of variability between European countries.

Indeed, Russia’s contribution to gas consumption is extremely high in Eastern Europe, in the Baltic countries, Finland and Bulgaria.

By contrast, in Western Europe, the dependency is much lower, with the exception of Germany, which receives 43% of its gas from Russia.

France, for its part, has Europe’s most diversified supply portfolio, notably because of its geographical position. In recent years, Russian gas has accounted for between 15 and 25% of France’s gas supplies, depending on the proportions of LNG imported.

  

Natural gas transmission – the key to security of supply in Europe

Three big infrastructure projects have been or are currently under construction or in negotiation. They contribute or will contribute to improving security of supply in the European Union. Several big European energy firms have taken part in these projects, with the aim of managing their strategy as far up the supply chain as possible

The 1,220 km long Nord Stream pipeline carries 55 Gm3 of natural gas per year from Russia north of Germany via the Baltic Sea, with two pipelines commissioned in 2011 and 2012, thereby reducing dependency on gas transit via Ukraine following the 2009 crisis. Russia, which wants to remain in control of its gas trade with Europe, is – through Gazprom – the main shareholder (51%) in the Nord Stream AG consortium running the project. Wintershall, E.ON, Gasunie and GDF SUEZ are also stakeholders in this pipeline.

A second project “Nord Stream 2” will be a twin pipeline system that will double the transport capacity of the Nord Stream project.

The development of the Southern Corridor is one of the European Union’s priorities, through the laying of the TAP Trans-Adriatic Pipeline which will open the way to resources from Azerbaijan via the TANAP – Trans-Anatolian Natural Gas Pipe project and, in the longer term, to the Middle Eastern countries via Turkey (Iraq, Iran, Turkmenistan).

The 800 km long Trans Adriatic Pipeline (TAP) will link Turkey and Italy via Albania and Greece, and will provide annual capacity of 10 Gm3 from Azerbaijan. Agreed in 2013, it is expected to come on stream in 2020.

It should be noted that the South Stream project has been abandonned. Its goal was to open a new route for Russian gas towards Austria and Slovenia via Bulgaria.

 carte focus 2014

The big European gas import projects [4]

 

Other options are under consideration in order to diversify medium-/long-term sources of supply, such as the construction of LNG terminals in Croatia or Greece. The EU has even considered importing Liquefied Natural Gas from the US. Moreover, several new regasification terminals, finished or nearing completion, in the Baltic will increase security of supply. Two projects are now operationnal: the Polish Świnoujście terminal was inaugurated in 2015, and the floating regasification terminal Independence arrived in the Lithuanian port of Klaipėda on 27 October 2014. Two more projects are planned : one in Kalingrad region that should begin in 2017, and the other in Leningrad region in 2018.

 

The challenge of an EU energy policy to tackle any potential crisis

Given that imports, which accounted for around 70% of the EU’s gas supplies, could rise to 80% in 2030, according to the International Energy Agency (IEA), Europe more than ever needs a common strategy for supply sources and gas routes among all its member states.

The situation has changed since the 2009 crisis. The European Union is better prepared for possible interruptions in gas supply.

Apart from the new infrastructures that have come on stream since then, on 20 October 2010 the EU adopted Regulation 994/2010/EC on the security of its natural gas supply, which reinforces Europe’s capacity for coordination and mutual assistance. One of the key objectives of this regulation was to implement preventative and crisis management responses in the event of a supply cut-off. The member states were required to produce a risk assessment on security of supply, taking into account the factors specific to their own countries and working on extreme case scenarios such as a break in the biggest supply infrastructure. This risk assessment was then used to develop a preventative action plan as well as a national emergency plan.

On 28 May 2014, the uncertainties arising from the Russia-Ukraine crisis also prompted the Commission to propose a European energy security strategy (EESS).

To maintain security of supply over winter 2014/2015, the Commission ran stress tests in order to establish emergency plans and to create backup mechanisms (increase in gas storage, backhaul flows, pooling of some backup gas storage, etc ).[5]

At the request of the Commission, these stress tests were carried out using the European gas system’s modelling tool developed by ENTSOG (European Network of Transmission System Operators for Gas). The aim of these tests is to simulate the impact of a break in gas transmission in Ukraine or a complete stoppage of Russian gas supplies for a period of one to six months. They add an extra component to the risk assessments carried out by the individual countries. At European scale, they help to identify short- or long-term measures for implementation in the event of a break in supply from Russia. These measures would require the mutual support mechanisms between member states to perform well, well-filled storage facilities and additional use of LNG, in particular in the Baltic countries and the Balkans.

For France, the situation is satisfactory, subject to the storage facilities being sufficiently replenished and some level of supply being met by LNG.

Europe is therefore better prepared for a new gas crisis than in 2009.

Short-term solutions have been identified. First of all, the EU has asked Ukraine to increases gas reserves in the run-up to winter. The European Union must now continue its work in order to establish an overarching and sustainable European policy to secure its gas supply.

Finally, it should also be remembered that Russia is itself extremely dependent on revenues from the sale of gas in Europe. By way of example, in 2014 oil and gas products generated more than half of Russia’s total export revenues [6] and in 2015, Europe was the destination for around 80% of Russia’s gas exports [7]. There is no doubt that this will also be a factor in future strategies.

 

 

 



[1] Gas in Focus 2014. This share increased in 2013 because of the drop in LNG imports, which increased the relative volumes of imports via pipelines, in particular from Russia.

[2] Gas in Focus 2014

[3] Gas in Focus 2014

[4] GRTgaz 10-year development statement

[6] U.S. Energy Information Administration

[7] BP Statistical review of world energy 2016