Europe will continue to rely on Russian gas despite US pressure

Mushfiqur Rahman | Published: July 22, 2018 21:35:53 | Updated: July 22, 2018 22:07:10


At their joint post-summit press conference in Helsinki on July 16, US President Donald Trump and Russian President Vladimir Putin, made it that the competition to get the larger share of European energy market would continue between the two major powers. Such a business competition is not unusual and it highlights the importance of the Russian side to enhance natural gas supply arrangements for European Union (EU) member countries. Implementation of the 'Nord Stream 2' gas pipelines (the 1,200-kilometre gas pipelines to be constructed with a cost of 9.5 billion Euro to deliver annually 55 billion cubic feet of natural gas  from Russia to Germany through Baltic sea) to enhance present supply of gas is, therefore, an important issue. The former east European countries and Federal Germany used to be dependent on Russian energy supply during the period of cold war and their dependence continues until now.

The Russian pipeline gas is the major source of primary energy for the European countries. Gazprom, the world's largest gas producer and a Russian government company, supplied in 2015 about 150 billion cubic meter (BCM) of gas to European countries. This amounted to nearly one-third of their annual requirement.

Gazprom continues to enhance its supply of piped gas to the region. Piped gas is delivered through several pipelines connecting the Russian Federation with European countries. Among them, the existing Nord Stream-1 pipelines supplied approximately 182 BCM gas to European countries during October 08, 2012 - October 07, 2017 (London-based The Financial Times reported  on April 02, 2018 that a total of 183.9 BCM gas was exported by Russia to European countries in 2017). Share of Russian gas in European market has been increasing.

The Ukraine crisis compelled Russia and its European partners, especially Germany, to promote implementation of the Nord Stream-2 pipelines through Baltic sea (bypassing Ukraine's territory) to meet growing market demands and ensure supply security of gas.

A few published statistics may help understand the level of Europe's reliance on Russian gas. Italy imports from Russia nearly 37 per cent of its total gas consumed in a year and Germany nearly 28 per cent of its consumed gas. Dependence of Slovenia, Greece and Hungary on Russian gas is at a level of 41-45 per cent. In addition, Czech Republic, Austria, Slovakia, Slovenia, Poland, Turkey, Greece have nearly 80 per cent dependence with Bulgaria, Finland, Lithuania, Latvia and Estonia having almost 100 per cent dependence on Russian gas supply. There are other Russian gas importers and consumers in Europe, including Switzerland (23 per cent), Romania (24 per cent), Luxembourg (24 per cent), France (16 per cent) and Netherlands (5.0 per cent). Poland and Lithuania.

Meanwhile, a few  European states have recently built terminals for importing liquefied natural gas (LNG) to access alternative primary energy supply sources. These terminals may allow import of LNG from Norway within 2022. Of late, Lithuania imported some LNG from the US. However, export of significant volumes of LNG from the US to European market looks a distant possibility. First, the eastern European countries and Germany need to build their LNG import and distribution infrastructures and the import price should be favourable. Secondly, the US has an established export market to feed (the countries like Mexico, South Korea).

Gazprom is also diversifying its market and is building a 3,000-kilometre pipeline (with a cost of $55 billion) for supplying gas to China and a $13-billion pipeline for supplying gas to Turkey (TurkStream pipelines). A large Russian LNG export capacity is also under construction in the Arctic.

A number of EU member countries apparently want to reduce the influence of Russia's energy sector, but others are cautious about the US motives to 'force feed' its LNG to European market and to enhance the influence of its primary energy supply sector.

For a couple of years, opponents of Nord Stream-2 pipelines have been arguing that the pipeline may give Russia too much advantage over European energy flows in the event of military conflicts or price disputes. However, the German government approved the Nord Steam 2 pipelines project on March 27 and the construction work should commence shortly. The Nord Stream-2 pipeline project has five shareholders, including PAO Gazprom (51 per cent) and other European companies like Wintershall Holding GmBH (15 per cent), PEG Infrastruktur AG (15.5 per cent), N.V Nederlandse Gasunie (09 per cent) and Engie (09 per cent).

President Trump did not try to hide his intention to supply LNG to Europe and 'free Europe' from its dependence on Russian gas supply. He said Russia was a 'competitor and a good competitor' in fuel supply business in Europe. He asserted that his country would be competing very strongly with Russia in selling LNG to European countries to offset Russia's gas supply by pipelines. He, however, acknowledged Russia's 'little advantage locationally' and the 'close source' of its gas supply.

Earlier, during the NATO summit in Brussels, President Trump criticised the German government's decision to proceed with Nord Stream 2 pipeline construction project (at the stage of planning since 2015 and scheduled to be completed in 2019). He argued that 'Germany is totally controlled by Russia'. The existing Nord Steam-1, the trans-Baltic gas pipelines, has been operational since 2011. Once Nord Stream-2 becomes operational, the two pipelines system together would supply 110 BCM of natural gas, or almost a quarter of the demand of the European market. After the meeting with President Putin in Helsinki, President Trump softened his position and wished good luck to the Russian-backed natural gas pipeline for supplying larger volumes of natural gas to Europe.

Analysts believe that the European market can hardly write off Russian gas at this stage. Hence, Angela Markel defended the construction of Nord Stream 2 pipelines on the ground of economic interest as well as energy security of Germany and other EU members.

Mushfiqur Rahman is a mining engineer, who writes on energy and environment issues.

mushfiq41@yahoo.com

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