Rhein on Energy and Climate

Rising fears in Europe about a potential embargo of Russian oil and gas embargo seem exaggerated. In any case, they can only rely to gas, as the supply of oil is much more diversified.

In the short run, EU disposes of stored gas of close to 100 billion cubic meter that covers its demand for several months.

Rising gas prices will induce consumers to step up overdue efforts in energy efficiency, especially for heating.

In addition, it could substitute much of the shortfall of Russian gas by supplies of gas or electricity from Norway and LNG from Nigeria, GCC and Iraq on the one hand and more electricity from domestic nuclear and coal-fired power plants.

In the medium term, the EU should:

  • Increase its emergency stocks of gas.
  • Complete its gas pipeline network and increase its wind/solar capacity;
  • Turn to the USA to supply shale gas.

    The USA is busy building additional terminals for LNG exports. In a crisis situation, it will certainly be ready to help fill in whatever shortcomings may appear in Europe and grant the necessary export licences.

  • Negotiate gas contracts with Azerbaijan, Turkmenistan and other potential supplier countries within reach and constitute consortia to build the necessary pipe lines.

Russia would certainly have to pay at least as a high a price for a gas embargo on Europe. It will take several years before it can direct gas exports towards China and other Asian clients; in the meantime it is desperately dependent on the foreign exchange receipts it has been drawing from its gas exports to Europe. It will therefore think twice before cutting its gas exports to Europe.

All these solutions carry a price for European gas consumers. LNG is more costly than pipeline gas. Coal-fired power plants emit twice as much C02 as gas-fired ones. But the European consumer will have little choice but to pay an extra price for ensuring a reliable energy supply.

A cut-off would be a welcome challenge for pushing Europe with more determination toward independence from fossil energy, which it aims at for the middle of the century.

In any event the EU needs to urgently set up contingency planning for all eventualities, especially how to supply the few member countries which depend essentially on Russian gas.

In conclusion, there is little reason for the EU to be afraid of a Russian gas embargo.

Eberhard Rhein, Brussels, 20/6/2014

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