Europe Sees Short-Term Hope in LNG, Gas Links

Reuters

BRUSSELS ?€” Politics and cost mean the EU is unlikely to diversify energy supplies away from Russia for many years, despite a gas crisis that has idled factories in southeast Europe and left thousands of homes without heat.

The price dispute between Russia and Ukraine is a wake-up call to a continent that has been talking about reducing reliance on Russian gas since a similar dispute in 2006. But turning words into action is proving tough.

"The Russian-Ukrainian crisis has made it clearer than ever that filling in the gaps in our energy infrastructure is to the strategic benefit of all Europe," European Commission President Jose Manuel Barroso told EU lawmakers last week.

Barroso said 5 billion euros ($6.6 billion) of European Union cash had been earmarked for the most pressing short-term issue ?€” linking up the entire European network with gas interconnections. Such links would help countries like Bulgaria, which depends entirely on Russian gas and has found itself technically unable to accept help from its neighbors, or could remove the bottleneck that prevents Algerian gas flowing into northern Europe from the Iberian Peninsula.

"We are living through one of the most serious energy crises yet ?€” comparable with the 1970s oil crisis," European Energy Commissioner Andris Piebalgs said. The EU gets a quarter of its gas from Russia and 80 percent of that via Ukraine.

Russia's war with Georgia in August raised energy security issues because Georgia hosts the only pipelines pumping oil and gas from the Caspian Sea to world markets without crossing Russia.

Since then, Piebalgs has been promoting plans for pipelines from Africa, Central Asia and the Middle East and arguing for more projects to harness energy from the wind, tides and the sun.

The EU is also focused on increasing the number of ports capable of receiving ships carrying liquefied natural gas from places as far afield as Qatar and Nigeria. "Greece used LNG to get them through the current crisis," said analyst Susanne Nies at France's IFRI think tank.

"In today's situation, LNG has to be increased," she added, singling out Germany, Poland and the Balkans as prime new sites.

But while political support has increased for long-distance pipelines into Europe like Nabucco, Nord Stream and South Stream, they still face the perennial problem of huge costs made worse by a punishing economic crisis.

The 7.4 billion euro ($9.8 billion) Nord Stream project, which would pass from Russia beneath the Baltic Sea to Germany, faces numerous challenges over its environmental impact. It must also overcome political hostility from neighboring Poland, which would see its role as a gas transit state reduced.

"The easiest is South Stream, but the problem is financing, so that could be delayed," Nies said.

While the South Stream pipeline under the Black Sea would eliminate the problem of crossing Ukraine, it would not reduce the EU's dependency on Russian gas. To limit Moscow's stranglehold on gas, the West is backing the $12 billion Nabucco pipeline, which is one day expected to carry 30 billion cubic meters of Caspian or Middle Eastern gas annually to an Austrian hub. But economic doubts remain. "Nabucco will only be built if 15 bcm can be agreed, but for the time being we only have 3 bcm from Azerbaijan, and even that hasn't been signed," Nies said.

Given the vulnerability of Nabucco, the EU is also looking south toward Africa and a Trans-Saharan pipeline carrying Nigerian gas north across the Sahara. Analysts highlight concerns about the threat of sabotage in the lawless Sahara as well as the costs.

Jorgen Henningsen, energy adviser to the European Policy Centre, said for now the EU would do better to concentrate on the basics of energy security ?€” interconnections and gas storage ?€” rather than ambitious pipelines. "We need sufficient storage to cope with accidents, with terror attacks or with political blackmail, and this can be dealt with at a relatively low cost," he said.