Politicians: No adequate alternative to Russian energy resources for Europe in next few years

May 1, 2014 4:51 pm

The issue of energy security once again became one of the most discussed subjects after the statement made by Herman Van Rompuy, the President of the European Council. At the end of a two-day summit held in Brussels on March 20-21, he said that the European Union (EU) plans to reduce the dependency on Russian energy supplies.

Russian OilAmong the possible measures that aimed to change the situation in the Europe, Herman Van Rompuy mentioned improving energy efficiency, diversifying the EU’s supply routes and expanding the share of renewable energy sources, creating of a united energy network, and researching the possibility to import shale gas from the US.

In a related move, certain European politicians once again started discussing the feasibility of shale gas extraction in England, Germany, Hungary, Poland and other countries of the EU, which may potentially replace Russian gas.

The motion to reduce the supplies of Russian gas to Europe, which certain observers consider to be a part of the pressure machine aimed at Russia, was not met with open arms by the European businessmen. Specifically, a number of German senior executives, among them Heinrich Hiesinger, CEO of ThyssenKrupp, Herbert Hainer, the head of Adidas, and Frank Appel, CEO of Deutsche Post DHL, already expressed their disapproval of the sanction policy aimed at Moscow and the decision to move away from Russian energy resources. In their opinion, introducing economic barriers will negatively affect not only Russia, but also the whole Europe.

Politicians and experts also doubt the opportunity to efficiently replace Russian gas with supplies from other countries in the next few years. Ernest Moniz, the US Secretary of Energy, stated that America will be able to supply liquefied natural gas (LNG) to Europe no earlier than in two years; and Tord Lien, Norwegian Minister of Petroleum and Energy, said that liquefaction of natural gas and delivery of LNG by sea will be much more costly than pipe delivery.

Currently, the future of shale gas extraction in Europe is also ambiguous. Injection of chemicals into the ground, a part of the process of hydraulic fracturing (fracking) used to extract shale gas, may pollute underground waters and later lead to many diseases, including cancer. Fracking is banned in France and Bulgaria, and a temporary ban has been on shale gas mining has been introduced in Czech Republic. In September 2012, Germany recommended banning hydraulic fracturing near drinking water sources and mineral wells. In addition to that, shale gas extraction in Europe may be too costly and make such projects unprofitable.

russian oilHowever, Oras Tynkkynen, a Member of the Parliament of Finland, representing the Green League, in his interview to “PenzaNews” agency said that shale gas can potentially supply Europe with energy, although he admitted that extracting it may be dangerous.

“There are considerable concerns and risks related to fracking shale gas. If environmental and health concerns can be addressed, shale gas can be one alternative – and domestic – source of gas in Europe,” he specified.

The politician also noted that currently Europe is highly dependent on Russian gas imports, and that the progression towards the new energy policy may begin today.

“To my knowledge there is widespread consensus on the need to tackle energy dependency,” Oras Tynkkynen said.

Herbert Reul, a European MP and a member of the German Christian Democratic Union (CDU) party, also expressed the thought that shale gas extraction in Europe may be one of the possible sources of natural gas for the European countries.

“I think shale gas in Europe is a chance we should use. If there are our own resources, obviously we should use them,” Herbert Reul said.

According to him, in all questions of supply, dependency on a single supplier always has its downsides, and the current situation in Ukraine has brought energy dependency back on the European political agenda.

“When you are on the receiving end, you always depend on others and their supplies. In such a situation, it is always advantageous to rely on several rather than one supplier. If the Americans decide that they allow the export of shale gas, America can be one of the supplies the EU relies on,” Herbert Reul explained.

However, Miloslav Ransdorf, a member of the European Parliament for the Communist Party of Bohemia and Moravia, thinks differently.

According to him, soon it will be proved that the shale gas is mostly a myth and that LNG imports from the US will not solve the ongoing energy situation.

“The import of the shale gas cannot be the solution of the energy problem,” the Czech politician stated.

Beyond that, he pointed out that Herman Van Rompuy “is no expert in the energy field” and his declaration is only political, and related to the crisis in Ukraine.

“The energy mix is completely different and the commercial possibilities are different. The [suggested] change is unfeasible in the short term,” Miloslav Ransdorf added.

Norbert Glante, a member of the European Parliament for the Social Democratic Party of Germany, also expressed his belief that Europe will not be able to quickly replace Russian gas and oil with other energy resources.

“I am not convinced that the decrease of Russian energy imports will happen in the near future. The amount of Russian gas and oil imported into the EU is significant and cannot be replaced at short notice,” he said, and reminded that the European energy mix is in the responsibility of each member state, and beyond the EU’s jurisdiction.

“Contracts between private companies or individual countries have to be respected,” Norbert Glante added.

Concerning the employment of shale gas extraction in Europe, the German politician stated that the first thing the EU must do is create a legislative framework and set common standards regarding the protection of environment.

He also reminded that the conditions for fracking in Europe are vastly different from those in the USA in many criteria, like the density of population.

“Furthermore, it is the decision of the member states whether or not they want to extract shale gas. As there are countries like France, Bulgaria or Romania where the extraction is not allowed or a moratorium is imposed, I do not see a shale gas boom in the coming years in the European Union,” the German Euro MP explained.

Speaking further on the subject, Norbert Glante also doubted the notion that the US will quickly make Europe energy-independent.

“As far as I know, the United States only recently allowed the export of shale gas and do not have the necessary infrastructure in order to assure an extensive export. That is why there is no short-term alternative. It will not help substantially increasing Europe’s in dependence,” he added.

In her turn, Eva Bulling-Schröter, Member of Bundestag and Speaker for Energy and Climate for the Left Party of Germany, also voiced the opinion that importing gas from the US requires certain technical conditions, which are currently not satisfied.

“I don’t think [importing gas] would be economic viable in the mid and long term,” she said.

Eva Bulling-Schröter also pointed out that shale gas extraction using hydraulic fracturing poses a danger to health and environment.

“A big majority of the German parliament rejects the unconventional exploration of shale gas, even the Minister of the Environment,” she emphasized.

At the same time, the German politician stated that Europe should not be concerned about the interruption of gas supply from Russia; however, Europe should nevertheless be on the lookout for renewable energy sources.

“From my point of view, Russia and Germany both have interest in good relations in the energy sector, a fact that is also illustrated by the friendship between Putin and the ex-Chancellor Gerhard Schröder. Having said that, Germany is engaged in promoting renewable energies. This is also a step to become more independent from energy imports. Besides, to prevent dangerous human induced climate change, we have to get away from coal-fired power generation. Our party regards gas as a necessary bridge to a 100-percent renewable energy supply. We aim to achieve this objective of 100-percent renewable energy in 2050,” she said.

According to Kirsten Westphal, Senior Associate of Global Issues Research Division at German Institute for International and Security Affairs, Europe has other resources to replace Russian gas apart from renewable energy sources, but currently it is too early to speak about using them in practice.

“Some member-states are arguing for domestic energy sources, and some are arguing for nuclear power, but it is not yet clear. Then, of course, it is very difficult to decide on a very expensive diversification,” the expert noted.

“Russia is Europe’s main energy supplier. About 30 percent of the Union’s gas consumption and 35 percent of its oil imports come from Russia. Germany’s import-dependency is even slightly higher, with 36 percent and almost 39 percent respectively. Russia’s world market shares are significant, with almost 13 percent for oil and over 17 percent for natural gas, and would not be substitutable,” the researcher emphasized.

In her opinion, right now, Europe has no complete alternative to Russian gas.

“All other major consumers either draw a large proportion of their supplies from the Persian Gulf, as is the case in Asia, or like the United States possess a domestic buffer against external energy crises and price spikes. In the event of supply cutbacks Europe would draw the short straw, because it receives so much of its oil and gas from Russia,” Kirsten Westphal specified.

The researcher noted that the energy supply situation may successfully improve between 2016 and 2020 after the arrival of US and Australian LNG to Europe, but this gas will be expensive.

“On the Asian spot market prices already reach $19 per MBtu, in Europe only $10,50. Much will thus depend on the development of demand in Asia, where Russia is also pushing into the East Asian market with LNG and oil exports,” the expert emphasized.

“In mid-term, there is no real energy security without Russian energy supplies to Europe, and in the long run a comfortable fossil fuel supply situation in Europe needs also close energy links and trades with Russia,” Kirsten Westphal concluded.

On Thursday, April 3, Sanford C. Bernstein & Co. published a report, according to which immediate halt of Russian gas purchases by Europe will require investments amounting up to $215 billion in ongoing four years. These investments will be required to build nuclear power plants, alternative energy facilities and the infrastructure for liquid natural gas import, as well as for coal mining.

According to the analysts, Europe may use gas supplies from the US and some liquefied natural gas which is currently being exported to Asia, but these measures will lead to natural gas prices rising up to 25% and will require approximately $80 billion in addition to the figures above.

The report says that Europe will also have to pay $50 billion a year to Gazprom because 120 BCM of gas is supplied under “take-or-pay” contracts.

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