The Economist explains
Could Europe manage without Russian gas?
Not easily. But it has been slowly building up alternative sources
EUROPE FACES a harsh winter. The cost of natural gas remains high across the continent and governments are scrambling to protect households from feeling the pinch. A number of factors explain why, including surging demand as economies revved up after covid-19 lockdowns, a prolonged winter that depleted reserves and a shift towards renewables that has left gaps in Europe’s energy supply. Russia, Europe’s largest provider of gas, has kept the supply flowing, but some critics say the Kremlin is playing politics. On October 26th the Financial Times reported that Gazprom, Russia’s state gas company, proposed that Moldova amend its free-trade deal with the European Union in exchange for cheaper gas. Europe has long felt insecure over this supply. But what would it take to reduce Europe’s reliance on Russian energy?
The question is not whether other sources of gas exist. The Middle East and north Africa are flush with natural gas. Algeria and Qatar already made up 8% and 5%, respectively, of Europe’s natural gas imports in 2019. But Europe faces competition to secure additional supplies. Asia accounts for almost three-quarters of global liquefied natural gas (LNG) imports, according to AllianceBernstein, a financial firm. China and others are buying up cargoes that might have otherwise been destined for Europe. Demand in Latin America has almost doubled in the past year. As most Asian gas is still procured on long-term contracts linked to the oil price—a practice Europe abandoned as it liberalised gas markets—Europe finds itself more exposed to today’s high prices. Meanwhile, growing domestic consumption of natural gas in the Middle East, which grew by an average of 4.6% a year over the past decade, is leaving less available for export.
America has been keen to present itself as an alternative supplier of LNG. When the Trump administration approved additional exports in 2019, it boasted of supplying its allies with “molecules of US freedom”. Europe has already increased its orders of LNG over the past few decades and Germany has plans for additional terminals to receive the gas. But for now it is a costly replacement for Russian supply. It would take a big investment in capacity in America’s shale patch to bring prices down to similar levels.
The EU has also focused on building up the Southern Gas Corridor, a giant energy project dreamt up in Brussels to reduce Europe’s dependence on Russian gas. One section, the Trans Adriatic Pipeline, went into operation last year. It currently has capacity to transport around 10bn cubic metres (bcm)of gas into Europe annually from the Shah Deniz field in Azerbaijan. That represents only a fraction of the bloc’s needs but on a smaller scale the project is promising: future additions, such as the Interconnector Greece Bulgaria, would mean 33% of Bulgaria’s gas demand would be covered by gas from Azerbaijan. Other projects currently being planned include a 1,900 km-long pipeline linking Israel to Europe, which could provide a further 20 bcm a year.
That won’t fuel all of Europe, however. Cutting Russian gas completely would be overly ambitious, even in the longer term. The continent imports an overwhelming majority of the gas it consumes and has only a limited number of alternatives. But there is scope to break Russia’s monopoly in countries historically dependent on its gas, such as Bulgaria and the Baltic states. Adding alternative sources to the mix—such as nuclear energy, favoured by France—could further diversify Europe’s energy supply until the promise of renewables catches up with demand. But for now, as the weather turns chilly, Europe can ill afford to give Russia the cold shoulder.
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