Natural gas, energy security, and the European Union

For more than a week, much of the European Union has been in the midst of a heating emergency caused by the natural gas dispute between Russia and Ukraine. Many commentators—some using language reminiscent of the Cold War—question the wisdom of the EU’s reliance on Russian natural gas for its energy security.

What appears to have been forgotten by these commentators is that throughout much of the Cold War, the EU (or the European Economic Community as it was then called) relied on natural gas from the Soviet Union. Regardless of the tensions between East and West, the natural gas flowed because of a simple, symbiotic relationship: the EEC needed the natural gas and could pay for it, while the Soviet Union had the natural gas and needed the hard cash.

This relationship lasted long after the fall of the Berlin Wall and the eventual collapse of the Soviet Union, with one major exception: the transit pipelines carrying Russian gas now passed through countries that were no longer under the control or influence of the Soviet Union. In the case of Ukraine, a former Soviet republic with two major natural gas pipelines carrying the bulk of the Russian natural gas, things changed little until the Orange Revolution in late 2004, when the pro-Russian president Yanukovych was replaced by the pro-western president Yushchenko in early 2005.

Within a year, the Russian energy giant, Gazprom, was threatening to turn off the natural gas to Ukraine because of a contractual dispute. Fortunately, in January 2006, there was little disruption to EU supplies of natural gas.

Natural gas has rapidly become the fuel of choice in the EU—its usage has doubled over the past 30 years and now meets about one-quarter of the EU’s primary energy needs. There are a number of reasons for this, including the enlargement of the EU and the push for natural gas as a replacement for coal for electrical generation as well as for process and space heating.

The EU’s heating emergency will require both short-term and long-term solutions. In the short-term, everything must be done to resume the flow of natural gas from Russia: agreements on paper and threats to sue Gazprom and Naftogaz (Ukraine’s pipeline company) will do little as they can be ignored. One possible “solution” will see the EU paying all or part of Ukraine’s outstanding debt to Gazprom and possibly subsidizing Ukrainian natural gas consumption until some long term solution is found.

Any long term solution will require the EU to consider how to improve its energy security and to address the fact that Russian natural gas meets about 22 percent of the EU’s natural gas demands. One of the essential components in improving energy security is the application of energy replacement policies that must consider supply, infrastructure, and affordability.

If the EU were to consider Russia a secure supplier (and Ukraine’s pipelines to be insecure), it would be necessary to build new infrastructure, such as pipelines, to carry Russian natural gas and bypass Ukraine. Several such projects are already underway; for example, one line under the Black Sea and another through the Baltic. In addition to pipelines, Gazprom could build LNG liquefaction facilities to carry natural gas to existing LNG gasification facilities in the EU.

Even if the EU were to consider Russia an insecure supplier, they would be forced to rely on Russian natural gas for the simple reason that there are few other supplies that can be accessed. Production from the EU’s two major natural gas producers, the UK and the Netherlands, has peaked, meaning that these sources must also be replaced. Subsea pipelines from Norway, Algeria, and Libya already exist or are planned, while more LNG from Nigeria will be needed. Whether Russia is considered secure or not, a number of the EU countries will undoubtedly build storage facilities to hold natural gas during the summer months as a means of handling unforeseen shortages during the winter.

Adding new supply and infrastructure takes years and its impact may be small; the planned Nabucco pipeline from central Asia and Iran avoids Russia but isn’t expected to be completed until 2015 and will meet about five percent of the EU’s natural gas needs.

The EU’s investment in its existing natural gas infrastructure means that it will do whatever it can to continue using natural gas. When supplies of natural gas can no longer be considered secure, there will be a concerted effort to replace natural gas with other energy sources. The most likely choice would be electricity—the scale of the replacement would probably mean a large scale nuclear investment or even a return to coal. Renewables such as wind may make similar contributions when advances are made in energy storage technology.

Energy security is important to the wellbeing of any society. The effect on the EU of losing access to secure supplies of natural gas amply demonstrates this fact.

Submitted to Globe and Mail, 15 January 2009. Unpublished