European Dependency on Russian Gas?

pierrenoeldependence.jpgPierre Noël, an energy academic, has a post over at the EU Energy Policy blog which questions the traditional assumption that Europe is becoming increasingly dependent on Russian gas, and points out that Gazprom is facing a number of daunting challenges in terms of getting new production fields online weaning itself off its own dependence on exporting Turkmen gas.  His arguments are taken from this paper.

Russia remains the largest exporter of gas to the EU, with total annual exports of 130 bcm today. But since the early 1980s, and particularly over the past decade, import growth from other countries has outpaced that from Russia. Since 1990, 80% of the growth in European gas imports has originated from countries other than Russia, especially Norway, Algeria, Nigeria and middle eastern countries. Accordingly, Russia’s share of EU gas imports has declined sharply, from 75% in 1990 to just over 40% today (see figure below). The share of EU gas consumption covered by Russian imports grew rapidly in the 1970s and 1980s, peaking at 30% in the early 1990s before stabilising at about 25%. Yet as a share of Europe’s primary energy consumption, gas imports from Russia have stabilised since 1990 at around 6.5% (see figure below).

In other words, 93.5% of the energy consumed in Europe is covered by sources other than Russian gas – and natural gas, unlike oil, faces direct competition from other fuels and technologies. (…)

In fact, Gazprom’s production is already insufficient to meet allthe company’s commitments. It depends on two other sources of gas -“independent” Russian producers and imports from Central Asia,especially Turkmenistan – to make up the shortfall. This “bridge” issupposed to supply Gazprom’s needs until the Yamal fields come online.But there is uncertainty over whether Gazprom will be able to sourcesufficient volumes from Turkmenistan, while independent Russianproducers have little incentive to increase their production in theabsence of access to Gazprom’s transmission network, which would enablethem to reach consumers directly. Moreover, domestic gas consumption inRussia is growing, driven by economic expansion and a gas-intensiveelectricity mix. So there is at least a risk that Gazprom’s “bridge” toYamal could collapse. Industry assessments vary from a tight butmanageable supply situation to an impending crisis.

As long as Gazprom relies on the Turkmen/independent supplier “gasbridge”, it is unlikely that exports to Europe, at least those underlong-term contracts, will increase at all. Depending on how quicklyGazprom can get the Yamal fields on stream, there could be room forincreased exports to Europe in the second part of the next decade,though any additional commitments are unlikely to be large. In 2006,major long-term contracts with European importers were renewed until2030-3514; as west Siberian production declines, these contracts willbe serviced increasingly from Yamal, limiting the volumes available fornew contracts. Finally, Russia’s political willingness to expandexports to Europe beyond current levels remains unclear.