On the 70th anniversary of D-Day, three US senators landed on European soil in a decisive move to stop the Russian energy import advance. Their publicised destination was a conference in Poland. The real battle senators John McCain, Ron Johnson and Christopher Murphy fought was further south.
It took them a few hours, in a joint operation with the European Commission, to twist the arm of the Bulgarian government, which on June 8, announced that it was stopping the highly controversial South Stream gas pipeline. The next day, Serbia also said that it was halting the project. Once the senators flew back, the Serbian and the Bulgarian governments said that they had not exactly stopped the project. The story is dragging on and on.
South Stream is expected to cross the Black Sea, bypassing Ukraine, to deliver up to 63 billion cubic metres of natural gas to Europe each year. The project has always been a thorn in the eye of all concerned about the high dependency of Europe on Russian energy imports. After Moscow’s annexation of Crimea, the geopolitical anxiety turned into a determined effort to kill the project.
This opposition has good reasons. South Stream does not intend to comply with EU competition rules requiring access for third parties. The vastly overpriced contract for the project was not awarded in a transparent way, or in accordance with European rules for public procurement. Last but not least, a significant part of the construction’s contract was offered to Gennady Timchenko, one of the cronies of Russian President Vladimir Putin who was blacklisted by the US government.
South Stream has many obvious flaws. One issue, however, has been left out of the debate. Does Europe really need this gas?
Alternatives to Russian gas
Gas consumption in Europe is declining. It might grow a bit in the future, but it might not. Eurogas, the association representing the interests of the European gas industry, says that European gas consumption in 2035 may increase by approximately 20 percent compared to the level of 2010. Or may decrease by approximately 10 percent. It depends on many factors and EU energy policies.
A recent study by Anglia Ruskin University suggested that the UK might run out of its own gas supply in three years, and Italy and France might run out of domestic gas reserves in about a year. But more gas might be coming to the European market.
The Ukrainian crisis will probably help unblock objections to shale gas exploration in Europe. It is highly unlikely that EU could repeat the US shale boom, but the United Kingdom, Ukraine, Poland and Romania are moving forward with ambitious shale gas exploration and extraction plans. Germany and other countries could follow. Once a single country in Europe starts extracting shale gas, it would be difficult to stop most of the others from doing so.
|Russia banking on new gas pipeline to Europe|
Conventional gas is already making headway. Israeli has decided to to export about 40 percent of its gas reserves or 410 billion cubic metres. Cyprus has proven reserves of around 140 billion cubic metres so far. These are not quantities that could alone replace Russian gas, but they could reduce Europe’s dependency on Russia. And exploration continues. In April, Croatia announced a tender for gas and oil exploration in the Adriatic. Romania is drilling in the Black Sea and is hoping in the not so distant future to become a net gas exporter.
The Trans-Anatolian gas pipeline bringing Caspian gas from Azerbaijan to Europe via Turkey is expected to transport 16 billion cubic meters of gas in 2018 and reach a capacity of 60 billion cubic metres in 2026. Gas-rich Turkmenistan is increasing its gas production. Soon Iran might become Washington’s best friend, which will open the world’s second largest gas reserves for the European market. Italy could increase its imports from North Africa. Other countries are also looking into gas exploration in the Black Sea and the Mediterranean.
Then there is liquefied natural gas (LNG). Europe uses only about a third of its 200 billion cubic metres LNG import capacity. The remaining two thirds, which almost equals the amount Europe is importing from Russia, is available and more is coming online with Poland, Greece, Italy and other countries building or planning to build LNG terminals. While at the moment liquefied gas is expensive and the European pipeline infrastructure is not optimised to take advantage of the full LNG import capacity, in the future that might change.
Finally, the ambitious energy efficiency and the renewable energy policies of the EU are starting to have a structural impact on Europe’s energy mix. In the last year, the German energy giant RWE closed down or mothballed more than 6 percent of its gas and coal power generation capacity, quoting as a leading reason, the growth of renewables. E.ON has announced plans to close 13 gigawatts of thermal assets. Other energy companies are closing power generation capacity earlier than planned as well.
With near zero energy (nZEB) standards for all new buildings coming into force between 2018 and 2020 across the EU, gas demand could continue to decline. Denmark has already banned gas-fuelled central heating.
All this makes the vastly overpriced South Stream pipeline a bit like the huge Tsar Cannon and Tsar Bell, both kept in Moscow’s Kremlin. The Tsar Cannon is famous for the fact that it has never fired a single shot, and Tsar Bell broke before it ever managed to ring. Russia might be keen to add to its collection a Tsar Pipeline as well, but why Europe should be involved in this adventure is not quite clear.
Julian Popov is fellow of the European Climate Foundation, Chairman of the Buildings Performance Institute Europe, former Bulgaria’s Minister of Environment and Water.
Follow him on Twitter: @julianpopov