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Europe glued to Russian gas

Syed Mansur Hashim
*** Though Europe has ample LNG terminals, either already constructed or being constructed, the problem lies elsewhere. When Japan went into nuclear meltdoivn at Fukushima in 2011, it changed the ivhole ball game for LNG. Europe's consumption of LNG has plummeted as Asian demand for the fuel has increased substantially. ***
VLADIMIR Putin's Crimean adventure was a calculated move. His assessment that the economic backlash from Europe would lack teeth is based broadly on the fact that most of Europe, including economic powerhouse Germany, and a number of other Nato member nations are significantly dependent on gas supplied by Russia. In that, his gamble has paid off. Let us look at the facts on the ground. The three Baltic States including Estonia, Latvia and Lithuania (all Nato members) are 100% dependent on Russian gas imports as are Bulgaria and the Czech Republic. More than a third of German energy needs are met by Gazprom. Indeed, many countries ranging from Greece in the Mediterranean to Finland in Scandinavia are all dependent to varying degrees on gas supplied by Russia.
Unfortunately, moving away from Russian gas is easier said than done. According to Bernstein Research, Europe would have to find an alternative source for 15 billion cubic meters (bcm) of residential and industrial gas. And to do that, the continent would have to "invest $215 billion and incur $37 billion of annual costs in the form of higher-priced energy. That works out as $160 for every single person in Europe." Although significant investments are being made in liquefied natural gas (LNG) to diversify primary energy fuel supplies and other efforts are underway to tap into shale gas, the timeline for such projects is still five to six years away at the very least. And there is of course the cost factor involved. The roadmap for renewable is even further away.
Moving to LNG is not as simple as it sounds. Though Europe has ample LNG terminals, either already constructed or being constructed, the problem lies elsewhere. When Japan went into nuclear meltdown at Fukushima in 2011, it changed the whole ball game for LNG. Europe's consumption of LNG has plummeted as Asian demand for the fuel has increased substantially. And it is not only a matter of securing supplies; it has much to do with affordability. Should Europe wish to commit to LNG for the long term, the continent must be prepared to spend to pay what Japan pays for LNG, i.e. around $ 15 per million British thermal units (mBtu). The other much-talked-about resource is of course shale gas and the US is set to become a major player in that area in the foreseeable future. Europe on the other hand has been reticent on the issue. As highlighted by Britain: "Even if exploration results are positive, it will require drilling hundreds of wells per year, which raises issues about public acceptance," says Howard Rogers, Director of Gas Research at the Oxford Institute for Energy Studies. Moving away from Russian gas is further complicated by contractual obligations. Presently Europe is under obligation to pay $50 billion for Russian gas and the terms of many of these contracts stretch beyond 2020.
Given the present geopolitical realities, European leaders are under massive public pressure to do something about Russian strong arm tactics in Ukraine. The Russian economy has for some years now been riding the boon offered by energy exports. It has paid for much of the rejuvenation of the Russian military. Energy exports will remain the biggest cash earner for Russia for some time to come and only if Europe could wean itself away from cheap Russian gas would there be any changes on the ground. But there is no short term solution to that quandary for continental Europe. As stated before, Europe's efforts to make LNG a viable alternative to natural gas is hurt by availability and prices. That could perhaps change when LIS LNG supplies hit the global market.
That's a lot of "ifs" and "buts" and, unlike Bangladesh, policymakers in the developed world do not build their national energy policy based on unpredictable international market conditions. European renewable energy
industry has received a much welcome boost thanks to the Russo-Ukrainian standoff. But whatever technology is being toyed with will take years to be in a position to replace natural gas as the mainstay.
So far, we have only touched the surface of fuel diversification. The fact is hard decisions will have to be taken for a switch from gas to another primary energy resource to say, LNG or oil or coal. It will bring into focus the question of emissions which is a major headache for any European government that must contend with public reaction. As summed up in a nutshell by Bernstein Research: "Switching from gas to diesel power, closing gas-intensive industries such as oil refining, reducing gas consumption in heating and adding more coal-fired generation - which would inevitably increase carbon emissions." The bottom line is that Europe is stuck with Russian gas for the foreseeable future.
The writer is Assistant Editor, The Daily Star.