No easy to break gas dominance of Russia

No easy to break gas dominance of Russia

LONDON - Reuters

Of the EU’s current annual demand for 485 billion cubic metres of gas, Russia supplies some 150 bcm. The EU has worked to break its dependence on Russia. Company photo

The European Union aims to diversify away from Russian natural gas supplies, yet Reuters research indicates the EU’s biggest provider a decade from now could easily still be Russia.

Billions are to be spent on piping gas from Azerbaijan while new finds in Africa and eastern Mediterranean also promise new supply for the EU, which currently buys mostly from Russia and Norway.

Europe also gets liquefied natural gas (LNG), mostly from Qatar, and the U.S. shale boom could free up LNG exports from there in coming years, too.

But growth in Europe’s demand for gas will eat up much of the new potential supply, and the Russians show little willingness to fade away as they gear up to defend their position through massive projects, such as the $35 billion South Stream pipeline to Italy.

“Russia will continue to remain Europe’s primary energy supplier, including natural gas supplies, for many years and possibly decades,” a U.S. congressional research paper on Europe’s energy security said in March.

Reuters’ own research indicates that in 2023 Russia will likely remain the dominant supplier, as it boosts exports while EU and Norwegian output declines.

Of the EU’s current annual demand for 485 billion cubic metres (bcm) of gas, Russia supplies some 150 bcm.

Yet even if Gazprom continues to resist calls to stop linking gas with oil, analysts say its supplies to Europe should drop no lower than around 130 bcm by 2023, meaning they would still account for a quarter of the market, ahead of Norway.

Risks to EU hopes for reducing Russian supply include political hurdles and daunting development costs.

Azerbaijan plans to supply 16 bcm of gas towards the end of the decade, with 6 bcm going to Turkey and 10 bcm eyed for Italy, at costs to develop the new pipeline estimated at $2-5 billion.

Reuters research shows that other new supply, such as LNG from the eastern Mediterranean would unlikely exceed 15 bcm a year by 2023, and that would be contingent upon Cyprus building an LNG terminal estimated to cost $10 billion.