By ANNA SHIRYAEVSKAYA and MAREK STRZELECKI
Europes natural gas prices would have to double to lure
enough cargoes from the global market to replace Russian
supplies, adding to the challenges of decreasing the
regions dependence on its neighbor.
Benchmark UK prices would need to rise 128% to attract
liquefied natural gas (LNG) if Europe had to replace all its
Russian fuel for two summer months, according to Energy
Aspects in London. LNG, shipped by tanker from as far away as
Australia, would be the main alternative to the regional
pipelines filled by Russia.
The European Union will announce a strategy by June for
reducing its reliance on Russia, whose annexation of Crimea
this month sparked the biggest regional crisis since the Cold
The 28-nation bloc gets a third of its gas from Russia,
mostly via Ukraine, at an annual cost of about $53 billion.
The EU would need to pay as much as 50% more to replace that
with a combination of LNG, Norwegian gas and coal, according
to Bruegel, a research group in Brussels.
There will be high costs for a complete switch,
said Will Pearson, director for global energy and natural
resources at Eurasia Group in London. Russia will
continue to be an important supplier to Europe
, but I do think the
emphasis will be on diversifying capabilities anyway so that
they can import other sources when needed.
Futures on Londons ICE Futures Europe exchange fell as
much as 2% this week to 52.59 pence a therm, the lowest level
since July 2012. Prices would need to rise as high as 120
pence a therm ($19.93/MMBtu) to attract LNG in the spot
market, said Trevor Sikorski, the head of natural gas, coal
at Energy Aspects, a
Traders arent expecting disruptions any time soon.
While the cost of UK gas rose 9.9% on March 3, the first
trading day after Russias incursion into Crimea, the
Ukrainian province annexed by President Vladimir Putin, all
the gains were erased since then.
Futures fell 33% since September 2008 as the Euro zones
longest-ever recession reduced demand to a 15-year low,
Societe Generale estimates. The region has
bigger-than-average stockpiles for this time of year after
the mildest winter since 2007 diminished demand for heating.
Europe imported the least LNG in nine years in 2013 as demand
weakened, according to BG Group. A drive to buy more cargoes
in the spot market would pit the region against Asia, where
prices were on average about 30% higher last year. Japan
accelerated imports of the chilled fuel after closing its
nuclear power plants following the Fukushima disaster in
A halt to Russian gas supply this summer would double UK
prices to more than $18/MMBtu, said Mike Fulwood, a
London-based principal for global gas at Nexant Ltd., which
advises utilities and governments. Increased competition for
LNG supply would also mean about a 19% increase in costs for
Asia, he said.
European terminals can import as much as 199 billion cubic
meters (7 trillion cubic feet) of gas a year, according to
Gas Infrastructure Europe, a lobby group in Brussels. Russia
supplied 138 billion cubic meters to the EU last year at an
average price of $387 per thousand cubic meters
($10.50/MMBtu), according to OAO Gazprom, the Moscow-based
Russian pipeline gas export monopoly.
Its probably not impossible to eliminate Europe
s dependence on Russia
for gas, but its not going to be a cheap or easy project
, Laszlo Varro, the
head of the International Energy Agencys gas, coal and
power markets division, told a conference in Berlin on March
25. It would take some very difficult and very
Dependence on Russian gas ranges from 100% in Finland to 37%
in Germany and 16% in France. Belgium and Spain are among
those who get no Russian fuel. Some nations are already
trying to diversify their supply.
Poland, with a 59% dependency, says it will complete an LNG
terminal by May 2015. Neighboring Lithuania, which gets all
its gas from Gazprom, will receive a floating LNG facility by
the end of 2014. France will start an LNG terminal next year,
while a canceled project
in Germany may now find
new investors. Croatia and Ukraine are also reviewing project
The 18-member euro areas economy will expand 1.1% in
2014, after contracting for two consecutive years, according
to the median of 53 economist estimates compiled by
Bloomberg. Surging energy costs would threaten the recovery.
A halt in supplies would hurt Russia more than the EU, said
Georg Zachmann, a research fellow at Bruegel in Berlin.
Europe is Gazproms biggest market by sales and the
region pays more than Russian customers or some other buyers
in the former Soviet Union, according to the state-backed
companys latest financial report. Lost revenue from the
EU would also deplete the state budget, 15% of which comes
from gas sales, Zachmann said. Sergei Kupriyanov, a spokesman
for Gazprom in Moscow, declined to comment.
Gas is flowing from Russia to the EU as normal and the bloc
expects Russia to meet its supply commitments, Sabine Berger,
an energy spokeswoman for the European Commission, said March
26. Exports to Europe expanded 2.9% this year through March
26, Russian Energy Ministry data show.
US President Barack Obama said March 26 in Brussels after
meeting European leaders that the EU should consider gas
imports from the US as well as developing domestic resources.
The EUs overall energy dependency rate will rise to 80%
by 2035 from 60% now, according to the Paris-based
International Energy Agency.
Three congressional committees are holding hearings this week
on whether the US should sell more of its growing oil and gas
resources overseas, in part to lessen European dependence on
Russian oil and gas.
Natural gas exports will not only drive continued
investment in domestic production and create jobs,
theyre also a powerful geopolitical tool particularly
in light of Russias illegal aggression in the
Ukraine, Mary Landrieu, chairman of the Energy and
Natural Resources Committee, said March 25 at her first
hearing as head of the panel. The last thing Putin and
his cronies want is competition from the United States of
America in the energy race.
In addition to LNG, European nations could buy more gas from
Norway and the Netherlands. They have the capacity to each
boost pipeline exports by at least 20 billion cubic meters,
or enough combined to supply France for a year, Bruegel
estimates. Europe also could favor coal over gas in power
plants, said Jonathan Stern, the founder of the Oxford
Institute for Energy Studies.
Replicating the US success in tapping gas trapped in
shale-rock formations will take years. Poland is developing
Europes largest recoverable deposits, estimated at 4.2
trillion cubic meters by the US Energy Information
Administration. While thats enough to meet nine years
of EU consumption, the country will likely be producing no
more than 20 billion cubic meters annually by 2020, said
Sikorski of Energy Aspects.
Neither Polish shale gas, or shale gas anywhere else in
, nor anything else can be a
game changer which will make any immediate and significant
difference, Stern said. The only thing which can
be done quickly would be to use massive amounts of additional
coal rather than gas. This would massively add to environment