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US to collaborate with EU on diversifying supply of gas for Europe, Ukraine

04.02.2014  | 

The council encouraged Europe to further diversify its supply routes, increase energy efficiency, complete an integrated energy market and welcome the prospects of US liquefied natural gas (LNG).

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By ANNA SHIRYAEVSKAYA and JONES HAYDEN
Bloomberg

The European Union and the US confirmed plans to collaborate on diversifying energy supplies to Europe and Ukraine while continuing cooperation with Russia.

The EU-US Energy Council met Wednesday in Brussels to discuss reinforcing energy security in Europe after Russia, which meets a third of the region’s gas needs, absorbed Ukraine’s Crimea Peninsula, sparking the worst tensions since the Cold War. 

The council encouraged Europe to further diversify its supply routes, increase energy efficiency, complete an integrated energy market and welcome the prospects of US liquefied natural gas (LNG), the EU said in a statement.

“The EU and the US recognized that our energy security concerns and those of our friends and partners pose common challenges, and are considering new collaborative efforts to address these challenges,” the EU said.

The EU’s overall energy dependency rate is set to rise to 80% by 2035 from the current 60%, according to the International Energy Agency. The 28-nation bloc’s heads of state and government at a summit last month asked the European Commission, the EU executive, to prepare by June a road map on how to cut reliance on Russian imports and increase security of supply. 

US President Barack Obama pitched US LNG exports, which are expected later this decade following a boom in extracting gas from shale formations, in Brussels on March 26.

Fairness, Competition

The council, led by EU foreign policy chief Catherine Ashton, US Secretary of State John Kerry and EU Commissioner for Energy Guenther Oettinger, agreed that “energy relations with Russia must be based on reciprocity, transparency, fairness, non-discrimination, openness to competition and continued cooperation to ensure a level playing field for the safe and secure supply of energy,” according to the statement.

Among the measures to cut external energy dependency, the council also outlined smart grids, integration of renewable energy in the network and increased production of domestic energy resources. Developing interconnectors will put an end “to any isolation of member states from European gas and electricity networks by 2015,” it said.

The council also urged timely construction of the so-called Southern Gas Corridor, a pipeline network for deliveries from the Caspian region and Iraq, and agreed to explore investments to strengthen supplies to central and southeast Europe.

While Europe has options to cut reliance on the Russian fuel, the efforts may take as many as five years and as much as $215 billion in investments, while additional costs for higher-priced energy are estimated at about $40 billion, Sanford C. Bernstein said today in an e-mailed report.

Diversification Efforts

The US and EU are seeking to support Ukraine’s efforts to diversify its supplies of gas through “rapid enhancement of reverse flow capacities, increased gas storage capacity and decisive measures recently announced with the IMF to build a competitive energy economy,” according to the statement.

Ukraine, dependent on Russian gas for about half of its supplies, is exploring options to import gas from Slovakia, Hungary and Poland by using the pipelines in reverse mode. The country could import as much as 19.2 billion cubic meters of gas annually from those countries, Ukraine energy minister Yuri Prodan said March 25. That’s 74% of what the nation imported from Russia last year, OAO Gazprom data show.

For physical reverse flows, additional equipment and infrastructure is needed, which may take from six months to as long as a year to put in place, the EU official said. Reverse flows can also be virtual, meaning the gas that’s destined to go West is resold back to a consumer further East, in this case Ukraine, before it actually moves westward, the official said.

“There is a lot of interest from many international players” on developing further supplies to Ukraine, the official said, without elaborating.

LNG Terminal

Ukraine’s plans to build an LNG terminal remain “on the table,” Prime Minister Arseniy Yatsenyuk said Wednesday in Kiev. The country also plans to cut gas demand, he said.

The EU will send a team to Ukraine to assess the nation’s gas storage capacity, an EU official told reporters. Ukraine has used stored gas over the past months to save money, which means inventories will be reduced this winter, the official said.

Ukraine has a “very low” 7.2 billion cubic meters of gas in underground storage, Andriy Kobolyev, CEO of state-owned NAK Naftogaz Ukrainy, told reporters in Kiev.

Gazprom, Russia’s pipeline gas export monopoly, recently raised prices for Ukraine by 44% to end a price discount, as the country owes more than $1.7 billion for past supplies.



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