In a recent post, A Beginners Guide to Blackouts, I drew attention to the fact that keeping the lights on in Britain was to a large extent dependent upon our ability to source sufficient gas to power the country’s large fleet of combined cycle gas turbines. The official view from the UK Government, National Grid and OFGEM (the regulator) is that the:
- Gas market is well supplied and able to cover any cold spells.
- Gas supplies, storage and network capacity well in excess of maximum expected demand.
- Supply interruptions from Russia pose a low risk to UK energy security.
This seems rather optimistic for a number of reasons that include:
- Global Liquefied Natural Gas (LNG) supplies have fallen for the last two years despite rampant demand and high prices
- Competition for LNG supplies from Japan is fierce since that country closed down all of its nuclear power stations
- Indigenous European gas supplies have been falling since 2004
- Europe and the USA have decided to pick a fight with Russia, Europe’s closest, largest and most reliable supplier of natural gas
So, will the UK and the rest of Europe be able to source sufficient gas to keep the lights on this winter? This is quite a complex question to answer.
Figure 1 West European countries have diversified gas supplies while the East European countries tend to be totally dependent upon Russian gas. In the grander scheme, N Africa is not a significant supplier of gas to Europe, although a component of LNG also comes from N Africa.
European gas supplies
Figure 1 summarises where various European countries source their gas imports. UK imports come from Norway, The Netherlands and LNG, mainly from Qatar, and so on the face of it the UK is not directly exposed to supply disruption from Russia. The UK is heavily dependent upon Norway and so is Germany, France and Belgium which are all connected to the same Norwegian network of gas pipelines as the UK (Figure 2). Since each of these countries import gas from Russia, disruption to Russian supplies may prompt these countries to compete for the UK’s Norwegian gas. Hence, in an interconnected energy world, the UK cannot escape exposure to Russian gas supply disruption.
Figure 2 The Norwegian gas pipeline distribution network makes landfalls in the UK, Germany, Belgium and France. Hubs at Sleipner and Draupne allow the Norwegians to direct supplies to any of these four landfalls. Map from the Norwegian Petroleum Directorate.
Russian pipeline gas finds its way to Europe through three main pipeline complexes. The northerly route through the Baltic is a direct route from Russia into Germany designed to circumvent the Ukrainian problem. And there is a southerly route carrying gas directly to Turkey (26.2 bcm). This is not South Stream that would carry gas across the Black Sea making land fall in Bulgaria. This pipeline is not yet completed and the EU have halted its construction in a move evidently designed to deepen the Ukraine crisis and energy security problems. The central overland routes cross either Ukraine or Belarus and supplies much of Eastern Europe. Should Russia or the Ukrainian civil war close part of this pipeline complex it will be the East European countries that are hardest hit (Figure 1).
On the face of it, Nord Stream (55 BCM per annum?) should be adequate to keep most of west Europe supplied. It would only be in the event that supplies through Nord Stream are reduced for whatever reason, or that west Europe sends gas to East Europe and Ukraine, that Russia linked gas supply shortage may become an issue.
[Note added 08:40, 19 Nov: The text on Nordstream has been modified. The BP map (Figure 3) shows 136 BCM exports to west Europe, 49 BCM to the FSU countries and 26 BCM to Turkey.
From commenter Willen Post:
Via Ukraine pipelines……………………….86.1BCM, 52.9%
Via Other pipelines…………………………..76.3BCM, 47.1%
The 3 Ukraine bypass flows are: Yamal-Europe 33 bcm, Turkey 15.8, North Stream 27.5 bcm, total 76.3 bcm
Figure 3 Simplified map of global gas trade in 2013 from the BP Statistical review of World Energy.
Liquefied Natural Gas – LNG
Figure 3 shows there are only 8 major LNG export nodes world wide (the numbers are LNG export volumes in billion cubic metres (BCM)):
- Trinidad and Tobago 19.8
- Nigeria 22.4
- Algeria 14.9
- Qatar 105.6
- Malaysia 33.8
- Indonesia 22.4 (not on map)
- Russia (Sakhalin) 14.2
- Australia 30.2
In 2013 Europe imported 51.5 BCM and the Far East imported 238.1 BCM. China, India, Japan, S Korea and Taiwan all have voracious and growing appetites for LNG. Figures 4 and 5 show how the LNG import market has developed since 2005. The Americas remain a small and stable player in global LNG. Europe saw expanding LNG supplies until 2011 when the global gas market was hit by the impact of the Fukushima nuclear incident that resulted in Japan sucking in even more LNG at premium prices (Figure 6). East Asia dominates global LNG consumption and a small increase in demand there may result in a major supply shortfall in Europe (Figure 5). Conversely, if Japan switches back on most of its nuclear power stations, the LNG market may suddenly be awash with supply.
Figure 4 LNG supply grew from 2005 to 2011 but has since plateaued gone into shallow decline most likely due to primary gas supply problems in the exporting countries.
Figure 5 Simplified version of Figure 4 scaled to 100%. The Americas have maintained uniform market share while Europe has lost market share and Asia has gained.
Figure 6 The amazing spread in gas prices was little changed in 2013 compared with 2012. I can’t find up to date data on Far East LNG prices but suspect that LNG may trade above the oil price this winter.
In 2013, Europe had about 210 BCM LNG import capacity but only imported 51.5 BCM. That is because there is quite simply not enough LNG to go round. For years, countries have been building LNG import terminals in the belief they were building energy security while there is not enough LNG export capacity to supply the import terminals. If European gas supply is tight this winter then prepare for an LNG bidding war that would see European prices rise to converge with Japanese prices (Figure 6). Japan recently turned a nuclear power station back on, and given the dire economic shape that country is in, expect news of more nuclear power coming back before Christmas.
Europe’s indigenous gas production is dominated by 3 North Sea countries – The Netherlands, Norway and the UK. Production peaked in 2004 and has since fallen by 10.6%. The arrival of the North Sea in the 1960s created an addiction in Europe for natural gas and imports have grown ever since, initially pipeline imports from Russia and North Africa later supplemented by LNG from Africa and Qatar.
Figure 7 European gas production peaked in 2004 and has since been led down by the UK. Norwegian gas production has continued to expand but shows signs of reaching a plateau and can be expected to follow the UK down in the years ahead. Dutch gas production is pegged by the Dutch government well below potential production capacity giving rise to a long stable production plateau that is about to come to an end.
The problems with Europe’s indigenous supplies are going to get worse in the years ahead. Near term The Netherlands are due to cut production from the giant Groningen Field and a decline in Norway’s gas production is expected soon (Figure 8). With European shale gas developments progressing at a snail’s pace, Europe looks set to become increasingly dependent upon gas imports.
Note how European gas consumption is falling in line with indigenous supply, keeping imports roughly constant (Figure 7). Consumption is falling because of high price, on-going recession in many countries, energy efficiency gains and substitution of gas with coal and wind power.
Figure 8 European gas production and forecast scenario. The details of how the forecast scenario is compiled are given here. Declining indigenous supply does not represent a critical risk this year but compounded over several years it will continue to squeeze Europe’s already precarious energy security.
The weather impacts the winter blackout risk in two ways. First, if it is windy in Northern Europe then this reduces demand for gas and conserves storage. And second, if it is a mild winter then this also reduces demand for gas. In contrast, a cold calm winter would see demand for gas soar while wind generation was in the doldrums.
Will the Lights be on at Christmas?
Almost certainly yes. The biggest blackout risk will come later in the New Year at around tea time on a weekday in February or early March. The weather poses one of the most significant risks where a prolonged cold calm spell could see European gas stocks run down. The Ukrainian Civil war may see supplies cut and this may have a bad impact upon East Europe and perhaps Italy. But for so long as Nord Stream remains supplied I don’t see Russian risks to West European supplies.
Black swans are an ever present and unpredictable risk by their very nature. No one foresaw the March 2011 Tōhoku earth quake or the consequences this would have on the global gas market. Any event affecting the Arabian Gulf and LNG exports from Qatar would reverberate throughout the European and East Asian markets and would almost certainly lead to blackouts, unless of course Russia came to Europe’s rescue.
Europe is in the slow squeeze of falling indigenous gas, oil, coal and nuclear production. The Green buffoons in Brussels and the UN seem to believe that intermittent wind and solar energy flows can replace these mighty energy stores that built all of the infrastructure that we see around us, including the wind and solar machines. The European strategy will fail and will fail the whole continent for two quite obvious reasons. Intermittent renewables cannot power an ordered industrial society, the society we live in, at a cost that society can afford to pay.