- Indigenous and North African supplies of gas to Europe declined by 50 million tonnes per annum over the last decade and are likely to decline by a similar amount in the next.
- Imports of LNG from the USA and development of indigenous shale gas may compensate for some of the decline in legacy supply, but it is difficult to imagine that these new sources can begin to substitute for Russian imports of 140 million tonnes per annum.
- Russia has provided between 25 and 30% of European gas for over 30 years and has been a stalwart swing producer through the cold war and collapse of the Soviet Union. European prosperity has been built in part upon imports of cheap Russian gas. Europe would do well to consider strengthening ties with this reliable source lest Russia goes hunting for new markets in East Asia.
Figure 1 The supply components of gas to the EU. “EU+” production includes Norway. “EU+” consumption includes Norway, Switzerland, Turkey and others. “FSU-” is Former Soviet Union production and consumption data adjusted for exports to Asia. “LNG-” is total LNG imports less LNG imports from Algeria and Egypt that are included in the N African imports category. Generating the data for this chart was more complex than I anticipated and the methodolgy is described in the appendix. Data from BP .
There is currently much speculation, backed up by a desire in certain quarters, to wean Europe off dependency on Russian natural gas imports. This post provides an analysis of this aspiration.
For years now, EU energy policy has been dictated to by the Kyoto Protocol that has resulted in CO2 reduction and renewable energy target based policies. Following the repatriation of Crimea to Russia in recent weeks, the Europeans have now found a new bonkers energy policy to pursue and that is to try and substitute Russian gas with alternative supplies.
The reality on the ground, often ignored, is that indigenous EU+ gas supplies have been in decline since 2004 . Never mentioned is the fact that N Africa, in particular Algeria, is an important source of European gas and this too has been in decline since 2005 . In 2012, supply from indigenous sources and N Africa was 50 million tonnes oil equivalent per annum (152 million cubic meters per day) below the level of 2004 (Figures 1 and 3). In Europe, there should be a single minded focus on how to make good this shortfall.
Since 1987, Russia has supplied between 25 and 30% of European gas needs (Figures 1 and 2) and has proven to be an extremely reliable supplier throughout the Cold War and the fall of the Soviet Union. The only time that Russian supplies have been threatened has been when Europe’s new best friend, Ukraine, has created trouble.
Note that 1 billion cubic meters (BCM) of natural gas = 0.9 million tonnes. Theses two measures are roughly equivalent and I do switch between the two in this post. I also switch between Russia and the Former Soviet Union (FSU) since the gas supply network of these countries are still intimately connected.
Figure 2 The relative contributions to EU gas supply from the EU and the FSU. The indigenous EU supply has fallen to 50% of total consumption (that includes Norway). FSU imports have been stable between 25 and 30% of the total since the late 1980s.
Current Supply Status
The major supply to the European gas market has been broken down into 4 components 1) indigenous production, 2) imports from the FSU, 3) imports from N Africa and 4) LNG imports from the rest of the world (Figure 1; see the Appendix for further explanation). One of the key problems confronting European energy security today is falling indigenous gas production (Figure 1) combined with falling gas imports from N Africa (Figure 3). This has translated into higher gas prices and a reduction in European demand (Figure 1). Scarcity of cheap energy is one of the key issues holding back European economic growth today.
The decline in indigenous production looks set to continue (Figure 4)  as does the declining supply from N Africa (Figure 3)  that is linked to expanding consumption in Algeria and Egypt. And so Europe first and foremost needs to consider how it is going to plug a future shortfall of 50 million tonnes oil equivalent in gas. Contemplating a reduction in Russian supplies at this point, therefore, seems unwise.
Imports from the FSU (Russia) have grown steadily since 1976 reaching a peak of over 160 million tonnes in 2008 (Figure 5). But the relative supply has been held constant between 25 and 30% since the late 80s (Figure 2). The combined impact of the financial crisis and growth of LNG resulted in a sharp fall in Russian gas imports in 2009, but this supply is now recovering as global LNG supply tightens and European economies slowly recover.
Europe’s main options are to expand LNG imports or to expand indigenous supplies of shale gas. Or alternatively to hold on to Russian supplies lest the Russians decide to sell our gas to India and China instead.
Figure 3 This chart shows the N African slice from Figure 1 that includes Algeria, Libya and Egypt. Algerian production has been on a plateau since 1990 but growth in domestic consumption since then has eaten into export volumes . Algeria also exports a small amount of gas to Tunisia and Morocco. Libya exports via the Greenstream pipeline to Italy. Its small LNG capacity is currently offline. Egypt in fact has exported most gas to countries outside of Europe with pipeline exports to Jordan and Israel and LNG exports globally. Egypt’s gas exports will shortly cease, for the time being at least .
Figure 4 European gas production forecast scenario that incorporates continued decline in UK gas production, a planned reduction in Dutch gas production and an eventual peak in Norwegian gas production .
Figure 5 This chart shows the FSU slice from Figure 1. Gas supplies from the FSU have increased steadily for over 30 years to accommodate EU hunger for energy that has enabled economic expansion. Demand for imported FSU gas collapsed in 2009 in the wake of the financial crash, which coincided with the expansion of LNG imports (Figures 1 and 6). Russia accommodated this major swing in demand and is therefore the Eurasian swing producer in natural gas supplies.
Figure 6 The earliest version of the BP statistical review work book that I have is dated 2006 reporting data for 2005. Hence the LNG data I have to hand begins in 2005. Global LNG supplies actually fell in 2012 and are not set to rise again until 2015 (Figure 8). This combined with Japan attracting LNG cargoes post-Fukushima resulted in a significant fall in EU imports of LNG in 2012 . This shortfall was met by Russia (Figure 4) and by imports of cheap coal.
Europe has 21 LNG import terminals with a capacity of 190 BCM per annum with a further 7 terminals under construction or committed, giving a projected capacity of 225 BCM per annum . That equates to 203 million tonnes oil equivalent or 45% of current demand. What is there for Europeans to worry about?
I have for a number of years watched the global LNG story unfold with astonishment as LNG import capacity was built greatly in excess of the LNG supply. Most of Europe’s LNG terminals are pipelines to nowhere. In 2012, Europe imported 65 BCM LNG utilising just 34% of current import capacity. The fall in utilisation of existing capacity continued into 2013 when it stood at just over 20% (Figure 7) . And yet Europe is building more LNG import terminals and has more planned.
Global LNG supplies actually fell for the first time in 2012 due in part to resource depletion in the exporting countries and increased demand in exporting countries, see for example Egypt and Algeria [3, 5]. Oil and gas major BG group does not see any LNG supply growth until 2015 and only limited growth in supply thereafter with many energy hungry countries chasing that supply (Figure 8) .
The great unknown is to what extent the USA may begin to export liquefied shale gas. The US government has approved 38.5 BCF / day LNG export terminals, at least one of which, Sabine Pass, is under construction . That translates to 351 BCM per annum in export capacity that needs to be compared with US production in 2012 that stood at 681 BCM. Can the USA lift gas production by 50% in the next decade and is there a political and domestic will to do so? I very much doubt it. But it does appear that in the short term, the USA is going to enter the global LNG supply market and will be targeting some of the 167 BCM supply gap identified by BG Group (Figure 8) . Europeans can expect their indigenous and North African supplies to decline by 50 million tonnes per annum in the next decade and may therefore hope that US LNG fills some of that supply gap. But that does not begin to substitute dependency on Russian supplies.
Figure 7 Utilisation of LNG import terminals from Gas Infrastructure Europe . Utilisation had fallen towards 20% in the first 8 months of 2013. Most of Europe’s LNG terminals are like pipelines to nowhere.
Figure 8 A view of global LNG provided by BG Group . There will be no significant new supply until 2015 and a 150 million tonnes per annum supply gap is forecast in 2025, some of which may be filled by US liquefied shale gas. Note that the existing supply is likely to decline much more significantly than shown as existing exporters consume more of their production and as resources are depleted.
One obvious route out of gas import dependency is for Europe to emulate the shale gas phenomena of N America. Why has this not happened? I believe the best explanation is that N America still operates largely unfettered capitalism while Europe has withdrawn into a form of Green Communism where all energy decisions are measured against an emissions meter stick, pointless targets are set, and minority Green views now dominate political decision making, scientific advice and the tolerance of Green protest that hinders commerce.
To date the only reference point is Poland that delivered disappointing exploration results. And there has been much interest in Turkey (36 rigs operating in the country at present) but I can find no reports of successful well tests. France, that does not need gas for electricity, continues with its fracking ban. And limited exploration in the UK continues at a snail’s pace.
It therefore remains unknown if Europe has a commercially exploitable shale gas resource and even if it does it seems that the speed of development will continue at snail’s pace for so long as Greenthinking dominates the political landscape. At present Europe cannot bank on indigenous shale gas to provide significant future gas security.
Alternatives to gas
Europe is also heavily dependent upon Russia for oil and coal imports and so it is moot to consider these forms of substitution. Nuclear and renewables do provide alternatives for electricity generation and have the advantage of being indigenous and not imported forms of energy.
Nuclear new build is in my opinion the only viable, scalable and proven way forward but Europe, in the grasp of Greenthinking, seems destined to stumble slowly along the nuclear path with major economies like Germany and Switzerland rejecting this solution in the wake of Chernobyl and Fukushima.
And so it will not surprise me in the least if ridding ourselves of the Russian menace is used to reinforce the need for more wind and solar power even though the cost of subsidising this policy is creating serious financial headaches for some European countries and is spreading energy poverty throughout most of the rest. Greenthinkers will continue to ignore the costs of intermittency and the rigging of markets against fossil fuels. These costs are now transparent and obvious. The traditional utilities are being driven out of business and are now withdrawing from investment and the expansion of expensive generating infrastructure is driving up prices and impacting the environment. Renewable energy on the grid is parasitic . It requires traditional generators – gas and coal – to provide balancing service and capital. Both of these invaluable services that traditional generation provides are being sucked dry by Green policies.
It is difficult to reach a rational conclusion on European energy security since the whole debate is wrapped up in irrational terms of reference. Cheap Russian gas has brought prosperity and energy security to Europe for over 30 years. Why go searching for an alternative? Europe has seen indigenous plus N African gas supplies fall by 50 million tonnes per annum in the last decade and can most likely look forward to a similar fall in the next. It is possible that American LNG imports may fill some of this supply gap going forward. But in order to cover contingencies, Europe would do well to consider also increasing imports from Russia (and FSU allies Turkmenistan and Kazakhstan) that are likely to be the cheapest, most reliable and secure sources of gas for electricity generation in the near future.
In order to construct a long term picture of the Eurasian gas market I have used the FSU and EU amalgamated statistics from BP . The total EU + FSU production less the total EU + FSU consumption gives the total imports to Eurasia and since the FSU does not import gas, this balance figure represents gas imports to the EU+ block (Figure 9).
This EU+ import balance figure has then been compared with calculated imports from N Africa and global LNG where a reasonably good match has been achieved (Figure 10).
EU+ imports (Figure 1) then become FSU production less FSU consumption (adjusted for recent exports to Asia) plus the imports from N Africa and LNG shown in Figure 10.
Figure 9 The total gas production and consumption curves for the FSU and the EU+ (includes Norway, Turkey and Switzerland). FSU production has been adjusted for Asian exports from Sakhalin to East Asia and from Turkmenistan to China. The difference between these two curves equals Eurasian imports shown in Figure 10. Since the FSU does not import gas, all Eurasian imports can be allocated to the EU+ block.
Figure 10 The blue line shows Eurasian gas imports deduced from Figure 9. For data quality control purposes, this is compared with calculated exports to the EU. Note how in the larger scheme, Egypt and Libya are not significant suppliers of gas to Europe.
 BP: Statistical Review of World Energy 2013
 European Gas Security
 Post-peak Algeria?
 gie: Gas Infrastructure Europe, Jan 2014 Presentation
 Egypt – energy, population and economy
 BG Group: Global LNG update, sep 2013
 USA gas independence – looking for export markets
 Parasitic wind killing its host
 LNG Heading East