Europe’s gas problem

Ukraine has urged the West to act to prevent Russia using its control of gas supplies as a “new nuclear weapon”. Just how much of a threat is it? Simon Wilson reports.

How reliant is Europe on Russia?

In 2010, the last year for which reliable EU figures are available, Eurostat (the EU's statistics arm) reports that the EU-27 (without Croatia, which joined in 2013) sourced 31.8% of its natural gas imports from Russia.

The next biggest share of imports was from Norway (28.2%), Algeria (14.4%), Qatar (8.6%) and Nigeria (3.6%). Russia was also the main source of crude (34.5%), followed by Norway (13.8%), Libya (10.2%), Saudi Arabia (5.9%) and Iran.

So pretty reliant then?

Second, there's a massive variation across Europe in levels of dependency. Natural gas is relatively easy to transport via pipelines, but expensive to carry in liquefied form on longer distances. So the countries closest to Russia are much more dependent on its gas than countries in the West.

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According to 2012 statistics from UNCTAD, the UN's trade body, Finland, Estonia, Latvia and Lithuania are 100% dependent on Russian gas. Other EU states where dependency on Russia is high include Slovakia (92.7%), Poland (82.6%), Greece (79.3%), the Czech Republic (66%) and Austria (61.8%).

For Germany, the figure is less daunting, but still concerning at 34.6%. Three countries on the western fringes of Europe had no direct imports from Russia at all Spain, Ireland and the UK.

Britain uses no Russian gas?

Centrica signed a limited supply deal with Gazprom in 2012 (for 2.4 billion cubic metres of gas over three years), but the gas is not scheduled to start flowing until October 2014.

But Britain can basically relax?

Right now, EU gas stockpiles are high (at 37 billion cubic metres, or 47% of capacity) following the unusually mild winter, so there is no immediate panic.

But if Russia did decide to cut off its gas as it did in 2009 the "new nuclear weapon" feared by Ukraine the economic fallout would certainly reach Britain, where imports are projected to account for 70% of supply by 2020 and 80% by 2030.

Does Russia have all the power?

Moreover, Europe is already far less exposed to Ukraine-Russia wrangling than it was in 2009, because a new Gazprom pipeline to Germany via the Baltic means that only 50% of the gas flowing to Europe comes via Ukraine, down from 80% in 2009.

In addition, improved infrastructure within the EU particularly new north-south connecting pipes in central and eastern Europe mean the area can tap non-Russian gas more easily.

Poland and Lithuania are both due to open liquefied natural gas (LNG) terminals this year. And to the south, a pipeline is due to open by 2019 with gas flowing from Azerbaijan to Italy.

What's the long-term picture?

Moreover, the advent of shale gas in the US has transformed the global gas market: Europe will be lobbying hard for the US to lift its current ban (for reasons of its own energy security) on exports of LNG. Europe has no need to panic, then. But it does need to take action and the sooner the better.

What is to be done?

First, cut reliance on imports by developing renewable and nuclear options, and exploiting the massive resources of shale-gas in Europe, including in Britain.

Second, diversify the sources of imported gas. It might seem "unsavoury" to become more reliant on the likes of Algeria, Qatar, Azerbaijan and Kazakhstan. "But the more rogues who sell them gas, the harder it is for any" single rogue to hold Europe hostage.

Third, invest in an integrated, flexible and liberalised EU-wide gas grid that can quickly get gas to where it's needed and stop Russia picking off vulnerable countries.

Simon Wilson’s first career was in book publishing, as an economics editor at Routledge, and as a publisher of non-fiction at Random House, specialising in popular business and management books. While there, he published, a bestselling classic of the early days of e-commerce, and The Money or Your Life: Reuniting Work and Joy, an inspirational book that helped inspire its publisher towards a post-corporate, portfolio life.   

Since 2001, he has been a writer for MoneyWeek, a financial copywriter, and a long-time contributing editor at The Week. Simon also works as an actor and corporate trainer; current and past clients include investment banks, the Bank of England, the UK government, several Magic Circle law firms and all of the Big Four accountancy firms. He has a degree in languages (German and Spanish) and social and political sciences from the University of Cambridge.