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Energy for Europe: A Reliable Relationship

May 29, 2017, 19:46 UTC+3
1 pages in this article

The European Union needs reliable sources of fuels, and most of all – gas. EU's indigenous gas production is declining. The EU estimates suggest that additional gas import demand may reach 144 bcm per year. Liquefied natural gas (LNG) and greater reliance on Russian pipeline gas supply are considered to be the two primary solutions.

In recent years, the EU has been cutting energy consumption.

  • In 2015, its consumption was 1.626 billion BOE, that is 2.5% less than in 1990 (Eurostat Report for February).
  • The share of fossil fuels (oil, gas and coal) went down quite significantly, from 83% in 1990 to 73% in 2015.

This trend has been mostly driven by EU's energy efficiency policies and development of the renewable energy industry.

  • The European target for renewables is 20% by 2020; and it reached 17% in 2015.

However, in some member countries (the Netherlands, Ireland, Cyprus, and Poland) fossil fuels still provide up to 90% of the overall energy demand, and are not likely to be replaced by renewables any time soon.

Despite all energy efficiency initiatives and penetration of renewables, fossil fuel imports have grown over the same period of time.

  • According to Eurostat, the share of imports went from 53% of the total fossil fuel consumption in 1990 up to 73% in 2015. This was caused by the decline in domestic production, mostly due to depletion of mature European fields.

Nowadays, European economies rely primarily on natural gas, being the cleanest fuel available; and the demand will keep rising.

  • According to the Austrian OMV forecast presented at the 2016 International Gas Forum, gas production in Europe will keep shrinking by 50 bcm annually against a backdrop of growing demand.
  • The European Centre for Energy and Resource Security estimates that by 2035, given the lesser reliance on coal, Europe may need to import annually as much as 144 bcm of gas above and beyond the existing levels.

Egypt's resources are currently in the spotlight (in 2015 Eni (Italy) discovered there a new field that may contain approximately 850 bcm of gas).

The US LNG is another option: throughout 2016 the EU received only three shipments from the US, but in the first two months of 2017 four LNG tankers were unloaded in European ports.

  • For the time being the US LNG is hardly of any significant importance (approximately 0.5 bcm supplied in 2016), and its economic viability is greatly affected by liquefaction, re-gasification and transportation costs. Yet, some US suppliers, betting on future profits, have already offered to finance floating LNG terminals in European waters.

Europe is also involved in the TAP gas pipeline project to supply gas from Azerbaijan (10 bcm).

Russia can supply Europe with more than 80 bcm of extra gas annually. This is the goal of the two ongoing pipeline projects i. e.: Nord Stream 2 (55 bcm), and Turk Stream (two strings, 15.75 bcm each, one serving Turkey and the other supplying European countries).

  • The Nord Stream 2 project is facing fierce opposition in Europe (Poland being most vocal) as a perceived threat to European energy security.
  • It is also opposed by the US, whose officials have labelled it a political plot, rather than a commercial venture, and invoked energy security threats as well.

It should be also noted that construction of the second string of the Turk Stream pipeline remains somewhat iffy at this time, since Russia needs more reassurance from potential gas buyers.

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