Globalist Perspective

Natural Gas and International Relations (Part II)

What should Europe do to prepare for the next wave of gas demand?

Takeaways


  • It would be foolish to blame Russia or Ukraine for the winter 2009 gas cutoff that affected Bulgaria, Moldova, Slovakia and the Czech Republic.
  • Had Europe been properly interconnected, we would have been able to do without Russian gas not just for a few weeks, but for the whole winter.
  • The lack of interconnections among European member states means that, should Russian gas be unavailable, some countries would be left in the cold.

Europe should continue to invest — in new gas supply sources, in new transport infrastructure to diversify transit routes and in interconnecting European countries. Of course, in a market that is putting midstream players under severe pressure, that is easier said than done. But it is the only way of ensuring that we are not caught unprepared by the next security scare.

In terms of diversifying supply sources, the biggest opportunity for Europe is the Caspian region and the huge gas reserves in countries like Kazakhstan and Turkmenistan.

Eni is involved in both these countries, with giant projects in Kazakhstan. In Turkmenistan, where we are the only large international oil company, we are in discussions about using our gas competences to transport gas from Turkmenbashi, across the Caspian sea, to Baku in Azerbaijan.

In terms of diversifying transit routes, we are an active player in North Stream, where our subsidiary Saipem is the major contractor. We are also the co-founder of South Stream, which aims to bring Russian gas into Europe under the Black Sea, avoiding transit countries.

Diversifying supply sources and reducing transit risks are two major pillars of Europe's energy security. But both these objectives require cooperation from outside the EU.

There is one thing that Europe can do, by itself, that would go a long way towards solving the supply security issue: ensuring we have sufficient interconnections among member states.

The real threat to Europe's supply security is no longer Russia. Today, Russian gas represents only 35% of our overall imports, compared to 75% in 1990.

But the figure of 35% for the EU as a whole masks very different, underlying situations. Some countries — Lithuania, Latvia, Slovakia and Estonia — are almost 100% reliant on Russian gas. Bulgaria relies on Russia for more than 85% of its natural gas requirements and Hungary, the Czech Republic, Slovenia and Austria for 60-70%.

The lack of interconnections among European member states means that, should Russian gas be unavailable, some of these countries would be left in the cold while others would be unable to come to their rescue.

That is exactly what happened in the winter of 2009. On January 7, with an outside temperature of minus 25°C, Bulgaria, Moldovia, Slovakia and the Czech Republic woke up to a world without gas, owing to a commercial dispute between Russia and Ukraine. The situation was so bad that gas supplies to industry had to be rationed to keep hospitals and homes heated.

This crisis could have been avoided had we been able to transport enough gas from one end of Europe to the other. Indeed, had Europe been properly interconnected, we would have been able to do without Russian gas not just for a few weeks but for the whole winter. The shortfall in eastern Europe would have been compensated by the surplus in other countries.

This suggests that it would be foolish to blame Russia or Ukraine for what happened in Bulgaria, Moldova, Slovakia and the Czech Republic. The time would be better spent taking a closer look at our own priorities and what we should do to ensure it doesn't happen again.

Rather than worrying about breaking up energy companies, the real priority for the European Commission should be to link them up and to promote a flexible and integrated network of European gas and power links which would yield real benefits for the continent's consumers.

Editor's Note: This piece has been adapted from a speech made by Eni CEO Paolo Scaroni during the 2010 workshop of the Council for the United States and Italy in Venice on June 11, 2010.

Read Part I of this feature here.

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