Opinion: Europe Needs Gas Supply Diversification Now

on June 05, 2014 at 12:00 PM
Merkel And Medvedev Inaugurate Nord Stream Gas Pipeline

(From L to R, first row) French Prime Minister Francois Fillon, German Chancellor Angela Merkel, Dutch Prime Minister Mark Rutte, Russian President Dmitry Medvedev and European Union Energy Commissioner Guenther Oettinger turn a wheel to symbolically start the flow of gas through the Nord Stream Baltic Sea gas pipeline at a cemerony on November 8, 2011 in Lubmin, Germany. The Nord Stream pipeline runs through the Baltic Sea and will supply Europe with natural gas from Russia.

In light of recent events in Ukraine, it is in imperative that the European Union break the stranglehold that Russia currently has on the European natural gas market, and begin the search to diversify their sources of natural gas. By doing so, the European Union can insulate itself from the deleterious economic effects that may arise if the Ukrainian crisis deepens or spreads beyond the Crimean Peninsula and eastern Ukraine, as well as diminish the use of Russian natural gas as a political tool should another event arise (i.e. 2008 Russian invasion of Georgia near BTE and BTC pipelines).

However, Germany, arguably the most powerful state within the European Union is almost wholly dependent on Russian natural gas deposits. This makes it incredibly difficult for Germany, along with the rest of the European Union (also either dependent on Russian natural gas or imports from Germany) to place pressure on Russia in response to their aggressive actions in Ukraine without significantly hurting their own economies. According to the U.S. Energy Information Association, 76% of Russian natural gas exports head west through a series of pipelines to the European Union, with 24% of that alone supplying Germany.[1]

Implementing sanctions on Russia would surely hurt the Russian economy, especially since 50% of their revenue comes from their natural gas and oil exports, but it would also destroy any progress that has been made in already weakened European economies, and could place a significant strain on Germany if they continue to be the pillar on which the rest of Europe depends on. If the crisis in Ukraine spreads beyond the Crimean Peninsula and eastern Ukraine, other European countries that are supplied from this transit state could find themselves in a serious economic situation. Therefore, it is in the European Union’s – as well as Germany’s – best interest to continue to supplement their development of renewable energy resources and underground natural gas storage facilities with alternative sources of natural gas. Poland, in the form of possible shale gas deposits, and Algeria, already a major natural gas producer for Spain and Italy, are two sources that the European Union can explore in order to weaken their dependence on Russian natural gas.

Poland – The possible future for shale gas in Europe

According to the EIA, Poland is estimated to contain 148 trillion cubic feet of natural gas in shale gas reserves.[2] If these estimates are accurate, Poland can tap into their shale gas reserves by enticing international companies that have experience in the extraction of shale gas reserves. Similar to the revolution that is currently driving U.S. production of their shale gas reserves, it is possible that Poland could not only break their dependence on Russian natural gas (estimated at 82% of natural gas imports in 2011), but they could also become another source from which Europe could tap into.[3]

Currently, there is a pipeline that connects Lasów, Germany to Poland that imports natural gas into Poland, but, if natural gas production in Poland significantly increases, it is possible that Poland would be able to reverse the flow of this pipeline, and begin to transport their natural gas reserves to either Germany or other countries in Europe.[4]

Regardless of the potential for shale reserves in Poland, it is certainly in the best interests of Poland, that depends on Russian natural gas even more than Germany, and also for the European Union to encourage exploration and investment in hopes they can find an alternative natural gas resource.

Algeria – Increased Production and Exploration

Algeria, located on the northern coast of Africa, is the second largest producer of natural gas in Africa behind Nigeria. Algeria produced 2.9 trillion cubic feet of natural gas in 2011, and is ranked 9th in the world in proven natural gas reserves. Furthermore, similar to Poland, it is estimated that Algeria possesses another 231 trillion cubic feet of shale gas reserves.[5]

However, where Algeria and Poland differ is the political climate and instability in Algeria that typically is a deterrent to increasing investment in the country’s natural gas sector. Even with this instability, Algeria is a major supplier of both Spain (2 pipelines – 27% of Algerian gas) and Italy (one pipeline via Tunisia – 62% of Algerian gas).[6]

Beyond this, there are a number of planned pipelines that could significantly increase the volume of natural gas coming from Africa, mainly through the Trans-Saharan Gas Pipeline. This pipeline would connect Nigeria, the largest natural gas producer in Africa, to Algeria and on to Spain.[7] What all of this means is that Europe can focus its attention south, towards Africa, and further break its dependence on Russian natural gas. They can do this by possibly investing in new oil fields in Algeria, which are being depleted and causing lower levels of production in Algeria, as well as bringing in international companies that have experience in shale gas extraction, similar to the policy recommendation in Poland.[8]

Beyond this, the European Union can begin to fund natural gas pipelines that can connect the pipelines in Spain and Italy with the rest of Europe. Currently, Spain has connections with Portugal and France; however, the connections with France are plagued by congestion.[9] Building additional natural gas pipelines from Spain and Italy that connect into northern Europe, or increasing the capacity of these pipelines would enable the rest of the European Union to tap into Algerian, and potentially over the longer term Nigerian natural gas reserves, that could ultimately allow the European Union to lessen demand on Russian gas.

By making this shift away from Russian natural gas imports towards Polish and Algerian natural gas resources, the European Union would not only weaken the Russian economy and possibly curtail future Russian aggression, but it would also enable Europe to bolster their energy security by ensuring stability of resources and prices; would further insulate their fragile economies from political crises beyond its borders; and the burgeoning natural gas sector could even become an economic driver and job creator in both northern and southern European economies through the construction of natural gas infrastructure projects. With the current Ukrainian crisis gripping the international community and the ambiguity of future Russian actions and intentions, it is imperative that the European Union and Germany break their dependency on Russian natural gas in short order.

Ryan Ouwerkerk is a graduate student at the New York University’s Center for Global Affairs currently studying transnational security.

[1] U.S. Energy Information Association: Russia Data

[2] U.S. Energy Information Association: Poland Data

[3] International Energy Association: 2011 Poland Energy Analysis, 98.

[4] Ibid, 102.

[5] U.S. Energy Information Association: Algeria Analysis

[6] U.S. Energy Information Association: Algeria Analysis

[7] U.S. Energy Information Association: Algeria Analysis

[8] U.S. Energy Information Association: Algeria Analysis

[9] International Energy Association: 2009 Spain Energy Analysis, 66.