New European gas sources still a pipe dream

BRUSSELS Sat Jan 17, 2009 7:40pm EST

A Gazprom technician inspects a pressure gauge at the gas export monopoly's Sudzha compressor station, January 14, 2008. REUTERS/Denis Sinyakov

A Gazprom technician inspects a pressure gauge at the gas export monopoly's Sudzha compressor station, January 14, 2008.

Credit: Reuters/Denis Sinyakov

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BRUSSELS (Reuters) - Politics and cost mean the EU is unlikely to diversify energy supplies away from Russia for many years, despite a gas crisis that has idled factories in southeast Europe and left thousands of homes without heating.

The price dispute between Russian and Ukraine, just months after Russia's war with Georgia last August, is a wake-up call to a continent that has been talking about reducing reliance on Russian gas since a similar row in 2006.

But turning words into action is proving tough.

"The Russian-Ukrainian crisis has made it clearer than ever that filling in the gaps in our energy infrastructure is to the strategic benefit of all Europe," European Commission President Jose Manuel Barroso told EU lawmakers this week.

Barroso said 5 billion euros ($6.6 billion) of European Union cash had been earmarked for the most pressing short-term issue -- linking up the entire European network with gas interconnections.

Such links would help countries like Bulgaria, which depends entirely on Russian gas and has found itself technically unable to accept help from its neighbors, or could remove the bottleneck that prevents Algerian gas flowing into northern Europe from the Iberian peninsula.

"We are living through one of the most serious energy crises yet -- comparable with the 1970s oil crisis," European Energy Commissioner Andris Piebalgs said. The EU gets a quarter of its gas from Russia, and 80 percent of that via Ukraine.

SHIPMENTS

Last year's war in Georgia raised energy security issues because the former Soviet republic hosts the only pipelines pumping oil and gas from the Caspian Sea to world markets without crossing Russia.

Since then, Piebalgs has been promoting plans for pipelines from Africa, Central Asia and the Middle East, and arguing for more projects to harness energy from the wind, tides and the sun.

The EU is also focused on increasing the number of ports capable of receiving ships carrying liquefied natural gas (LNG) from places as far afield as Qatar and Nigeria.

"Greece used LNG to get them through the current crisis," said analyst Susanne Nies at France's IFRI think-tank. "In today's situation, LNG has to be increased," she added, singling out Germany, Poland and the Balkans as prime new sites.

But while political support has increased for long-distance pipelines into Europe like Nabucco, NordStream and South Stream, they still face the perennial problem of huge costs made worse by a punishing economic crisis.

The 7.4-billion-euro ($9.81 billion) Nord Stream project, which would pass from Russia beneath the Baltic Sea to Germany, faces numerous challenges over its environmental impact.

It must also overcome political hostility from neighboring Poland, which would see its role as a gas transit state reduced.

"The easiest is South Stream, but the problem is financing, so that could be delayed," said Nies.

While the South Stream pipeline under the Black Sea would eliminate the problem of crossing Ukraine, it would not reduce the EU's dependency on Russian gas.

STRANGLEHOLD

To limit Moscow's stranglehold on gas, the West is backing the $12 billion Nabucco pipeline, which is one day hoped to carry 30 billion cubic meters (bcm) of Caspian or Middle Eastern gas annually to an Austrian hub. But economic doubts remain.

"Nabucco will only be built if 15 bcm can be agreed, but for the time being we only have 3 bcm from Azerbaijan, and even that hasn't been signed," said Nies.

Given the vulnerability of Nabucco, the EU is also looking south toward Africa and a Trans-Saharan Gas Pipeline carrying Nigerian gas north across the Sahara.

Analysts highlight concerns about the threat of sabotage in the lawless Sahara as well as the costs.

"We are talking about 4,000 km (2,500 miles) before Spain, so the economics are not the best, and Nigeria already has the option of exporting by LNG shipments, which is far more flexible," said Jorgen Henningsen, energy adviser to the European Policy Center.

"The EU should make sure that a third of its gas imports could come from LNG," he added.

Henningsen said that for now the EU would do better to concentrate on the basics of energy security -- interconnections and gas storage -- rather than ambitious and costly pipelines.

"This situation has caused no problems in countries that have taken the most elementary steps," he said of the crisis.

"We need sufficient storage to cope with accidents, with terror attacks or with political blackmail, and this can be dealt with at a relatively low cost," he added.

(Additional reporting by Daniel Fineren, editing by Mark Trevelyan)

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