Russia gas dispute hits EU security, aids rivals

LONDON (Reuters) - Nuclear power may be the winner from a shutdown of Russian gas exports that has highlighted Europe's vulnerability and limited energy options.

Bulgarians shivered in their homes on Wednesday as one of the most affected countries rationed supplies following its switch to gas stores.

The question is whether the fear factor of no heating during a freezing mid-winter will prompt strategic changes in EU-wide energy policy and investment, for example to increase coal, nuclear or renewables or alternative routes to other suppliers.

"I would definitely push the European countries to get alternative ways of generating electricity," said Fatih Birol, chief economist of the International Energy Agency, the Paris-based energy watchdog for rich countries.

"Gas is mainly used for electricity generation, and a key option here is nuclear," he told Reuters.

"This is in a sense a very good wake up call for the European Union," he said adding global gas production was becoming ever more concentrated among countries where state-run companies like Russia's Gazprom dominated.

The European Union is dependent on Russia for around a quarter of its gas. All supplies via the main Ukraine transit pipeline halted on Wednesday following a Moscow-Kiev rift over gas prices. They blamed each other for blocking EU supplies.

The most vulnerable countries were those with the least domestic gas storage capacity and fewest alternative sources. Countries most at risk were Bulgaria, Romania, Turkey, Greece, Slovakia, Hungary and the Czech Republic, said Birol.

The suspicion has grown that Moscow may have harmed itself in a second price dispute with Ukraine in three years, almost snuffing out EU supplies just months after Russia's war with another key European energy transit country Georgia. "The fact is that supplies to the European Union are not arriving to lots of member states at this time," said Ferran Tarradellas, energy spokesman for the EU's executive Commission.

"This is not what you expect of reliable supply and transit countries. It's affecting us, and they're not even negotiating. It's not helping their reputation at all. It's too early to say," he said, regarding the impact on long-run EU energy choices.

Russia and Ukraine meet on Thursday to discuss the crisis.

SECURITY

Europe's options for change range from simply adding new gas storage capacity, to building new gas pipelines to Russia and other countries, by-passing Ukraine, to switching away from gas.

The short-term priority was more storage, analysts said.

The next was finding alternative routes. The three main ongoing pipeline projects are: Nord Stream, from Russia via the Baltic Sea; Nabucco, from Central Asia via Turkey; and Medgaz, from Algeria to southern Europe.

"It does have an impact on the Nord Stream discussion," said Arno Behrens, research fellow at the Centre for European Policy Studies in Brussels.

"The crisis will encourage attempts to shift away from gas where possible, most certainly a switch to non-Russian sources," said Daniel Litvin, senior research fellow at the London-based policy thinktank Chatham House.

"One of the difficulties is that the gas infrastructure is already built and it takes many years and billions to change."

The longer term choice is to hunt entirely new sources of energy. While utilities won't rip up their investment plans on the basis of what happens this week, such a crisis hitting in mid-winter would focus minds, said the IEA's Brian Ricketts.

One problem for Europe is that the dispute comes weeks after the bloc voluntarily made a large dent in the competitiveness of coal, the most obvious alternative to gas.

In a deal last month EU leaders agreed that all power plants in western Europe must pay for every ton of carbon emissions from 2013, a disadvantage especially for high-carbon coal.

"It's quite difficult to see where the alternatives are, particularly if they're still going to take the deal on climate action seriously," said Jim Watson, director at Sussex University energy group.

"It doesn't give a lot of room for maneuver."

One winner from the gas dispute may therefore be a response to climate change which includes low-carbon energy alternatives such as nuclear, wind and solar, and which has recently lost momentum following plunging oil prices and recession.

France has so far been relatively spared, even though Russian gas supplies to the country plunged on Tuesday, because since the 1970s oil crisis it has relied on nuclear power.

One problem for nuclear is lead-time, however. Britain has urged the construction of new nuclear plants to replace aging coal, but the first will take 10 years to build.

Another drag is public acceptance -- although the threat of freezing in winter may change minds. "I would expect that what has happened now will traumatize many people, people in the street, and this will be a welcome support," said Birol.

(Additional reporting by Jackie Cowhig in London, Anna Mudeva in Sofia, Muriel Boselli in Paris and Gabriela Baczynska in Warsaw)