Europe gas stocks tested by Russia crisis

By Daniel Fineren - Analysis

LONDON (Reuters) - Europe may be forced to drain its winter gas stocks with spring still months away, find other ways of generating electricity and buy tankerloads of alternative fuel to keep warm unless Russian exports return to normal soon.

Economic recession and a mild start to winter have reduced energy demand and left European storage sites between 75-84 percent full at the end of December.

But temperatures have fallen below freezing in much of Europe since Moscow cut off supplies to Ukraine on January 1 and the outlook for the rest of this week is bleak.

"How long the stocks are going to last is very difficult to tell because there are many factors which we cannot control, weather to mention one of them," European Commission energy spokesman Ferran Tarradellas Espuny said, adding that European gas experts will meet on Friday to assess the situation.

"We are going to have a clearer picture of where we are in terms of storage, where can we get gas from other parts of the world."

A spokeswoman for Gas Infrastructure Europe, an umbrella group of storage and pipeline operators, agreed it was difficult to forecast how long Europe's winter stocks would last.

"Stock levels are pretty high for this time of year but how long it lasts will depend on how much is used," she said, adding that the rate at which storage facilities would be able to pump gas out would fall as stock levels dropped.

Europe still gets about a fifth of its gas from Russia through pipelines crossing Ukraine and has not reduced its dependency since a Kiev-Moscow impasse led to a brief cut in flows to the EU in January 2006.

Alternative pipelines proposed after that shock are several winters away from being completed and the ability of existing pipeline gas suppliers like Algeria and Norway to make up for the loss of Russian gas is in doubt.

Norway's majority state-owned oil and gas producer StatoilHydro, Europe's No. 2 supplier after Gazprom, said on Monday it was already producing at near full capacity.

LNG OPTION

Several liquefied natural gas (LNG) terminals have opened over the last three years offering alternative import options in Italy, Britain, Belgium, Spain and France.

Analysts say seaborne imports of the super-cooled gas will likely have to rise as European utilities try to make up for some of the lost flows from Russia and to top up storage for the rest of winter.

But they warn that while global demand for cargoes has waned, problems in producing countries have limited the number of available tankers.

"LNG could compensate but to what extent is not clear," leading independent LNG consultant Andrew Flower said.