European leaders seek ways to curb dependence on Russian gas

Reuters

European leaders will seek ways to cut their multi-billion-dollar dependence on Russian gas at talks in Brussels on Thursday and Friday, while stopping short of severing energy ties with Moscow for now.

Russia's seizure of Ukraine's Crimea region has revived doubts about whether the European Union should continue to rely on Russia for nearly a third of its gas, providing Gazprom with an average of $5 billion per month in revenue. Some 40 percent of that gas is shipped via Ukraine.

EU powerhouse Germany is among those with particularly close energy links to Russia and has echoed comments from Gazprom, Russia's top natural gas producer, that Russia has been a reliable supplier for decades.

Russian supplies of gas to the EU were disrupted in 2006 and 2009, but only because of knock-on effects when Moscow cut off Ukraine for not paying its bills. Although those incidents resulted in EU attempts to diversify its energy sources, contracts to the bloc have always been honoured.

EU officials said the current Ukraine crisis, however, had convinced many in Europe that Russia was no longer reliable and the political will to end its supply dominance had never been greater.

"Everyone recognises a major change of pace is needed on the part of the European Union," one EU official said on condition of anonymity.

"At the back of people's minds, there will always be the doubt that if the relationship goes sour, Russia has that weapon and it's not something it should have," another official said, referring to Russia's option of severing supplies.


A draft document prepared ahead of the summit calls on the European Commission, the EU executive, to present by June a comprehensive plan to reduce EU energy dependence.

As alternatives to imported gas, the Brussels talks will debate the EU's "indigenous supplies", which include renewable energy and shale gas.

They will also underline the need for energy efficiency and to build better cross-border links to share resources, control costs and develop EU capacity to pump gas to Ukraine should it need help.

A British discussion paper, circulated among member states, lists a range of options, including intensifying talks on the export of Iraqi gas via pipeline to Europe and examining how to "facilitate" gas exports from the United States as part of trade talks with the EU.

EU officials said they expected the issue to be raised during U.S. President Barack Obama's visit to Brussels next week, although analysts caution that any U.S. gas exported would be more likely to head to Asia rather than Europe because prices there are higher.

Forty-year bond
Keen to underline its continued relevance, Gazprom last week issued a statement to mark the 40th anniversary of supplying Russian gas to Germany under long-term contracts to utility E.ON . Russian gas is sent directly to Germany via the Nord Stream pipeline, specifically built to bypass Ukraine.

E.ON is among the utilities whose business models have been shaken by an EU shift to green energy. The company says the grid needs gas-fired generation to balance intermittent solar and wind.

One of the many questions is the extent to which indigenous shale gas can replace imports.

The signs so far are that public opposition and Europe's different geology mean it cannot match the United States' shale gas revolution, which has lowered energy costs there. Even in the oil and gas industry, many are cautious about the prospects for EU shale gas.

That leaves EU industry smarting at what it sees as a competitive disadvantage, when the Ukraine crisis is likely to inflate energy prices further. It is seeking help for energy-intensive industry to manage costs, which it says have been driven up by subsidies to increase the share of green energy.

The renewables lobby says the real driver of energy costs is imported fossil fuels, on which Europe spends more than 400 billion euros ($557 billion) per year.

"The EU is criticising Russia's invasion of Crimea while pouring money into Russian coffers for gas imports," said Thomas Becker, CEO of the European Wind Energy Association, which is calling for a tougher goal on use of renewable energy.

But as coal-dependent Poland for one opposes an early agreement on 2030 climate and energy policy, this week's talks are not expected to get anywhere near a deal on that.

EU Climate Commissioner Connie Hedegaard said only that the talks should send "a strong signal".

The draft summit document says EU member states should aim to make a final decision on the new policy framework "as quickly as possible and no later than October 2014".

That will disappoint those who say a decision is urgently needed to drive investment in low-carbon energy and to reduce fossil fuel imports, as well as to settle the EU negotiating position ahead of a U.N. climate change deal meant to be sealed late next year.

So far, the European Commission has suggested 2030 policy should include a 27 percent EU-wide goal for renewables as a proportion of energy use and a 40 percent cut in carbon emissions versus 1990 levels.

That compares with an existing target to cut carbon by 20 percent by 2020, which the European Union has almost achieved, as well as a goal, binding on each member state, to get 20 percent of energy from renewables, which is also within reach.