In spite of
the international sanctions, in March 2018, the Russian energy giant Gazprom
increased its gas exports to far-off countries by 29.4% – compared to the same
period of 2017 – thus bringing it to 9.7 billion cubic meters in only two
weeks’ time (from 1 to 15 of March). New Europe has asked
Igor Yusufov, former Energy Minister of the Russian Federation (in
2001-2004) and the special representative of the President of the Russian
Federation for international energy cooperation (in 2004-2011), how he sees the
position of Gazprom now on the European markets.
Igor
Yusufov: In 2017, the far-off European countries (that we traditionally state
to be the EU countries and Turkey, with the exception of the Baltics) consumed
the maximum volume of natural gas for the last five years – 560.5 billion cubic
meters. And Gazprom not only retains the position of the leading player in this
market, one of the largest markets in the world), but the Russian supplier has
significantly increased its share over the last five years: by bringing it from
26% in 2012 to 34.7% in 2017. According to Gazprom, in 2017, the volume of
exports to far-off countries amounted to 194.4 billion cubic meters of gas,
which is by 8.4% more than the 2016 exports (178.3 billion cubic meters).
New Europe: Is this due to some increase in
output, or to the changes in the geopolitical situation?
Igor
Yusufov: The growth of last-year gas supplies from Russia to Europe occurred
not so much under the influence of climatic factor (for the January frosts got
compensated for by the unusually warm autumn), but due to its being in serious
dependence on the index of industrial production in the euro-area countries
that grew by 2.3% in January-November of 2017, thus reflecting a significant
rise in the economies of the European countries. The industries of Germany,
Italy and the UK continue to grow and therefore need a large amount of cheap
energy. In January-October 2017, the EU produced 2.3% more electricity than the
year before.
New Europe: So you mean Europe is generating
more and more gas of its own.
Igor
Yusufov: Well… An important role in the growth of gas consumption in 2017 was
played by the gas generation of Europe, which increased the purchase of gas by
6.2% by way of reducing the electricity generation at nuclear power plants in
Germany and France, as well as a significant reduction in the production at
hydro power plants in several southern European countries (Spain, Italy,
Portugal) during the summer period. As a result, the electricity production
share in the structure of gas consumption in far-off European countries rose
from 30% in 2016 to 31% in 2017.
New Europe: Does that mean that we can get rid
of coal from now on?
Igor
Yusufov: You know, amid the growth of world coal prices in 2016-2017, the
market conditions for gas-based electricity generation have also improved
considerably. In Germany, the range of calculated switchover prices is now
close to the current gas prices of NCG hub. In the UK, where RES play a much
less prominent role, and where there is an additional levy on greenhouse gas
emissions (which makes coal generation more costly), gas continues to supplant
coal. The additional charge for greenhouse gas emissions provides the British
gas power plants with a higher margin (compared to the coal plants) that
reaches its maximum levels during the summer season with a seasonal reduction
in gas prices at NBP hub.
New Europe: What would be the break up, the
scheme of production at the European
level?
Igor
Yusufov: In 2017, own production of gas by the far-off European countries
remained at the level of 2016, making up for 260.4 billion cubic meters.
Despite the fact that the production of gas in the northern seas is stable and
even demonstrates growth in certain periods, we are witnessing a decrease in
investments, as well as the decrease in the volumes of geological exploration
that went down to match the last-century 70ies. This poses a midterm threat to
the stability of supplies within the European Union. The Norwegian authorities
are planning to ban the drilling of wells and exploration of oil and gas in the
most vulnerable areas of the Arctic for four years. This means that the oil and
gas industry in Europe will not gain access to any new promising deposits over
the coming years.
In these
circumstances, the increase of demand for imported gas is only natural. In
2017, the gross imports of gas to the European market increased by 24 billion
cubic meters (8.3%) and rose beyond 300 billion cubic meters – for the first
time in history. Simultaneously, the imports from Algeria to Europe decreased
by 1.6 billion cubic meters (-3.1%) with the reduction of LNG supplies by 0.6
billion cubic meters (4.0%). The export of LNG from Qatar to Europe decreased
slightly (-0.1 billion cubic meters or -0.4%), due to (among other things) the
increase in the volume of supplies to the premium markets in Asia and Latin
America.
New Europe: How does that affect the Russian
production?
Igor
Yusufov: Gas supplies from Russia are stable – Gazprom has maintained its share
of gas imports by the European Union and continues to demonstrate stability in
the market where it has traditionally been active. I would also like to note
the implementation of the Russian “Yamal LNG” project – in 2017, the first two
tankers got loaded and set off for the markets of Great Britain and the
Netherlands. In 2018, this work continues. The strategic importance of Russia’s
gas victory in the Arctic has been repeatedly noted by Western partners. In
general, the LNG imports by Europe increased by 16.5% – up to to 65 billion
cubic meters – compared to 2016. A number of experts predict the growth of the
Russian LNG share by not less than a third by the year of 2035, which is up to
41% in consumption or 393 – 459 billion cubic meters per year.
Last year,
the LNG supplies from the United States amounted to 2.6 billion cubic meters.
There also were quite modest (in terms of volumes) deliveries from a number of
countries in Africa and South America. The incomparability of supply volumes
from different regions is too obvious. Even if the supply of LNG from the U.S.
may meet (to some extent) the needs of small markets in the Baltics, then for
Germany, Italy, Great Britain or France that traditionally account for the main
volumes of Russian gas export, there will be not enough American gas, and the
increase of its supply volume will be inexcusably expensive for the European
consumer. By the way, harsh American winters and the growing consumption in the
domestic markets of the USA and Canada do not allow for the rapid increase in
the volume of LNG exports. High costs of logistics and low capacity of
transport system are the limitations that make the supplies of American gas to
Europe quite difficult; therefore, such supplies are of no essential threat to
Russia’s gas presence in Western European markets.
New Europe: Would you say that Europe is too
dependent on Russian energy supplies?
Igor
Yusufov: For several decades Europe has remained a region that felt more
convenient and rational to be served by the Russian gas industry. The
flexibility of supply routes is increasing every year. From the point of view
of pricing policy, Russian gas is also available and worth its money, for
Gazprom offers its partners such favorable prices and terms of cooperation that
refusing them doesn’t make sense. There simply doesn’t exist any serious
competition with other suppliers in this sphere. All these facts testify to the
unified technological chain and mutual interest shared by the European economy
and Russian gas.
In this
context, the statements on the lack of alternatives for Europe in terms of
Russian gas supplies, voiced by Gazprom’s leaders, appear to be logical and
justified. I, however, would want to access the situation from another
perspective: whether Russia is able to cover the growing demand in view of the
gas consumption and imports increase by Europe will depend on the position that
all parties will agree on with regard to the TurkStream and Nord Stream-2
pipelines construction.
Russia is
interested in mutually beneficial cooperation and wishes to attract
international investments in order to implement its large-scale joint energy
projects in oil and gas industry. These projects are important for the efficient
economic development of market participants – for both consumers and suppliers.
We have a saying in Russia: “One body is nobody” or “One man in a field is no
warrior.” And in this situation, I expect that European politicians, financiers
and gas businessmen shall take most careful decisions and support our joint
infrastructure projects that are significant energy-wise.
https://www.neweurope.eu/article/is-europe-too-dependent-on-russian-energy-supplies/