Power and profitability: Europe's gas security dilemma

By Ben Nimmo Jun 13, 2007, 16:46 GMT

Riga - The sheer scale of the energy dilemma facing Europe became clear in Riga on Wednesday as experts from around the world discussed the issue of natural-gas security.

'Diversity and security of energy supplies are vital ... When national security is at stake, no costs are too high,' EU Energy Commissioner Andris Piebalgs told the Baltic Regional Energy Forum.

'It's only possible for us to receive gas from Russia. If we made new long-distance connections anywhere else, the costs would be not so cheap,' retorted Latvia's Economics Minister Jurijs Strods.

Ever since Russia's gas monopolist, Gazprom, cut supplies to Ukraine during a pricing dispute in January 2006, debate has raged over the best way to ensure gas security in Europe.

According to Gazprom's figures, the company supplies almost a third of Europe's gas imports. In much of Eastern Europe - including Finland, the Baltic states and Poland - it is the sole supplier.

In the wake of the Ukrainian crisis, politicians from across Europe and beyond called for an urgent review of this situation.

'One of our main strategic goals is to minimize our dependence on monopolistic energy suppliers, so diversification is a priority,' Lithuanian Prime Minister Gediminas Kirkilas said.

'Everyone's national security is best served when markets are allowed to function. Right now, Europe's gas supply is a dysfunctional system,' added Matthew Bryza, of the US State Department's bureau of European and Eurasian affairs.

Gazprom and its subsidiaries - such as Latvian gas monopolist Latvijas Gaze (LG), which it part-owns - have since fought hard to restore the company's image as a reliable energy supplier.

Gazprom has stressed its 2005 agreement with German firms Eon and BASF to lay a gas pipeline, known as Nord Stream, direct from Russia to Germany, saying it would boost Europe's energy security.

'Nord Stream is an element for economic growth and the creation of employment,' Nord Stream lawyer Dr Barbara Kallnik said.

And LG has proposed expanding its network of underground gas storage facilities, saying that the move would create a strategic gas reserve to buffer the EU against any future cutoffs.

'We think that Europe has to remember the huge potential of Latvia's underground gas stores, and make use of them,' said the head of LG's international division, Dr. Andra Jesinska.

But opponents of the two schemes said that neither one would address the fundamental problem of supply diversity, since both rely solely on Gazprom for their gas supplies.

'You can say your primary supplier has been reliable, but why would you want to leave your countries in this situation? We need to generate more competition in gas supplies to Europe,' Bryza said.

Indeed, the EU is already backing a series of schemes to pipe natural gas from Azerbaijan to the EU. The first link, to Turkey, was opened last July, and more are expected in the coming years.

But those plans are likely to prove cold comfort to the EU's northern members. With North Sea gas running out, their nearest alternative supplies lie in Central Asia, putting the construction of new pipelines far out of the reach of local energy firms.

'It would simply not be economically viable for us to obtain gas from any other source than Russia,' Jesinska said.

'Of course we don't have an alternative to getting gas from Russia. We need to be ready to run on other fuels,' added Anicetas Ignotas, secretary of state at the Lithuanian economics ministry.

With economic logic and security needs apparently pointing in opposite directions, the only way for Europe to escape from its gas dilemma seems to be not to use gas at all.