x Abu Dhabi, UAEThursday 27 July 2017

Europe should take a stand against Russia over energy

Europe's natural gas troubles are reminiscent of 2009, when supplies to Eastern Europe were interrupted. But this time, the cause of the shortages seems to be Gazprom, writes Robin Mills.

Russian gas exports dropped by 15 per cent as its own consumption soared in the cold weather. Dmitry Beliakov / Bloomberg News
Russian gas exports dropped by 15 per cent as its own consumption soared in the cold weather. Dmitry Beliakov / Bloomberg News

Heavy snow has fallen in Rome for the first time in a quarter century. Venice's canals have begun to freeze. Temperatures have plunged as low as minus 32°C in Ukraine. Across Europe, more than 150 people have died.

Russian gas exports dropped by 15 per cent as the country's consumption soared in the cold weather. Deliveries to some countries, including Austria and Bulgaria, have been reduced by as much as 30 per cent, and Russia accused transit country Ukraine of siphoning off more gas than it was entitled to take.

This is reminiscent of 2009, when supplies to Eastern Europe were interrupted for more than two weeks over a pricing dispute. But this time, the cause of the shortages seems to be the incapacity of the Russian gas monopoly Gazprom to serve both its domestic and international customers.

The US, where "energy independence" has long been a populist rallying cry, has developed its own shale gas resources to the verge of becoming a major exporter. In the EU, the possibility of shale-gas development has been met with opposition from environmentalists, lukewarm enthusiasm at best from politicians, and behind-the-scenes obstructionism from big companies that stand to lose.

In 2010, Alexander Medvedev, the director general of Gazprom, said in London, "Not every housewife is aware of the environmental consequences of the use of shale gas. I don't know who would take the risk of endangering drinking water reservoirs."

In the fastest legislation since the communist period, Bulgaria voted, allegedly under Gazprom pressure, to ban hydraulic fracturing, or "fracking", an essential part of releasing the gas from shale rocks.

New Russian pipelines to Europe have as partners some of the biggest German, Italian and French gas incumbents. France, which banned fracking in June, has the added complication of a strong nuclear lobby, also threatened by cheap gas.

Europe needs to take decisive action. Its leaders should drop any illusions they may have about the ruthless, cynical, calculating men in the Kremlin. It must deal with them from a position of unity and strength, not succumb to the temptation to strike side deals.

Above all, it should realise that Russia is even more dependent on Europe - for gas revenues - than vice versa. Given the distances and vast costs, threats of diverting significant amounts of Russian gas to China are hollow.

Dismantling Europe's own gas oligopolies, too friendly with Moscow, and establishing liquid, flexible markets needs to continue. Better interconnections in Eastern Europe would ensure that local shortages can be balanced from elsewhere, and reduce Russia's ability to pressurise selected countries.

Alternative supplies should be pursued more robustly. One of the EU's greatest energy security gains has come accidentally, via the great expansion of Qatari gas exports and their diversion from the US.

Supporting fledgling democracy in Libya has the valuable side benefit of securing an important potential secondary gas supplier.

Europe's cooling relations with Ankara, inspired by growing introspection and a touch of xenophobia, ignore Turkey's importance as a transit state for Caspian and Middle Eastern gas. Turkey is also a leading player in Iraq. Resolving the tussles over the new hydrocarbon law and the disputes between the Kurdish authorities and Baghdad would allow Iraqi gas to begin flowing north.

Finally, Europeans need to develop their indigenous gas resources, with proper environmental controls - not fall prey to scare stories propounded by those with their own interests at heart. That is the way to avoid freezing in the dark.

Robin Mills is the head of consulting at Manaar Energy, and the author of The Myth of the Oil Crisis and Capturing Carbon