PETROANALYSIS || ARTICLE
Global LNG positive for EU security of supply
In 2016, around 76% of extra-European Union gas imports came from just two countries, Russia and Norway; a further 13% arrived in the form of LNG; and the remaining 11% came from Algeria and Libya. (1)
In 2013, Russia accounted for 39% of the European Union’ natural gas imports. Norway, which is not a member of the European Union but associated with it through its membership of the European Economic Area (EEA), is the world’s third largest exporter of oil and gas after Saudi Arabia and Russia, and in 2012, accounted for about 31% of all the EU’s natural gas imports and 11% of the EU’s crude oil imports. OPEC provided the EU with around 40% of its total crude oil imports, Saudi Arabia, Libya, and Nigeria being the largest individual suppliers, each having delivered over 8% of the EU’s total oil imports in 2012. (2)
Domestic consumption of gas in Norway is low, and nearly all the gas produced is exported and sold on the European market. An extensive network of subsea pipelines links Norway’s offshore gas fields and onshore terminals directly to other recipient countries in Europe. In addition, liquefied natural gas (LNG) is shipped out from the Snøhvit field off Hammerfest on LNG carriers.
Most Norwegian gas for the European market is delivered to Germany, the UK, Belgium and France, where Norwegian gas accounts for between 20 and 40 % of total gas consumption, and making an important contribution to energy security in Europe. (3)
The extent of Russian gas pipelines to Europe can be appreciated in the map below. The newest project, however, Nord Stream 2, which links Russia and Germany via the Baltic Sea has encountered opposition from a number of eastern European states. Critics say it will increase dependence on Russia and enrich its state-owned energy firms, at a time when Moscow stands accused of undermining European security.
The $11 billion, 1,225-kilometer pipeline is on schedule for completion next year. It is a private project backed by Russian state-owned Gazprom and five energy companies from Germany, France, Britain and the Netherlands. It also has the strong backing of the German and Russian governments. (4) In the same map can be seen the gas pipelines linking North Africa to the EU.
Picking up on the question of security, European Commissioner Miguel Arias Cañete speaking at the 4th EU Energy Summit “International geopolitical uncertainties: brakes or accelerators for the EU energy transition?” held in April of this year, indicated that the European Union was heavily dependent on fossil fuels and that this dependence would only decrease gradually.
Significant progress with respect to renewable energy and energy efficiency had been made, but coal, gas and oil together accounted for some 72% of the EU’s primary energy consumption in 2016, import levels being around 88% of the oil used, 70% of the natural gas, and 40% of solid fuels.
Future scenarios, according to Arias, show that the EU will be producing less of these fossil fuels within the Union, meaning that while overall consumption of fossil fuels will be reduced over time, the level of fossil fuel imports required to meet the EU’s needs will not decline at the same pace.
Looking at this energy import dependency, he considered that it was clear that the main challenge for the EU was in the natural gas sector since both the oil and coal markets are global, with multiple suppliers and flexible, multiple options for transportation.
The key to this over the medium to longer term, for him, would be to reduce the overall dependence of the EU economies on imported hydrocarbons with an increasingly diversified range of suppliers that price the energy competitively, in particular with respect to natural gas.
Looking at the short term geopolitical and energy situation, Arias added that it was clear that Russia would remain a key energy supplier for the EU, but what was important would be to ensure that Russian energy supplies into Europe were subject to competitive pressures from the existence of other suppliers able to compete anywhere across the EU market. This would ensure that the continued role of Russia as one of the EU’s main energy providers would not come at the expense of EU energy security and resilience, nor would it lead to excessive prices.
Arias considered that these developments would add to the rapid expansion of the LNG market that is already contributing to EU security of supply. And better access to LNG could reinforce EU energy resilience by enhancing supply optionality and flexibility, by allowing the EU to draw upon a global rather than just a regional supply of gas.
He noted that the appearance of the US as a major energy exporter on the global market is an important development, and stated: “we believe that we have an attractive, large and competitive market that can attract more US companies to actively compete with their gas on our market.” (5)
1) and 5) Speech by Commissioner Miguel Arias Cañete at the 4th EU Energy Summit: “International geopolitical uncertainties: brakes or accelerators for the EU energy transition?” Brussels, 12th April 2018. https://ec.europa.eu/energy/en/news/speech-commissioner-miguel-arias-ca%C3%B1ete-4th-eu-energy-summit-international-geopolitical
2) “Supplier countries – European Commission” https://ec.europa.eu/energy/en/topics/imports-and-secure-supplies/supplier-countries
3) “Gas exports from the Norwegian shelf.” April 5th 2018. https://www.regjeringen.no/en/topics/energy/oil-and-gas/Gas-exports-from-the-Norwegian-shelf/id766092/
4) “Europe Split on Nord Stream 2 Pipeline as US Warns Against Dependence on Russian Gas.” March 8th 2018. https://www.voanews.com/a/europe-nord-stream-2-russian-gas/4285576.html