Globe & Mail (Canada): Europe fears dependence on Russian gas: “The pipeline, to be built by Gazprom for $5-billion (U.S.), was championed by Gerhard Schroeder, who was Germany's chancellor until last year. Mr. Schroeder signed a deal to build the pipeline last year, shortly before he was voted out of office; he has since been appointed by Russian President Vladimir Putin to head the project.”: Monday 9 January 2006

By DOUG SAUNDERS

There was a shell-shocked mood in Europe this weekend as governments realized how dependent their economies have become on a very unreliable commodity: natural gas supplied by Russia's energy monopoly OAO Gazprom.

While the dispute between Russia and Ukraine that shut off Europe's gas supplies for several days was patched up with a complex deal last week, the repercussions are still being felt as countries and major industries realize that much of the continent's energy depends on a single, unreliable supplier.

“This situation with the Ukraine was quite tremendous, and the government energy discussions started immediately after it was over,” said Klaudia Kemfert, an energy-policy specialist at Humboldt University in Berlin. “We have suddenly realized that we are highly reliant on a single supplier, which is never good in any sector but is particularly dangerous with energy.”

Germany, like most other Western and Central European countries, gets 30 per cent of its energy from Russia. But this proportion is set to increase dramatically with the construction of the Baltic Sea pipeline, which Ms. Kemfert said will increase Germany's dependence on Russian energy to 70 per cent by 2025.

The pipeline, to be built by Gazprom for $5-billion (U.S.), was championed by Gerhard Schroeder, who was Germany's chancellor until last year. Mr. Schroeder signed a deal to build the pipeline last year, shortly before he was voted out of office; he has since been appointed by Russian President Vladimir Putin to head the project.

Germany's worries were reflected across Europe this weekend. The EU as a whole gets 25 per cent of its energy from Russia; only Northern European nations and Britain are largely free from Gazprom's supplies.

Franco Bernabe, who recently finished a term as head of Italy's energy agency ENI, said that Europe needs to build many more shipping terminals for liquefied natural gas (LNG) to diversify its energy imports.

“Yes, the [terminals] are essential,” he said. “In the next 10 years, the liquefied gas market will develop very much, with the emergence of new players: Qatar, Trinidad, Nigeria, Iran, Indonesia. It will be a much more dynamic sector than the one we know today.”

Ms. Kemfert, in Berlin, said that a robust LNG import system would reduce not only dependence but also prices, since Russia, the world's largest gas producer, has tapped out its most readily accessible reserves and now must draw on more remote, northern supplies.

“It will keep getting more expensive. And the shipping cost through the Baltic pipeline will make it much more expensive than LNG, even if it comes from across the Atlantic.”

On Saturday, EU commissioner Andris Piebalgs said he is developing a “European concept” in which the EU would increase its gas reserves vastly, allowing each of its 25 member countries to have a two-month supply. Currently, Germany claims a 75-day supply but Italy's reserves are only 15 days and most countries are even less.

He also said the EU's policies will have to shift toward developing a European energy supply, investing in the continent's coal, nuclear and sustainable-energy options.

“As long as we spend more and more on energy, we will be getting more and more dependent,” he told reporters. “We should be looking more at the energy sources we have in the European Union.”

But other observers were less optimistic about the likelihood of Europe breaking free from Gazprom's clutches. Wulf Bernotat, chief executive officer of the German energy firm E.ON AG, said in an interview to be published Monday in the German weekly Spiegel that Europe's 450 million people are very unlikely to become less reliant on Russian supplies.

“We simply have to accept that Russia holds the world's largest gas reserves,” he said.

But he added that it is very unlikely that Russia could jeopardize Europe the way it did Ukraine last week, because Russians need European consumers even more than Europe needs Russia's supplies.

“About one third of the Russian gas production is exported, and only with this third Gazprom makes any money. The rest of the gas is sold well below market prices on its home market.”

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