March 16, 2014 (TSR) – Europe will have trouble weaning itself off Russian natural gas, analysts say, as it faces declining production at home and Asian competition for supplies.
Even before the current flare up of tensions with Russia over its possible annexation of Ukraine‘s Crimea peninsula, Europe has been trying to reduce its dependence on Russian supplies, Alalam reported.
The diversification effort has been bearing fruit: imports of Russian natural gas fell from 45.1 percent of the EU’s total to 31.9 percent over a decade to 2012, according to data from the EU’s statistics agency, Eurostat.
Europe has reduced somewhat its dependence on Russian gas, even if Gazprom remains a key actor in Europe,” said Pascale Jean, a natural gas specialist at PriceWaterhouseCoopers.
However the Russian gas giant Gazprom has made no secret it aims to claw back its market share, having built a new pipeline to Germany and a second one under construction to southern Europe.
The share of Russian gas in European imports climbed last year, and its share in total consumption has remained relatively stable over the past decade at just under a quarter.
However, EU production which currently covers a third of consumption, is expected to fall by up to 20 percent by 2020 and up to 30 percent by 2030.
“It is likely that the share of Russian natural gas in Europe will increase further in the coming years, whether we like it, or not,” said Tim Boersna, an energy specialist and Brookings Institute in Washington.
British North Sea output has already begun to fall and that of the Netherland’s is also expected to do so soon. Production in nearby suppliers like Algeria is also on the decline.
Boersna said “the market will increasingly dictate that Russian natural gas supplies will fill this supply gap.”
The European gas market finds itself today at a crossroads following two unexpected events which have shaken up the energy market: the US shale gas boom and the Fukushima nuclear disaster.
With Japan shutting down all its nuclear reactors, Asia’s already rising demand for natural gas has jumped, particularly for liquefied natural gas (LNG).
This has caught the attention of gas producers, in particular the Qataris, who have shifted attention from Europe to a fast-growing and more lucrative Asian market.
The terrorist attack on an Algerian gas plant last year and frequent stops in shipments via the Libyan-Italy pipeline has cast a shadow over North African supplies.
“Luckily for Russia, the thirst for LNG in Asia means that additional LNG supply is largely absorbed by the Pacific basin, leaving little incremental LNG supply available to Europe.”
The EU has long looked to tap into Caspian Sea gas supplies, but progress has been slow.