Putin a sock in it – the consequences of Crimea on European energy

Putin’s hasty actions in Crimea have had all sorts of consequences. Ranging from geopolitical to economic. However in this post we will address one of the questions raised regarding energy, what if as revenge for sanctions Putin decides to turn off the gas?

Figure 1: Gas workers in Russia

Russia is Europe’s largest gas import partners, providing some 140 billion m2 of natural gas per year, about 100 mtoe or 5 trillon cfg. This represents roughly 39% of total European gas imports. And this is just the overall picture, some European countries get 100% of their gas via Russia.

Figure 2: Europe’s sources of natural gas [Credit: BBC and BP, 2006]

It should be noted, that contrary to what the tabloids would have you believe, the UK receives only limited amounts of its gas directly from Russia (at the moment anyway, but that could change radically in future, given recent government policy). The bulk of UK gas supply comes from the North Sea or is imported in via Norway. So in theory the UK would not see many gas shortages. Of course, given that the other EU states would start buying up any gas they could, this would send prices in the UK soaring. So rather than the lights going out or the gas going off, one can see Brit’s being forced to turn them off themselves to save money!

Figure 3: Dependence of Russian Gas by European country [Credit: Nasdaq.com, 2011]

American Shale gas as a solution?
Inevitably the propagandists for Shale gas have proposed exports from the US as a solution. However, the problem with this proposal, is that much of these plans are based on hype rather than facts. For example, as I discussed in a prior post, the US is not a net natural gas exporter, shale gas accounts for only about 35% of American gas production and they still need to import substantial quantities of gas from Mexico and Canada (Americans often forget that these are independent countries!).

Shale gas production might also be on the verge of peaking (certainly some individual fields are in decline, but others are still expanding in output). Although the EIA still seems to believe there is some growth potential in US gas production before any peak (although that just means a steeper decline rate afterwards!), as figure 4 demonstrates.

Figure 4: Shale Gas production in the US past and possible future [Source: EIA.gov, 2012]

Certainly, North America as a region could become a potential exporter of gas (both shale gas and conventional gas). The large historical difference in price between gas in the US and the EU means the idea of exporting gas across the Atlantic isn’t anything new, but one has to highlight the logistics involved here.

Consider that the largest class of LNG transporters has a capacity of about 160 million m2 of natural gas (at atmospheric before/after liquidation). You would therefore need 875 such deliveries a year to replace Russian gas imports (about 100-120 such ships arriving per month during peak demand times such as winter). This is well beyond the limits of what any existing or planned LNG facilities could support either side of the Atlantic (and that ignores where the gas is going to come from!).

Figure 5: LNG Tanker, Japan. Is swapping a pipeline for this really a proposition? [Source: Sustainable John]

So this isn’t really a solution that one can string together in the short term. It would require long term planning both sides of the Atlantic (and a substantial order for a large fleet of LNG tankers!), and obviously that would mean an assurance of where the gas to fill these ships was going to come from. Otherwise this proposal is little more than a giant Ponzi scheme.

Indeed, just before Christmas, Shell pulled out of their plans for an LNG export terminal in the US, which could be interpreted as a signal that they doubt the long term viability of any such projects.

And of course, we need to consider what the effect of these exports will be within the US. Gas prices are low in the US, as I discussed in a prior post, due to the fact that producers are often left with no choice but to effectively dump their product and sell it off cheap. Inevitably once we start connecting up the European and American gas markets, prices in the US will rise significantly. One has to wonder who long before the novelty factor of being a gas exporter will wear off for American voters after they see those utility bills rocket.

British Shale gas?
Inevitably the supporters of fracking in the UK have also taken the opportunity to rally around support for shale gas as a possible solution. However, as I discussed before, the likely output of fracking within the UK is not likely to be very large, certainly not enough to even meet domestic supply, nevermind the demands from the rest of Europe. And consider the timing here, it took the US 25 years to get where they are with Shale gas. All in all, it will be case with British or European Shale gas of too little too late.

Also one has to not forget about climate change. Shale gas isn’t the greenest of energy sources. There is still a big question mark over the life cycle carbon emissions from it and getting addicted to shale gas could be creating problems for ourselves, come the next round of climate talks. As any long term climate change mitigation policy will almost certainly require a rapid curbing of the dirtier unconventional fossil fuels alongside coal.

Alternative sources of natural gas

Figure 6: An alternative pipeline route into Europe travels via Turkey [Credit: BBC News, 2008]

It’s worth remembering that Russia isn’t the only source of European gas imports. There are large quantities of gas that could be imported from Africa, the Middle East or the Caspian Sea region, if only the pipeline network existed to allow such imports. Indeed much of what we call “Russian gas” is actually merely Uzbek, Kazak or Turkmen gas that is passing through Russia.

An alternative to the pipeline routes via Russia, or LNG shipments from the Persian Gulf is to pipe gas across Turkey and Eastern Europe directly from these regions. This would greatly increase the available quantities of gas to Europe. Similarly an expansion of pipelines across the Mediterranean, would allow greater quantities of gas imports, from producers in Algeria and Libya, to reach the European market.

However, one has to consider whether regimes such as those in Uzbekistan, Turkminstan or Algeria are any more reliable partners than Putin’s Russia. And again, these are long term projects, not something that could be knocked up overnight.

Nuclear?
And inevitably the propagandists for nuclear, always looking for an excuse, have waded in suggesting nuclear power as a solution. Again, as I discussed in a prior post, nuclear power in the UK (and many other EU countries) is going to struggle to replace its existing nuclear capacity before the present generation of reactors are decommissioned, nevermind expanding it.

Figure 7: Nuclear and Fossil fuels both do very different things on the Grid, as in this example for Japan [Source: WSJ, 2011 based on EIA data]

Also it’s worth remembering what it is that nuclear does for the UK energy grid and what we use natural gas for are very different things. Nuclear power is generally used for baseload electricity. Natural gas is used for peaking power and winter heating loads. Its simply not practical nor economic to try and meet these energy demands with nuclear energy. Not least when you consider the practical implications of trying to do that.

Renewables?
Renewables can certainly help. Unlike nuclear, the installation rate of these is rapidly expanding and prices are falling. Certain types of renewable energy, notably biofuels, hydroelectricity or solar thermal are an ideal replacement for natural gas.

However, other forms of renewables, such as PV and wind power come with the same problems of nuclear (although cheaper), they are not an ideal match replacement for natural gas and switching to them as an alternative would require some major infrastructure projects, notably to increase the country’s ability to store energy. We could also look at converting the UK’s natural gas grid to run on hydrogen, however that would be a long term project, so as with the other options not a short term solution.

Figure 8: Biogas production from renewable energy [Credit: Sterner, 2009]

Energy Conservation
Certainly in the short term, energy conservation should be the priority. A substantial cut in European energy consumption, for a continent dependent on natural gas, could reduce or eliminate the need for imports altogether.

Figure 9: A breakdown of UK final energy consumption based on DECC figures, a sizable portion of the UK’s energy consumption is winter heating of (badly insulated) homes, often using natural gas [Sources, DECC 2010 & DUKES 2011]

Probably the key area is housing. As I mentioned in a prior post, building related heating is a larger contributor to the UK’s carbon emissions than practically anything else. And much of that is fuelled by natural gas. So simply lagging lofts, insulating homes better, passing legislation to ensure new homes are zero carbon or passivhaus standard would greatly reduce the UK’s gas demand. Possibly to the point where they could easily be met, firstly by domestic gas supplies and later by expanding renewable energy capacity. And that capacity could be increased by copying some of the ideas from Germany for mandatory building integrated renewables in all new homes.

I told you so
Regular readers to this blog might be keen to point out, hang on, hasn’t the government committed to cutting the money it spends on energy conservation? Or, aren’t they cutting the subsidies for renewables? And unfortunately, you’d be right…..

….As I mentioned many times before, the Tory government have effectively painted themselves into a corner by committing to a policy that amounts to a new dash for gas, without clarifying exactly where the gas was going to come from. I questioned at the time of the latest “energy bill”the sensibility of this strategy. As Damian Carrington of the Guardian put it at the time, what the Tories were doing was effectively making a £200 billion bet that what happened in Crimea the other month won’t happen….well it did!

Figure 10: Spot the Donkey!

So unfortunately, there are no short term solutions here, no quick fixes. As always when it comes to energy, it amounts to a need for a long term energy strategy. This should look at diversification of energy resources. Certainly a Europe dependant on gas coming from Russia alone is just asking for trouble. But equally a Europe dependant on shale gas from the US or anywhere else for that matter, doesn’t sound any better. More renewable energy, greater energy conservation and a long term plan to get off fossil fuels is the only answer.