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How Europe can kick its Russian gas habit

As Putin turns up the heat, Europe seeks alternatives to Moscow’s cheap energy.

Gas 04 11 2014Enlarge
A German facility for Russian natural gas. Giving it up won't be easy. (Sean Gallup/Getty Images)

SINES, Portugal — This port on the Atlantic coast is just about as far from Russia as you can get on the European mainland.

But this pretty little town where explorer Vasco da Gama was born five and a half centuries ago could soon be on the frontline of a battle to break Europe's dependence on Russian energy exports.

Just south of the picturesque fishing harbor stand three squat concrete cylinders girdled by blue and yellow pipes. Each is capable of holding more than 120,000 cubic meters of liquified natural gas. None of it comes from Russia.

"We've got capacity in the Iberian peninsula that's sufficient to significantly supply the rest of Europe from the south," says Paulo Furtado, regulation manager at Portugal's energy network company REN.

"We are an important back-up, an alternative source of gas in case of emergency."

The 28 countries of the European Union rely on Russia for 30 percent of the natural gas they use to heat homes, cook meals and power industry. For some, including Finland, Bulgaria and Latvia, it's closer to 100 percent.

Europe's addiction to cheap Russian gas gives Moscow a powerful tool in the standoff with Western countries over Ukraine.

That was more than clear on Thursday, when Russian President Vladimir Putin threatened to cut off gas to Ukraine. Since most of Europe's supplies from Russia flow through Ukrainian pipelines, EU leaders are painfully aware that means a real risk to their own deliveries.

They have tasked EU headquarters with drawing up plans to manage risks from a sudden cut and reduce their economies' long-term reliance on a single supplier they no longer trust.

Alternatives are out there, but none are cheap and all are likely to require a rare level of unity and political will from European governments.

The search has global implications, involving factors as diverse as Japan's post-Fukushima nuclear policy, prospects of a thaw in the West's relations with Iran, China's belated drive to clean up the air over its cites, and the cheap energy boom that has renewed the competitive edge of American industry.

In the short term, the weather would cushion any interruption of Russian gas exports.

Unlike in 2009, when several countries shivered through a Russia-Ukraine dispute that cut gas supplies for two weeks, the current threats come as spring follows an exceptionally mild European winter.

EU members have more than 37 billion cubic meters of gas in storage — enough to keep the bloc going for several weeks.

"In the very short term, the impact would be very limited until probably the beginning of the coming winter," says Georg Zachmann, an energy specialist at Bruegel, a think-tank in Brussels.

"Demand in the summer is typically around one-third or one-quarter of winter demand and in almost all EU member states, that could be satisfied from other sources," he said in a telephone interview. "The question is how do we get the storages filled when there’s no Russian gas coming in?"

Zachmann published a estimate last month suggesting that the EU could import an extra 43 billion cubic meters by pipeline from Norway and North Africa together with more shipped in from further afield using liquified natural gas terminals such as Sines.

Combined with increased domestic production from gas fields in the Netherlands, households cutting consumption, and a switch to other power sources such as oil or coal for heating and industry, the report concludes that Europe could wean itself off Russian gas this year.

However, no one is pretending it would be easy or cheap.

In North Africa, Libyan supplies are threatened by unrest and Algeria needs more of its gas for internal use. Norway's reserves are limited and there's environmental opposition to stepping up production in Netherlands.

Using oil for heating and power is twice as expensive as natural gas, hardly popular as Europe struggles out of recession. Oil and coal are dirtier fuels. Increasing coal use is already threatening EU targets for fighting global warming.

"We will have to deal with political considerations, but if gas supplies are stopped in Europe, we will be in a different political situation," Zachmann says. "Then things will become feasible that you can’t think of in normal conditions."

Many are looking to liquified natural gas (LNG).

It's made by super-cooling natural gas into a liquid that takes up 600 times less