European Natural Gas — Renewables Balance: Geostrategic Imperative
Energy Transition and Decarbonisation
The transition from fossil-based to zero-carbon energy is underway. The world is moving towards a balance of primarily solar and wind power plus natural gas. The International Energy Agency [IEA] believe that by 2025 coal and gas will account for roughly 2 TW each with solar, wind and hydro power accounting for 4 TW. Most industry commentators expect coal use to eventually reduce more rapidly, but it seems likely that natural gas will play a substantial role in the global energy mix for some time.
Energy decarbonisation requires action on a global scale to reduce greenhouse gas emissions, which in 2050 will have to be 40 to 70% lower than they were in 2010, to keep warming under the 2°C threshold agreed at the 2009 Copenhagen climate meeting. Accelerated renewable energy growth, transport electrification, energy-saving and efficiency and carbon neutral infrastructure can achieve 90% of the required emission reductions.
An Irena European 2030 target (REMAp) for 50% of energy to be supplied by renewables includes 20% each from nuclear power, natural gas plus “others” and coal use reducing to below 10%. Shell’s “below 2 degrees” conservative scenario shows peak gas use occurring between 2025 and 2030.
Global Reserves and European Imports
Most of the world’s natural gas reserves (193.5 Tcm) are contained within just 10 countries (~83%). Russia (18%), Iran (17%), Qatar (13%) and Turkmenistan (10%) hold 58%. Russia has the largest reserves, with 38.9 Tcm (20%) and is the 2nd largest producer after the US with 640 Bcm pa. The Russian economy depends heavily on oil and gas, which provides ~40% of federal revenues. This is a tremendous incentive to use gas exports as a politically coercive foreign policy tool.
Historically, European gas imports were via the Soviet era pipeline network across Belarus and Ukraine, which provided 43% of European gas (~200 Bcm) in 2018, followed by Norway (34%) and imported LNG (12%) [Tcm = Trillion m3: Bcm = Billion m3]
By mid-2019 ~90% of Russian exports to Europe flowed via Nord Stream 1, completed at the end of 2012 and the trans-Belarus/Ukraine pipelines, which in 2018 operated at 107%, 92% and 65% capacity. The remainder was transported via the subsea Black Sea Blue Stream (16 Bcm pa), installed in 2003, which allowed some diversification in Russian export capacity into Europe.
Collectively, these Russian operated/influenced pipelines and newly built LNG projects offer Moscow tremendous political influence. In 2009, Russia used its Gazprom owned pipelines to apply pressure on Europe and Ukraine. Although Europe weathered the crisis, Russia struck again in January 2015, with a Nord Stream 1 export cut compensated by Norwegian gas, resulting in a loss of $5.5 billion in Gazprom revenue and fines of $400 million. Europe was able to make a political point, but Norwegian bailouts will not be feasible over the long term.
Ukrainian Pipeline Decommissioning
Politics, not geography, guides the future of Europe’s energy supply. According to Gazprom’s “optimisation program”, most of the 146 Bcm pa pipelines and associated infrastructure crossing Ukraine will be decommissioned,. Three compressor stations were shut down in 2018 and 4,160 Km of pipeline and 62 additional compressors will be closed.
Gas transit fees are vitally important for Ukraine. There had been some concern in Ukraine and Europe, given the previous tense political relations and legal disputes that eventually perhaps only 10 -15 Bcm pa of working capacity could remain. However at the end of 2019 agreement with Russia was reached, with a form of pragmatism prevailing. Gas volumes that Gazprom will send across Ukraine have been guaranteed, at 65 Bcm for 2020, falling to 40 Bcm for 2021 to 2024. Naftogaz will waive its claims to the 2009 contract between the companies as will Gazprom, which could put an end to the legal saga that has been dragging for years, when Naftogaz accused Gazprom of failing to supply agreed volumes while Gazprom accused Naftogaz of not paying for the gas received.
Doubling Nord Stream [NS] capacity to 110 Bcm pa by commissioning NS 2 will provide leverage to Russia by switching exports permanently outside Ukraine. making Kiev highly vulnerable to Russian coercion. It is not difficult to see that Russia is bypassing Ukraine in favour of direct access to European,and particularly German markets. Despite reaching a point where NS2 is almost complete,
In addition, pipelines across the Black Sea and those further south, including some under construction or planned, are likely to solidify Russian standing in Turkey and the Middle East even further.
Russian and Qatari Liquified Natural Gas [LNG]
European LNG imports are mostly from Qatar, Algeria and Nigeria. Russia is planning for a 15–20 % share of the global market by 2025. It would be challenging for 30 to 40% more costly US LNG to counter Russia’s intended Siberian exports. Russia’s second major LNG project, the three train Arctic Yamal LNG will eventually consist of four LNG trains producing 29 Bcm pa The $27 billion project is owned by Novatek (50.1%), CNPC) (20%), Total (20%), and the Chinese Silk Road Fund (9.9%), financed primarily by Chinese banks. The first shipment to the UK was using the 170k m3 (equivalent to 0.1 Bcm) Christophe de Margerie Arc 7 vessel on 28th December 2017. Importing the equivalent of the 55 Bcm pa Nord Stream 2 pipeline into Europe would require 15–20 vessels per week
In addition, a 2005 Qatari moratorium on further LNG development was lifted in April 2017. Major announcements made in 2019 about the North Field Expansion [NFE] project included new jack-up drilling rigs, four new LNG trains and a shipbuilding campaign to deliver 60 new LNG carriers, to expand production from 105 to 172 Bcm pa by 2024. This suggests a strategic decision to ship the majority of Qatar North LNG through the Persian Gulf southwards to SE Asia in the future.
Filling the European Natural Gas Supply Gap
Russia’s strategy starves Ukraine and Slovakia of much needed transit fees and some degree of political independence. This could leave Europe more directly dependent on Russia to fill their gas gap, reducing trans-Ukraine pipeline flows to perhaps less than 10–20% of past capacity and solidifying Russian standing in Turkey and the Middle East.
With EU/Norwegian domestic production estimated to fall to 150 billion cubic meters (Bcm) annually by 2030 and consumption rates estimated at up to 510 Bcm annually — a 2010 figure — about 80% (360 Bcm annually) of EU imports could be Russian controlled or influenced by 2025.
These numbers are not favourable for Europe, which intends to meet some of the predicted increase in demand with Liquid Natural Gas (LNG) imports mostly from Qatar, Algeria and Nigeria but even this will not protect them from Russian influence. Russia has plans to capture 15%-20% of the global LNG market that would make it extremely challenging for costlier American LNG to counter Russia’s Siberian exports. Part of these plans depend on expanding the three train Arctic Yamal LNG to four LNG trains that can transport 29 Bcm annually. The $27 billion project is owned by Novatek (50.1%), China National Petroleum Corporation (CNPC) (20%), Total (20%), and China’s Silk Road Fund (9.9%), financed primarily by Chinese banks. The first shipment to UK via Yamal LNG was 170k cm (equivalent to 0.1 Bcm) delivered by the LNG vessel Christophe de Margerie Arc 7 in December 2017.
Importing gas from beyond Russia’s sphere of influence will be difficult. The equivalent of the Nord Stream 2 full capacity of 55 Bcm pa would require about 8 to 12 LNG vessel trips per week and competition is fierce. Qatar lifted a 2005 moratorium on further LNG developments in April 2017. Major announcements in 2019 indicate the North Field Expansion (NFE) project will expand production from 105 to 170 Bcm annually by 2024, with plans in place for new jack-up drilling rigs, four new LNG trains, and a shipbuilding campaign to deliver 60 new LNG carriers, which suggests most of the expanded production is destined for Southeast Asia. Future strategic supplies from developing offshore fields in the eastern Mediterranean may supply Europe, but Turkmeni gas is likely to go east to markets in Pakistan, India, and China.
Reducing dependence on imported gas will therefore be one of the key strategic efforts for European security over the next 50 years. In most industrialised countries, despite ongoing coal and nuclear plant retirements, a gas supply gap is growing, allied to increasing demand from India, China and Africa. For the EU this will widen over the coming years. Steadily declining EU/Norwegian gas production from depleting British and Norwegian North Sea and onshore Dutch Groningen fields means large volumes of extra gas may need to be imported by 2025. The role of natural gas in any future energy mix is critical.
Reduced EU/Norwegian production of ~ 150 Bcm pa by 2030, with consumption estimated as 440 to 510 Bcm pa implies a gas import “gap” of 290 to 360 Bcm pa, an extra 90 to 160 Bcm pa above the 200 Bcm pa imported in 2015. With LNG seemingly unable to meet Europe’s gas requirements, this gap could be filled by nine Russian owned and influenced projects currently under development. These can be viewed as an investment in Moscow’s influence in the EU.
a) Existing Russian Northern Group: Yamal LNG, (A); Nord Stream 1 & 2 (1,5); Belarus Yamal-Europe (3); Blue Stream (2)
b) New Southern Pipelines: Black Sea Turk Stream (6); Southern Gas Corridor [SGC] SCP-TANAP-TAP (8)
c) Feeding into SGC: Kurdistan (KRG) pipeline [30 Bcm pa] (7); IGAT-9 trunk pipeline [37 Bcm pa] from South Pars (9)
It is possible that these nine projects could eventually provide almost ~290 Bcm pa in export capacity for supply into Europe, with roughly 50 Bcm pa from the IGAT-9 and KRG pipelines delivered to the SCP-TANAP-TAP Southern Gas Corridor (see map). Future strategic supplies from the newly developing offshore East Mediterranean and Turkmenistan may also become available in the future, although indications are that Turkmeni gas will go east to markets in Pakistan, India and China.
For EU/Norwegian domestic production of 150 Bcm pa, the high estimate annual EU consumption of 510 Bcm pa (2010 figure), about 80% (360 Bcm pa) of EU imports, could become Russian controlled or at the least affected by strong political influence by 2025. For a low EU consumption figure of 440 Bcm pa, this rises to 100%.
Geopolitical Imperative for EU to Accelerate Renewable Energy
There may be supply controls or increases in European gas prices in the future. Based upon past evidence, a near monopoly over natural gas could be “weaponised” and used to apply political pressure, but this time with greater effect. Acceleration of the rate of development and full government support for cleaner
Renewable Energy technology development, with a much faster rate of transport electrification and efforts to reduce gas consumption can mitigate against and dissuade any such actions, avoiding the potential consequences. Natural gas will inevitably form part of the transition to a low carbon world until probably at least 2030, but diversification will lead to reduced emissions and important geopolitical benefits from reductions in fossil fuel use arising from such a transition as well as improved human health and security.
There is therefore a geo-strategic imperative to substantially reduce European natural gas consumption. Improving the balance between gas, solar and wind energy will have important geopolitical benefits including reduced fossil fuel use and improved human health and security.
Acceleration of the development rate of renewable energy technology is essential. Adopting a faster rate of transportation electrification in tandem with government support to reduce gas consumption can mitigate the effects of Russian pressure but will not solve the problem completely. Governments must accelerate developments in nuclear fusion, carbon capture and storage technology, and possibly develop clean zero emission shale gas extraction. Diversification of energy sources and the reduction of consumption is a win-win for Europe and the only way to fully “mind the gap” and escape the pressure of natural gas dependency over the coming years. This is an obvious “win-win” for Europe, with more clean renewable energy and a reduction in geostrategic risk.
