European Affairs

Russian Gas Problem Could Be Opportunity for Europe     Print Email
Pekka Sutela

Pekka SutelaRussia is critically important to the European Union’s energy supply, as we all know, but it is important to analyze this situation in detail. For example, while about one-third of the EU oil consumption comes from Russia, oil is a fungible commodity with worldwide markets. When it comes to gas, one-fourth of EU-consumed gas comes from Russia. This element is not fungible: it comes in pipelines and so there will not be major global markets in gas for a long, long time to come – certainly not before and unless liquefied natural gas expands tremendously. My country, Finland, is somewhat an extreme case because one-half of all the energy we consume comes from Russia, including 100 percent reliance on Russia for our natural gas. But in trying to assess these dependency figures, one has to take into account a few things. For example, the role of gas in the energy balance of different countries varies hugely. So Poland, I understand, is for the time being one hundred percent dependent on Russian gas, but gas is relatively minor in their energy mix because Poland is basically a coal-based economy. In my country, about 10 to 15 percent of all primary energy comes from gas and therefore from Russia. There is only one pipeline.

There is probably never going to be another pipeline bringing gas to my country: the alternative source would be Norway, but Sweden is between our countries and it has a very negative attitude towards using gas [because of environmental considerations]. But we Finns do not intend to increase the share of gas in our energy balance, so our position is somewhat different, say, from the position of Germany. In that country, Russian gas is only nine percent of the aggregate consumption of energy, but future plans of energy supplies have been based on two ideas: the non-exhaustible supply of Russian gas and the availability in the future of alternative energy sources for which technologies do not exist at the moment.

The second issue in thinking about the importance of dependence on Russian gas is what kind of uses this gas has in various countries. In Central European countries, gas is largely used in households and you cannot expect the households to have dual-fuel use heating systems. When the gas does not flow, households become quite cold. Then you have countries like mine where gas is not used in households but it is used in regional power-generating systems and in industry. There, you can insist these gas-users have a dual generating capacity so they can use two different fuels in their generation of heating or electricity or whatever. So you have to consider in each country what the possibilities of substituting the gas over short periods of time actually are. The question of short periods of time is important: some countries in Europe have gas storage facilities, others do not. Overall in the EU, gas storage facilities can hold 15 percent of annual consumption. But they are to a large degree concentrated in the few countries which have suitable geology providing them with nature-made caverns where gas can be stored or have old gas fields emptied of gas where new gas can be pumped down. Recently, I visited one central European country, which is small but important in terms of gas and which has storage for half its annual consumption. The civil servants and representatives of the local gas company were very proud of being able to say that they have sufficient storage. It never seemed to occur to them to talk about using these storage facilities for the benefit of other European countries as well.

This brings me to the issue of future supplies of gas to Europe. Europe actually is in the privileged position of being surrounded by different sources of gas. The North Sea supplies are drying up, but there is still production in the Norwegian north even though the Norwegians have had some technical problems with the Snøhvit field in the Barents Sea. In the Russian north, there are gas fields such as Shtokman and Yamal. [These fields are each above the Arctic Circle and the geology makes them challenging to exploit commercially.] There is Central Asian gas around the Caspian facilities. We have various intriguing possibilities in Iraq and in Iran and then there is everything that might come from North Africa and perhaps farther into Africa. Unfortunately, all of these sources provide us not only with possibilities but risks as well.

One particular risk is clearly Russia, including the technical question of Russia’s ability to provide gas to Europe in the future.

I conclude with two issues. First, a few words about the Nord Stream project. The state of play at the moment is that the pipeline is supposed to go through the exclusive economic zones of four countries on the Baltic Sea (Finland, Sweden, Denmark, Germany), and the Nord Stream company is in the process of preparing an environmental-impact assessment for them. It has been in the works for quite some time, and the preliminary version that was discussed between the company and the environmental authorities was not satisfactory in the view of any of these countries. It doesn’t help that the kind of information required by the four countries differs. Some, like Sweden and Finland, want very detailed plans and discussions. Denmark, it would seem, would be satisfied with a more general picture of the situation. After this environmental impact assessment has been submitted, it will be worked on by the independent environmental authorities in each of these northern European democracies. This process will take some time. Each of these countries has a veto right – although in that situation I wouldn’t want to be in the shoes of the Finnish civil servant who has the responsibility to decide whether or not the Germans, Dutch and other European customers should get their gas via the Nord Stream.

Assuming that these bilateral dealings produce positive answers, there is a multilateral round in the UN framework, the Espoo Convention, where the other countries bordering the Baltic Sea can also put forward their views, without veto rights. Then, there will be a period for comments, complaints from civil society. This is when the going will get very interesting indeed: you can imagine all the fishermen’s clubs and others filing complaints at all the possible EU instances, right up to the European Court of Human Rights, where people will be complaining that the pipeline at the bottom of the sea is an infringement of their human rights. All this has to happen in great solemnity and under conditions of open democratic procedures and political responsibility. In my country, it is impossible to start even preliminary construction works before the entire environmental process is completed. Here the legislation and practice of some other countries is somewhat different. In Sweden it would be possible; in my country it is not. There are two interesting things here. First, most Russians are completely unable to understand that there is indeed something called “civil society” in something called “Nordic democracies” and that this can delay any eventually possible construction of the pipeline. (Note this interesting difference: we are telling the Russians that Nord Stream is an environmental issue. At the same time, the Russians are told that Nabucco is a political and economic issue, that is, basically a commercial issue with no environmental connotations. Then the Russians are supposed to think that we are consistent decision-makers!) So, all this will cause a delay in the project – and that will bring some political complications. The gas was supposed to be flowing in 2011, but I would be surprised if construction work starts in 2011. This delay has implications. The companies involved will have to pay for shipping and other contracts they have lined up. There are people in Germany, in the Netherlands and elsewhere who have investment projects predicated on the assumption that the gas will be flowing in 2011.

Secondly, there is the obvious question: “What will be the ability of Russia to supply gas in, say, 2030 or any other realistic first possible dates for this pipeline to come on stream?” Shtokman is very, very far in the future even in the best of cases. Old pipeline routes here are somewhat different now. Yamal faces huge technological challenges as well: it is on a peninsula that consists basically of frozen mud blended with salty water. And there is a possibility that global warming could eventually mean that Yamal stops being onshore and becomes offshore, with an offshore railroad.

A final word about energy in Russia. For the first time they are taking energy efficiency seriously. That is a good thing, and it may be that this is a very interesting business area with the Russians in the future. They have nothing to supply in that field but money, and that sounds like a reasonable proposition to me.

Pekka Sutela is Head of the Bank of Finland Institute for Economies in Transition (BOFIT). This article is derived from remarks made at The European Institute’s February 2009 roundtable on energy security and Russia

 


 

Nuclear Energy: A New Future in Europe

Nuclear energy is regaining favor as an environment-friendly technology.

Mr. Sutela was one of the several speakers at The European Institute roundtable who mentioned the role of nuclear power in Europe’s future energy mix, saying inter alia:

If you look at this question [of nuclear energy] in the European countries and try to assess which countries have had something like a consistent energy policy during the last several years, I think three of the prime candidates would be France, Sweden and my own country, Finland. All have decided to build additional nuclear power capacity. The countries that decided not to consider the possibility of having [more] nuclear power have serious problems at the moment. We have nuclear reaction-construction capability in Europe, but it has been quite some time since we have had any major construction projects, so while there has been development of new prototypes, the capability, currently, is not as good as it might be. This is not a suggestion that the Europeans should be buying their nuclear plants in the future from Russia. Obviously, Russians have to be considered, and it is noteworthy that very recently Germany’s Siemens announced that it will be winding down its nuclear cooperation with France’s Areva and looking for possibilities of cooperation with the Russian companies that have continuous experience of building nuclear plants.

Let me add two points. The first thing is my conviction that responsible policy in the nuclear field demands that the country where the reactor resides also must take care of the final storage of the spent fuel. It is not ethically, morally or environmentally acceptable that we would forever rely on other countries to take care of that.

A second point is this. The reputation of Russian nuclear technology was obviously spoiled by the Chernobyl accident. But I have been told by several specialists that the catastrophe was not so much a consequence of the particular technology used but a completely irresponsible experiment run at the plant. So perhaps it was not so well founded that the European Union demanded that reactors of this type should be shut by countries seeking to join. So I think we should, in Europe, ask again, whether we did the right thing in the end by demanding from the Slovaks, the Lithuanians and others that their so-called Chernobyl-type nuclear plants would be closed as a condition for their membership.

(Subsequently to this talk, Germany’s Siemens did sign up in a nuclear-reaction construction partnership with a Russian manufacturer and Italy announced plans to reverse its ban on nuclear reactors and work with France to build new ones in Italy.)

 

This article was published in European Affairs: Volume number 10, Issue number 1-2 in the Winter/Spring of 2009.