Energy Security: What are Europe’s Options?

As mentioned in our post last week, Europe is in a tough spot when it comes to energy security.  Currently, they rely on imports of Russian oil and natural gas for a significant component of their energy.  Oil is relatively easier to address as seaborne oil and pipeline infrastructure is in place to secure alternative supplies.  Natural gas is more difficult to source and transport, and explains why prices of European natural gas has spiked to EUR$30/BTU, pulling natural gas prices around the world higher in recent weeks.

 

(source: https://fred.stlouisfed.org/series/PNGASEUUSDM)

 

Much of the natural gas that is supplied to Europe is transported by pipeline from reservoirs in Eastern Russia as you can see from the graphic below, though some countries have built Liquefied Natural Gas (“LNG”) facilities in order to diversify their energy sources.  To be transported across the ocean, natural gas has to be cooled to a liquid state, at about -260 Fahrenheit, for shipping and storage.  In doing so, its volume shrinks about 600x but special double-hulled tanker ships are required to move it across the ocean. 

 

(source: National Geographic)

 

There is some debate about the total amount of natural gas Europe requires to replace their existing Russian imports. The author here estimates that amount to be 15 billion cubic feet per day (bcf/d), which is approximately 1.25x the entire U.S. LNG export capacity.  So there is a supply issue right out of the gates.  But even if they were to supplement U.S. LNG capacity with imports from nearby exporters like Azerbaijan, Algeria, and Qatar, there may not be sufficient LNG offloading capacity and attendant pipeline infrastructure to transport it to key gas-dependent markets like Germany and Italy as this author points out here.

 

Europe is in quite a bind, where in the best case scenario it builds sufficient infrastructure quick enough to replace natural gas imports from Russia, and in the worst case scenario is forced to ration electricity or enforce rolling blackouts to conserve supplies.  Naturally, it is easy to envision this creating tensions between EU member states since pipelines and storage infrastructure straddle country borders where there are clear winners and losers.

 

Germany, Sweden and Belgium recently voted to phase out nuclear production that could offset a portion of that gap, but environmentally sensitive voters in those nations would likely push for renewable energy sources like offshore and onshore wind, solar, biofuels and geothermal to plug the gap. 

 

We’ll write more on the key role that renewables will play in energy security in Europe and beyond in the years ahead in our next blog post.

 

 

 

 

 

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