Europe, especially Central and Eastern Europe, continues to
be at risk of a Russian cutback in natural gas deliveries this winter.
The dismal statistics from my July 9 blog summarize the problem: 16 percent of Europe’s
gas supply comes through Ukraine. Slovakia and Bulgaria get 80 percent and 90
percent, respectively, from Russia via Ukrainian pipelines.
On October 21, Russia, Ukraine and the European Union failed
to reach agreement on selling Russian gas to Ukraine. This situation could
easily change—several times--before you read this blog, but a favorable outcome
for Ukraine seems unlikely.
Meanwhile, in June the United States House of Representatives
passed H.R. 6, the Domestic Prosperity and Global Freedom Act, which would
direct the U.S. Department of Energy to issue a quick decision on an
application to export natural gas--generally within 30 days. The bill’s
sponsor, Cory Gardner (R-Colo.) praised the bill stating the widely held opinion
that the U.S. natural gas exports can reduce European dependence on Russian
A recent Brookings Energy Security Institute publication, “Business
As Usual: European Gas Market Functioning in Times of Turmoil and Increasing Import
Dependence," provides a convincing argument that Europe will continue to
depend on Russia for the majority of its natural gas well into the future. The
authors suggest that U.S. liquefied natural gas (LNG) volumes purchased by
Europe will be equivalent to the decline in European domestic production, not a
replacement for Russian imports.
I recommend that you read the entire report, which carefully
dissects Europe’s efforts to move from member-state markets to an integrated
European market, and models the supply impacts of various diversification
Elements of the report applicable to U.S. LNG exports:
- There are 22 LNG import/regasification terminals in Europe,
primarily in Spain, Italy, the UK and France. The terminals have the capacity
to import almost 7 trillion cubic feet (tcf) per year, equivalent to 35 percent
of Europe’s consumption, and more than is imported from Russia (5.7 tcf in
2013). However, these facilities are operating at an average 20 percent of capacity—European
LNG imports were only 1.4 tcf in 2013.
- The Brookings analysis finds that European LNG imports will
be constrained by large and growing Asian demand: 75 percent of global LNG
trade took place in Asia in 2013, and demand will grow. Today and going forward
pipeline imports or domestic European production will win out over LNG imports
based on price.
- In the baseline model, European gas production is predicted
to decline while demand increases. The domestic share of the market declines
from about 45 percent in 2015 to 35 percent before 2030. In the model, LNG
imports grow from less than 15 percent of the market to 25 percent in 2040, with
North America providing about 1.4 trillion cubic feet--less than one-third of 2040