Deloitte: Gas supply question makes Europe edgy

European countries are increasingly apprehensive about Russia's attempts to control natural gas supplies and transmission, noted speakers at the 2007 Deloitte Energy Conference on May 14.

Nick Snow
Washington Correspondent

WASHINGTON, DC, May 15 -- European countries are increasingly apprehensive about Russia's attempts to control natural gas supplies and transmission, noted speakers at the 2007 Deloitte Energy Conference on May 14.

"Most of the nations in Europe get it. They're concerned about the possibility of a natural gas cutoff by Russia. They recognize the potential impact of all those pipelines flowing east from Kazakhstan and other Caspian producers," said Richard G. Lugar (R-Ind.), ranking member on the US Senate Foreign Relations Committee, following his keynote address.

He told conference participants that the North Atlantic Treaty Organization's members face security questions about gas that are as severe as the political situations that led to NATO's initial formation following World War II. "The attack may not come with guns or warships, but with the more expedient approach of simply turning off the natural gas tap," Lugar said.

Nader Sultan, senior partner in the F&N Consultancy and director of the Oxford Energy Seminar in the UK, also suggested that Russia's influence over Europe's future natural gas supplies will increase.

"It's interesting that it's trying to go downstream and increasingly control transmission. But it's also important that while major [LNG] exporters in the [Persian] gulf and Middle East aren't going to increase production much in the next 5 years, Russia will," he said.
An energy minister of one former Soviet republic observed recently that energy has become Russia's major weapon, one that's more powerful because there's no way to retaliate, Sultan said.

'No longer cheap'
Bruno Lescouer, senior executive vice-president of Elétricité de France SA, said that Europe's demand for electricity is expected to increase 50%, and the share of gas used in its generation is forecast to more than double by 2030, raising the continent's dependence on imported energy to 70%.

"Gas is no longer the cheap technology it was in the 1990s. Prices have recently tripled, and supplies are limited and in faraway countries," he said, adding that the situation has generated renewed interest in nuclear power across Europe.

"There is no easy way out. It will take years to find other supplies," observed Sead Vilogorac, senior economic affairs officer in the United Nations Economic Commission for Europe's sustainable energy division, during a luncheon conversation with reporters.

Lugar noted that in the past 2 years, Ukraine and Belarus each confronted gas supply threats from Russia which Russian officials said were simply market matters.

"Some NATO members said the organization was not designed to handle something like this when I raised the point at a recent summit. But there are no major new storage and transmission facilities in Europe. There was talk of Kazakhstan putting a pipeline beneath the Caspian Sea, but when the announcement came this past weekend, it went another direction and into Russia," the US lawmaker said.

"So there's a lot of whispering taking place in many governments on an issue that could fray the NATO alliance," he added.

Vilogorac said he was not particularly surprised that Russia and Kazakhstan reached that gas pipeline agreement. "There's a long history—decades—of cooperation between the 2 countries so it was easier to develop," he said.

In the meantime, said Sultan, countries and governments are watching with interest as Qatar follows an LNG export model that could be replicated elsewhere. Instead of awarding each of its 5 projects to the highest bidder, it reached an agreement with a different large multinational firm for each, and is trying to develop strategic alliances along the value chain, he said.

Joseph A. Stanislaw, an independent senior advisor for energy and resources at Deloitte & Touche LLP, said it was in the interest of producers such as Qatar to gain access to more of the value chain so they can ensure that the gas they produce continues to reach markets.

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