Russia to flood Europe with gas?

International Energy Agency (IEA), Paris, predicts that gas demand in European Union countries plus Switzerland will rise to 460 billion cu m in 2010 from 320 billion cu m in 1995. IEA reports that 1995 gas production in western Europe totaled 187 billion cu m, while imports reached 133 billion cu m. Most of western Europe's gas is supplied by Netherlands, U.K., Algeria, Russia, and Norway. By 2010, Russia's plans to expand production could lead to supply capacity far outstripping

April 21, 1997

3 min read

With David Knott from London
[email protected]

International Energy Agency (IEA), Paris, predicts that gas demand in European Union countries plus Switzerland will rise to 460 billion cu m in 2010 from 320 billion cu m in 1995.

IEA reports that 1995 gas production in western Europe totaled 187 billion cu m, while imports reached 133 billion cu m.

Most of western Europe's gas is supplied by Netherlands, U.K., Algeria, Russia, and Norway. By 2010, Russia's plans to expand production could lead to supply capacity far outstripping demand.

Pierre-René Bauquis, special advisor to the chairman of Total SA, told the U.K. branch of the Gas Processors Association in London on Apr. 11 that western Europe's gas sector may be oversupplied by 2010.

IEA expects western European gas production will climb to 213 billion cu m in 2010. Then exports under current contracts would amount to 228 billion cu m. This leaves a supply shortfall of 19 billion cu m.

Bauquis expects western European gas demand will total 507 billion cu m in 2010, a 47 billion cu m increase from IEA's forecast. This would mean a supply shortfall of 66 billion cu m/year.

Supply side

"In this industry, we seem to be unable to make accurate production forecasts," said Bauquis, "because we consistently underestimate production."

One reason, said Bauquis, is that predictions tend to be made on the basis of approved reserves figures, and these are often a major understatement. So fields produce more than expected and for a longer time.

"Uncommitted available gas production capacity in the U.K., Norway, Algeria, and Russia amounts to 26-52 billion cu m," said Bauquis, "which in theory is probably enough to meet the 19-66 billion cu m shortfall.

"Western Europe's real problems are not likely to be physical possibilities of supply, but the view of exporters, particularly Russia, that they should export more. This will bring problems with prices."

Russian plans

Bauquis said there is a big discrepancy between the export capacity of 120 billion cu m/year Russia plans to have by 2010 and the 90 billion cu m/year of actual exports it is expected to reach, including contract renewals.

"The big question is: Can the Russians deliver another 30 billion cu m production capacity at low gas prices?" asked Bauquis.

For the Yamal gas export project to be economic, Bauquis calculates the Russians would probably need a European gas price of $4/MMBTU. But the price is now $2.50/MMBTU.

Gas reserves on the Yamal peninsula are estimated at 10 trillion cu m, and development of the region's reserves to export gas to western Europe is expected to cost $36-40 billion.

"The problem is that the Russians don't do things in the same way as others," said Bauquis. "They could build such a new pipeline just to make sure their markets are safe. They wouldn't count the cost."

The Yamal peninsula could produce 100-200 billion cu m/year of gas, said Bauquis: "Western Europe doesn't need Yamal gas before 2010, but it may happen anyway. If I said this in Russia, there would be a national scandal."