As natural gas reserves in the North Sea slowly dry up, the European Union will become increasingly dependent on imports for natural gas.
According to estimates by Eurogas, the European natural gas trade association, the EU 27 covers 38% of its gas needs with its own production, mainly from the UK and the Netherlands (2007 figures). The EU's principal external suppliers are Russia (23% of final EU consumption), Norway (18%) and Algeria (10%).
However, the situation varies widely throughout the EU, with Central and Eastern European member states often heavily dependent on Russian imports. This is the case for Austria, Bulgaria, Slovakia and Greece, as well as Estonia, Latvia, Lithuania and Finland, where Russian dependency can reach 100%. Others, on the other hand, import no Russian gas at all. These include Belgium, Ireland, Portugal, Spain, Sweden and the UK (see BBC overview).
Most forecasts, outlooks and scenarios that are publicly available predict that demand for natural gas in Europe will increase by anywhere between 1 and 2% per year until 2030.
The International Energy Agency (IEA) predicts that EU demand will increase from 541 billion cubic metres (bcm) today to 744 bcm in 2030.
Gas fields adjacent to Europe
The world's largest proven gas reserves are located near Europe, in Russia, with 4,757 × 1013 m³ (1.6 × 1015 cu ft). Russia is also the world's largest natural gas producer, thanks to Gazprom, the state monopoly.
Major proven resources, with estimated yearly production of billions of cubic metres, are Russia (47,570; 2006), Iran (26,370; 2006), Qatar (25,790; 2007), Saudi Arabia (6,568; 2006) and the United Arab Emirates (5,823; 2006).
Existing and planned pipelines
Europe is awash with natural gas supplies delivered by pipelines from Norway, Algeria and Russia. New possibilities are being explored to expand these and complement them with supplies from Central Asia and the Middle East.
Russia exports about 80% of the gas it exports to Europe via Ukraine, with the remaining 20% going through Belarus.
Following a succession of bilateral disputes over transit fees, Russia and some EU countries such as Germany and Italy have been pushing for new pipelines that bypass these 'problematic' countries.
Nord Stream is a planned natural gas pipeline bypassing Russia's neighbours, travelling 1,220 kilometres between Vyborg, Russia, and Greifswald, Germany, under the Baltic Sea. Its construction is scheduled to start in April 2010. Nord Stream is designed to transport up to 55 billion cubic metres of gas per year, enough to supply more than 25 million households.
Similarly, South Stream will avoid Ukraine, running under the Black Sea to Bulgaria, with one branch going to Greece and Italy, and another one to Romania, Serbia, Hungary, Slovenia and Austria. Russia recently announced that it would more than double its planned capacity from 31 billion cubic metres per year (bcm/y) to 63 bcm/y (EURACTIV 18/05/09 and 25/05/09).
Another pipeline in the project phase, Nabucco, does not enjoy the favour of Russian state monopoly Gazprom. It widely resembles South Stream, but is intended to diversify the EU's supply countries, bringing gas to Europe from the Caucasus and the Middle East to a gas hub in Austria, via Turkey, Bulgaria and Romania.
LNG complements pipeline map
New gas flows have to be developed to replace declining domestic supply and to satisfy expected new gas demand. As the EU becomes increasingly dependent on imports, there is a growing need for the bloc to further diversify its gas flows in order to manage the economic and political consequences of dependency.
Liquefied natural gas (LNG) flows will play an increasingly important role in satisfying EU demand for gas, in addition to flows from traditional and new pipelines.
First in the EU, and perhaps later in Asia where East Siberian reserves are being developed, pipeline supplies and LNG both have a role to play and, ideally, should compete for market share.
Compated to the east coast of North America, Europe is geographically well positioned to receive LNG, in particular from the Mediterranean and West Africa. As for LNG from the Middle East, Europe also has a cost-advantage over the US. However, there is no geographical advantage for Europe relative to the Asian market.
In an effort to reduce Europe's reliance on Gazprom, several LNG re-gasification terminals have either been constructed or proposed.
There are several existing LNG re-gasification terminals in Europe, in Portugal, Spain, France, Belgium, the United Kingdom, Italy, Greece and Turkey. Europe's largest LNG terminal was recently opened in Wales (EURACTIV 13/05/09).
More than fifty additional LNG re-gasification terminals are either being considered or under consideration in Europe, specifically in Albania, Croatia, Cyprus, Germany, Ireland, the Netherlands, Poland, Romania and Ukraine. Consideration is also being given to LNG by Lithuania and a joint project between Estonia and Finland.
Developing gas hubs, interconnectors
The establishment of market centres and hubs is a relatively recent development in the natural gas marketplace. As trading hubs grow in number, so do the opportunities for trading between them. Gas hubs are generally physical locations where gas is stored, often on the site of old gas or oil fields.
Interconnector pipelines allow gas to flow from one market to another. Thus the basic difference between two markets is, in theory, limited to the transmission costs of transporting gas from one hub to another.
Building a number of gas and electricity interconnectors has recently become an EU priority, following the January 2009 gas crisis between Russia and Ukraine and a decision to alleviate the dependence of certain EU countries on limited sources of supply.
18 gas infrastructure projects worth €1,440 million have been identified and construction will begin shortly, as stipulated by a recent EU recovery plan (EURACTIV 06/07/09).
New EU rules securing the future of energy
In 2009, the EU put in place new rules to curtail the power of energy giants and move closer to a truly integrated gas and electricity market.
The new legislation ensures that all EU countries take effective action well in advance to prevent and mitigate the consequences of potential gas supply disruptions. It also creates mechanisms for member states to work together, in a spirit of solidarity, to deal effectively with any major gas supply disruptions which might arise (see EURACTIV LinksDossier on liberalising the EU gas sector).
The new legislation comprises two directives on rules for the EU's internal electricity and gas markets, two regulations on conditions for access to those markets and a regulation establishing an 'Agency for the Cooperation of Energy Regulators' (ACER).
Critics in the European Parliament said the measures did not go far enough to break up energy monopolies. They also warned that in a few years' time the EU would be discussing a fourth liberalisation package (EURACTIV 23/04/09).
Better climate for infrastructure investment
Establishing a sound climate for infrastructure investment is seen as a priority both by business and the EU institutions. Between now and 2030, it is estimated that up €150 billion will have to be spent on gas networks - excluding import pipelines from third countries.
In this context, the Commission has initiated legislation to improve the transparency of investment in energy infrastructure in the EU. The aim is to strengthen the collection and analysis of data on investment projects. Governments and industry will send data to the Commission, which will in turn analyse investment trends. The results will be shared with member states and interested stakeholders, and then be made public.
The Commission expects the new mechanism to be adopted by EU governments in early 2010.
Variety of uses
Natural gas is a major source of electricity generated by gas and steam turbines. In particular, the EU has been promoting 'co-generation', the simultaneous production of electricity and heat, as a way of reducing the greenhouse gas emissions of traditional power plants.
The co-generation process can draw upon a wide range of energy sources, from fossil fuels to renewable energies. In 2006, gas was the most commonly used in the EU by far, with a share of 38%, while renewable sources took up 12%. Natural gas burns more cleanly than other fossil fuels, such as oil and coal, and produces less carbon dioxide per unit of energy released.
The European Commission regards co-generation as a "proven tool" for contributing to Europe's energy challenges (see Combined heat and power generation EURACTIV LinksDossier).
Natural gas is increasingly popular among households, where it is mainly used for cooking and heating but also fuels gas-heated tumble dryers and cooling installations. For transport, compressed natural gas is seen as a cleaner alternative to other automobile fuels such as gasoline and diesel. Natural gas is also a major feedstock for the production of ammonia, one of the most popular kinds of fertiliser, and also features in the manufacture of textile, glass, plastic, paint and other products.
Biogas: A renewable energy
Biogas, produced by fermenting biodegradable materials such as biomass, manure, sewage and municipal waste, is increasingly produced across Europe and is considered a renewable energy. Biogas can be used as a low-cost fuel (biofuel) for any heating purposes, and it can also be compressed to power motor vehicles.
In a bid to reduce its dependency on imported oil and tackle global warming, the EU has committed to raising the share of fuels from renewable sources in transport to 10% by 2020.
However, concerned by warnings that increased biofuel production could in fact lead to mass deforestation and food shortages, the EU also agreed a set of sustainability criteria for biofuels (see EURACTIV LinksDossier on 'Biofuels for Transport').
Climate change, renewables fuel natural gas expansion
Natural gas is often described as the cleanest fossil fuel, producing less carbon dioxide and far fewer pollutants per unit of energy delivered than either coal or oil. Fuel-switching in which gas replaces other energy sources is a stable trend, and offers savings both in economic terms and with regard to meeting CO2 reduction targets.
Fuel-switching implies that power plants or factories need not modify their fuel-consuming equipment, and can resume the same level of production following the changeover.
In absolute terms, gas also contributes substantially to global carbon emissions, and its contribution is projected to grow. According to the Intergovernmental Panel on Climate Change's (IPCC) Fourth Assessment Report, in 2004 natural gas produced about 5,300 Mt/yr of CO2 emissions, while coal and oil produced 10,600 and 10,200 respectively (Figure 4.4).
However, by 2030, according to an updated version of the Special Report on Emissions Scenarios, natural gas would be the source of 11,000 Mt/yr, with coal and oil now producing 8,400 and 17,200 respectively. Total global emissions for 2004 were estimated at over 27,200 Mt.)
In addition, the expansion of renewable energies is considered as a driver of output from gas-fired plants, which can cover emergency shortfalls in wind or solar energy.
In Spain, the government has predicted it will need to boost the total capacity of its gas-fired generators to 33,000 MW from the current 22,000 MW in order to complement the growth of windmills (EURACTIV 25/11/09).