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Friday, March 23, 2012

Europe’s Energy Security: Options and Challenges to Natural Gas Supply Diversification

Michael Ratner, Coordinator
Specialist in Energy Policy

Paul Belkin
Analyst in European Affairs

Jim Nichol
Specialist in Russian and Eurasian Affairs

Steven Woehrel
Specialist in European Affairs

Europe as a major energy consumer faces a number of challenges when addressing future energy needs. Among these challenges are a rapidly rising global demand and competition for energy resources from emerging economies such as China and India, persistent instability in energy producing regions such as the Middle East, a fragmented internal European energy market, and a growing need to shift fuels in order to address climate change policy. As a result, energy supply security has become a key concern for European nations and the European Union (EU).

A key element of the EU’s energy supply strategy has been to shift to a greater use of natural gas. Europe as a whole is a major importer of natural gas. Russia is Europe’s most important natural gas supplier, accounting for 34% of Europe’s natural gas imports. Europe’s natural gas consumption is projected to grow while its own domestic natural gas production continues to decline. If trends continue as projected, Europe’s dependence on Russia as a supplier is likely to grow. And, while it could be in Europe’s interest to explore alternative sources for its natural gas needs, it is uncertain whether Europe as a whole can, or is willing to, replace a significant level of imports of Russian natural gas. Some European countries that feel vulnerable to potential Russian energy supply manipulation may work harder to achieve diversification than others.

Russia has not been idle when it comes to protecting its share of the European natural gas market. Moscow, including the state-controlled company Gazprom, has attempted to defeat Europeanbacked alternatives to pipelines it controls by proposing competing pipeline projects and attempting to co-opt European companies by offering them stakes in those and other projects. It has attempted to dissuade potential suppliers (especially those in Central Asia) from participating in the European-supported plans. Moscow has also raised environmental concerns in an effort to stymie other alternatives to its supplies, such as unconventional natural gas.

Successive U.S. administrations and Congresses have viewed European energy security as a U.S. national interest. Promoting diversification of Europe’s natural gas supplies, especially in recent years through the development of a southern European corridor, as an alternative to Russian natural gas has been the mandate of the State Department’s Special Envoy for Eurasian Energy. The George W. Bush Administration viewed the issue in geopolitical terms and sharply criticized Russia for using energy supplies as a political tool to influence other countries. The Obama Administration has also called for diversification, but has refrained from openly expressing concerns about Russia’s regional energy policy, perhaps in order to avoid jeopardizing the “reset” of ties with Moscow. Additionally, a change in tenor from the Obama Administration towards the Nabucco pipeline project may indicate waning interest in the southern corridor strategy.

This report focuses on potential approaches that Europe might employ to diversify its sources of natural gas supply, and Russia’s role, as well as identifying some of the issues hindering efforts to develop alternative suppliers of natural gas. The report assesses the potential suppliers of natural gas to Europe and the short- to medium-term hurdles needed to be overcome for those suppliers to be credible, long-term providers of natural gas to Europe. The report looks at North Africa, probably the most realistic supply alternative in the near-term, but notes that the region will have to resolve its current political and economic instability as well as the internal structural changes to the natural gas industry. Central Asia, which may have the greatest amounts of natural gas, would need to construct lengthy pipelines through multiple countries to move its natural gas to Europe.

Date of Report: March
13, 2012
Number of Pages:
Order Number: R
Price: $29.95

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