A briefing paper issued in June by the London-based advocacy group E3G/Third Generation Environmentalism could put the kibosh on US plans to end Russia’s domination of the EU energy market by exporting liquid natural gas to the region by year-end 2015.
The E3G report finds that, despite optimistic official EU projections, LNG demand is falling in the region and is now 23 percent below peak levels reached in 2010. Indeed, E3G claims that, during 2014, EU gas demand was at the lowest levels it had reached since 1995. The authors attribute the downtrend to structural shifts in the European economy, changing consumption patterns, and significant progress on energy efficiency.
Today, about 33 percent of Europe’s LNG supply comes from Russia, which notably leveraged its market dominance as a political weapon in its clash with the Ukraine last year – shutting off gas to that European nation in June 2014 and refusing to flip the switch on again until December.
“It happened in 2006, it happened in 2009, and therefore it happened again in 2014, and there is no reason to believe … [that history will not repeat itself]. The way to prevent it from happening again is to change how Europe does its own business,” said Amos Hochstein, the US State Department’s Special Envoy and Coordinator for International Energy Affairs, on January 8 at the first meeting of the Atlantic Council’s Global Energy Center.
Already there are indications, according to a story in Russian media outlet, rt.com on June 29, that the $100 discount the Ukraine currently is paying ($247 per 1,000 cubic meters for Russian gas) will be discontinued through the summer, Russian Prime Minister Dmitry Medvedev said at a meeting on Monday with Energy Minister Alexandr Novak and the head of Moscow-based Gazprom, Aleksey Miller. “The prices for oil and subsequently for gas have greatly subsided, so the discount will be $40 per 1,000 cubic meters,” as is currently the case in neighboring countries, including Poland, he said.
At the January 8 meeting, Hochstein called for construction of an LNG receiving hub in Croatia for LNG shipped from the United States in order to promote energy security and healthy competition in the region. “I really believe that it’s a critical node,” he was quoted by rt.com, adding that the hub would help diversify energy sourcing in nearby Slovenia and Serbia, as well as in other EU nations, including Hungary and Ukraine.
Currently, the E3G authors said, gas demand is not uniform throughout the EU region; with 80 percent generated by just seven nations: Germany, the UK, Italy, France, the Netherlands, Spain, and Belgium. This means, they said, that most of the EU’s gas demand is coming from countries that already have strong energy efficiency programs and renewables deployment in place, “which are likely to further decrease demand” in the future. Already, the briefing paper claims, in the power sector, EU gas demand has fallen by roughly 33 percent since 2010.
In the industrial sector, gas demand has decreased in Europe by an average of 1.2 percent per year since 2000, according to the report. In the residential sector, gas demand also has fallen substantially, with residential needs in the UK down by 27 percent from 2005 to 2012 (on a weather-corrected basis).
The European Commission’s PRIMES reference scenario – used for forecasting and policy impact analysis up to the year 2030 – shows only a slight decrease in gas demand during the next 15 years. However, assessments for the European Commission show that, if the 2030 energy efficiency target of 27 percent is met, gas consumption will fall by 16 percent compared to the reference.
By contrast, Eurogas 0 a Belgium – based association representing the European gas wholesale, retail, and distribution sectors – still is projecting an increase in consumption of over 50 percent by 2035 compared to current levels.
When contacted by Retail Energy Buyer for a reaction to the report, Amos Hochstein was out of the country and unable to respond.