EU – UNCERTAIN FUTURE: DEPENDENCE ON RUSSIAN GAS IS THE CERTITUDE
- Written by Victor Lupu
The European Union is far from feeling OK. The future is uncertain over short term and over long term... who dares looking too far ahead? On March 1, European Commission President Jean-Claude Juncker revealed his five future ‘pathways’ for the European Union after Brexit, as the 27 leaders of EU countries will discuss the plans, without the UK, at a summit in Rome later this month. As Brexit is a known fact, unknown lies ahead the union, with huge challenges in the Netherlands’ parliamentary elections on March 15. Opinion polls predict that anti-EU Geert Wilders’ populist Party for Freedom (PVV) could emerge as the country’s largest party. And guess what? He could organise a referendum on EU membership. Then French presidential elections are due in April, adding more uncertainties as Marine Le Pen, leader of the far-right Front National (FN) is a known adversary of the European Union. Although not credited in opinion polls with the first chance to win, no one could bet his fortune she won’t. Then France will have general elections in June. Germany will hold parliamentary elections in September and Chancellor Angela Merkel is having, for the first time in years, hard times in anticipating a win against SPD’s candidate Martin Schulz, former European Parliament President.
These are part of the elections this year. To all this mix of options there are uncertainties regarding some eastern European Member States, among them Poland and Hungary, which seem intransigent to more and more issues of European policy and turn Brussels growingly nervous.
Hence, the five ‘pathways’ try to draw a little bit of the future in terms of choice for all Member States, although e.g. in Bucharest turmoil is growing against the so-called multi-speed EU.
On the other hand, EU economy is improving, albeit at a slow pace, some would say. One of the most discussed topics for years is the EU’s dependence on Russian gas and, in spite of the statements claiming the need to find and put in practice more options for gas supply, it appears dependence is growing. Last year Gazprom’s share in EU gas imports grew from 31% to 34%, making the EU-Russia relationship weirder than ever. On one hand the European Union has enforced sanctions against Moscow and even has extended them (following the annexation of Crimea), on the other hand the exports of Russian gas to the European block reach new highs. Would this last? It seems so.
Gazprom is planning to continue and to make more dynamic the gas exports. In 2016 supplies to Germany increased to 4.5 billion cubic metres. As gas supplies are transiting Ukraine and Belarus, Moscow plans to reduce the dependence on them by implementing Nord Stream 2 and TurkStream projects, bypassing Ukraine. In a recent report, Royal Dutch Shell says Russia will remain the biggest source of supply for the EU until 2035. Besides Gazprom, which supplies, as said, 34% of the EU consumption, other sources are Norway - 24%, Algeria - 11%, local production - 17% and LNG - 13%. Nevertheless, despite the EU’s claims of efforts to diversify supply (diversifying the energy supplies and routes is one of the key priorities for the European Commission, a spokesman with the commission said recently) the shares remained relatively constant in recent years. LNG shipments from Qatar remained stagnant in 2016 and there are expectations of increasing imports from the US and Australia.
However, nothing essential is expected to change. “Russia will for sure remain Europe’s largest gas supplier for at least two more decades,” even if most of the incremental gains in EU imports are met by LNG from somewhere else, said in early March, Vladimir Drebentsov, chief economist for Russia and CIS at BP in Moscow.
In his turn, as international media reported, Gazprom Chairman Viktor Zubkov said that in 2017 the exports to Europe are expected to be close to last year’s level.
Their statements came as an echo of Russia’s President Vladimir Putin statements in December 2016, who stressed that Russia has enough reserves to remain Europe’s main gas provider for years to come. “Gazprom is supplying more gas to Europe than Russia or the Soviet Union ever did,” he said. “We have enough gas for ourselves, even considering the growing requirements of the Russian economy, and for our counteragents, the buyers of our gas.”
And Gazprom is doing it. Statistics show that Gazprom gas sales account for more than 10% of Russia’s overall exports. According to Gazprom deputy CEO Alexander Medvedev, Europe will remain Gazprom’s ‘priority market’ and no one else can provide gas at the same price.
According to analysts, there is enough room both for Russian gas and for LNG, as the European deposits are declining, who expect LNG to surpass Norwegian gas, as share of supply, by 2025. Meanwhile, in 2017 the price of natural gas is expected to rise, due to the price increase of Brent crude by 52% and due to the international market. At least that’s what Russian analysts say. Energy expert Alexei Grivach says the increase of gas prices to Europe depend on the current oil markets rather than on Gazprom’s decisions. “On the one hand, there are political phobias and calls to get rid of dependence on Russian gas, but on the other hand, there is the understanding of the market players regarding which gas is more reliable and more attractive and flexible in terms of supply conditions. They are ready to buy this gas despite allegations by some members of the political establishment in the EU and the European Commission that all this is wrong,” he said. Nevertheless, gas prices are to reach USD 180-190 per 1,000 cubic metres in 2017, up from the average of USD 167 per 1,000 cubic metres in 2016 (meaning about 11%). The Russian expert added that the rise is influenced by the increasing oil prices, following the OPEC decision last November to cut the output by 1.2 million barrels per day.
Anyway, as Russia’s gas exports increase, so are the budget revenues. After a budget shortfall in February, Russia’s finance ministry said the country is expected to receive USD 1-1.5 billion in oil and natural gas revenue in March.
As far as Romania is concerned in this equation, the prospects are encouraging, if we consider the Black Sea deposits expected to become operational as of 2018 or 2019. On the other hand, the onshore deposits are depleting relatively fast and cannot offset the supply needs during the cold season. Anyway, the gas imports from Gazprom have increased in 2016 from 5% in January to 25% in December, as share of the consumption needs.
Opposite to the certitude of dependence on Russia gas, the future of Europe is, as said, uncertain. Analysts are hesitant to anticipate the political and economic moves in Italy as well, in Spain, Austria and Portugal, in the crisis hit Greece and the list could go on with bigger or smaller issues.
Contrary to the viewpoint on Bucharest, against a multi-speed EU, it seems the main European drivers – France and Germany – have already chosen the path of a multi-speed EU. In a recent interview, French President Francois Hollande, said a multi-speed Europe, where some countries integrate more than others, is necessary to avoid the bloc ‘exploding’. In an interview for six European newspapers, Hollande said “for a long time, this idea of a differentiated Europe, with different speeds and distinct paces to progress, has provoked a lot of resistance. But today this idea is necessary. Otherwise Europe explodes.”
Let’s just wait and see, 2017 might be decisive for the EU’s future. If Europe ‘explodes’, then even certitudes could become doubtful.