Gas & Ukraine: Stop Gibbering, Blame The Real Culprits

The security of our (UK) gas supply is a serious topic and we can do without ignorant nonsense like this, from the Mail:

“Britain’s reliance [on Russian gas] has quadrupled, with Gazprom providing 16% of our gas in 2007″

This is so far off the mark - by an order of magnitude - as to be ludicrous; Gazprom can only dream of a 16% market share in the UK: but it well illustrates the standard of debate. So let’s get a few things straight:

- Russian gas represents just 6.5% of EU primary energy
- Russia’s share of EU gas imports has fallen from 80% in 1980 to just over 40% now (though in absolute terms it has increased): we have been diversifying successfully
- Russian gas supply to EU countries has been very reliable: (more so than the Dutch, who interrupt exports to neighbouring countries at the first hint of technical trouble)
- most European gas still comes from Norway, the UK and the Netherlands
- Russia has had genuine difficulties from Ukraine which would test the patience of any supplier

It is certainly the case that, by dint of masterly divide-and-rule tactics, Russia makes its 6.5% talk much louder than it should. The Germans and Italians, in particular, have always hastened to do Gazprom’s bidding (despite Italy having suffered particularly from the 2006 Ukrainian cut-off). Cutting to the chase, it is fair enough to seek to dilute disproportionate Russian clout in the European energy markets.

The answer is clear - and, incidentally, it is the offical EC answer, bless the Commission (for once): create a fully-functioning, competitive, EU-wide wholesale gas market. This is how, for example, the world solved the Arab oil embargo of 1973, where countries that were individually embargoed were supplied from the overall pool of liquidity. OPEC has never wielded disproportionate power since (and OPEC oil represents more than 10% of non-OPEC countries’ global primary energy).

It’s not a trivial task, and may involve some modest investment to de-bottleneck infrastructure. But we know exactly what to do: it’s official EU policy (recall this jaunty diagram ?): and it will ensure proper economic allocation of whatever gas can be bought by EU countries - gas which, incidentally, is very far from being in short supply for as long into the future as any sensible planning can take us.

Further, it chimes exactly with the famous European ideal of solidarity! So why is it not happening ? Step forward the Germans and Italians who, solidarity notwithstanding, much prefer to cut individual deals with Russia: and the French, who don’t much like markets in any manifestation. All is not lost, however, because the recession is about to cause a big EU gas supply overhang. This, in turn, will give a major boost to spot-market liquidity, and a proper market shouldn’t be far behind, given a fair wind and even half-hearted regulatory action.

It’s the best chance we are going to get. Watch for furious Gazprom and German lobbying against the inevitable …

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