By Daniel Fineren
LONDON, Jan 16 (Reuters) - Western Europe may be able to
insulate itself better against another gas supply cut next
winter but those countries hardest hit by this month's Russian
gas crisis will remain vulnerable.
The prime ministers of Ukraine and Russia agreed a deal on
Sunday that should restore gas supplies to Europe this week.
A previous price agreement, reached by the two premiers last
October, fell apart within days and there is no guarantee the
gas row will not flare up again next winter.
There is little Europe can do about it before then.
Europe gets about a quarter of its gas from Russia and has
not significantly reduced its reliance on the free flow of fuel
across Ukraine since a row between Moscow and Kiev briefly cut
supplies in January 2006.
A few liquefied natural gas (LNG) import terminals and new
storage facilities, which could help top up winter supplies, are
due to open this year, boosting security in time for next winter
in the countries that built them.
But repeated delays and sluggish investment in alternative
energy sources mean large parts of Europe will still be in
trouble if Russia or Ukraine turns the taps off again.
"Are we going to be better off next winter? Yes, because
there's some progress. But it is slow," James Ball, president of
Gas Strategies Consultants said.
"Things seem to be staying on the drawing board for an
unduly long period. We have to step up the pace."
Gas storage allows consumers to stock up in summer, when
demand is usually low, ready for winter when consumption and the
threat of a Russian gas cut are highest.
Storage has been the main defence for well-stocked countries
like Germany and Italy against national energy supply crises
over the last two weeks.
There is not enough of it in some of the countries most
dependent on Russia, which has forced tens of thousands of
people in central and eastern Europe to turn to electric heaters
to keep warm and factories to reduce output.
Despite the 2006 supply cut, only two of the seven central
and eastern European countries that Gas Strategies has analysed
have increased their storage capacity since 2005 and most of the
new facilities due to open this year are also in western Europe.
[]
"These are the countries that most needed it. These are the
ones that are most exposed ... and look at how little
achievement there has been," Ball said.
There has been a similar lack of investment in LNG import
terminals in less wealthy countries with few alternatives to
Russian gas, while landlocked countries in central Europe rely
on gas from their neighbours.
All of the projects expected to open over the next 12 months
are in western Europe which, with the exception of Italy, has
been relatively unshaken by the gas dispute. []
The only firm project in the Balkans, one of the regions
most affected by the two-week supply cuts, is the Adria LNG
project in Croatia which is not expected to open until at least
2012.
SINGLE MARKET
There have been some signs of cooperation over the last
week, with some countries holding plentiful stocks boosting
supplies to countries without enough fuel.
But Europe generally remains a collection of disparate
states more concerned with self preservation and dominated by
national companies set on defending their market shares.
"The fact that there are these lines on the map called
national frontiers should not be a problem but unfortunately it
is," Ian Cronshaw, head of energy diversity at the International
Energy Agency (IEA) said.
"That's the issue that Europe has to come to terms with,
acting as a single market. The issue here is market failure, its
not just physical infrastructure issues," he said, adding it
would not be necessary for all countries to build storage sites
if fuel could be easily moved to where it is needed.
OTHER OPTIONS
Hundreds of wind turbines to be installed this year could
reduce Europe's thirst for gas slightly. No other type of power
station can be built quickly enough to provide an alternative to
gas-fired generation for next winter.
Alternative pipeline routes proposed since the 2006 supply
shock will not be ready for next winter, even if the latest
crisis prompts the urgent action and cooperation.
One key new supply route that should be ready by summer and
could boost European gas supplies is the Medgaz pipeline linking
Algeria's huge gas reserves to Spain.
But that gas supply line, along with large quantities of LNG
brought into Spain's many import terminals, will remain trapped
as long as France drags its heels on installing equipment to
transport it through an existing pipeline from Spain to the rest
of Europe, industry observers say.
The pipeline opened 15 years ago but can still only flow gas
into the Iberian penisula.
Spain could be awash with gas next winter as a result, while
the rest of Europe frets over Russian gas supplies again.
"Europe can get the gas to the beach, if you like, but it
just doesn't seem to be able to get it away from the country
that it lands in," Cronshaw said.
(Editing by Anthony Barker)
