Praise the EU's gas replacement plan: Part 1

The European Commission has been hard at work looking for alternative supplies of energy amid the growing animosity between Europe and Russia. And this work has paid off. Last week, Die Welt detailed the European Commission’s plans for getting totally rid of Russian gas by the end of the year.

That’s right, the EC believes the EU can be 100% Russian-gas-free by the end of 2022. Here’s the breakdown. This will be a three-part breakdown because there’s just so much to cover.

Note: Russian gas exports to the EU stand at around 155 billion cu m per year, according to data from the European Commission.

1. 50 billion cu m from switch to LNG

The United States has committed to supply 15 billion cu m of gas in additional LNG volumes by the end of this year. Based on the latest monthly figures, total U.S. LNG exports in February were 6.4 million tons.

Three-quarters of this, according to Refinitiv data cited by Reuters, went to the EU. Three-quarters of 6.4 million tonnes is 4.8 million tonnes. One million tonnes of LNG is equal to about 1.38 billion cu m, so the 4.8 million tons are equal to about 6.62 billion cu m of gas.

Now let’s add to this the 15 billion cu m annually promised by the Biden administration. I have to assume that this is billions of cu m in gaseous natural gas, based on the figure. LNG, apparently, can also be measured in cubic meters, but, as Haran Sivam pointed out to me in my previous gas-focused post, the conversion is from millions of tonnes into millions, rather than billions, of cu m. The example he gave was with Qatar’s planned capacity expansion to 110 million tonnes annually, which translates into 250 million cu m annually.

So, U.S. LNG should take care of about half of the planned 50-billion-cu-m additional LNG volumes. The rest will have to come from Qatar and possibly Australia at a price that the sellers consider fair. There are challenges in getting this gas to the countries that need it but don’t have the regasification infrastructure but I’ve discussed this here.

2. 10 billion cu m from Azerbaijan, Algeria, and Morocco

Ten billion cubic meters of gas is a fifth of what the EC hopes to get in LNG but still a respectable amount. The question, of course, is why the EU hasn’t been importing these 10 billion cu m already? The answer is contained in the Die Welt article, as carried by Worldcrunch: The existing pipelines to these countries “are currently not being fully utilized or are even idle due to the political disputes.”

It appears the EC is planning under the assumption that these political disputes will suddenly get resolved so it can restart the idle pipelines. Yet Algeria, for one, is more than ready to ship more gas to Europe, which is good news for the EU: the former CEO of Sonatrach said in February the North African country could raise shipments to Europe by 2-3 billion cu m.

Algeria is also offering LNG but since there’s always a but, there is one here, too. According to this article by Deutsche Welle, Algeria’s reserves are tanking due to underinvestment and "Earlier this year, Algeria's state-owned oil and gas group Sonatrach announced a $40 billion (€36 billion) major investment package for a five-year period, but that doesn't mean Algeria can step in right now in the short term," according to the geopolitics and strategy director of think tank Azure Strategy.

I’m not sure what Morocco is even doing on the EC list since it is an importer rather than an exporter of gas, and a big one. Azerbaijan, on the other hand, is a pretty important supplier already. However, it is already pumping at capacity.

"At the moment the TANAP pipeline is operating at 100% of its capacity," said the head of the Trans-Anatolian Natural Gas Pipeline (TANAP) consortium Saltuk Duzyol in February. "We have already reached a plateau in transporting gas for Turkey's needs and deliver 5.7 bcm annually. Overall this year we plan to supply 16.2 bcm of gas to Turkey and Europe," meaning a little over 10 billion cu m is already going to Europe.

Norway is another big supplier of gas to Europe and Equinor has said it could increase the flow by 1.4 billion cu m by September, adding “1.4 billion cubic metres of gas meet the gas demand of around 1.4 million European homes during a year.”

3. 3 billion cu m in additional output from Groningen field

The Groningen field in the Netherlands is scheduled for a shutdown because of increased seismic activity in the region. Production has been declining until recently. However, in January, the Dutch government said it was planning to boost output from the field from 3.9 billion cu m to 7.6 billion cu m in light of supply security concerns. That was before the war in Ukraine started. The boost was to end by September this year.

Then, a day after the Russian invasion, Dutch prime minister Mark Rutte said boosting production from Groningen would be a last resort, noting this "is the very very very last thing we would do, and even then only in a very unexpected situation where there is suddenly no more gas coming out of the pipe for people at home."

Since we clearly have a very unexpected situation, a production boost is justified from an economic point of view. From the point of view of people living in proximity to the field things may look differently.

The Die Welt report notes this, citing EU Industry and Internal Market Commissioner Thierry Breton as saying that “You have to be careful, of course, given the risks of earthquakes that this could cause.” He then went on to say that the Dutch government would probably consider “a higher subsidy”. I’m not sure what sort of subsidy Breton is referring to but I am sure the production boost at Groningen will cause sort sort of public reaction, possibly interfering with these plans.

End of part 1.