Russia - Ukraine - Gas

There's been quite a lot of chatter recently about the potential effect of the Ukraine crisis on imports of Russian gas. According to a recent report from the Oxford Institute for Energy Studies about 30% of Europe's gas demand is supplied by Russia and about half of this comes via Ukraine. In a speech he made on 21 March 2014 Russian Prime Minister Medvedev suggested that Ukraine might owe Russia some $16bn. Of this, about $2bn is owed to Gazprom. The Institute paper argues that this sort of debt led to Gazprom cutting off deliveries to Ukrainian customers previously and the subsequent diversion of transit gas bound for Europe to Ukrainian consumers caused a severe tightening in European supplies. It is the threat of similar action this time around that is exercising many minds.

The Institue paper points out that the situation is less severe than in the past because the Nord Stream pipeline (Russia - Germany via a sub-Baltic Sea route) is now complete. The paper also makes soothing comments about other pipeline projects which it suggests would make transit of Russian gas through Ukraine unnecessary post 2020.

Of course, none of this alleviates the fundamental problem of over-dependence on Russia. As Nick Butler has pointed out in a recent blog post, by 2030 under certain scenarios European dependence on Russian gas could be a staggering 75%. The Russians may be desperate for foreign currency (aka dollars) but just how desperate?

If you believe George Osborne we don't have to worry: "We need to cut our energy costs. We're going to do this by investing in new sources of energy: new nuclear power, renewables, and a shale gas revolution" (my italics). One wonders whether he has been captured by the gravitational field of Planet Pickles. Someone needs to tell George that nuclear ain't cheap and it takes an inordinately long time to build; that renewables ain't cheap and many suffer from intermittency, seasonal fluctuation and diurnal fluctuation; and that there is little sign of any shale gas revolution and virtually no sign of the government trying to start one.

'Tis time for some sensible energy planning, coupled with the guts to deliver what will inevitably be a difficult policy.