Euro-Mediterranean energy integration can solve possible problems with the Russian Federation?

published on Mediterranean Affairs 02 April 2014:

During the last two weeks the European press is discussing about the possible problems deriving from the interruption (or decreasing) of Russian gas supplies to European countries. How we had seen in another article, for several reasons, this interruption is merely a hypothesis rather than a real possibility[1]. However, this hypothesis contributes to inspire another debate about the system of pipelines in Europe and, in particular if it’s possible an alternative solution for the European countries to escape from the Russian gas supplies.

The situation is tricky if we consider that each country of the European Union provide in different ways for its gas supplies. In this essay, we want to focus on the Mediterranean countries and we try to give an answer to the question in the title. The analysis willfully ignores the possibility of investments in the U.S. shale gas and renewable resources because these are assumptions that affect the long term. What is interesting to analyze is the situation of an emergency, then the short and very short term.

If we analyze the situation in Italy, we can see that this Country has a very diversified supply market[2]. Thanks to the political and economic action of ENI, Italian energy policy is one of the best in Euro-Mediterranean area; we can explain this simple but efficient policy and we can use that as criterion to comparison with the policy of the other Mediterranean countries. The structure of ENI strategy is based on the “N-1 model”: the energy system of Italy continues to work well until all the suppliers minus one continue to supply regularly[3]. Mr. Paolo Scaroni, CEO of ENI, says that Italy could renounce at Russian gas if the other supplier respect their contracts[4]. This policy is necessary but not sufficient to guarantee energy security for Italy, because of, as Mr. Scaroni says, “if together with the Ukrainian crisis, there were also problems from Libya, we would have difficulty; there would be serious problems if there was a setback from Algeria”[5]. Despite this policy, in this moment of great instability in Libya and in other countries of the South Mediterranean coast, according to BP Global data[6], it’s very difficult that Libyan gas production can reach the optimum level within the next winter, which is necessary for Italy to face a hypothetical gas crisis. At East of Italy, Balkans States and also Greece and Turkey are highly dependent on Russian gas supplies. The Eastern Mediterranean is barely auto-sufficient in terms of natural gas supplies but many Countries of the region rely on the flows from Egypt that after years of conflict fell slightly. The violent escalation of Syrian conflict, the complicated relation between Lebanon and Israel, and the territorial disputes about Cyprus, make problems in the energy situation. However, how the report of U.S. EIA says, the recent discoveries in Cyprus and Israel, as well as the potential of the Levant Basin, make natural gas exports from the region a likely possibility. In effect, Cyprus recently concluded the initial stages of a proposed liquefied natural gas (LNG) liquefaction facility in hopes of beginning exports by 2019. Israel is also moving closer to developing the ability to export natural gas, although high projected domestic demand raises some concerns over how much natural gas the country will be able to export[7].

If we move at West of Italy, the energy policy and the dependence from Russian supplies, changes radically compared with those of East. As Italy, France has a diversified supply market: the most of natural gas is imported from Norway (about 31%, 17.9 Billion Cubic Meters, bcm, in 2012 by pipeline and 0.2 bcm of LNG) and from Netherlands (about 15%, 9.4 bcm by pipeline), also Russia and Algeria are important gas suppliers with respectively about the 13,60% and 13% of French market[8]. Also for France but less than Italian case, a situation of decrease or interruption of Russian gas supplies, could create problems for French gas supply in the (unlikely) case of instability in Algeria arising from the upcoming presidential election (17th of April). The situation for the two Iberian States is a little bit different compared with other European (and Mediterranean) States: Spain and Portugal buy all of their gas form non-Russian sources. Portugal import the most of his gas from Nigeria (about 53% of the whole) and from Algeria (about 37%)[9]. Spain is another example of efficient energetic strategy. This Country, that imports gas from different State like Algeria (33%, 20.6 bcm by pipeline and 3.6 bcm by LNG), Nigeria, Qatar, Trinidad and Tobago, Egypt, Norway and others[10],  in recent years has invested heavily to improve its ability to import LNG[11]. In addition, Spain imports more gas than what are their needs: for this reason, Spain can (and does) exports gas. According to Antoni Peris, President of Spain’s gas industry association, Sedigas, the next year Spain will be able to export 7.1 bcm and could supply 10 per cent of gas that Europe currently gets from Russia[12].

Considered these conditions, an Euro-Mediterranean energy club could solve hypothetical problems with Russian gas supply? The answer, as the most of cases, is “depends”. Assuming that worsen political and energy relations with the Russian Federation is always a “no-win situation”, there are two possible ways for a good Euro-Mediterranean strategy, but both are palliative strategy and, therefore, they can solve a gas emergency only if it is present for short runs of time. Both solutions can be applied simultaneously, but this is not desirable because this may concentrate energy policies too much on a resource, the gas, which is not renewable and of which Europe (and the Euro-Mediterranean area) does not possess in sufficient quantity. The first way is an implementation of the ENI strategy (“N-1”), focusing not only on the diversification of energy supplies but also on the promoting of stable regimes within supplier States, in order to ensure a better regularity of production and supplying. The second way is the Spanish “LNG strategy”: increase the trade of LNG gas between Mediterranean Countries making the most of LNG terminal and LNG carriers that would allow the sort of natural gas where there is more need[13]. Also this strategy needs the political security and stability of whole of Mediterranean area. A better Euro-Mediterranean energy integration is desirable, but Mediterranean, especially the North side, can’t exclude Asia for its gas supply in the short run. The current political tension with Russia must serve to Europe to think a better strategy in the long run, which is not renounce simply to Russian resources to buy American ones. A better energy strategy must enable Europe to be subject and not object of global energy policies in order to do its own economy and energy interest; improve Euro-Mediterranean energy integration, political stability and LNG capability (or supplies diversification) could be a piece of this long run energy strategy.

[1] F. Angelone, The challenge for Italian energy security takes place in the Mediterranean, Mediterranean Affairs, March 12, 2014. [consulted on April 1, 2014].

[2] This analysis was excellently done by F. Angelone for Mediterranean Affairs. Ibidem.

[3] Anon., Scaroni (Eni): forniture garantite anche senza gas dalla Russia. Futuro in bilico per South Stream, Il Sole24ore, March 20, 2014. [consulted on April 1, 2014].

[4] Anon., Crimea: Scaroni, sanzioni alla Russia? Possiamo fare a meno del loro gas, Asca Agenzia di stampa, March 25, 2014. [consulted on April 1, 2014].

[5] Anon., Scaroni (Eni): forniture garantite anche senza gas dalla Russia. Futuro in bilico per South Stream, Il Sole24ore, March 20, 2014. [consulted on April 1, 2014].

[6] Anon., BP Statistical Review of World Energy, BP Global, June 2013. [consulted on April 1, 2014].

[7] Anon., Overview of oil and natural gas in the Eastern Mediterranean region, U.S. Energy Information Administration, August 15, 2013. [consulted on April 1, 2014].

[8] Anon., BP Statistical Review of World Energy, BP Global, June 2013. and Anon., Country Gas Profile: France, Energy Delta Institute. [consulted on April 1, 2014].

[9] Anon., Country Gas Profile: Portugal, Energy Delta Institute. [consulted on April 1, 2014].

[10] Anon., Country Gas Profile: Spain, Energy Delta Institute. and [10] Anon., BP Statistical Review of World Energy, BP Global, June 2013.  [consulted on April 1, 2014].

[11] Spain has 6 of 21 European re-gasification and other 7 are ready to work; the Spanish terminals account for 38 per cent of European capacity. T. Buck, Spain positions itself as alternative to Russian energy supply, Financial Times, March 27, 2014. [consulted on April 1, 2014].

[12] Ibidem.

[13] Today, on the North side of Mediterranean, Portugal, Spain, France, Italy and Greece have LNG regasification terminals. On the South side, Algeria and Egypt have LNG liquefaction terminals.

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