Europe Seeking Alternatives to Russia’s Natural Gas

From Alaska Dispatch

Moscow flexed its geopolitical muscles this month with the welding together of two pipes in southern Russia: the formal launch of construction on a new natural gas pipeline to southern Europe. The $20 billion project, called South Stream, is the latest bid in the Kremlin’s drive to “divide and fuel” the European energy market by making lucrative deals with individual countries. They are undermining the European Union’s efforts to lessen dependence on Moscow by building its own pipeline that would avoid Russia.

Europe currently depends on Russia for a quarter of its gas, a fact laid starkly bare in 2006 and 2009, when the state gas giant Gazprom shut off supplies to Ukraine after price disputes, cutting deliveries to other European countries during bitterly cold winters. South Stream is partly aimed at eliminating a reoccurrence by circumventing Ukraine.

However, it’s not clear how well that strategy will work as countries in Central and Eastern Europe that rely heavily on Russian gas begin to diversify their supplies.

New alternative sources are pushing down global prices and raising serious questions about Gazprom and its long-term strategy. The energy landscape is changing even here in Ukraine, the very symbol of energy dependence on Russia.

Among the gas industry’s new developments, a revolution in the exploitation of shale gas in the United States is set to turn the former importer into a major exporter, with the unintended consequence of freeing up supplies from the Middle East just as European countries look to diversify.

 At the same time, the development of liquefied natural gas, or LNG, that can be shipped around the world, is fueling a boom on the so-called spot market in Europe.
“Gas prices in the United States are about half of the spot market prices in Europe and the spot market prices are about half of Gazprom’s European prices,” says Anders Aslund of the Washington-based Peterson Institute. “This can’t go on. And in particular, Gazprom has to lower its prices.”

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