The European Union lives relying on Russia for one-quarter of its gas supplies. If supplies are for some reason cut, many parts of Europe are left to shiver in the cold.
At the start of the New Year, Moscow sent a chilly reminder to Europe of its dependence on the Russian gas by halting its supply and leaving millions of Germans, Slovaks, Bulgarians, Moldovans and Italians without heat for a week in sub-zero temperatures. The halt in supplies originated due to a commercial dispute regarding the pricing.
Moscow had turned off the gas supply piped across the vast former Soviet Republic, hoping to turn up the heat on the Western-aligned government in Kiev by turning off the heat in Europe. Restarting the flow required urgent diplomatic shuttling by German Chancellor Angela Merkel and other European leaders. But as much as the episode highlighted the problem of depending on energy supplies from an increasingly churlish Russia, finding alternative suppliers would not be easy.
Eighty percent of the European Union's gas supplies are delivered across Ukraine, using pipeline routes dating back to Soviet times. The relations between Russia Ukraine have gone sour as Ukraine befriends the west with the election of the pro-NATO President Viktor Yushcenko in 2004, as a result the security of the trans-Ukraine gas supply come into question. It is difficult to remove politics from anything to do with Ukraine and Russia, says Tim Gould, an analyst for the International Energy Agency in Paris.
In the most recent crisis; Russia accused Ukraine of siphoning off about 115 million cubic meters of Russian gas — worth about $1.2 billion — from the pipeline running through its territory to European customers. Officials in Kiev insisted they were simply tapping the technical gas needed to keep the pipeline fired and running smoothly. Behind this dispute was the disagreement about the price Ukraine was paying to Russia for its supply of gas.
The deal was originally struck in times when Ukraine was more Moscow friendly and Moscow agreed to supply Ukraine the gas at a heavily discounted rate, this has however changed as Ukraine increasingly becomes more friendly with the west. Russia now demands that Ukraine pay European-level rates of about $420 per 1,000 cubic meters — a steep increase over the current price of $179.50. Under the agreement brokered by European diplomats to end the shut-off, Ukraine will pay a price double that of the previous, subsidized rate.
While Gazprom, Russian gas giant, may be feeling the pressure of the onset of a deep recession, its price dispute with Ukraine is grounded in Russian geopolitics. There is a real sense Gazprom behaved in a way designed to embarrass Ukraine, rather than to get the gas flowing again, Julian Lee of the Center for Global Energy Studies in London told Reuters reporters on Wednesday.
Europe however has very few alternatives to buying Russian gas. European leaders have spent years developing plans to divert significant supplies of Caspian Sea natural gas from post-Soviet nations such as Kazakhstan and Turkmenistan. But the construction of such pipelines has lagged badly — and may be imperiled by the tensions in the Caucasus in the wake of last summer's Russia-Georgia showdown, which shut the Caspian oil pipeline running through Georgia from Azerbaijan to Turkey. A separate South Caucusus pipeline from Azerbaijan across Georgia still sends only a small quantity of gas to Europe, while the 2,000-mile Nabucco pipeline, which is intended to carry about 31 billion cubic meters of Caspian gas a year to Europe by 2020, also across Georgia, is still under construction. But Nabucco's supply is not entirely secure, with Russia and China looking to buy up the bulk of the gas being drilled out of the Caspian.
Later this year a third pipeline from Algeria is set to open pumping natural gas across the Mediterranean to Spain, but there is no pipeline to carry it beyond France.
In the meantime; Russia is seeking to build new pipelines to Europe bypassing Ukraine. By 2011, a new pipeline called Nord Stream is expected to carry Russian gas under the Baltic Sea to the German coast. Russia is also planning a build a South Stream pipeline to Bulgaria. The combined volume of gas that can be delivered through these two pipelines is however still less than the amounts currently delivered via Ukraine.
Avoiding dependence on Russian supplies ultimately requires that Europe wean itself off of natural gas altogether by developing alternative energy sources. The continent already has about 197 nuclear power plants in operation, and last year's wild gyrations in world oil prices has spurred plans for new nuclear reactors in several former Soviet republics, which are more dependent than the European Union is on Russian energy exports.
Last year a European Union law passed last year where member countries commit to getting 20% of its energy from renewable sources such as wind, tidal and solar power by 2020. These plans sound good, however they are likely to cost billions especially if they involve the construction of new electricity grids to replace natural gas.