Columnists: Hans Nilsson, Fourfact

Published on: 15 Jan 2009

Russian gas – more expensive than the bill shows

When the European Commission some years ago tried to visualize the Energy challenges for Europe they came up with a triangle having the corners named (1) Sustainable Development,  (2) Competitiveness and (3) Security of Supply.  In an attempt to make their point more clear they named the corners “Kyoto”, “Lisbon” and “Moscow” respectively. This was of course after the first incident between Russia and Ukraine about gas deliveries. The point was made and we understood. Little did we understand the seriousness of the matter.

The illustration also made an attempt to show the solutions for each of the corners and for Security of supply the measures Dialogue, Stock Management, Storage, Diversification and Research were suggested. Efficiency was put in the corner for sustainable development but could (and should) have been used in all three corners! Especially when it comes to Security of supply since the basis for the vulnerability is of course the level of demand. The lower this level of demand, the better the opportunities are to find a substitution.

It is hard to understand the logic of the latest Russian manoeuvre to cut all European gas deliveries coming through Ukraine. It is possible to understand that they want to make a point vis-à-vis Ukraine, but how do they expect the rest of us to be equally or more eager to buy from a supplier who uses brutal force as argument?

Many countries in Europe are highly dependent on Russian gas, primarily for heating but also for electricity generation. The present EU presidency, the Czech Republic, has already before the latest conflict put Energy Security high on their agenda. It was not even difficult to understand that it was the Russian gas they had in mind. More than 80% of the domestic consumption of gas in the Czech Republic comes from Russia; their neighbours, the Slovaks, are even worse off.

So now comes the demand especially from these countries to diversify and to go for the nuclear option, a solution that again is hard to understand but which they have always kept on the table.  For electricity generation options like wind are cheaper and faster to build; and for heating, energy efficiency would be much cheaper and certainly better than electric heating.

So the logic would rather be that this latest Russian threat should be the signal for a European 21st century industry programme of the sort that Barack Obama is about to launch for the US:  Efficiency, Renewables and Smart Grid.

Then there is a need to build the so called 4th corridor of gas via Georgia and Turkey, the Nabucco project, rather than Nord Stream on the bottom of the Baltic Sea. That would at least give diversification of supply!

Anyway, it is obvious that Russian Gas is more expensive than the price it pays. Thomas Friedman has, in his  book “Hot, Flat and Crowded,” a discussion about the need to reduce the import of fossil fuels from countries with regimes of dubious nature. He says that it has also the purpose to make them more interested in
respecting their customers and respecting democratic values. His arguments carry some value also in this case.

Europe does not want to consider Russia as a “dubious” regime but it has to.  But what Europe does not have to do is be hostage to energy supply options.  The solutions are here – not outside our borders.

Other columns by Hans Nilsson