* Russia's EU market share to stay around 30 pct
* New supplies seen, mainly from overseas LNG
* EU gas supplies 2023: link.reuters.com/syx69t
* EU gas supplies in percent: link.reuters.com/jud79t
By Henning Gloystein
LONDON, July 18 The European Union aims to
diversify away from Russian natural gas supplies, yet Reuters
research indicates the EU's biggest provider a decade from now
could easily still be Russia.
Billions are to be spent on piping gas from Azerbaijan while
new finds in Africa and eastern Mediterranean also promise new
supply for the EU, which currently buys mostly from Russia and
Europe also gets liquefied natural gas (LNG), mostly from
Qatar, and the U.S. shale boom could free up LNG exports from
there in coming years, too.
But growth in Europe's demand for gas will eat up much of
the new potential supply, and the Russians show little
willingness to fade away as they gear up to defend their
position through massive projects, such as the $35 billion South
Stream pipeline to Italy.
"Russia will continue to remain Europe's primary energy
supplier, including natural gas supplies, for many years and
possibly decades," a U.S. congressional research paper on
Europe's energy security said in March.
Reuters' own research indicates that in 2023 Russia will
likely remain the dominant supplier, as it boosts exports while
EU and Norwegian output declines.
SHARE OF SUPPLY
Of the EU's current annual demand for 485 billion cubic
metres (bcm) of gas, Russia supplies some 150 bcm.
Demand could rise to 585 bcm by 2023 with the Russians
supplying as much as 175 bcm, according to Reuters calculations
based on data from governments and energy companies, as well as
input from research firms and consultancies.
This means that the amount of gas from Russia is not only
set to rise, but Russia's share of Europe's gas market will
remain stable around 30 percent.
"Gazprom won't face problems in increasing gas supplies as
its reserve base is big," said Valery Nesterov, an analyst with
state-owned Sberbank CIB.
Some states, such as Slovakia, the Czech Republic or
Bulgaria, rely even more heavily on Russian gas, and have
suffered several winter heating disruptions since 2006 due to
disputes between Russian gas monopoly Gazprom and
transit country Ukraine.
"A major test for Europe could be how ... to alleviate at
least some of that dependence (in) states that are more
dependent on Russian energy and are concerned by the political
leverage Russia could exert," the U.S. congressional paper said.
"Some of Europe's larger natural gas companies have huge
financial interests in maintaining Russian supplies and do not
see a problem in depending so much on one country," the paper
Yet there is dissatisfaction with Russian supply from
European utilities over pricing as they are being squeezed
between low electricity revenues and firm gas prices linked to
the oil market.
They have urged Gazprom to switch to spot indexation for
pricing gas, something the company has balked at doing, instead
offering some companies rebates.
"We see a majority of gas based on oil indexes, and the
question is if that's the right way to go. It is important to
have a well-functioning spot market," International Energy
Agency (IEA) Executive Director Maria van der Hoeven said this
"The growth of the spot market and the development of LNG
infrastructure in Europe could help reduce dependence on Russian
pipelines," the U.S. congressional paper said.
Yet even if Gazprom continues to resist calls to stop
linking gas with oil, analysts say its supplies to Europe should
drop no lower than around 130 bcm by 2023, meaning they would
still account for a quarter of the market, ahead of Norway.
Risks to EU hopes for reducing Russian supply include
political hurdles and daunting development costs.
Azerbaijan plans to supply 16 bcm of gas towards the end of
the decade, with 6 bcm going to Turkey and 10 bcm eyed for
Italy, at costs to develop the new pipeline estimated at $2-5
Reuters research shows that other new supply, such as LNG
from North America or the eastern Mediterranean would unlikely
exceed 15 bcm a year by 2023, and that would be contingent upon
Cyprus building an LNG terminal estimated to cost $10 billion.
What's more, high extraction costs mean the new supply is
unlikely to lower gas prices in Europe, where there are already
worries about competing against U.S. manufacturers benefiting
from cheap domestic shale gas.
Some analysts say only a voluntary shift by Russia towards
Asia, something Moscow initiated in oil a decade ago, could
significantly loosen its grip on Europe's gas imports.
"The Asia-Pacific region is developing rapidly, and Russia
can play a prominent role," Russian President Vladimir Putin
said this week.
Yet Russia has so far struggled to gain a foothold in Asia's
gas market as it is a small player in LNG, which dominates Asian
demand. Pipeline negotiations with China started 15 years ago
have yet to produce an agreement.
(Additional reporting by Ekaterina Golubkova in Moscow, Dmitry
Zhdannikov and Parissa Hedvat in London; editing by Jason Neely)