The Tribune

ACTIVTRADES WEEKLY

By CHRIS ILLING

www.activtrades.bs

Thanks to the mild winter, the European Union (EU) has enough natural gas right now. Nevertheless, some countries could face difficulties. If gas imports from Russia were not possible for years, the consequences would be more dramatic, and demand would have to be reduced.

The EU gets 40 percent of its gas needs from Russia. After Russia’s attack on Ukraine, this supply could be phased out, either because of Western sanctions or as a Russian counter-measure to other Western sanctions.

The massive rise in the price of electricity, gas and heating oil has pushed energy costs up significantly for consumers this year, and there are no signs of easing in the coming months either. On the so-called spot markets, where gas is traded, the price for natural gas had increased more than seven-fold over the course of 2021.

Since Thursday morning nobody in the West wants to rely on Russia any more. This is now taking its toll given the fact that practically nothing has been done to reduce Europe’s dependence on Russian natural gas for more than two decades. During the 2006 crisis, Moscow turned off the gas tap for the first time, and then again in 2014. Two Mediterranean countries could have helped change that in the future: Algeria and Spain.

The North African country is the 10th largest gas producer in the world, but accounts for only around 7 percent of all European imports. Despite its own crisis, Algeria has proven to be a reliable supplier for the most important customers in Spain, Italy and Portugal. Thanks to Algerian supplies, Spain does not have to worry today either. The country has so much natural gas that it could even give some to its EU partners. Spain has prepared well for this and can rely on 11 international suppliers. The Algerian gas flows under the Mediterranean Sea to Almería via a 750-kilometre-long pipeline, which is currently being expanded. At the same time, Spain can draw on the largest LNG capacities in Europe.

LNG (Liquefied Natural Gas) is natural gas that is liquefied by cooling it to minus 160 degrees, which greatly reduces its volume. Ships bring it to the LNG terminals, where it is turned back into a gaseous state and fed into the pipelines. The largest European fleet of LNG tankers sails under the Spanish flag. You can head for six LNG terminals in Spain on the Mediterranean and the Atlantic coasts; a seventh is nearing completion. There are a total of 20 such terminals in Europe. No other EU country has comparable opportunities, accounting for around a third of the entire EU. Ports have become more important again for Spain because most natural gas comes by sea. At the end of 2021, the US overtook Algeria as the main supplier. Nevertheless, the LNG terminals were only 50 percent utilised in January. Spain could offload and process more liquefied natural gas.

But the Spanish balance sheet is not only positive. The conflict between Algeria and Morocco escalated last summer. Algiers closed the second pipeline to Spain in the fall. Algeria had the 10th largest natural gas reserves in the world in 2020, according to energy company, British Petroleum (BP). But increasing Algerian supplies to Europe is currently difficult because the country needs a large part of its production to meet the needs of its growing population and industries.

Algeria is important and can be part of a solution, but it will only play a rather small part because it has neither the capacity nor the facilities for it. Even if Algeria was to deliver more, there would soon be limitations on the northern shore of the Mediterranean. A bottleneck prevents Spain from coming to the rescue for the rest of Europe. It is in the Pyrenees. The route leads from the Mediterranean via France to central Europe, where Germany could then also be supplied with natural gas from North Africa or the Spanish LNG plants. So far there is not a single LNG terminal in Germany. Even the German ‘Green’ economics minister, Robert Habeck, is now enthusiastic about this option because of the war in the Ukraine.

From Spain, only two relatively small lines lead from the Basque Country, and from Navarre, to France. Even their combined capacity does not match the performance of the pipeline from Algeria.

If the Spanish government’s ambitious plans come true, the country could soon become one of the most important producers of energy from renewable resources in Europe with new solar and wind power plants. In addition, there could be the “green” hydrogen that is produced with renewable energy sources. Most of the hydrogen could be transported using the existing natural gas pipelines. In Spain there is already a relatively dense network that stretches as far as Portugal. But the south-west is practically cut off from the rest of Europe.

It is time for the European Union to come together and reduce its energy vulnerability during times of crisis.