Ukraine Crisis: Europe May Switch From Russian Gas To Cheaper Coal
The EU could switch to cheaper coal for its energy needs in order to reduce its reliance on Russian gas supplies, according to a leading expert in London. With the shale gas revolution leading to cheaper US coal, it could lead to lower energy prices, as the Ukraine crisis puts gas at the centre of the debate. VoR’s Tim Ecott spoke to Professor Alan Riley from City University, London.
Britain’s Energy Secretary, Ed Davey, has said that the West must take Russian threats to restrict energy supplies to Europe more seriously.
The Liberal Democrat minister said that it was “of sufficient concern” to “plan seriously and deeply” in the event of gas and oil being restricted.
His comments come after Russian President Vladimir Putin warned in a letter to European leaders that if Ukraine doesn’t settle its gas debt, Russian supplier Gazprom will be “compelled” to take action.
Russia also sought to reassure European consumers it will abide by all contracts. Alexei Miller, head of Gazprom, told European Union Energy Commissioner Guenther Oettinger on Tuesday that the Russian company “is a reliable supplier of gas to the European market and will remain one going forward,” Gazprom said in a statement.
Gazprom said Ukraine now owes $2.2 billion.
Professor Alan Riley told VoR: “One of the great tragedies of the situation is that Russia has got enormous amounts of resources – the largest conventional resources in the world – and it could use those to fuel and power the European economy in a win-win situation for both Russia and for Europe.
“The problem now is, because of the threats to supply, the potential for conflict and the lack of trust between the EU and Russia, there is a very serious danger that the EU will feel that it has no alternative but to introduce a very radical diversionary supply strategy to reduce its use of Russian gas and reduce Russia’s position to a supplier of last resort.
“Germany relies on about 40% of its gas from Russian sources, but what you can do quite effectively is use more coal. So far the Germans are building 8GW of new coal-fired capacity and of course the United States – because of the shale gas revolution – has enormous amounts of cheap coal available.
“One of the things I need to say about Europe, at least as a temporary energy security measure, is for Europe to switch over to using a lot more coal, which may mean bringing on-stream new coal-fired capacity and actually using some of the dirty-fired capacity which is being retired and bringing it back on-stream. If you do that and you have access to US coal, you can significantly reduce the use of Russian gas across the European continent.
“It will have a temporary effect on [the decision to cut carbon emissions] but it is a temporary energy security emergency. In the meantime, there is about a five year time frame whereby the United States brings on large number of LNG liquefaction capacity, Europe uses coal and switches over back to gas, but this time it will be American and not Russian gas. That is the direction that Europe will probably take if the situation gets much worse.
“The entire approach taken here is one of concern for security of supply and this is the sort of reaction you get to it. You saw it already in the 2009 crisis, and that resulted in a significant diversionary strategy being adopted by the EU and the problem with this is that it’s of several orders of magnitude worse and is therefore likely to result in a much stronger energy security approach than we have ever had before. Whether we actually end up these, we shall see, but that certainly is the potential direction of travel given the current circumstances.
“Remember, about 60% of Gazprom’s revenue comes from the return from its sales into the European Union. So the impact on Gazprom will be significant. The EU, if it is able to switch over to coal significantly, because of the link that Gazprom put on gas prices to oil prices, would actually result in a significant fall in the cost of our energy within the EU.
“Although there is the temporary problem of CO2 emissions, you would see a potentially significant fall in European energy costs, which would be – given the current economic austerity – quite welcome.