Europe’s Energy Security: Options and
Challenges to Natural Gas Supply
Diversification
Michael Ratner, Coordinator
Specialist in Energy Policy
Paul Belkin
Analyst in European Affairs
Jim Nichol
Specialist in Russian and Eurasian Affairs
Steven Woehrel
Specialist in European Affairs
March 13, 201215, 2013
Congressional Research Service
7-5700
www.crs.gov
R42405
CRS Report for Congress
Prepared for Members and Committees of Congress
Europe’s Energy Security: Options and Challenges to Natural Gas Supply Diversification
Summary
Europe as a major energy consumer faces a number of challenges when addressing future energy
needs. Among these challenges are a rapidly rising global demand and competition for energy
resources from emerging economies such as China and India, persistent instability in energy
producing regions such as the Middle East, a fragmented internal European energy market, and a
growing need to shift fuels in order to address climate change policy. As a result, energy supply
security has become a key concern for European nations and the European Union (EU).
A key element of the EU’s energy supply strategy has been to shift to a greater use of natural gas.
Europe as a whole is a major importer of natural gas. Russia is Europe’s most important natural
gas supplier, accounting for 3436% of Europe’s natural gas imports. Europe’s natural gas
consumption is projected to grow while its own domestic natural gas production continues to
decline. If trends continue as projected, Europe’s dependence on Russia as a supplier is likely to
grow. And, while it could be in Europe’s interest to explore alternative sources for its natural gas
needs, it is uncertain whether Europe as a whole can, or is willing to, replace a significant level of
imports of Russian natural gas. Some European countries that feel vulnerable to potential Russian
energy supply manipulation may work harder to achieve diversification than others.
Russia has not been idle when it comes to protecting its share of the European natural gas market.
Moscow, including the state-controlled company Gazprom, has attempted to defeatstymie Europeanbacked alternatives to pipelines it controls by proposing competing pipeline projects and
attempting to co-opt European companies by offering them stakes in those and other projects. It
has attempted to dissuade potential suppliers (especially those in Central Asia) from participating
in the European-supported plans. Moscow has also raised environmental concerns in an apparent
effort to
stymie hinder other alternatives to its supplies, such as unconventional natural gas.
Successive U.S. administrations and Congresses have viewed European energy security as a U.S.
national interest. Promoting diversification of Europe’s natural gas supplies, especially in recent
years through the development of a southern European corridor, as an corridor of gas from the Caspian region as an
alternative to Russian
natural gas, has been a focal point of U.S. energy policy in Europe and
Eurasia. has been the mandate of the State Department’s Special Envoy for Eurasian Energy.
The George W. Bush Administration viewed the issue in geopolitical terms and sharply criticized
criticized Russia for using energy supplies as a political tool to influence other countries. The Obama
Obama Administration has also called for diversification, but has refrained from openly expressing
expressing concerns about Russia’s regional energy policy, perhaps in order to avoid jeopardizing
the “reset”
of ties with Moscow. Additionally, a change in tenor from the Obama Administration towards the
Nabucco pipeline project may indicate waning interest in the southern corridor strategyNevertheless, although supplying natural gas to Europe from the
Caspian Region and Central Asia has been a goal of multiple U.S. administrations and the EU, it
is far from being achieved in volumes significant to counter Russian exports.
This report focuses on potential approaches that Europe might employ to diversify its sources of
natural gas supply, and Russia’s role, as well as identifying some of the issues hindering efforts to
Russia’s role in Europe’s natural gas policies, and key factors that could
hinder efforts to develop alternative suppliers of natural gas. The report assesses the potential
suppliers of natural
gas to Europe and the short- to medium-term hurdles needed to be overcome
for those suppliers
to be credible, long-term providers of natural gas to Europe. The report looks
at North Africa,
probably potentially the most realistic supply alternative in the near-term, but notes that
the region will have
to resolve its current political, economic, and security and economic instability as well as
the internal structural changes to
the natural gas industry. Central Asia, which may have the
greatest amounts of natural gas, would
need to construct lengthy pipelines through multiple
countries to move its natural gas to Europe.
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Europe’s Energy Security: Options and Challenges to Natural Gas Supply Diversification
Contents
Introduction: Change Is Afoot ......................................................................................................... 1
Context, Background and Different Points of Views ....................................................................... 3
The U.S. Perspective ................................................................................................................. 3
European Natural Gas Consumption and the EU’s Evolving Energy Policy ............................ 5
Russia’s Role ............................................................................................................................. 9
Gas Crises of the 2000s and Russia and Europe’s Search for Alternatives ....................... 11
Central Asia Transit Constraints: Many Options but No Alternatives So Far ......................... 13Southern Corridor: Issues and Background ............................................................................. 13
Discussions on a Trans-Caspian Pipeline .......................................................................... 16
Potential Sources of Alternative Supplies ...................................................................................... 18
Central Asia and the Caspian RegionThe Caspian Region and Central Asia: The Focus of U.S. Policy............................................ 18
Azerbaijan: The EU’s Best Hope For New Natural Gas Supplies? ................................... 20
Kazakhstan: Natural Gas Is Second to Oil ........................................................................ 2021
Turkmenistan: European Orientation? .............................................................................. 2122
Uzbekistan: A Sleeping Natural Gas Giant?...................................................................... 22
North Africa: Transitions May Bring OpportunitiesOpportunities Amid Uncertainty ..................................................................... 22
Algeria: Unconventional Resources May Be Its Future... 23
Algeria: Security Concerns Threaten Resource Development ................................................... 23 24
Egypt: In Need of a Reorganization of Its Natural Gas Sector ......................................... 2425
Libya: TremendousUntapped Potential ................................................................................................. 25
Liquefied Natural Gas Imports ................................................................................................ 2526
Possible U.S. LNG Exports: Pricing Not Volumes May Be Key ...................................... 26
More Distant Alternatives........................................................................................................ 2627
Eastern Mediterranean: A Recent Development ............................................................... 2627
The Arctic Region and Players .......................................................................................... 27
Potential Development of Alternative Sources in Europe ................................................. 27
Prospects for Diversification ......................................................................................................... 2728
Figures
Figure 1. 20102011 EU Natural Gas Imports .......................................................................................... 6
Figure 2. EU Dependence on Russian Natural Gas ....................................................................... 10
Figure 3. Select European Natural Gas Infrastructure ................................................................... 17
Figure 4. The Caspian Region ....................................................................................................... 19
Tables
Table 1. EU Natural Gas Data, 20102011 ................................................................................................ 8
Table 2. Prospective Non-Russian Southern Corridor Pipelines ................................................... 14
Table 3. Key Central Asian Natural Gas Data, 2010 2011...................................................................... 1920
Table 4. Key North African Natural Gas Data, 20102011 ..................................................................... 23
Table 5. EU LNG Import Capacity ................................................................................................ 26
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Contacts
Author Contact Information........................................................................................................... 2829
Acknowledgments ......................................................................................................................... 2829
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Europe’s Energy Security: Options and Challenges to Natural Gas Supply Diversification
Introduction: Change Is Afoot
The 27 member-state European Union (EU) has been a growing natural gas consumer and
importer for decades. However, asAs Europe’s natural gas production has declined in recent years,
its its
dependence on imported natural gas has increased. This has left it more dependent as a whole
on on
its primary supplier, Russia, which has shown some inclination to use its resources for political
ends. Natural gas, unlike oil which is a global commodity, is a regional commodity with regional
buyers and sellers exerting more influence.
Over the past decade, some European officials have become increasingly concerned about the
potential for cutoffs or curtailments of Russian natural gas supplies to Europe. Most Russian
At least until
recently, most Russian natural gas exports to Europe flowflowed through Ukraine and Belarus. Fragile
and sometimes hostile
relations between Kyiv, Minsk, and Moscow have in the past resulted in
interruptions in the flow
of natural gas to parts of Europe, as happened in 2006 and 2009. Some
countries in Eastern
Europe, which are in some cases almost exclusively reliant on Russian gas
imports, have been
particularly susceptible to these fluctuations.
In response to past supply cutoffs and the potential for future energy supply interruptions,
European leaders, sometimes with the support of the United States, have sought to take steps to
increase their
energy security by exploring new supply diversification options. One such
response, though contrary
to the U.S. perspective of energy security through diversification, has
been Germany’s been the decision by some
EU members to support alternative transit routes for Russian gas. This includes Germany’s
decision to support construction of the Nord Stream pipeline, which directly
connects Russia and
Germany, Russia’s largest importer. Russia has also committed to building
the South Stream
pipeline across the Black Sea, connecting Russia, Bulgaria, and Hungary. While
these pipeline
projects bypassesbypass transit states such as Ukraine and Belarus, they also bypass EU
member states
like Poland and Lithuania that are more critical of Russian policies and also
present. The Russian-backed projects
are also widely seen as rivals to other pipelines being pursuedsupported by the EU.
The opening of Nord Stream —the second pipeline began operations in October 2012, raising its
capacity to 2 trillion cubic feet per year (tcf)—and the proposal for South Stream highlights a challenge Europe
faces withhighlight
challenges Europe faces in diversifying its natural gas supplies: Russia has demonstrated a
willingness to go to
great lengths to maintain its hold on European market share of natural gas.
However, while some
European countries, Germany included, maintain that projects such as Nord
Stream enhance
European security by providing alternate routes for Russian supplies, a number
of EU member
states, including Poland and Lithuania, opposed Nord Stream and have questioned
Russia’s
reliability as an energy supplier. Critics tend to argue, for example, that projects like
Nord Stream
could give Moscow additional political and economic leverage in its dealings with
countries that
have been bypassed by the pipeline. Meanwhile, alternative supplies from other regions (e.g.,
North Africa and Central Asia) face several significant challenges.
A second EU response to concerns over Europe’s reliance on Russian natural gas supplies is what
has become known as the Southern strategy. The so-called Southern Gas Corridor’s flagship
initiative is the proposed Nabucco natural gas pipeline. The pipeline is intended to transport up to
1.1 trillion cubic feet of Caspian (and perhaps Middle Eastern) natural gas per year through
Turkey into Bulgaria and on to Austria. The Nabucco project has, however, been beset by lengthy
delays and ongoing questions about its viability. The six-company Nabucco consortium hopes to
begin construction in 2013, but many observers question this timeframe, citing ongoing concerns
about capacity and funding or the Southern Corridor to transport natural gas from
the Caspian region and Central Asia. Although the long-time centerpiece of this strategy, the
proposed Nabucco natural gas pipeline, is no longer considered a commercially viable project, it
has been replaced by the planned smaller-scale Trans-Anatolian natural gas pipeline (TANAP),
which would connect to either the so-called Nabucco West pipeline or the Trans Adriatic Pipeline
(TAP). Nabucco West would transport natural gas from Turkey’s western border to Austria, while
TAP would move natural gas to Italy. Meanwhile, alternative supplies from other regions (e.g.,
North Africa and Central Asia) face several significant challenges.
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Europe’s Energy Security: Options and Challenges to Natural Gas Supply Diversification
A third European energy initiativeaspect of Europe’s energy security policies involves Europe’s own fragmented internal
energy market. In
early February 2011, European heads of state pledged to: complete the
integration and
liberalization of the internal European energy market by 2014; ensure all
European member states
are connected to a Europe-wide energy supply grid by 2015; boost
energy efficiency throughout
Europe; and better coordinate external energy policies. European
leaders hope that further market
liberalization and interconnection of electric grids and pipelines
will, among other things, allow
member states to share and trade energy more flexibly than at
present, mitigating the impact of
supply interruptions and overdependence on a single supplier.
The European Commission
estimates has estimated that over €1 trillion (about $1.4 trillion) of
infrastructure and other investment will be
necessary to realize the EU goals.
Despite its growing dependence on Russian natural gas, some analysts argue that Europe is well
positioned geographically
to benefit from recent changes in global natural gas development.
Since the advent of shale gas in
the United States, the world appears to be potentially awash in
natural gas. A 2011 study
commissioned by the U.S. Energy Information Administration (EIA)
showed that technically
recoverable shale gas resources worldwide may exceed current global
natural gas reserves.1 Other
key developments and possible alternatives to Russian natural gas are
outlined below:
•
Taken as a whole, North Africa could pose a credible alternative to Russian
natural gas supplies. The change of regimes in Libya, in particular, and in Egypt
as a result of the wave of regional unrest known as the “Arab Spring,” poses a
potential opportunity to increase natural gas production and exports from these
countries. Both Libya and Egypt have large natural gas reserves, but production
and exports have been hampered by domestic policies. Algeria, the largest
exporter , and Egypt announced last
year that it will actually need to import natural gas.2 Algeria, the largest exporter
of natural gas in North Africa and the third largest supplier to Europe
behind behind
Russia and Norway, may also hold large volumes of undeveloped shale gas in
addition to substantial conventional reserves. A terrorist attack and ensuing
hostage crisis at a natural gas facility in Algeria in January 2013 highlighted
security concerns that could present a key obstacle to further development of
these resources, however.
•
The Caspian regionshale gas yet to be
developed in addition to their substantial conventional reserves.
•
Central Asia may hold the greatest potential for new natural gas supplies for
for Europe, but currently those supplies wouldsupplies in Central Asia have to transit Russia to arrive
in the
European market. The delays in developing a southern expanding and fully developing southern
corridor natural gas
pipeline route to Europe have pipelines to Europe, including trans-Caspian links, have
forced Central Asian countries to look east instead
ofrather than west to bypass Russia and
open new markets.23
•
Liquefied natural gas (LNG) imports pose an additional alternative to Russian
natural gas. In 20102011, LNG comprised almost 20% of the EU’s natural gas imports
and over 1519% of its consumption. The EU has LNG import capacity to meet its
peak peak
winter demand for natural gas, but during most of the year the facilities are
1
U.S. Energy Information Administration, World Shale Gas Resources: An Initial Assessment of 14 Regions Outside
the United States, Washington, DC, April 5, 2011, p. 4, http://www.eia.gov/analysis/studies/worldshalegas/.
2
“Egypt Pushes Ahead with LNG Imports as Domestic Output Falls Short,” International Oil Daily, December 31,
2012.
3
The southern corridor refers to the area south of the Black Sea and into southern Europe.
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underutilized. Nevertheless, some countries are considering building additional
LNG import terminals to diversify their sources of natural gas. In addition to
LNG import terminals, the EU could benefit from increased natural gas storage
facilities in order to manage their import capacity during non-peak periods, as
well as
more pipeline interconnections to move natural gas where it is needed.
EU EU
officials have identified both improvements as priorities and they are being
pursued, but not without some difficulty.
1
U.S. Energy Information Administration, World Shale Gas Resources: An Initial Assessment of 14 Regions Outside
the United States, Washington, DC, April 5, 2011, p. 4, http://www.eia.gov/analysis/studies/worldshalegas/.
2
The southern corridor refers to the area south of the Black Sea and into southern Europe.
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•
The prospect of significant U.S. LNG exports may pose an opportunity for the
United States to play a bigger role in European energy security and global natural
gas markets.34 Most of the proposed U.S. LNG export projects are located on the
Gulf coast or east coast Gulf
Coast or East Coast of the United States, making shipments, at least initially,
more likely to go to Europe than Asia to Europe probably
economical. Additionally, the U.S. natural gas market
is one of the only markets
in the world where natural gas is not priced against oil,
giving it a cost advantage
in most of Europe. Should future U.S. LNG contracts
not include an oil-indexed
formula, pressure wouldcould be added for other countries,
including Russia, to follow
suit. Russian companies, including state-controlled
natural gas giant Gazprom,
have adamantly defended oil-indexed natural gas
prices.
Context, Background and Different Points of Views
The U.S. Perspective
The primary focus of U.S. effortsenergy policy in Europe has been on establishing a southern corridor
route for Central
AsianCaspian, Central Asian, and Middle Eastern natural gas supplies to be shipped by
pipeline to Europe. Other efforts
have been focused on EU market reforms, which are beyond the
scope of this paper.
The George W. Bush Administration viewed the issue in geopolitical terms and sharply criticized
Russia for using energy supplies as a
means to gain political influence over other countries.4 The
and urged European countries to diversify
supply sources.5 The Obama Administration has also called for diversification, but has refrained
from openly
expressing concerns about Russia’s energy policy in the region, perhaps in order to avoid
avoid jeopardizing the “reset” of ties with Moscow. Additionally, a change in tenor from the Obama
Administration towards the Nabuccothe Obama Administration’s
backing of a significantly scaled back southern corridor pipeline project may indicate waning
interest in the southern
corridor strategy.
Regarding Central Asian supplies and European energy security, in testimony to Congress in June
2011, Richard Morningstar, the State Department’s Special Envoy for Eurasian Energy, said that
U.S. policy encourages the development of new Eurasian oil and natural gas resources to increase
the diversity of world energy supplies. A second U.S. goal is to increase European energy
security, so that some countries in Europe that largely rely on a single supplier (presumably
Russia) may in the future have diverse suppliers. A third goal is assisting Caspian regional states
to develop new routes to market, so that they can obtain more competitive prices and become
more prosperous. In order to achieve these goals, the Administration supports the development of
the Southern Corridor of Caspian (and perhaps Iraq) natural gas export routes transiting Turkey to
Europe.5 Of the three main vying pipeline consortia—the Nabucco, the Interconnector-TurkeyGreece-Italy (ITGI), and the Trans-Adriatic Pipeline (TAP) groups—the Obama Administration
has said it will support the project “that brings the most gas, soonest and most reliably, to those
3
corridor strategy.
The progress of the TANAP project with two possible outlets in Nabucco West or TAP has greatly
improved the chances of Caspian natural gas to flow to Europe in significant quantities. In June
2013, Azerbaijan’s Shah Deniz consortium is expected to announce the next major development
in the evolution of the Southern Corridor, choosing either the aforementioned Nabucco West or
TAP. Both of these projects would be significantly smaller than the previously proposed Nabucco
project, long a centerpiece of U.S. and European energy policy in the region. Despite political
support from the United States and the European Union, Nabucco was not deemed to be
commercially viable. U.S. officials have indicated that they “support any pipeline through the
4
For additional information on U.S. natural gas exports see CRS Report R42074, U.S. Natural Gas Exports: New
Opportunities, Uncertain Outcomes, by Michael Ratner, Paul W. Parfomak, and Linda Luther.
45
The White House, Vice President’s Remarks at the Vilnius Conference, May 4, 2006, http://www.whitehouse.gov.
5
U.S. House of Representatives, Committee on Foreign Affairs, Subcommittee on Europe and Eurasia, Hearing on
European and Eurasian Energy: Developing Capabilities for Security and Prosperity, Testimony of Ambassador
Richard L. Morningstar, Special Envoy for Eurasian Energy, June 2, 2011. For additional information on Turkey see
CRS Report R41368, Turkey: Background and U.S. Relations, by Jim Zanotti.
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parts of Europe that need it most.”6 However, given the historically close relationship between
Russia and Italy on energy issues, including natural gas (especially under the government of
former prime minister Silvio Berlusconi), supporting projects that terminate in Italy could also
raise concerns about Russian influence. Such concerns could be mitigated depending on the
policy measures taken by future Italian governments.
At the same time, Morningstar has rejected views that Russia and the United States are competing
for influence over Caspian energy supplies, stating that the Administration has formed a Working
Group on Energy under the U.S.-Russia Bilateral Presidential Commission.7 At a conference in
Azerbaijan in November 2011, Morningstar stressed that while the United States still supports
Nabucco, “if a smaller pipeline is chosen to ship [Azerbaijani] gas to Europe, we believe it should
provide gas to vulnerable countries in Europe and there should be concrete, written guarantees
that the pipeline will be expanded as more gas becomes available,” ostensibly so that Europe is
less dependent on Russia as a source.8
The Arab Spring, which has brought regime change to two large natural gas producers, Libya and
Egypt, offers potentially expanded sources of natural gas to Europe, but it will depend upon the
policies of the evolving governments. North Africa already has significant natural gas
infrastructure—LNG export terminals and pipelines—connecting it to Europe. However, it is too
early to determine how the changes in North Africa and the Middle East (MENA) will affect
natural gas production and exports. The U.S. government, along with the EU, has indicated its
desire to expand trade and investment with the MENA region, which could help foster economic
growth and provide support for successful democratic transitions. For example, in a speech
delivered at the State Department on May 19, 2011, President Obama outlined a new plan for
U.S. engagement with MENA.9 A key part of this plan is launching a “Trade and Investment
Partnership Initiative” with the MENA countries. Some Members of Congress have also
expressed interest in deeper trade and investment ties with Arab Spring countries.10 Although U.S.
trade and investment with the MENA region overall is relatively limited at present, this region
may present growing commercial opportunities for U.S. businesses in areas such as energy,
transportation, and infrastructure.11
The 112th Congress has also expressed concern about European energy security. Section 1233 of
the FY2012 National Defense Authorization Act requires the Secretary of Defense to submit to
6
At the time of the testimony, the South East Europe Pipeline (SEEP) and Trans-Anatolia projects did not exist.
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Southern Corridor that provides gas to the most vulnerable countries in Europe and that includes
concrete, written guarantees that the pipeline will be expanded as more gas becomes available.”6
The three projects mentioned above are all viewed as scalable as supply and demand changes.
Supporting a project such as TAP, that crosses Greece and includes a spur to Italy, could still raise
concerns about Russian influence. Observers note that Russian companies have bid to purchase
two major Greek gas companies; and that Italy and Russia historically have close ties on energy
issues, including natural gas (especially under the government of former prime minister Silvio
Berlusconi).7 Such concerns could, however, be mitigated depending on the policy measures
taken by future Greek and Italian governments.
Despite the Obama Administration’s stated support of the Southern Corridor, officials reject the
view that Russia and the United States are competing for influence over Caspian and Central
Asian energy supplies, emphasizing, among other things, that the Administration has formed a
Working Group on Energy under the U.S.-Russia Bilateral Presidential Commission.8 That said,
some critics contend that the Administration’s willingness to support a project that is significantly
smaller in size than Nabucco could signal diminishing interest in promoting the diversification
policy.
The Arab Spring brought regime change to two large natural gas producers, Libya and Egypt,
with potentially expanded sources of natural gas to Europe. The development of these resources
will depend upon the policies of the evolving governments. North Africa already has significant
natural gas infrastructure—LNG export terminals and pipelines—connecting it to Europe.
However, it is too early to determine how the changes the Middle East and North Africa (MENA)
will affect natural gas production and exports. The U.S. government, along with the EU, has
indicated its desire to expand trade and investment with the MENA region, which could help
foster economic growth and provide support for successful democratic transitions. For example,
in a speech delivered at the State Department on May 19, 2011, President Obama outlined a new
plan for U.S. engagement with MENA that includes a “Trade and Investment Partnership
Initiative.”9 Some Members of Congress have also expressed interest in deeper trade and
investment ties with Arab Spring countries.10 Although U.S. trade and investment with the MENA
region overall is relatively limited at present, this region may present growing commercial
opportunities for U.S. businesses in areas such as energy, transportation, and infrastructure.11
6
Remarks by Ambassador Richard Morningstar, Special Envoy for Eurasia Energy at the Economist’s Investment
Energy Summit, Athens, Greece, March 28, 2012. http://www.state.gov/s/eee/rmk/187662.htm.
7
See, for example, “One Sure Winner Emerges in Southern Gas Corridor Race,” Euractiv.com, March 11, 2013.
8
U.S. House of Representatives, Committee on Foreign Affairs, Subcommittee on Europe and Eurasia, Hearing on
European and Eurasian Energy: Developing Capabilities for Security and Prosperity, Testimony of Ambassador
Richard L. Morningstar, Special Envoy for Eurasian Energy, June 2, 2011.
8
U.S. Embassy, Baku, Azerbaijan, Office of Public Affairs, Media Advisory: Special Envoy for Eurasian Energy
Supports Southern Corridor, November 17, 2011.
9
Office of the Press Secretary, “Remarks by the President on the Middle East and North Africa,” The White House,
State Department, Washington, DC, May 19, 2011.
10
E.g., see Carnegie Endowment for International Peace, “Lieberman Delivers Remarks on Democratic Transition in
Egypt,” July 22, 2011, http://carnegieendowment.org/files/Lieberman_Prepared_Remarks.pdf; John McCain, Lindsey
Graham, Mark Kirk, and Marco Rubio, “The Promise of a Pro-American Libya,” Wall Street Journal, October 7, 2011.
On November 18, 2011, Representative Dreier introduced a resolution, co-sponsored by Representative Meeks, that
calls for the United States to initiate FTA negotiations with Egypt (H.Res. 472).
11
For more information, see (forthcoming) CRS Report R42153, U.S. Trade and Investment in the Middle East and North
Africa:
Overview and Issues for Congress, coordinated by Rebecca M. Nelson.
7Shayerah Ilias Akhtar.
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The 113th Congress has already expressed concern about European energy security with the
introduction of H.R. 580 and S. 192. The companion bills would, among other things, give
member states of the North Atlantic Treaty Organization (NATO) the same status as free trade
countries with regard to possible U.S. LNG exports. The 112th Congress has also expressed
concern about European energy security. Section 1233 of the FY2012 National Defense
Authorization Act requires the Secretary of Defense to submit to “the appropriate committees of
“the appropriate committees of Congress a detailed report on efforts by the Department of
Defense, including within NATO, to
address the energy security of the NATO alliance.”
European Natural Gas Consumption and the EU’s Evolving Energy
Policy
Collectively, EU member states are the world’s largest energy importer, importing about 55% of
their energy supply—approximately 84% of their oil and 64% of their natural gas.12 EU member
states increasingly rely on natural gas, particularly to reach ambitious targets to reduce carbon
dioxide and greenhouse gas emissions. Natural gas comprised over 2524% of the EU’s primary
energy energy
consumption in 20102011, a number that is expected to grow to almost 30% by 2030.13 Oil
made up almost 40
about 38%, coal about 16almost 23%, and nuclear 12% of the EU primary energy supply. Coal use rose
significantly between 2010 and 2011, in part supplied by increased U.S. coal exports. The
European Commission forecasts that the EU will import over 80% of its natural gas needs by
2030. Analysts note that recent policy decisions, such as a 2011 German announcement that it
would phase out use of its nuclear power plants by 2020 and a French decision to prohibit shale
gas developmentpossible prohibitions on shale gas
development by some EU members, could mean a more rapid rise in Europe’s dependence on natural gas imports.
Other EU countries have made similar announcements, but are much smaller energy consumers.
natural gas imports.
Russia has long been, and is expected to continue to be, the key supplier of natural gas to Europe.
In 20102011, Russia accounted for 3436% of European natural gas imports, followed by Norway and
Algeria (see Figure 1). Russian and European companies have developed an extensive network
of infrastructure to transport Russian natural gas long distances to European markets. Observers
expect natural gas to play a significant role in Europe-Russia relations for decades to come.
12
European Commission, Market Observatory for Energy, Key Figures, June 2011. http://ec.europa.eu/energy/
observatory/eu_27_info/doc/key_figures.pdf.
13
Eurogas, Long Term Outlook for Gas Demand and Supply 2007-2030, June 5, 2010, p. 5, http://www.eurogas.org/
uploaded/Eurogas%20LT%20Outlook%202007-2030_Final_251110.pdf.
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Figure 1. 20102011 EU Natural Gas Imports
Source: BP Statistical Review of World Energy 2011, http://www.bp.com/sectiongenericarticle800.do?
categoryId=9037130&contentId=70686692012.
Notes: The United States re-exported a minimal amount of LNG to Europe in 20102011 and is included in Other.
The percentages do not include imports from one EU country to another. Units are trillion cubic feet (tcf).
Different EU member states use natural gas to different degrees and import levels and sources
vary by country (see Table 1). Some large natural gas consumers, such as Spain, do not import
any natural gas from Russia. Germany, the second biggest natural gas consumer and Russia’s
largest market, relied on Russia for almost 40% of its imports in 20102011. The opening of the Nord
Stream pipeline in late 2011 and Germany’s planned closure of its nuclear power plants highlights
Germany’s potentially greater reliance on Russia. Nord Stream is operating at approximately 80%
of its 2 tcf capacity.
In a reflection of these national differences, the EU has traditionally exerted little if any influence
over the energy policies of individual member states. However, in the face of rising concern about
Europe’s reliance on Russian energy and growing public pressure to address global climate
change, EU member states have begun to increase cooperation toward an “Energy Policy for
Europe.” As stated earlier, European heads of state have committed to completing the integration
and liberalization of the internal European energy market by 2014; promoting the interconnection
of electric grids and natural gas pipelines; boosting energy efficiency; and better coordinating
external energy policies. European leaders anticipate that these initiatives will allow member
states to share and trade energy more flexibly than at present, mitigating the impact of potential
supply interruptions and overdependence on a single supplier.
Even as EU leaders promote ideas on a common energy strategy, many question how far
individual member
states will agree to push Russia (and Gazprom) to adopt the EU’s principles of
competition and
open its energy sector to outside investment. Some analysts believe that an EU commitment to
further liberalize Europe’s energy market and a September 2012 announcement that it would
investigate suspected anti-market practices by Gazprom could signal the beginning of a firmer
and more unified approach toward Russia. Moscow has strongly criticized the decision, which,
among other things, would require energy companies that own pipelines to sell them, or manage
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them separately. Under the EU’s policy, Gazprom, which plays a key role in exporting natural gas
to Europe, could be forced to sell its significant stakes in European distribution networks. In
December 2011, Gazprom announced that its South Stream natural gas pipeline would end
(discussed in more detail in “Russia’s Role”) in Italy rather than in Austria, as was previously
planned. Company sources reportedly stated that the change was in reaction to an EU decision to
block a Gazprom bid to purchase a 50% stake in the Central European Gas Hub (CEGH) in
Austria.14 EU member states have committed to fully implementing the liberalization directive by
the end of 2014. However, European officials reportedly consider the target date unlikely to be
met.15
Some observers believe that regardless of the aforementioned efforts, Europe’s energy security
will continue to bebelieve that without such
Russian concessions, Europe will ultimately find its energy security largely under Russian
control. Indeed, several member states have pursued
bilateral energy deals with Russia that will
increase their dependence on Russia for years to come.
Both Germany and Italy, the largest
importers of Russian natural gas, have negotiated long-term
deals with Russia to lock in future
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natural gas supplies. For Germany and several others, Russia’s
role as a dominant energy supplier
increases the importance of fostering good relations with
Moscow. Further, bilateral deals with
Russia are not limited to the major energy consumers.
Bulgaria, Romania, Hungary, Greece, and
others have entered into long-term energy agreements
with Gazprom over the past several years.
These examplesSuch instances of individual member states dealing with Russia bilaterally have in the past
drawn drawn
harsh criticism from other EU member states, such as the Baltic states and Poland, who
that have had
strained relations with Russia for some time over other issues as well. Governments in
these these
countries have warned their European colleagues not to make energy deals that could give
Russia Russia
increased political influence over European decision-making. Many of these nations
believe that
Europe’s dependence on Russian energy is likely to last no matter how successful
Europe may be
in identifying energy supply alternatives. But they also feel Europe does not gain
real security by
becoming more dependent on Russia. In fact, the growing presence of Gazprom
throughout the
European energy market (for instance through its ownership of distribution and
storage storage
infrastructure) has led many to worry about the EU’s ability to develop an energy policy
insulated from Gazprom’s influence.14
The EU’s 2011 decision to further liberalize Europe’s energy market could signal the beginning of
a more unified approach toward Russia. Moscow has strongly criticized the decision, which,
among other things, would require energy companies that own pipelines to sell them, or manage
them separately. Under the policy, Gazprom, which plays a key role in exporting natural gas to
Europe, could be forced to sell its significant stakes in European distribution networks. In
December 2011, Gazprom announced that its South Stream natural gas pipeline would end
(discussed in more detail in “Russia’s Role”) in Italy rather than in Austria, as was previously
planned. Company sources reportedly stated that the change was in reaction to an EU decision to
block a Gazprom bid to purchase a 50% stake in the Central European Gas Hub (CEGH) in
Austria.15 EU member states have committed to fully implementing the liberalization directive by
2014. However, as of late 2011, at least 18 countries had yet to transform the directive into
national law.16
EU and U.S. concerns about overdependence on Russian natural gas supplies have also led to the
proposed Nabucco gas pipeline. Nabucco would run from eastern Turkey to Bulgaria, Romania,
Hungary, and Austria and on to other European countries. Natural gas would be supplied
primarily by Azerbaijan via pipelines transiting through Georgia. The Nabucco consortium had
hoped to begin work on the pipeline in 2010, but the project has faced repeated delays. A key
factor is uncertainty about Azerbaijan’s production capacity and whether Azerbaijani supplies
could alone justify building the pipeline. The participation of Turkmenistan and Iraq could be key
to Nabucco’s success, but it could be years before these countries are ready to ship gas through
the proposed pipeline. Some Nabucco advocates in Europe have also raised the possibility of
using the pipeline to transport Iranian gas, a remote alternative given current sanctions. The
lingering effects of the global financial crisis could also make it difficult for the private sector to
finance Nabucco and other projected pipelines. Indeed, reports in 2011 suggested that the total
cost of the project could be almost double the €7.9 billion estimated by the consortium of
European energy companies that have committed to build the Nabucco pipeline.17
14
Comments provided through discussions with representatives of several European member states.
Denis Pinchuk, “Gazprom Drops Austria from S. Stream Gas Route—Source,” Reuters, December 14, 2011.
16
“Internal energy market in doubt as 18 states face court,” Euractiv, October 3, 2011.
17
Tim Webb, “European gas pipeline costs double,” The Guardian, February 20, 2011; the Nabucco consortium is
(continued...) insulated
from Gazprom’s influence.16
Although once heralded as the centerpiece for European energy diversification, the original
Nabucco project and the Southern Corridor have lost their luster. As currently planned, beginning
in 2018, the TANAP pipeline will initially transport 565 bcf of Azerbaijan gas from the Shah
Deniz field. This would be about half the capacity of the originally proposed Nabucco project.
Additionally, of the 565 bcf, 215 bcf would stay in Turkey, with the remaining 350 bcf destined to
Europe via either TAP or Nabucco West. Although Russia has long been viewed as an opponent
of Nabucco and the Southern Corridor strategy, it has not vocally expressed opposition to the
new, smaller-scale projects. Nonetheless, Moscow continues to push forward with its South
Stream pipeline, whose primary purpose some observers believe is to hinder European-backed
diversification efforts.
14
Denis Pinchuk, “Gazprom Drops Austria from S. Stream Gas Route—Source,” Reuters, December 14, 2011.
“Commission Prepares EU Energy Market ‘Action Plan,’” Euractiv.com, September 17, 2012.
16
Comments provided through discussions with representatives of several European member states.
15
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Table 1. EU Natural Gas Data, 20102011
Units equal billion cubic feet per year (bcf)
Natural Gas
Consumption
Natural Gas Production
Natural Gas Imports
Austria
297
58
239Austria
335
58
339a
Belgium
738569
0
867a802a
Bulgaria
77
<1
76102
0
101
Cyprus
0
0
0
Czech Republic
415297
7
408424
Denmark
172
292
5148
251
0
Estonia
13
0
13
Finland
159127
0
159134
France
1,699423
26
1,727141
Germany
3,206
449
3,278a2,560
353
2,966a
Greece
137159
0
137117
Hungary
352360
88
264237
Ireland
198166
11
187
2,949
293
2,661
Latvia
23
0
23
Lithuania
93
0
93
Luxembourg
48
0
48
0
0
0
1,750
3,034
599a
Poland
508
150
358
Portugal
175
0
175
Romania
446
370
76
Slovakia
197
4
193
Slovenia
31
<1
31
1,248
4
1,285a
58
0
58
3,329
1,988
1,894a
18,317
6,773
14,855
Italy
191
2,518
271
2,147
23
0
23
120
0
120
48
0
48
0
0
0
1,345
2,267
480a
Poland
544
152
381
Portugal
180
0
180
Romania
487
388
99
Slovakia
219
4
187
Slovenia
31
0
31
1,134
4
1,296a
46
0
46
2,832
1,596
1,886
15,786
5,476
13,289
Italy
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Spain
Sweden
United Kingdom
TOTAL
Natural Gas Imports
Sources: BP Statistical Review of World Energy 2011, Cedigaz2012, Eurogas, and the European Commission.
Notes: Imports plus internal production does not equal consumption because some countries export imported
natural gas or their own production within the region.
(...continued)
made up of six European energy companies: OMV of Austria; MOL of Hungary; Transgaz of Romania; Bulgarian
Energy Holding of Bulgaria; BOTAS of Turkey; and RWE of Germany.
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a.
Some EU countries import more natural gas than they require in order to re-export the natural gas to
other countries.
Russia’s Role18 Imports include natural gas received from other EU
countries.
a.
Some EU countries import more natural gas than they require in order to re-export the natural gas to
other countries.
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Russia’s Role17
The Russian natural gas industry is one of the most important players in the global energy market.
In 20102011, Russia had the largest natural gas reserves in the world, nearly 24about 21% of the world’s total,
was the leading exporter of natural gas, and placed second in production and consumption behind
the United States. Russia was also a founding member, and currently holds the top position, in the
Gas Exporting Countries Forum (GECF).
The Gas Exporting Countries Forum
The Gas Exporting Countries Forum (GECF), also known as Gas-OPEC, is composed of some of the world’s leading
natural gas producers and exporters. It is not a cartel in the same sense as OPEC, in that it does not control marginal
production in an effort to influence prices. There are structural differences in global natural gas and global oil that
make this type of control difficult. Nevertheless, the GECF provides a venue for its members to discuss topics of
interest such as production projects, exports, etc. Its members—which include Algeria, Bolivia, Egypt, Equatorial
Guinea, Iran, Libya, Nigeria, Qatar, Russia, Trinidad and Tobago, and Venezuela—control 36% of world production
and 4647% of global trade. Kazakhstan, the Netherlands, and Norway have observer status at the GECF. Major natural
gas producers that are not affiliated with the GECF include Australia, Azerbaijan, Canada, Indonesia, Malaysia, Oman,
Turkmenistan, the United States (the world’s leading natural gas producer), and the United Arab Emirates, which
collectively control 33% of world production and 28% of global trade.
As noted, Russia is currently the dominant supplier of natural gas to Europe, accounting for about
one-quarter of the EU’s natural gas supplies.1918 (See Figure 2.) This dependency does not go only
in one direction, however. Europe is also the most important market for Russian natural gas
exports, a calculation the Russians mustMoscow may take into account when developing its political relations
with with
Europe. The bulk of Gazprom’s natural gas exports go to Europe and Eurasia. Of the 7.1
trillion cubic feet (tcf) of 8 tcf of
natural gas exported by Gazprom in 20102011, almost 5553% went to the EU.
Of the rest, over 2830% went to
the Commonwealth of Independent States (CIS), many of which
have been unreliable in paying
what they owe and/or receive natural gas at subsidized prices.20
19 The rest went to Turkey, which is
seeking EU membership, and other non-EU countries in
Europe, and to Asia.21
1820
17
For additional information on Russia see CRS Report RL33407, Russian Political, Economic, and Security Issues
and U.S. Interests, coordinated by Jim Nichol.
1918
Russia also supplies the EU with about 27% of its oil imports, 24% of its coal imports, 30% of it uranium imports,
and is the third largest supplier of electricity imports, but these fuel sources are beyond the scope of this report.
2019
The Commonwealth of Independent States (CIS) includes Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgystan,
Moldova, Russia, Tajikistan, and Uzbekistan with Turkmenistan and Ukraine having unofficial status. Georgia
withdrew from the CIS in 2009.
2120
Sergey Paltsev, “Russian Natural Gas Export Potential Up to 2050,” MIT Center for Energy and Environmental
Policy Research, July 2011.
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Europe’s Energy Security: Options and Challenges to Natural Gas Supply Diversification
Figure 2. EU Dependence on Russian Natural Gas
Source: CRS Graphics compiled this graphic.
Notes: For primary energy, which is the base source of energy used to produce electricity and perform other
work, Russian natural gas does not comprise greater than 39% for any EU country.
The revenues generated by this trade are vital to the ruling Russian elite. At present, all Russian
natural gas exports are controlled by Gazprom. As a state-controlled firm, Gazprom has the
closest possible links with top Russian leaders (Russia’s outgoing presidentPrime Minister Dimitri Mevedev
served served
as president of Gazprom). The personal and political fortunes of Russia’s leaders are
closely tied to Gazprom. Russian government revenues (in 2010, 46%
to Gazprom. In 2012, President Putin estimated that half of total Russian
government revenue
came from oil and natural gas taxes) and. Other estimates put the figure higher. Russia’s economic
revival in the
Putin/Medvedev era havehas been heavily dependent on the massive wealth generated
by energy
exports to Europe. Gazprom offers natural gas to the Russian domestic market at subsidized
subsidized prices, which also bolsters the ruling elite politically. Government proposals to
decrease subsidies
have not come to fruition.
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In addition to their financial benefits, Russian natural gas exports to Europe and Eurasia may
have important psychological benefits for the Russian elite. They may be viewed as
demonstrating the resurgence of Russian power after the collapse of the Soviet Union over 20
years ago. Russia’s “National Security Strategy to 2020,” released in May 2009, stated that “the
resource potential of Russia” is one of the factors that has “expanded the possibilities of the
Russian Federation to strengthen its influence in the world arena.”2221
In the long term, Russia hopes to reduce dependency on Europe by diversifying its customer base
as well. By 2030, the Russian government plans to increase gas exports to Asian countries such as
China, South Korea, and Japan until they make up 19%-20% of the total. However, Russia has a
considerable way to go to meet this objective. In 20102011, gas exports to Asia made up about 7% of
total Russian gas exports, all in the form of LNG. Russia opened its first LNG export facility in
2009 on its east coast. Long-standing Russian hopes of providing large amounts of natural gas to
China by pipeline have been stymied by the fact that China has been unwilling to pay the price
Europe pays for Russian natural gas.2322
Given this situation, most experts believe that, barring the failure of Russia to increase its own
energy exploration and development, Russia will continue to remain Europe’s primary energy
supplier, including natural gas supplies, for many years and possibly decades. And, Europe will
remain the primary market for Russian energy exports. Therefore, the main goal of state-run
Russian energy companies, such as Gazprom, has been to try to solidify their dominance of
Europe’s energy sector by pursuing long-term bilateral supply contracts with some European
countries such as Germany, Italy, and Bulgaria, and by seeking to buy stakes in European energy
distribution networks and storage facilities. Russia has also used the allure of its vast resources to
co-opt European companies that dominate Europe’s energy sector.
Gas Crises of the 2000s and Russia and Europe’s Search for Alternatives
Although widely believed by industry and in some political circles, evidence that Russia has been
able to exploit its energy strength to manipulate the policy of EU and other European countries is
ambiguous. Some experts, particularly those in central Europe, claim that Russia is able to use its
dominant role in the energy sectors of their countries to exert influence over certain businessmen
and politicians. Others, mainly in western Europe, claim that the fact that Europe remains
Russia’s largest energy market, and thus its biggest source of foreign income, has led Russia to
exercise more caution in dealing with EU countries. Key customers of Gazprom have been able to
extract better contract terms in recent years that link part of the price of natural gas to spot natural
gas prices instead of solely oil.
Russian leaders have repeatedly said that they view the former Soviet countries as lying within
Russia’s “sphere of privileged interests.” Some have pointed out that Russia has openly used
energy to affect domestic and international policies in Belarus and Ukraine. In perhaps the most
striking example, Russia and Ukraine agreed to extend the stay of the Russian Black Sea Fleet in
Crimea until 2042, from the original withdrawal date of 2017. In exchange, Russia pledged to
provide Ukraine with a discount of two-thirds from Russiaon the standard oil-linked contract price for
22 natural
21
The text of the National Security Strategy can be found at the website of the Russian National Security Council at
http://www.scrf.gov.ru/documents/99.html.
2322
For more information on Russia’s official energy strategy, see Energy Strategy of Russia for the Period up to 2030, at
http://www.energystrategy.ru/projects/docs/ES-2030_(Eng).pdf.
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natural gas supplies for 10 years. However, rising global oil prices (which have risen faster than
spot spot
natural gas prices), to which Russian contract prices are linked, have negated much of the
savings savings
Kyiv counted on, perhaps providing Moscow with additional leverage over Ukraine.2423
In contrast, Russia may view countries such as Germany and France as key players on the world
stage like itself, and therefore entitled to more respect. Smaller, former Soviet-controlled
countries such as the Baltic and central European states may fall between these categories, in the
view of Russian leaders.
In the mid- and late 2000s, many European countries suffered several unexpected energy cutoffs
due to confrontations between Russia and the key pipeline transit states of Ukraine and Belarus
over natural gas supply and transit issues. In 2009, Gazprom halted all natural gas supplies
transiting Ukraine for nearly three weeks after the two sides failed to reach agreement on several
issues, including a debt allegedly owed by Ukraine to Gazprom and the price that Ukraine would
pay for natural gas supplies. Prior to the opening of Nord Stream, about 80% of Europe’s natural
gas imports from Russia transited Ukrainian pipelines. A similar Russian-Ukrainian dispute had
led to a natural gas cutoff to Europe at the beginning of 2006. In 2010 and 2011, disputes between
Russia and Belarus over a variety of issues, including energy prices, debts owed by Belarus, and
transit fees paid by Russia for the use of Belarusian pipelines, led to temporary reductions of oil
and natural gas supplies to Belarus and neighboring countries.
Russia and some western European countries responded to these incidents by planning new
pipeline projects to bypass what they viewed as problematic transit states. One new natural gas
pipeline is the aforementioned Nord Stream, which transports natural gas from Russia to
Germany via a pipeline under the Baltic Sea. It has a planned capacity of almost 2 trillion cubic
feet (tcf)tcf per year, as
compared to the Ukrainian pipeline system’s 4.0-4.5 tcf per year. The first
supplies from the
pipeline were delivered in late November 2011, as stated earlier. Gazprom has
and the pipeline is operating at about 80% of its
capacity. Gazprom has proposed expanding Nord Stream’s capacity still further, but Germany has
rejected the idea so far.
Another pipeline project favored by Moscow is South Stream. It would run under the Black Sea
to Bulgaria and then onto other European countries. Russia hopes to start construction of South
Stream by the end of 2012, and broke ground on South Stream in
December of 2012, and plans to begin deliveries in late 2015. South Stream has a planned capacity
capacity of 2.2 tcf per year and is considered a main competitor to the southern corridor projects, such as
Nabucco and TAP (see “Central Asia Transit Constraints: Many Options but No Alternatives So
Far
(see “Southern Corridor: Issues and Background” below for more on the Southern Corridor
projects).
While building pipelines that circumvent Ukraine, Russia continues its long-standing efforts to
gain control of Ukraine’s pipeline system. In fact, Russia is using Ukraine’s fear of the potential
impact of Nord Stream and South Stream on transit volumes and thus associated revenues
through Ukraine’s pipeline system to try to secure control of those pipelines cheaply. Gazprom
officials have strongly encouraged Ukrainian leaders that they should sell control of Ukraine’s
pipelines to it while they can get a good price.2524 Otherwise, they say, Gazprom may find it more
profitable to build and use South Stream rather than modernize Ukraine’s aging system. Ukraine
has offered Russia partial ownership ofjoint operating rights over the Ukrainian pipeline system in exchange for a share in
natural gas fields in Russia and guaranteed transit volumes through Ukraine’s pipelines. So far
24
23
Luke Harding, “Ukraine extends lease for Russia’s Black Sea Fleet,” The Guardian, April 21, 2010,
http://www.guardian.co.uk/world/2010/apr/21/ukraine-black-sea-fleet-russia.
2524
“Value of Ukraine Gas Transportation System Could Fall Seriously - —Miller,” Interfax, December 31, 2011.
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Russia has not accepted Kyiv’s terms. Russia has also rejected Ukraine’s demands to renegotiate
the current gas supply contract in order to cut the price Kyiv pays for gas, perhaps hoping that
Ukraine’s seeming desperation to secure lower gas prices could still induce it to give Gazprom de
facto control over its pipelinesreduction in the price of gas for Ukraine’s domestic consumption and guaranteed transit volumes
through Ukraine’s pipelines. The two sides are currently negotiating over the proposal. In the
meantime, Ukraine has sharply reduced the amount of gas it imports from Russia, provoking
Russia to demand that Ukraine pay a $7 billion fine for allegedly violating the terms of the
current “take-or-pay” agreement between the two countries.
Russia has had more success in gaining control of Belarus’s gas infrastructure. In December
2011, Gazprom completed a deal to buy the 50% of Beltransgaz (Belarus’s natural gas pipeline
transport company) that it did not own, in exchange for reduced gas prices. The Yamal-Europe
gas pipeline, which runs through Belarus and Poland, currently carries about 20% of Russian gas
exports to Europe. Gazprom is currently studying how to expand the gas transit capacity of its
new possession, which could put further pressure on Ukraine.
Some Russian actions may be aimed at frustrating European efforts at diversification. These
include trying to sign long-term contracts with Azerbaijan and Central Asian states to lock up
supplies sought by the Europeans; lodging legal objections to the proposed Trans-Caspian
Pipeline between Azerbaijan and Turkmenistan, which would be a key link in providing Caspian
gas to Europe; attempting to coordinate natural gas export policies with other leading producers
such as Qatar and Iran, perhaps with hopes of eventually creating a “gas OPEC” of the GECF;
and the South Stream project itself, which may be as much an effort to thwart Nabucco as a viable
pipeline project in its own right.
Central Asia Transit Constraints: Many Options but No
Alternatives So Far.
Southern Corridor: Issues and Background25
Establishing a non-Russian and non-Iranian natural gas pipeline system to transport Central Asian
natural gasnatural gas
from the Caspian region and Central Asia to Europe is a stated priority for the EU supported by the United States. Despite this,
all the proposed projects face challenges from both cost and supply perspectives that raise
questions about their viability (see Table 2). The main proposed pipeline, Nabucco, has had
difficulty securing natural gas supplies and more recently cost questions have arisen
the United States. However, achieving this goal has proved elusive. As noted above, current plans
envision an initial pipeline network that would transport to Europe well under half the capacity of
the originally proposed Nabucco pipeline.
25
Since the mid-1990s, the United States had advocated building pipelines from the Caspian region to the west along
diverse routes in addition to existing routes through Russia, and which avoided Iran. See below, and CRS Report 97569, Azerbaijan’s Oil and Gas, May 27, 1997, by Jim Nichol (out of print; available from the author of this report). The
term “Southern Gas Corridor” was mentioned in Commission of the European Communities, Communication from the
Commission to the European Parliament, The Council, The European Economic and Social Committee, and the
Committee of the Regions, Second Strategic Energy Review: An EU Energy Security and Solidarity Action Plan,
Com(2008) 781 Final, November 13, 2008.
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Table 2. Prospective Non-Russian Southern Corridor Pipelines
Units = billion cubic feet per year (bcf)
Anticipated Capacity
Anticipated
In-Service Date
Interconnector Turkey,
Greece, Italy (ITGI)
350
2015
BOTAS (Turkey), DEPA
(Greece), Edison (Italy)
Trans Adriatic Pipeline
(TAP)
350
2017
EGLAXPO (Switzerland), E.ON
Ruhrgas (Germany), Statoil
(Norway)
Trans-Anatolian Gas
Pipeline (TANAP)
570
2017565
2018
BOTAS (Turkey), SOCAR
(Azerbaijan), TPAO
(Turkey)
South Caucasus Pipeline
Expansion (SCP)a
565
2017
BP (United Kingdom),
Lukoil (Russia), Naftiran
(Iran), SOCAR
(Azerbaijan), Statoil
(Norway), Total (France),
TPAO (Turkey)
South East Europe
Pipeline (SEEP)
350
2017
BP (United Kingdom)
1,100
2019
BEH (Bulgaria), BOTAS
(Turkey), MOL (Hungary),
OMV (Austria), RWE
(Germany), Transgaz
(Romania)
Name
Nabucco Gas Pipeline
Partners
Source: Company websites and various articles.
Notes: Not all of these projects will be built as many compete with each other for natural gas supplies. The
Nabucco West Pipeline
350
2017
BEH Bulgarian (Bulgaria),
Botas (Turkey), FGSZ
(Hungary), OMV (Austria),
Transgaz (Romania)
Name
Partners
Source: Company websites and various articles.
Notes: The Shah Deniz consortium will decide by the end of June on whether Phase 2 production from the field
will go to Europe via TAP or Nabucco West. The South Stream pipeline project, Russia’s response to developing
the Southern Corridor for Caspian natural gas, is
a 2,200 bcf per year pipeline sponsored by EDF (France), ENI
(Italy), Gazprom (Russia), and Wintershall
(Germany) to bring Russian natural gas to Europe. South Stream is
also designed to bypass troubled transit states
like Ukraine and Belarus.
a.
The South Caucasus Pipeline (SCP) began operations in 2006 and currently has a capacity of 250 bcf of
natural gas.
In mid-November 2007, Greek Prime Minister Kostas Karamanlis and Turkish Prime Minister
Recep Tayyip Erdogan inaugurated a natural gas pipeline connecting the two countries. Since
some Azerbaijani natural gas reaches Greece, the pipeline represents the first natural gas supplies
from the Caspian region to the EU. If a pipeline extension is completed to Italy, this
Interconnector Turkey-Greece-Italy (ITGI) natural gas pipeline could permit Azerbaijan to supply
natural gas to two and perhaps more EU members, providing a source of supply besides Russia.
The austerity measures undertaken by Greece may limit or prohibit the participation of DEPA, its
state-owned natural gas company, in the ITGI pipeline.
The Nabucco pipeline has faced numerous delays, some of them attributable to Russia’s counterproposals to build pipelines that it asserts would reduce the efficacy of the Nabucco pipeline and
to questions about supplies for the pipeline. In early September 2010, the European Investment
Bank, the European Bank for Reconstruction and Development, and the World Bank announced a
commitment—pending environmental and social feasibility studies—to provide $5.2 billion to
build the Nabucco pipeline. Latest EU planning calls for construction of the 1.1 tcf-capacity
Nabucco pipeline to begin in 2012 and for shipments to begin in 2017. In 2011, new higher cost
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estimates for building the pipeline appeared to place these plans at risk, pushing back shipments
until 2019.
As another alternative to natural gas shipments through Turkey, Azerbaijan, Romania, and
Georgia signed a memorandum of understanding in April 2010 to transport liquefied natural gas
(LNG) from Azerbaijan to the EU through Georgia and Romania. This Azerbaijan-GeorgiaRomania-Interconnection (AGRI) project envisions the construction of a natural gas pipeline
from Azerbaijan to the Georgian port of Kalevi, where the natural gas would be liquefied, shipped
across the Black Sea, and regasified at the Romanian port of Constanta. This is an unusual
proposal to use LNG as the distance across the Black Sea is relatively short—the industry norm
for LNG utilization is 1,500 miles. The project output is expected to be 247 bcf per year, with 71
bcf of the natural gas used by Romania and the rest by other EU countries. The presidents of the
three countries (and the prime minister of Hungary, which joined the project) met in Baku on
September 15, 2010, to sign the Baku Declaration of political support for the project. President
Aliyev of Azerbaijan argued that the AGRI project would not make Nabucco less feasible.
Some of the tensions between Turkey and Azerbaijan involving energy issues appeared resolved
in June 2010, during President Aliyev’s visit to Turkey, when the two countries signed accords on
the sale and transportation of Azerbaijani natural gas to Turkey and to other countries via Turkey.
A memorandum of understanding permitting Azerbaijan to conclude direct sales with Greece,
Bulgaria, and Syria involving natural gas transiting Turkey was signed. Many observers viewed
the MOU as increasing the feasibility of the ITGI and Nabucco pipelines.26
In January 2011, In January 2011,
President Aliyev and the President of the European Commission, Jose Manuel
Barroso, signed a
joint declaration committing Azerbaijan to supplying substantial volumes of
natural gas over the long term to the European Union. Nonetheless, some analysts raised concerns
that there would not be enough Azerbaijani natural gas to fill the ITGI and Nabucco pipelines
(deliveries would be 406 bcf per year for ITGI and 158 to 459 bcf per year for Nabucco) and to
provide for the proposed AGRI project without a trans-Caspian natural gas pipeline or
participation by Iran or Iraq. In 2010, Azerbaijan produced about 530 bcf. Others suggested that
Azerbaijan would be able to supply at least most of the needed natural gas for both the ITGI and
Nabucco pipelines and the AGRI project, because of recent results from exploratory drilling off
the Caspian seacoast.27
In September 2011, the Council of the European Union approved opening talks with Azerbaijan
and Turkmenistan to facilitate an accord on building a trans-Caspian natural gas pipeline. Such a
link would provide added natural gas to ensure adequate supplies for the planned Nabucco and
other pipelines. Hailing the decision, EU Energy Commissioner Günther Oettinger stated that
“Europe is now speaking with one voice. The trans-Caspian pipeline is a major project in the
Southern Corridor to bring new sources of natural gas to Europe. We have the intention of
achieving this as soon as possible.”28 The Russian Foreign Ministry denounced the planned talks,
and claimed that the Caspian Sea littoral states—Azerbaijan, Iran, Kazakhstan, Russia, and
Turkmenistan—had agreed in a declaration issued in October 2007 that decisions regarding the
Sea would be adopted by consensus among all the littoral states (Russia itself has violated this
26
“Azerbaijan to Move Quickly to Negotiate Sales of Gas to Europe,” Oil Daily, June 14, 2010.
Eric Watkins, “New USGS Report Confirms Big Caspian Stakes,” Oil & Gas Journal, January 3, 2011.
28
European Commission, Press Release: EU Starts Negotiations on Caspian Pipeline to Bring Gas to Europe,
September 12, 2011.
27
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Europe’s Energy Security: Options and Challenges to Natural Gas Supply Diversification
provision by agreeing with Kazakhstan and with Azerbaijan on oil and natural gas field
development). It also claimed that the proposed pipeline was different from existing sub-sea
pipelines in posing an environmental threat.29
By the beginning of October 2011, the State Oil Company of Azerbaijan (SOCAR) had received
final proposals for pipelines to export natural gas from the second phase development of the Shah
Deniz offshore oil and natural gas fields. Proposals were received from consortia backing the
ITGI, Nabucco, and Trans Adriatic Pipeline (TAP; from Turkey through Greece, Albania, and the
Adriatic Sea to Italy) projects, as well as from BP, which reportedly proposed an 808-mile “South
East Europe Pipeline” (SEEP) from western Turkey through Bulgaria, Romania, and Hungary to
Austria. A substantial part of the project reportedly would involve building inter-connectors
between existing pipelines. A proposal for AGRI was not reported. SOCAR and other members of
the Shah Deniz consortium stated that they would decide on a pipeline within several weeks.
On October 25, 2011, Azerbaijan and Turkey announced that they had signed accords on the final
terms for the transit of Shah Deniz phase 2 natural gas through the southern corridor. The
agreements were signed during President Aliyev’s visit to Turkey. They specified that 565-700
bcf of natural gas would transit Turkey, of which 210 bcf would be available for Turkey’s
domestic use. Another significant accord provided for the possible construction of a new “TransAnatolia” natural gas pipeline, so that the natural gas from Shah Deniz Phase 2 would not have to
go through the Turkish pipeline system. This pipeline could link to BP’s proposed SEEP. In late
December 2011, the Azerbaijani and Turkish governments signed a memorandum of
understanding on setting up a consortium involving SOCAR, the Turkish state-owned TPAO
energy firm, and TPAO’s pipeline subsidiary, BOTAS, to construct the Trans-Anatolian Pipeline.
SOCAR is designated initially to hold an 80% share in the consortium, although other companies
may be invited to join later.
29
“Moscow ‘regrets’ EU decision on trans-Caspian gas pipeline,” RIA Novosti, September 13, 2011, Web Edition
long term to the European Union.
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By the beginning of October 2011, the State Oil Company of Azerbaijan (SOCAR) had received
final proposals for pipelines to export natural gas from the second phase development of the Shah
Deniz offshore oil and natural gas fields. Proposals were received from consortia backing the
ITGI, Nabucco, and Trans Adriatic Pipeline (TAP; from Turkey through Greece, Albania, and the
Adriatic Sea to Italy) projects, as well as from BP, which reportedly proposed an 808-mile “South
East Europe Pipeline” (SEEP) from western Turkey through Bulgaria, Romania, and Hungary to
Austria. A substantial part of the project reportedly would involve building inter-connectors
between existing pipelines. A proposal for AGRI was not reported. SOCAR and other members of
the Shah Deniz consortium stated that they would decide on a pipeline within several weeks.
On October 25, 2011, Azerbaijan and Turkey announced that they had signed accords on the final
terms for the transit of Shah Deniz phase 2 natural gas through the southern corridor. The
agreements were signed during President Aliyev’s visit to Turkey. They specified that 565-700
bcf of natural gas would transit Turkey, of which 210 bcf would be available for Turkey’s
domestic use. Another significant accord provided for the possible construction of a new “TransAnatolia” natural gas pipeline, so that the natural gas from Shah Deniz Phase 2 would not have to
go through the Turkish pipeline system. In late December 2011, the Azerbaijani and Turkish
governments signed a memorandum of understanding on setting up a consortium involving
SOCAR, the Turkish state-owned TPAO energy firm, and TPAO’s pipeline subsidiary, BOTAS, to
construct the Trans-Anatolian Pipeline. SOCAR is designated initially to hold an 80% share in the
consortium, although other companies may be invited to join later, primarily the members of the
Shah Deniz consortium.
In late December 2011, the Azerbaijani and Turkish governments signed a memorandum of
understanding on setting up a consortium involving SOCAR, the Turkish state-owned TPAO
energy firm, and TPAO’s pipeline subsidiary, BOTAS, to construct TANAP. SOCAR is
designated initially to hold an 80% share in the consortium, although other members may be
invited to join the consortium. Contract negotiations on setting up the consortium reportedly have
been contentious, however.
In May 2012, the Nabucco consortium submitted new pipeline proposals to the Shah Deniz
consortium, reportedly including the original route as well as the shorter Nabucco West route. The
Shah Deniz Export Negotiating Team reportedly indicated in February 2012 that it preferred the
TAP proposal over the ITGI pipeline proposal. In mid-2012, it rejected SEEP, leaving TAP and
Nabucco West as the choices. The Shah Deniz Team has indicated that it will make a final
decision about the pipeline by June 2013.
In late June 2012, the Azerbaijani and Turkish presidents and oil firm heads signed accords to
build TANAP. The first stage, with a capacity of 565 bcf per year, is planned to be completed in
2018. Other investors are being invited to participate.
In late 2012, Russia finalized arrangements with transit states for the construction of the South
Stream gas pipeline, with a capacity of 2.2 bcf per year, under the Black Sea to European
markets, and began construction of the onshore portion in Russia in December 2012. The
undersea portion will extend nearly 600 miles. From Bulgaria, the pipeline is planned to transit
Serbia, Hungary, and Slovenia to Austria. The first phase of construction is planned to be
completed in 2015. According to some analysts, the pipeline is not economically viable, but is
being built by Russia to counter proposals to build the Nabucco West pipeline and perhaps a
trans-Caspian pipeline, so that Russia may maintain a dominant gas presence in Europe. To
bolster prospects for building the Nabucco West pipeline, the Shah Deniz consortium agreed with
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the Nabucco consortium in January 2013 to finance up to one-half of the pipeline. Azerbaijan also
has pledged to provide some financing for TAP if it chooses this pipeline.
Discussions on a Trans-Caspian Pipeline
In 1999, Turkmenistan signed an accord with two U.S. construction firms to conduct a feasibility
study on building a trans-Caspian gas pipeline to Azerbaijan, but Turkmenistan failed to commit
to the pipeline following objections from Iran and Russia. In September 2011, the Council of the
European Union approved opening talks with Azerbaijan and Turkmenistan to facilitate an accord
on building a trans-Caspian gas pipeline. Such a link would provide added gas to ensure adequate
supplies for the planned Southern Corridor pipelines. Hailing the decision, EU Energy
Commissioner Günther Oettinger stated that “Europe is now speaking with one voice.”
The United States has supported building a trans-Caspian pipeline and stated that no other
country should be able to veto a decision by Azerbaijan and Turkmenistan to build such a
pipeline.
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Figure 3. Select European Natural Gas Infrastructure
Source: Compiled by the Library of Congress Cartography section.
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Europe’s Energy Security: Options and Challenges to Natural Gas Supply Diversification
Potential Sources of Alternative Supplies
Global natural gas reserves have increased every year for at least the last three decades, and the
advent of shale gas makes the future of natural gas possibly even larger. The U.S. Energy
Information Administration (EIA) estimates global natural gas reserves, both conventional and
unconventional, at over 6,600 tcf and technically recoverable shale gas resources at about the
same, while consumption was about 112114 tcf in 20102011—or almost 125 years-years’ worth of natural gas.3026
Two regions—Central Asia and North Africa—hold great potential to produce more natural gas
than they currently do, and given the proximity of both to Europe (see Figure 3) offer possible
alternatives to Russian supplies. Central Asia has been a focus of U.S. and European efforts to
provide Europe an alternative to Russia for natural gas through the southern corridor. North
Africa already has multiple pipelines to Europe and LNG export terminals. The main issue for
this region is whether the MENA nations, with existing reserves and infrastructure, can increase
production and delivery of additional supplies to Europe.
There has been tremendous growth in LNG liquefaction over the last few years, mainly in Qatar,
and more capacity is projected to be added by industry. Even the United States has multiple
proposed LNG liquefaction projects at various stages of regulatory approval. The addition of
more liquefaction capacity will provide the EU with other alternative suppliers even though their
ability to use LNG is constrained by a lack of infrastructure.
Central Asia and the Caspian RegionThe Caspian Region and Central Asia: The Focus of U.S. Policy31Policy27
The Caspian region (see Figure 4) has emerged as a significant source of natural gas for world
markets. The proven natural gas reserves of Azerbaijan, Kazakhstan, Turkmenistan, and
Uzbekistan are estimated at over 4501,000 tcf, among the largest in the world and greater than those in
Russia (see Table 3). The
International Energy Agency (IEA) estimates that the Caspian region’s
proven and recoverable
natural gas reserves are about 7% of the world’s reserves, but also
stresses that further exploration
could result in an upward revision of estimated reserves.
Nonetheless, the Central Asian states
remain geographically isolated from world markets. Natural
gas pipelines must be built long
distances and must traverse several countries, increasing political
and economic risks. Those
pipelines which head westward must traverse either the Caspian Sea,
where the littoral states
continue to argue over its legal status, pass through energy competitors
Russia or Iran, or for
Azerbaijan, across Turkey.
3026
U.S. Energy Information Administration, World Shale Gas Resources: An Initial Assessment of 14 Regions Outside
the United States, Washington, DC, April 5, 2011, p. 4, http://www.eia.gov/analysis/studies/worldshalegas/.
Reserves and resources are not the same in the energy industry. Reserves are considered a subset of resources as they
indicate that a resource is producible using today’s technology at today’s prices.
3127
For additional information on Central Asia see CRS Report RL33458, Central Asia: Regional Developments and
Implications for U.S. Interests, by Jim Nichol.
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Figure 4. The Caspian Region
Source: http://www.david-sadler.org/pages/obx/ukraine.htm.Figure 4. The Caspian Region
Source: Compiled by the Library of Congress Cartography section.
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Asia is a growing prospect for Central Asian natural gas. A natural gas pipeline from
Turkmenistan to China exists, but China needs to upgrade its internal supply network to provide
natural gas to the coastal industrial areas. Kazakhstan is in discussions with China to export
natural gas as well. Turkmen natural gas fields could help meet both Pakistan’s and India’s
growing energy needs and provide significant transit revenues for both Afghanistan and
Pakistan.”3228 If enough capacity is constructed to China and other parts of Asia, future supplies to
Europe may be moot, which would benefit Russia.
Table 3. Key Central Asian Natural Gas Data, 20102011
Units = trillion cubic feet (tcf)
Reserves
Production
Exports to
EU
Azerbaijan
44.9
0.5
0.0a
Kazakhstan
65.2
1.2
0.0
283.6
1.5
0.0
55.1
2.1
0.0
448.866.4
0.7
0.0
858.8
2.1
0.0
56.6
2.0
0.0
1,026.7
5.3
0.0
Turkmenistan
Uzbekistan
TOTAL
Source: BP Statistical Review of World Energy 2011, pp. 20, 22, and 28.
a.
Azerbaijan does export natural gas to Turkey, which then sends some of it to Greece.
32
U.S. Department of State, Secretary Clinton Co-Chairs the New Silk Road Ministerial Meeting, DipNote, September
23, 2011; Fact Sheet on New Silk Road Ministerial, September 22, 2011. See also U.S. Department of State, Remarks,
Robert D. Hormats, Under Secretary for Economic, Energy and Agricultural Affairs, Address to the SAIS Central AsiaCaucasus Institute and CSIS Forum, September 29, 2011; William J. Burns, Deputy Secretary of State, Remarks at
Istanbul Conference for Afghanistan, November 2, 2011.
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Azerbaijan: The EU’s Best Hope For New Natural Gas Supplies?33
U.S. administrations have contested that exports from Azerbaijan could boost energy security for
European customers currently relying more on Russia. According to Ambassador Morningstar,
Azerbaijani natural gas “is absolutely essential to the development of the Southern Corridor,” and
will be able to supply at least some if not most of the needed natural gas for both the proposed
Interconnector-Turkey-Greece-Italy (ITGI) natural gas pipeline and the first phase of the Nabucco
pipeline, if built.34 In March 2007, Azerbaijan and the United States signed a memorandum of
understanding on energy cooperation that called for discussions on the proposed ITGI and
Nabucco natural gas pipelines. In August 2007, the U.S. Trade & Development Agency granted
Azerbaijan $1.7 million to fund feasibility studies on building both a natural gas and an oil
pipeline across the Caspian Sea to link Central Asia to the SCP pipeline and the Baku Tbilisi
Ceyhan pipeline.
Of importance to U.S. foreign policy is Azerbaijan’s relationship with Iran. At the end of 2005,
Azerbaijan began sending about 7 billion cubic feet of natural gas per year through a section of
Soviet-era pipeline to the Iranian border at Astara, partly in exchange for Iranian natural gas
shipments to Azerbaijan’s Nakhichevan exclave.35 On November 11, 2009, Azerbaijan signed an
accord with Iran to supply 17.7 bcf of natural gas annually through the pipeline. These natural gas
supplies could increase in coming years.
Kazakhstan: Natural Gas Is Second to Oil362012.
a.
Azerbaijan does export natural gas to Turkey, which then sends some of it to Greece.
Azerbaijan: The EU’s Best Hope For New Natural Gas Supplies?29
U.S. administrations have contested that exports from Azerbaijan could boost energy security for
European customers currently relying more on Russia. According to former U.S. Special Envoy
for Eurasian Energy and current U.S. Ambassador to Azerbaijan Richard Morningstar,
Azerbaijani natural gas “is absolutely essential to the development of the Southern Corridor.” As
noted previously, Azerbaijan will supply all the natural gas for the TANAP pipeline and the
forward project to Europe. It is also important to note that Azerbaijan will supply Turkey with an
additional 215 bcf of natural gas to help Turkey meet its growing natural gas demand.
The natural gas will come from phase 2 development of Azerbaijan’s Shah Deniz field, which is
in the Caspian Sea. The consortium that owns the Shah Deniz field is led by BP as the operator,
but also includes Statoil (Norway), SOCAR (Azerbaijan), LUKOIL (Russia), Total (France),
NICO (Iran), and TPAO (Turkey). Recent U.S. legislation regarding sanctions against Iran has
been constructed to avoid sanctioning the Shah Deniz project, even though one of the partners is
an Iranian company.30
28
U.S. Department of State, Secretary Clinton Co-Chairs the New Silk Road Ministerial Meeting, DipNote, September
23, 2011; Fact Sheet on New Silk Road Ministerial, September 22, 2011. See also U.S. Department of State, Remarks,
Robert D. Hormats, Under Secretary for Economic, Energy and Agricultural Affairs, Address to the SAIS Central AsiaCaucasus Institute and CSIS Forum, September 29, 2011; William J. Burns, Deputy Secretary of State, Remarks at
Istanbul Conference for Afghanistan, November 2, 2011.
29
For additional information on Azerbaijan see CRS Report 97-522, Azerbaijan: Recent Developments and U.S.
Interests, by Jim Nichol.
30
For additional information on U.S. sanctions towards Iran, see CRS Report RS20871, Iran Sanctions, by Kenneth
(continued...)
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Azerbaijan’s relationship with Iran is important to U.S. foreign policy. At the end of 2005,
Azerbaijan began sending about 7 billion cubic feet (bcf) of natural gas per year through a section
of Soviet-era pipeline to the Iranian border at Astara, partly in exchange for Iranian natural gas
shipments to Azerbaijan’s Nakhichevan exclave.31 In January 2011, Azerbaijan signed a five-year
accord with Iran to supply 35.3 bcf of natural gas through the pipeline in 2011, and possibly
increasing amounts thereafter. This gas is used in northern Iran, and in exchange, Iran provides
some gas to the Azerbaijani exclave of Nakhichevan.
Kazakhstan: Natural Gas Is Second to Oil32
Most natural gas production in Kazakhstan has been associated with the development of oil
fields, and most of the natural gas has been re-injected into the fields. Natural gas is mostly
produced in the northwestern part of the country, while population centers in the eastern and
southern parts are dependent on natural gas imported from Uzbekistan. In 2009, Kazakhstan
became a net natural gas exporter. According to the BP Statistical Review, Kazakhstan exported
about 424 billion cubic feet (bcf)406 bcf of natural gas from its western fields mostly to Russia in 20102011. In
December 2007,
Kazakhstan, Turkmenistan, and Russia signed an agreement to renovate a branch
of the Central
Asia-Center Pipeline supplying natural gas to Russia and to build a new Caspian
Coastal Pipeline,
but these plans have been delayed by Turkmenistan’s intentions to diversify its
export routes
away from Russia and by reduced natural gas demand by Russia. Kazakhstan
nonetheless plans to
boost its natural gas exports in coming years to Russia and China.
Until recently, U.S. foreign direct investment (FDI) played a dominant role in the development of
Kazakhstani oil and natural gas resources, amounting to about $29 billion in Kazakhstan (over
one-third of all FDI in the country) from 1993-2009.37 According to some reports, China provided
33
For additional information on Azerbaijan see CRS Report 97-522, Azerbaijan: Recent Developments and U.S.
Interests, by Jim Nichol.
34
U.S. Embassy, Baku, Media Advisory, Ambassador Richard Morningstar, Special Envoy for Eurasian Energy:
Speech to Plenary Session of Caspian Oil and Gas Conference, June 8, 2011.
35
The Nakhichevan exclave is Azerbaijani territory that is situated between the Armenian controlled area of NagornoKarabagh and Armenia proper.
36
For additional information on Kazakhstan see CRS Report 97-1058, Kazakhstan: Recent Developments and U.S.
Interests, by Jim Nichol.
37
U.S. Department of State. Robert O. Blake, Jr., Assistant Secretary, Bureau of South and Central Asian Affairs:
Remarks Before the Washington International Business Council, February 24, 2010.
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16.5 billion in Kazakhstan from 19932012.33 According to some reports, China provided about $13 billion in investments and loans to
Kazakhstan’s energy sector in 2009, highlighting its
rising energy influence. Some U.S. energy
firms and other private foreign investors have become
discouraged in recent monthsyears by harsher
Kazakh government terms, taxes, and fines that some
allege reflect corruption within the ruling
elite.
At the end of October 2008, China and Kazakhstan signed a framework agreement on
constructing a natural gas pipeline from Beyneu, north of the Aral Sea, southeastward to
Shymkent, where it will connect with the Central Asia-China Gas Pipeline. The 932-mile
Beyneu-Shymkent Pipeline link is planned initially to supply 176.6 bcf to southeastern
Kazakhstan and 176.6 bcf to China. Pipeline construction began in September 2011 and is
expected to be completed by 2015.
Kazakh officials have appeared to make contradictory statements about providing natural gas for
the prospective Nabucco pipeline. Kazakhstan’s Deputy Energy and Mineral Resources Minister
Aset Magaulov stated at a Euro-Atlantic Partnership Council Security Forum in June 2009 that
Kazakhstan would not have a surplus of natural gas that it could send through the Nabucco
pipeline.38 Later that year, President Nazarbayev appeared to support the possible transit of
Kazakh natural gas through Turkey. In late October 2009, however, the Kazakh Ministry of
Energy reiterated that “the main problem for our country [regarding the supply of natural gas to
Nabucco] is the limited availability of gas” because of existing contracts for projected natural gas
production. It suggested that Kazakhstan might be a potential supplier for Nabucco if natural gas
production exceeds expectations, but that Kazakhstan could not transport any natural gas via
Nabucco until the legal status of the Caspian Sea was resolved, which would permit building a
connection to Nabucco.39 In early October 2011 Minister of Oil and Gas Sauat Mynabyev stated
that “we do not have available resources for the gas pipeline yet.”40
Turkmenistan: European Orientation?41
(...continued)
Katzman.
31
The Nakhichevan exclave is Azerbaijani territory that is situated between the Armenian controlled area of NagornoKarabagh and Armenia proper.
32
For additional information on Kazakhstan see CRS Report 97-1058, Kazakhstan: Recent Developments and U.S.
Interests, by Jim Nichol.
33
U.S. House of Representatives, Committee on Foreign Affairs, Subcommittee on Europe and Eurasia, Hearing; U.S.
Engagement in Central Asia, Testimony by Robert Blake, Assistant Secretary, Bureau of Central and South Asian
Affairs, July 24, 2012.
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Turkmenistan: European Orientation?34
As shown in Table 3, Turkmenistan holds the largest natural gas reserves in Central Asia. A
significant quantity of Turkmen natural gas production already flows to Europe via Russia.
However, Turkmenistan’s drive for alternative export routes for its natural gas has pitted it against
some of the other Caspian countries. In September 2011, the Council of the EU approved opening
talks with Azerbaijan and Turkmenistan to facilitate an accord on building a trans-Caspian natural
gas pipeline. Russia and Iran oppose the building of trans-Caspian pipelines, claiming that the
delineation of Caspian Sea borders and the use and protection of maritime resources must first be
worked out by the littoral states. Many observers view such objections as partly driven by the
status of Russia and Iran as natural gas producers in competition with Turkmenistan. Russia, in
particular, appears to want to maintain its role as a major importer of Turkmen natural gas and to
prevent it from competing directly with Russian natural gas exports to the EU. Turkmenistan’s
claims against Azerbaijan regarding some offshore oil and natural gas fields also have stymied a
formal agreement on a trans-Caspian pipeline between the two countries. In mid-October 2011,
Russian President Medvedev warned again that all the littoral states would need to agree to a
trans-Caspian pipeline. The Turkmen Foreign Ministry retorted by terming this stance
38
ITAR-TASS, June 25, 2009.
ITAR-TASS, October 31, 2009.
40
Interfax, October 6, 2011.
41
For additional information on Turkmenistan see CRS Report 97-1055, Turkmenistan: Recent Developments and U.S.
Interests, by Jim Nichol.
39
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“counterproductive” to Turkmen-Russian relations. The Foreign Ministry pointed out that several
bilateral agreements on sea use had been concluded by Russia and others, and repeated
Turkmenistan’s argument that it similarly could reach an agreement with Azerbaijan on a
pipeline.
Despite Turkmenistan’s desire to export more of its gas, thus far, its orientation seems to be
toward the east and not yet toward Europe. Turkmenistan has been seeking alternatives to
pipeline routes through Russia for some time. Since December 1997 Turkmenistan has opened
two pipelines to Iran doubling Turkmenistan’s export capacity to Iran to about 700 bcf per year.4235
In April 2006, Turkmenistan and China signed a framework agreement calling for Chinese
investment in developing natural gas fields in Turkmenistan and in building a natural gas pipeline
through Uzbekistan and Kazakhstan to China, which is in operation. Finally, Turkmen President
Berdimuhamedow also has revived his predecessor’s proposal to build a natural gas pipeline
through Afghanistan to Pakistan and India (TAPI).
Uzbekistan: A Sleeping Natural Gas Giant?4336
Uzbekistan mostly uses its natural gas production domestically and is self-sufficient. It has,
however, used its network of Soviet-era natural gas pipelines to export some natural gas to Russia
and to other Central Asian states (Kazakhstan, Kyrgyzstan, and Tajikistan). Uzbekistan appears to
have sufficient gas reserves to become a potential supplier of some gas to Europe if its
infrastructure development begins to look westward.
However, Uzbekistan has been largely closed to Western energy investment, although efforts to
attract international energy firms have appeared to increase in 2010-2011recent years. Russian firms Gazprom and
34
For additional information on Turkmenistan see CRS Report 97-1055, Turkmenistan: Recent Developments and U.S.
Interests, by Jim Nichol.
35
According to the BP Statistical Review, actual Turkmen natural gas exports were about 230 bcf to Iran in 2010.
36
For additional information on Uzbekistan see CRS Report RS21238, Uzbekistan: Recent Developments and U.S.
Interests, by Jim Nichol.
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Gazprom and Lukoil are the largest investors in Uzbek natural gas development and production
and seem
through their policies to want to keep Uzbek natural gas from competing with other Russian
Russian natural gas being supplied to Europe. In 2005, the Central Asia-China Pipeline (CNPC) and
China National Petroleum Corporation
(CNPC) and Uzbekistan’s state-owned Uzbekneftegaz announced that they would form a joint
venture to
develop oil and natural gas resources. In 2007, Uzbekistan and China signed an
agreement on
building a 326-mile section of the CNPC pipeline, and a construction and operation
joint venture
between Uzbekneftegaz and CNPC, Asia Trans Gas, began construction in 2008.
Uzbekistan also
has signed a framework agreement to eventually supply 353 bcf of natural gas
per year through
the pipeline. the pipeline. After delays, Uzbekistan has reported that these shipments began in
August 2012. A production sharing consortium composed of Uzbekneftegaz, Lukoil, the Korea
National Oil Corporation, and CNPC is exploring for natural gas in the Aral Sea region.
North Africa: Transitions May Bring Opportunities44Opportunities Amid Uncertainty
To date, U.S. energy strategy towards Europe has not focused on North Africa as a counter
balance to Russian natural gas supplies. Nevertheless, theThe Arab Spring may have created an
opportunity, albeit with potential problems, to increase exports from the region. Taken as a whole,
42
According to the BP Statistical Review, actual Turkmen natural gas exports were about 230 bcf to Iran in 2010.
For additional information on Uzbekistan see CRS Report RS21238, Uzbekistan: Recent Developments and U.S.
Interests, by Jim Nichol.
44
For additional information on North African energy see CRS Report R41683, Middle East and North Africa Unrest:
Implications for Oil and Natural Gas Markets, by Michael Ratner and Neelesh Nerurkar.
43
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the three main
with major challenges, to increase exports from the region. Taken as a whole, the three main
existing suppliers to Europe in the region—Algeria, Egypt, and Libya—already
supply natural
gas to Europe by both pipeline and LNG (see Table 4) and hold tremendous
natural gas resources
that could be further developed. Collectively, the three countries supply
about 6044% of what
Russia supplies, of which Algeria is the source for almost 8090%. Difficult
business environments
and domestic demand, prompted by subsidies for natural gas consumption,
have limited
development of each country’s natural gas resources. Regime changes in Egypt and
Libya pose an
opportunity for each to change its policies to promote expanded development of
natural gas resources
resources, but there has been little progress to date. At the same time, political and economic
uncertainty could continue to
characterize the situation in both countries in the short- to medium-termmediumterm. In addition, burgeoning security concerns linked to instability and terrorism emanating from
northern Mali and, potentially, southern and eastern Libya may constrain new and existing
exploitation of energy resources in the region.
Table 4. Key North African Natural Gas Data, 20102011
Units = trillion cubic feet (tcf)
Reserves
Algeria
Production
Exports to
EU
159.1
2.8
1.86
Egypt
78.077.3
2.2
0.21
Libya
54.752.8
0.6
0.3
291.8
5.6
2.31
0.1
289.2
5.1
1.8
TOTAL
Source: BP Statistical Review of World Energy 2011, pp. 20, 22, and 28.
Algeria: Unconventional Resources May Be Its Future452012.
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Algeria: Security Concerns Threaten Resource Development37
The four-day hostage crisis that began when terrorists seized a natural gas compound with foreign
workers (including U.S.) in southeastern Algeria on January 16, 2013, highlights stability
concerns in North Africa’s largest hydrocarbon producer. The ramifications of the incident are
unclear, particularly how it will impact on Algeria’s energy sector and foreign participation.
According to a study by the U.S. Energy Information Administration (EIA), Algeria may hold
shale gas resources much greater than its conventional reserves, which are substantial. Depending
In March
2013, Algeria passed a new set of amendments to its hydrocarbon law to address shale gas in the
country. Depending upon the development of its unconventional natural gas resources and its
conventional resources,
Algeria could become a more significant natural gas producer and
exporter. However, a difficult
business environment may continue to limit its potential.
A 2005 hydrocarbon law diminished the monopoly of the state energy company, Sonatrach,
opening the sector for private and foreign investment. A 2006 law, however, required international
companies to give Sonatrach a 51% stake in new oil, natural gas, and related transport projects.
Additional foreign investment rules were enacted in the Complementary Finance Law (CFL) of
2009, which restricted imports and foreign investment. These measures require 51% Algerian
ownership of new foreign investment. Further, the 2010 CFL, effective as of September 2010,
requires foreign bidders who win construction contracts to invest in a joint venture with a local
partner.4638 Such changes have prompted foreign investors, including U.S. and European businesses
and governments, to appeal for greater stability of laws in Algeria, and may have contributed to a
reported slowing of foreign investment in exploration and production.47
45
For additional information on current events in Algeria, see CRS Report RS21532, Algeria: Current Issues, by
Alexis Arieff.
46
State Department, Bureau of Economic, Energy and Business Affairs, “2011 Investment Climate Statement—
Algeria,” March 2011.
47
Samuel Ciszuk, “Abysmal Licensing Round Result in Algeria Confirms Energy Sector Malaise,” IHS Global Insight,
March 18, 2011; Africa Energy Intelligence, “Oil Companies Steer Clear of Algeria Due to Windfall Tax, Few Bid for
Licenses,” March 23, 2011.
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39 Still, according to the
State Department, “the 49/51 rule remains controversial but foreign investors have adapted.” 40
Algerian natural gas production and exports have declined since 2005 when it produced over 3.1
tcf and exported more than 2.2 tcf. In 20102011, Algeria produced 2.8 tcf and exported 2.01.8 tcf, with
1.86 tcf going to the EU. In 2005, Algeria’s energy minister announced ambitious plans to increase
production and export, with a goal of reaching 4.0 tcf of production and 3.5 tcf of exports by
2015. These targets are not on track to be achieved, and the country has changed its focus to
preserving its resource base and not expanding production as quickly. Domestic consumption
may outstrip exports within the next decade.
Nevertheless, Algeria continues to expand its connections to Europe. In 2011, a consortium led by
Sonatrach opened the Medgaz natural gas pipeline. The new pipeline runs directly from Algeria’s
Beni Saf port to Spain’s Perdigal Beach. The initial capacity of the line is approximately 280 bcf
per year. Despite this new addition, Algerian exports to Spain do not have much impact on the
rest of Europe, as the interconnection between Spain and France is limited. In addition to
Medgaz, Algeria exports natural gas to Europe via the 425 bcf Maghreb-Europe pipeline to Spain
37
For additional information on current events in Algeria, see CRS Report RS21532, Algeria: Current Issues, by
Alexis Arieff.
38
State Department, Bureau of Economic and Business Affairs, “2013 Investment Climate Statement—Algeria,”
February 2013, http://www.state.gov/e/eb/rls/othr/ics/2013/204588.htm.
39
Samuel Ciszuk, “Abysmal Licensing Round Result in Algeria Confirms Energy Sector Malaise,” IHS Global Insight,
March 18, 2011; Africa Energy Intelligence, “Oil Companies Steer Clear of Algeria Due to Windfall Tax, Few Bid for
Licenses,” March 23, 2011.
40
State Department, “2013 Investment Climate Statement—Algeria,” February 2013.
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and the 230 bcf Trans-Mediterranean pipeline to Italy. Algeria has also announced plans to
expand its LNG export capacity.
Egypt: In Need of a Reorganization of Its Natural Gas Sector48Sector41
Since 2005, demand for natural gas in Egypt has been on the rise, increasing almost 4357% over the
time period. Although production has grown as well, the subsidy-driven demand has hindered the
government in offering attractive terms for international companies to continue developing
Egypt’s resources. Additionally, much of Egypt’s remaining natural gas is in difficult-to-access,
high-cost areas, which contributes to the lack of interest by many international natural gas
companies. That said, BP signed a deal in 2010 that was substantially higher than previous
contract terms.
Since the resignation of former Egyptian President Hosni Mubarak in February 2011, Egypt’s
natural gas infrastructure in the Sinai Peninsula has been attacked at least tenmany times by either
disaffected Bedouin Arabs living in the Sinai or terrorist groups with camps in the peninsula.
These attacks have disrupted gas shipments via two separate pipelines converging at El Arish to
both Israel and Jordan. Egypt is no longer exporting natural gas to either country. No group has
. No group has claimed responsibility for the attacks, and the Egyptian
authorities have struggled to protect
infrastructure in the demilitarized Sinai Peninsula. Israel
generates 40% of its electricity using natural gas, and Egypt provides 43% of its supplies.
Egyptian natural gas supplies 80% of Jordan’s power generation needs.
Egyptian exports to the EU, which are solely in the form of LNG, dropped by almost 35% in
12% in
2011, after dropping almost 35% in 2010. The Arab Gas Pipeline from Egypt to Jordan, Lebanon,
and Syria has been planned to
extend to Turkey in order to move Egyptian natural gas to Europe,
but given the issues
surrounding Egypt’s natural gas sector this is highly doubtful. Production last year alsoin
2010 fell for the first
time in over a decade, but stabilized in 2011. With domestic consumption
likely to continue increasing and production
probably continuing to declinedeclining, exports are not likely to increase for some time. Depending upon
the orientation of a new
for some time. In part to meet its export commitments, Egypt announced in December 2012 that it
would begin importing LNG, possibly as early as 2013. Depending upon the orientation of a new
government, if it promotes western investment in Egypt’s energy sector,
and the government
addresses its natural gas subsidies, this deterioration of Egypt’s natural gas
sector could be reversed.
48
For additional information on Egypt’s energy sector see CRS Report R41632, Implications of Egypt’s Turmoil on
Global Oil and Natural Gas Supply, by Michael Ratner, and for additional information on current events in Egypt see
CRS Report RL33003, Egypt in Transition, by Jeremy M. Sharp.
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Libya: Tremendous Potential49
Libya may have the greatest potential to increase natural gas exports to Europe once a new
regime is established and possibly a new state oil and natural gas company in a post-Qadhafi
Libya. The civil war halted natural gas production, but production has since resumed and appears
to be recovering quicker than most analysts had forecast.
reversed.
Libya: Untapped Potential42
Similar to Algeria, the September 11, 2012, terrorist attacks on the U.S. diplomatic mission in
Benghazi underscore security and stability issues facing the new government. Nevertheless,
Libya may have the greatest potential to increase natural gas exports to Europe once a new
regime is established and possibly a new state oil and natural gas company in a post-Qadhafi
Libya. The civil war halted natural gas production, but production has since resumed and appears
to be recovering quicker than most analysts had forecast.
41
For additional information on Egypt’s energy sector see CRS Report R41632, Implications of Egypt’s Turmoil on
Global Oil and Natural Gas Supply, by Michael Ratner, and for additional information on current events in Egypt see
CRS Report RL33003, Egypt: Background and U.S. Relations, by Jeremy M. Sharp.
42
For additional information on current events in Libya see CRS Report RL33142, Libya: Transition and U.S. Policy,
by Christopher M. Blanchard.
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Libya has one natural gas pipeline to Europe, Greenstream, which was closed during the recent
unrest, as well as an LNG export terminal. Italy received almost 97%all of Libya’s natural gas
exports in 2010 exports
in 2011, while Libya provided approximately 103% of Italy’s natural gas imports. The
pipeline was
operating close to its capacity, so to significantly increase pipeline exports would
require an additional pipeline to be constructed or the existing pipeline to be expanded. Libya’s
below its capacity in 2011. Libya’s minimal LNG exports were mostly to Spain and minimal in 2010. LNG to Spain in 2011. LNG
exports were approximately 10%
3% of the capacity of Libya’s LNG facility.
Libya’s natural gas production has almost tripled to about 560 bcf since 2003, in part to meet
pipeline exports which started in 2004dropped almost 90% in 2011. However, domestic consumption,
particularly for electric
power generation, could increase Libya’s consumption of natural gas,
which has been stable over
the past decade according to EIA.5043
Liquefied Natural Gas Imports
One of the most important developments for Europe has been the growing availability of natural
gas in liquefied form (LNG). LNG represents about 1525% of European natural gas imports. Spain,
where 65% of natural gas imports are LNG,, up
from 15% in 2010. The United Kingdom leads Europe in LNG imports, followed by Portugal
and Spain and
France. However, as noted earlier, the interconnection between Spain and France is small and
does notcould be
expanded to allow Europe to take advantage of Spain’s excess import capacity for LNG or
pipeline natural
gas.
The principal suppliers of LNG to Europe include Algeria, Egypt, Oman, and Qatar. Algeria is the
world’s third largest exporter of LNG, with almost all of its natural gas going toQatar is the
largest supplier of LNG to Europe, and also owns multiple LNG import terminals in Europe.
Countries such as Poland and Estonia have also begun the process of building large LNG import
terminals at their Baltic Sea ports that will enable LNG to be distributed throughout northern and
eastern Europe. Qatar, which supplied about 10% of the EU’s imports, also owns multiple LNG
import terminals in Europe.
49
For additional information on current events in Libya see CRS Report RL33142, Libya: Transition and U.S. Policy,
by Christopher M. Blanchard.
50
U.S. Energy Information Administration, Country Analysis Briefs - Libya, Washington, DC, February 2011,
http://www.eia.gov/EMEU/cabs/Libya/pdf.pdf.
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Table 5. EU LNG Import Capacity
Number of
Facilities
Capacity (bcf)
Belgium
1
9.0
France
3
23.8
Greece
1
5.3
Italy
2
11.0
Netherlands
1
12.0
Portugal
1
6.5
Spain
6
60.1
United Kingdom
4
would enable LNG to be distributed throughout northern
and eastern Europe.
Table 5. EU LNG Import Capacity
Number of
Facilities
Belgium
France
Greece
Italy
Netherlands
Portugal
Spain
United Kingdom
Capacity (bcf)
1
3
1
2
1
1
6
4
9.0
23.8
5.3
11.0
12.0
6.5
60.1
51.1
19
178.7
Source: Gas Infrastructure Europe, http://www.gie.eu.com/index.php/maps-data/lng-map.
Possible U.S. LNG Exports: Pricing Not Volumes May Be Key
Proposed U.S. LNG export projects, if all were constructed today, would make the United States
the second largest LNG exporter behind Qatar. The proposed projects are at various stages in the
regulatory approval process
43
U.S. Energy Information Administration, Country Analysis Briefs - Libya, Washington, DC, February 2011,
http://www.eia.gov/EMEU/cabs/Libya/pdf.pdf.
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process, with only one under construction. Nevertheless, analysts have already begun speculating
on what a
significant increase in U.S. LNG exports would mean to natural gas markets, especially to
to European markets. Any volumes of LNG from the United States would benefit the market,
including Europe, by offering a new supplier to consumers. For parts of Europe, especially the
Baltic region and Central Europe, where the United States enjoys strong and friendly relations,
any decision to export U.S. LNG to that region would be welcomed as a potential offset to their
dependence on Russian gas.
However, the bigger effect of U.S. entry into global LNG sales may be on pricing rather than
supplies. The United States is one of the few countries that does not link its natural gas price to
the price of oil and therefore may add to the pressure to delink the two commodities. Most natural
gas sold in the world, by pipeline or as LNG, is sold under long-term contracts and indexed to the
price of oil. Historically, the two commodities competed more directly in markets than they do
today.
More Distant Alternatives
Eastern Mediterranean: A Recent Development
Although too early to tell and years from production for export, recent announcements of natural
gas gas
discoveries in the eastern Mediterranean by Israel and Cyprus may open a new source of
European natural gas. Initial estimates pose a scenario in which Israel and Cyprus could become
natural gas exporters, with Europe as the largest nearby market a likely recipient. Cyprus, which
is an EU member, currently does not consume any natural gas in its economy and would require
much infrastructure to do so. However, both Israel and the U.S. energy company Noble Energy,
which is conducting the drilling, have raised the potential to help Cyprus build natural gas
facilities for both domestic consumption and export. Additionally, other countries in the region,
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including
including Lebanon and Turkey, may begin exploration efforts that could increase the amount of
natural gas
produced in the region.
The Arctic Region and Players
Norway is not a member of the EU, but is the eighth-largest natural gas producer in the world and
second-largest exporter of natural gas to the EU, behind Russia. The North Sea holds the majority
of Norway’s natural gas reserves, but there are also significant quantities in the Norwegian and
Barents Seas. The United States Geological Survey has estimated that almost 25% of the globe’s
yet-to-be-discovered natural gas resources are located in the Arctic region and last year Norway
and Russia reached agreement on Arctic energy exploration issues. Norway’s Snohvit natural gas
field along with Russia’s field at Shtockman, in which Norway is an investor and development
partner, promises to make the Barents Sea a new European energy region.
Potential Development of Alternative Sources in Europe
In addition to solidifying other sources of energy supply from other regions, experts point to
several additional factors that could decrease European dependence on Russian resources. The
development of previously difficult-to-develop “unconventional” natural gas deposits, including
shale gas, in Europe and elsewhere could diversify supplies and keep prices down. EIA assessed
the EU’s technically recoverable shale gas resources at almost 500 tcf, more than 25 years of
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supply at current consumption levels.5144 The growth of the spot market for natural gas and the
development of liquefied natural gas infrastructure in Europe could also help diversify supplies as
well as reduce dependence on Russian-controlled pipelines. Finally, developing alternative energy
sources within Europe, in particular, hydropower, energy from the seas, biomass, wind power,
solar energy, and geothermal energy could all contribute to further diversification of Europe’s
energy supply, reducing overall natural gas demand.
Prospects for Diversification
There are many alternatives to Russian natural gas for Europe to chosechoose from, but it would be
difficult, if not impractical, for Europe to consider replacing all Russian natural gas imports.
There is also inertia on the part of some EU countries and companies regardingSome EU countries and companies also appear reluctant to shift significantly from the status quo.
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. It is important
to keep in mind that Russia not only holdsnot only does Russia hold the largest supplies of natural gas globally, but
already already
has significant infrastructure connecting its resources to Europe, while some of the
alternatives alternatives
remain constrained. A major test for the EU in developing a more coherent energy
policy for
Europe willcould be how to balance these views with those of other member states that are
more more
dependent on Russian energy and are concerned by the political leverage Russia could exert
on on
parts of Europe if no alternatives are found to alleviate at least some of that dependence.
Although supplying natural gas to Europe from Central Asia, particularly through the proposed
Nabucco pipeline, has been a goal of multiple U.S. administrations and the EU, it is far from
51
U.S. Energy Information Administration, World Shale Gas Resources: An Initial Assessment of 14 Regions Outside
the United States, Washington, DC, April 2011, p. 4, http://www.eia.gov/analysis/studies/worldshalegas/.
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being achieved in volumes significant to counter Russian exports. Recent statements by
Ambassador Morningstar suggesting that the U.S. administration would accept any economically
viable pipeline could indicate waning U.S. interest in the Nabucco project. In addition, given the
the Caspian region and Central Asia has been a
goal of multiple U.S. administrations and the EU, it is far from being achieved in volumes
significant to counter Russian exports. Some observers view the fact that the State Department
has not appointed a new Special Envoy for Eurasian Energy since early 2012 as one indication of
the Administration’s waning interest in the Southern Corridor natural gas effort. In addition, given
the interest in combating climate change both in Europe and in some quarters of the United
States,
many some analysts believe that havingincreasing the flow of Caspian natural gas go to China instead, where a pipeline
pipeline already exists, could help that country decrease itshave greater benefits. In this view, Chinese natural gas imports
could help reduce carbon dioxide and other greenhouse gas
emissions by, for instance, limiting its
the use of coal in China’s electric power sector.
In North Africa, ongoing governmental transitions in Libya and Egypt are a key factor for natural
gas development. In January 2012, Egypt held its first parliamentary elections since the ouster of
President Hosni Mubarak. Libya is preparing for elections in June 2012 to replace the interim
government in place since Muammar al Qadhafi’s government was toppled in 2011. The type and
, bringing to power the Muslim Brotherhood and new President
Muhammad Morsi. Libya elected a new parliament in July 2012, in the country’s first national
election in 50 years, after the ouster of Muammar al Qadhafi’s government in 2011. A new
president and prime minister assumed office in August 2012 and September 2012, respectively.
The type and character of the new governments will have an impact on natural gas development
in each
country as thetheir energy sectors in each country appear to offer the fastesta significant potential source of
economic economic
growth and income for the new governments. Both countries have large natural gas
resources, but historical political
constraints have limited the development of these resources.
The United States and Europe are in a position to aid both countries in reforming their regulatory
regimes governing natural gas development as well as establishing oversight by nongovernmentalnon44
U.S. Energy Information Administration, World Shale Gas Resources: An Initial Assessment of 14 Regions Outside
the United States, Washington, DC, April 2011, p. 4, http://www.eia.gov/analysis/studies/worldshalegas/.
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governmental organizations and their respective parliaments. And both the U.S. and European
energy energy
companies seem eager to help further develop energy infrastructure and production in both
countries. Redirecting U.S. and European efforts from Central Asia to MENA—especially Libya
and Egypt—as an alternative to Russian natural gas supplies could improve the chances of more
natural gas reaching Europe in the short run.
Meanwhile, new discoveries in the eastern Mediterranean pose a potential new source of
European natural gas. However, neither Israel nor Cyprus havehas any experience in developing
large large
scale natural gas projects. Both countries could benefit from the U.S. and European
experience in
developing their resources, both on a federal and state level.
Author Contact Information
Michael Ratner, Coordinator
Specialist in Energy Policy
mratner@crs.loc.gov, 7-9529
Jim Nichol
Specialist in Russian and Eurasian Affairs
jnichol@crs.loc.gov, 7-2289
Paul Belkin
Analyst in European Affairs
pbelkin@crs.loc.gov, 7-0220
Steven Woehrel
Specialist in European Affairs
swoehrel@crs.loc.gov, 7-2291
Acknowledgments
Vincent Morelli, Section Research Manager for Europe and the Americas, contributed to the
conception, analysis, and conclusions of this report. Alexis Arieff, Christopher Blanchard, and
Jeremy Sharp from CRS’s Foreign Affairs, Defense, and Trade Division—Middle East/Africa
Section contributed to this report. Elizabeth Roberts from CRS’s Knowledge Services Group
contributed to the research for this report. Amber Wilhelm in CRS’s Publishing and Editorial
Resources Section and Jacqueline Nolan with the Library of Congress’s Geography and Map
Division contributed to the report’s graphics.
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