Comments on: Is Europe shooting itself in the foot (to the benefit of Russia)? http://www.energypolicyblog.com/2010/07/06/is-europe-shooting-itself-in-the-foot-to-the-benefit-of-russia/ Sustainable energy policy, more competition, better regulation, improved policies. Wed, 15 Feb 2012 11:05:26 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Paul Hunt http://www.energypolicyblog.com/2010/07/06/is-europe-shooting-itself-in-the-foot-to-the-benefit-of-russia/comment-page-1/#comment-78119 Paul Hunt Sun, 11 Jul 2010 14:55:40 +0000 http://www.energypolicyblog.com/?p=1397#comment-78119 This is an interesting, provocative and largely persuasive post. Quite apart from the geopolitical aspects, some interesting economic issues - an uncertainties - arise. While accepting that the recession-induced reduction in demand, a ramp-up of unconventional supplies in the US and and an increase in gas liquefaction and importation capacity have contributed to a supply overhang - particularly in the Atlantic basin - there is a question about how long this will persist - and to what extent it will have a lasting impact. Unconventional gas supplies may take some time to emerge in Europe and may need prices much higher than the current marginal cost of EU supply to prompt the required effort and investment. Gazprom may struggle to retain the oil price linkage in its EU supply contracts, but it is unlikely to give up without a protracted battle. The unwillingness of the EU's TSOs to invest in interconnection across internal borders (without public subsidy) and the relatively limited extent and co-ordination of existing infrastructure is impeding the emergence of a genuinely competitive, EU-wide, wholesale market. It appears that dual-pricing (mainly oil-linked pricing in the existing long term contracts and spot market pricing) may co-exist for some time. And as for Iran, it seems happy to forgo western technology and investment (and the exports and revenue these could generate) and to leave substantial reserves under-exploited while relying, mainly, on its own resources to supply a highly-subsidised domestic market. This is an interesting, provocative and largely persuasive post. Quite apart from the geopolitical aspects, some interesting economic issues – an uncertainties – arise. While accepting that the recession-induced reduction in demand, a ramp-up of unconventional supplies in the US and and an increase in gas liquefaction and importation capacity have contributed to a supply overhang – particularly in the Atlantic basin – there is a question about how long this will persist – and to what extent it will have a lasting impact. Unconventional gas supplies may take some time to emerge in Europe and may need prices much higher than the current marginal cost of EU supply to prompt the required effort and investment. Gazprom may struggle to retain the oil price linkage in its EU supply contracts, but it is unlikely to give up without a protracted battle. The unwillingness of the EU’s TSOs to invest in interconnection across internal borders (without public subsidy) and the relatively limited extent and co-ordination of existing infrastructure is impeding the emergence of a genuinely competitive, EU-wide, wholesale market. It appears that dual-pricing (mainly oil-linked pricing in the existing long term contracts and spot market pricing) may co-exist for some time.

And as for Iran, it seems happy to forgo western technology and investment (and the exports and revenue these could generate) and to leave substantial reserves under-exploited while relying, mainly, on its own resources to supply a highly-subsidised domestic market.

]]> By: Nick Grealy http://www.energypolicyblog.com/2010/07/06/is-europe-shooting-itself-in-the-foot-to-the-benefit-of-russia/comment-page-1/#comment-77675 Nick Grealy Thu, 08 Jul 2010 06:10:20 +0000 http://www.energypolicyblog.com/?p=1397#comment-77675 What gas grip is it exactly that Europe is in? The new reality of world gas abundant everywhere, makes worrying about Russian, or Iranian gas rather old fashioned. What gas grip is it exactly that Europe is in? The new reality of world gas abundant everywhere, makes worrying about Russian, or Iranian gas rather old fashioned.

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