Ukraine’s Crisis and Role of Iran in Europe’s Energy Security

Sunday, March 23, 2014

Maryam Pashang

The ongoing crisis in Ukraine and the subsequent escalation of tension between Russia, on the one hand, and the US and the European Union (EU), on the other hand, has raised serious concerns about security of energy supply to the EU due to heavy dependence of the European countries on the imported Russian gas. In the meantime, diversification of gas supply sources for Europe has become a priority for energy strategy and foreign policy of the EU. Under these conditions, Iran, which enjoys the world’s second largest natural gas reserves, can be considered the best option to guarantee security energy of Europe in the medium and long terms.

The eastern part of Ukraine, including the Crimean peninsula, has already declared its independence from Ukraine through a referendum and seeks to become part of Russia. European countries have announced that they will not recognize the referendum and its result and will take punitive measures against Russia, including by imposing economic sanctions against Moscow. As a first step, they have already slammed sanctions against a number of Russian officials. Russia, on the other hand, declared recently that if Ukraine failed to settle its debt over previous gas imports, Moscow may cut the gas supply. Ukraine currently owes Russia more than 1.8 billion dollars for the gas it has imported from that country.

According to figures released by the US-based Energy Information Administration (EIA), the member states of the EU in addition to Turkey, Norway, Switzerland, and non-EU countries in the Balkans, have consumed a total of 18.7 trillion cubic feet of natural gas in 2013. It should be noted that Ukraine is the transit route for about 16 percent of Europe’s consumed gas. A number of East European countries, such as Bulgaria, import up to 100 percent of their needed gas from Russia. Therefore, the threat of cutting Russian gas supply to the member states of the European Union can potentially face the Green Continent with a grave crisis. Even the mere threat to cut the gas supply to Europe has already led to remarkable rise in gas prices.

The Ukrainian crisis combined with the possibility of the cessation of gas supply by Russia to the European market have come at a time that the demand and supply of liquefied natural gas (LNG) in global markets are hardly balanced. As China is importing more LNG consignments, the amount of gas supply to Europe by Algeria and Libya has already fallen. Of course, due to a relatively mild winter in Europe, the European gas stores are in relatively good conditions. Russia exported 86.1 billion cubic meters (cu. m.) of gas to 15 European countries through Ukraine in 2013. During that period, Italy was the biggest recipient of the Russian gas which accounted for 25.3 billion cu. m. of gas or about 30 percent of the total gas imported by Europe from Russia. Italy was followed by Turkey and Germany, which imported 13 billion cu. m. and 11.7 billion cu. m. of gas from Russia, respectively. Of course, both Turkey and Italy have other options for gas imports in the form of LNG and through the pipeline. However, if the gas flow from Russia stops, Eastern European countries will be in more dire conditions. Italy can make up for any possible shortage of natural gas by using a gas transit pipeline which runs along northeast Europe, or alternatively, increase its gas imports from Algeria or even import more LNG consignments. The eastern part of Turkey may face gas shortage if natural gas supply from Russia through Ukraine is disrupted, but the country can, in turn, increase its gas imports from Iran.

Importing LNG is another option for Turkey. Qatar currently enjoys the highest capacity for exporting LNG, but it only does so through long-term contracts. This Persian Gulf state has dispatched the lion’s share of its export consignments to Asian markets in the past years. As a result, for example, the South Hook LNG terminal in the UK has not received any LNG from Qatar since late last year. At present, Qatar can produce 77 million tons of LNG per year and has its own serious customers. Following the nuclear catastrophe at Japan's Fukushima nuclear power plant, Tokyo decided to shut down 48 nuclear power plants after which, the country has become heavily dependent on importing LNG, especially from Qatar. Subsequently, during the last month, Tohoku Electric Power Co. of Japan signed a 15-year contract for the import of LNG from Qatar up to 2016 despite the country’s strategic policy to diversify its gas supply sources. China, on the other hand, shut down some of its coal-burning power plants last year due to concerns about air pollution. In December 2013, China imported 2.43 million tons (or about 35 percent) more LNG compared to the same period a year before. China started importing LNG from Qatar in 2013 when they finished two LNG import terminals. As a result, China’s oil firm, PetroChina, sought to import eight consignments of Qatar’s LNG in December 2013. In addition to the above countries, Qatar also exports both natural gas and LNG to the United Arab Emirates and Kuwait.

According to the latest estimates by BP English Company Russian gas reserves of 44.6 trillion cubic meters dropped to 32.9 trillion cubic meters and thus Iran's 33.6 trillion cubic meters of gas reserves have been discovered so far the world's largest gas storage.The energy strategy of the European Union has for years given the priority to diversification of gas supply sources and reduction of dependence on the Russian gas imports. However, due to restricted number of supply sources and lack of due attention to Iran's potentials as a good alternative source for the supply of gas to Europe, the European Union has not been very successful in this regard. The EU’s unwillingness to use Iran as an alternative supply source is a direct result of political issues, especially mounting pressure from the United States.

Given its huge natural gas reserves, Iran is in a good position to export gas to Europe through pipeline and also in the form of LNG. In this way, the Islamic Republic will be able to become part of the EU’s solution for the diversification of its gas supply sources. Turkey, on the other hand, can serve as the transit route to take Iran's gas to Europe and, in the meantime, supply part of the gas that Ankara needs to meet the country’s domestic demand.

On the other hand, under existing circumstances when Iran is engaged in negotiations with the P5+1 group of world powers over its nuclear energy program, supplying gas to Europe can greatly increase bargaining power of the Iranian negotiators. Therefore, the possibility for exporting gas to Europe should be seen by Iran as a very valuable opportunity. In fact, under present conditions, it seems that energy diplomacy can play a unique role in this regard.

Of course, Edward Chow, a senior fellow in the Energy and National Security Program of the US-based Center for Strategic and International Studies (CSIS), believes that before daring to diversify its gas supply sources, the European Union will have to spend, at least, tens and even hundreds of billions of dollars on developing related infrastructure, including construction of new gas supply pipelines and terminals. In spite of this fact, Iran can be the European Union’s best option for the reduction of its dependence on the Russian gas in the medium term.

*Maryam Pashang is a Visiting Research Fellow at the Institute for Middle East Strategic Studies, and a Ph.D. candidate of international relations at the Islamic Azad university, Science and Research Branch.

Key Words: Ukraine’s Crisis, Role of Iran, Europe’s Energy Security, Russia, Gas, LNG, Pashang

Source: Institute for Middle East Strategic Studies (MERC)
Translated By: Iran Review.Org

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*Photo Credit: Rianovosti, Caspian Barrel

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