Europe Faces Potential Gas Crisis

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Europe faces potential gas crisis

http://today.reuters.co.uk/news/newsArticle.aspx?type=topNews&storyID=2006-01-01T101516Z_01_MOL136776_RTRUKOC_0_UK-RUSSIA-UKRAINE-EUROPE.xml

By Stuart Penson
Sun Jan 1, 2006 10:15 AM GMT

LONDON (Reuters) - Europe faced a potential energy crisis on Sunday after Russia started cutting gas flows to Ukraine amid a bitter dispute over prices.

Europe gets about a quarter of its gas from Russia, most of it pumped west via Ukraine. Sunday's move by Russia, which wants Ukraine to pay much more for its gas, comes as European demand hovers near peak levels because of freezing weather.

Analysts say Ukraine could defy Russia and continue drawing gas from transit pipelines, reducing the volumes bound for European customers.

Industry sources said utilities across the continent were on standby to open the taps on back-up storage depots and to ask for more gas from other suppliers like Norway and the Netherlands to safeguard flows to industrial consumers.

This despite reassurances from Russian state-controlled energy giant Gazprom that flows to Europe would not be hit by the move against Ukraine.

"Our members hope that there is enough gas in storage for the next two to three months," said Wulf Binde, senior gas specialist at the VIK industrial energy consumers' association in Germany, the biggest buyer of Russian gas.

"There could be some questions over pipeline capacity within Germany if we have to get gas from other suppliers," he said. "Gas will have to be moved within Germany and that could be a problem."

Germany's biggest supplier, E.ON Ruhrgas, which gets about a third of its gas from Russia, has said it could cope with disruptions as its storage tanks are full.

Italian utility Eni said on Saturday that Gazprom had advised it that gas supplies could be put at risk by the dispute with Ukraine.

European Union officials are due to meet for emergency talks on January 4 to discuss the situation.

Aside from Germany, Russian gas goes to Italy, France and Austria, as well as central European markets including Poland and Hungary, which say they have been preparing for supply disruptions.

Britain, which relies on imports from Belgium to meet winter demand, could also feel the squeeze if Russian flows to mainland Europe start to drop, traders said.

If continental Europe feels uncomfortable about its own supply situation then exporting gas to Britain will not be their top priority, traders said.

Britain's gas supply is already tight as output from its ageing North Sea fields drops.

A squeeze on gas supplies could also force up prices across Europe, which are already close to record highs after rallying in line with oil prices.

Sunday's events will stoke underlying concerns in Europe about future security of supply and reliance on Russia and will put EU energy policy under fresh scrutiny.

"The EU hasn't made any effort to intervene (in the Russia/Ukraine row)," said Jonathan Stern, Russian gas expert at the Oxford Institute of Energy Studies.

"For years we've been telling Russia to move towards market prices and now what are we are going to say -- market prices (for Ukraine) are not such a good idea?"

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Top firms warned of power rationing

http://scotlandonsunday.scotsman.com/politics.cfm?id=1242006

BRIAN BRADY
1/1/2006

BRITAIN'S industrial giants have been warned by ministers to prepare for a total production shutdown in a bid to protect power supplies to domestic users.

Amid escalating concerns about dwindling supplies and soaring prices, the Department of Trade and Industry (DTI) is preparing to trigger contingency plans designed to limit consumption of gas and electricity.

Scotland on Sunday can reveal that the government has revised its official estimate of how cold the winter is likely to be since an assessment was completed in October, and the demand on UK fuel supplies is now expected to be much greater.

Special measures for the looming crisis could see big industrial users, such as car manufacturers and steel plants, required to "restrain demand", while electricity generators will be told to switch to alternative fuels, including coal. If the actions fail to curb consumption, officials reserve the right to intervene to impose temporary switch-offs.

The interventions in industrial use are being prepared as part of a desperate bid to protect supplies to domestic customers, who already face rising fuel bills after the freezing temperatures across much of the country. Confirmation that the government had put industry and generators on notice for drastic evasive action came barely a month after business leaders condemned the "scandalous" rundown of the nation's fuel supplies.

The sharp decline in gas from the North Sea has left the UK more dependent than ever on alternative supplies imported by pipeline from Europe. Ministers and industrialists subsequently complained that Britain had been unfairly treated, left waiting for supplies and hardest hit by soaring wholesale gas prices.

The developing fuel crisis deepened last week with warnings that the increases would provoke huge rises in fuel bills for British householders this year.

Confusion over whether Russia will go ahead with its threat to turn off gas supplies to Ukraine, posing a threat to the stability of supplies in Western Europe, has caused further headaches in Whitehall.

"The generation and supply sectors have been experiencing a difficult time in recent months," a senior DTI source said last night. "We don't have the level of North Sea gas, we have deregulation of our market, so we are no longer an energy island. I think industry understands that, and they understand that we have to take measures to conserve what we have. We hope we don't have to go as far as the contingency plans allow us."

Ministers had previously hoped that market forces, notably through the high price of wholesale gas, would relieve pressure on gas supplies and the electricity generation network during the cold weather.

A Conservative spokesman last night said the government had to take some of the blame for the potential "rationing" of supplies to industry because of its failure to manage gas stocks and the electricity generation industry properly. But he added: "It is extremely important that domestic customers are the priority."

Employers' leaders have warned that businesses will carry the burden of the energy crisis, with blackouts "inevitable" for the most intensive consumers.

"We are going to have a real problem keeping the lights on for high-energy users," said CBI chief Sir Digby Jones, who claimed the crisis could see a million workers laid off during the cold spell.

"Everybody saw this coming except, it seems, the government. We have been warning about this for over a year."

The National Grid's original analysis of the likely demand for fuel during the winter, completed in October, suggested that there would be enough gas to maintain supply for customers.

But the organisation's 'Winter Outlook Report' warned that: "Significant demand response will be required if colder than average weather is experienced or gas deliveries are below our base case levels."

Grid bosses insisted they would be reluctant to use their rights to step in to interrupt supplies to protect dwindling fuel stocks - and instead urged generators and major consumers to cut consumption.