memorandum by Mr Melčák, rapporteur
the Parliamentary Assembly’s vision of energy security
The Committee on Economic Affairs
and Development raised the issue of Europe’s growing energy vulnerability
as early as 2005.Note
warned that the seemingly insatiable appetite of most European countries
for energy consumption and a related dependence on imported fossil
fuels was a source of concern due to stiffening global competition
over primary energy resources. Moreover, this trend seemed hardly
compatible with Europe’s ambitious environmental commitments under
the Kyoto Protocol.
The economic and political implications of such growing addiction
to energy imports are all the more obvious as energy co-operation
between European countries remains limited, even in the European
Union’s single market. Our alarm bells rang loud in January 2006,
as well as in January 2009, when Russian gas supplies to central
and western Europe via Ukraine were dramatically curtailedNote
a result of a unilateral and arbitrary decision by Europe’s major
supplier country. We realised that energy supplies – and in particular natural
gas and oil supplies – can be used as an instrument of political
become an issue that divides or unites our member states.
3 Whilst the Czech Presidency of the European Union, in the
first half of 2009, made energy security a top priority for 27 countries,
your rapporteur believes that the 47 countries of the Council of
Europe must also have a say in the search for smart solutions in
this field. Current economic difficulties should not make us lose
sight of our strategic aims in terms of sustainable long-term development
underpinned by sufficient, affordable, accessible and clean energy,
as well as a certain degree of cross-border solidarity and co-operation
in the energy sector.
4 The unreliability of partners as regards production and transfer,
as well as insufficient enforceability of contracts, which became
evident when natural gas supplies were halted, are a warning sign
for the future. Besides internal political and economic uncertainties
in some supplier states, deviations from once extensive investment
plans or their reduction are clearly visible against the backdrop
of the ongoing economic crisis. Further aggravation of problems
related to technological limitations and the capacity of existing
production and transfer systems can therefore be expected and this
may lead to changes in the volume of gas available to consumers
5 In these circumstances, the solution for the future supply
and distribution of natural gas, as one of the most significant
energy commodities, cannot be obtained solely by “improving” the
current supply system. The search for and application of quite new,
or hitherto overlooked, options must start immediately. In this
context, the related problem of transport security has emerged in
its full urgency; this relates not only to the transport of gas
through pipelines located in territories over which the consumer
states have no influence but also to the multinational level.
6 Working towards developing a common understanding of energy
security risks and possible policy responses, this Assembly’s members
have suggested that the diversification of energy products and technologies,
technology transfer, energy savings, sound investment choices, technological
innovation and better co-ordinated energy policies could help secure
stable energy flows across Europe, the so-called transport security.
Your rapporteur will seek to highlight the role that the transport
of liquefied natural gas (LNG), including by inland waterways, could
play in contributing to improved energy security in many European countries.
This contribution could also constitute a response to the ongoing
2 The importance of natural
gas in the energy balance of European countries
7 European countries employ a
wide range of energy resources for their economies and households. Varying
proportions of fossil fuels (oil, gas and coal), nuclear power and
renewable energy sources (geothermal, wind and water movements,
biomass, agrofuels and sunlight) make up national energy mixes,
yet most countries rely overwhelmingly on oil and gas. At the same
time, few countries are self-sufficient in energy: only Azerbaijan,
Denmark, Norway, the Russian Federation and the United Kingdom produce
more energy than they consume. Moreover, most countries of central
and eastern Europe rely on oil and gas imports from a single supplier.
2.1 Main features of natural
8 Natural gas is the second most
important source of energy for Europe. It accounts for about 25%
of the European Union’s energy consumption while oil represents
37%. Most natural gas is extracted from British, Dutch, Italian,
Romanian, German and Danish fields. Varying quantities are also
imported from Russia, Norway and Algeria.
9 Given the distances over which natural gas is transported,
long-distance transport is currently the most demanding link in
the whole natural gas transport chain from the source to the customer.
Modified natural gas can be transported either through pipelines
or in a liquefied state by tankers.
10 Europe has a dense network of gas pipelines. Operational pressure
in the newest systems reaches up to 10 MPa and the pipe diameters
often exceed one metre (such as in the Czech Republic where pipelines
of 1 400 mm in diameter are operated). Some of the pipelines are
laid on the sea bed, thus enabling, for instance, the transport
of natural gas from the North Sea or Africa to continental Europe.
11 Tankers are used for long-distance transport over the sea.
Compressed or pressurised natural gas (CNG or PNG) and liquefied
natural gas are thus brought to Europe from Algeria, Nigeria, Australia
or Qatar. Natural gas is compressed or liquefied on the shore and
then it is pumped into the tanker. In the terminal of destination it
is pumped into storage tanks and gas pipeline systems.
12 Gas imports from Russia – mostly transiting via Ukraine –
account for some 26% of European Union consumption, representing
about 40% of the imported gas consumed by households and industries.
In central and eastern Europe, Russian gas accounts for up to 87%
of total imports and 60% of consumption. For instance, in the case
of Estonia, Latvia, Lithuania and the Slovak Republic this share
reaches 100% of supplies; in Bulgaria and the Czech Republic, 94%
and 82% respectively; in northern Europe, Finland covers 100% of its
natural gas needs with imports from neighbouring Russia.
2.2 Natural gas as a “cleaner”
source of energy
Worldwide demand for natural
gas is growing on average by 1.6% every year and is expected to
rise significantly over the next decades. European countries have
chosen to increasingly rely on natural gas for environmental reasons:
there is a clear tendency to replace highly polluting fossil fuels,
in particular coal and lignite but also oil, with cleaner burning
in some countries, nuclear power. However, the latter, as debates
in this Assembly have shown, continues to polarise public opinion
due to concerns over security and waste disposal. Renewable energy
sources would seem like providential allies in this situation but
the reality proves that their potential is not so easy to tap for
technological reasons and their contribution to energy security
is useful but limited.
2.3 Price and supply issues
14 As European demand for natural
gas rises, reserves and production of gas fields in western Europe
will decline, with gas imports increasing. Currently, most natural
gas is transported over the continent via pipelines, which are fixed
routes that cannot be modified rapidly in reaction to changing market
conditions or political situations. Consequently, any disturbances
in supply cannot be promptly resolved and are more than likely to affect
the economy in many European countries.
15 In addition to being the cleanest fossil fuel that is widely
used in all of Europe, natural gas offers important saving opportunities
on the energy bill. Traditionally, gas prices would follow oil or
oil product prices but with a discount in terms of energy output
and value, leading to a relative cost attractiveness of gas versus
oil. Whilst the international economic slowdown has temporarily
depressed the demand for oil and gas, the evolution of prices has
shown an interesting disconnect between these two types of fuel.
From a high of about US$140 per barrel in July and August
2008, the oil price declined, in autumn 2008, to US$40 per barrel
before stabilising at about US$70 per barrel at present. However,
the dynamics of equivalent gas prices throughout the same period
showed a constant decrease (from US$7-8 per mmBtuNote
per mmBtu) due to excess supply of gas on the international market,
which dramatically boosted the competitiveness of gas versus oil.
This trend is likely to persist in future, with new technologies
enabling major gas-producing countries to recover large additional
quantities of gas from layers of shale rock. Experts regard this
technology as no less than a major breakthrough for unlocking gigantic
resources around the world that will radically transform the geopolitics
of natural gas.Note
17 The security of future supplies and distribution of natural
gas as one of the most significant energy sources cannot be ensured
solely by “improving” the current system. Underexploited options,
such as LNG, must receive greater attention. Efforts aimed at speeding
up the development of the LNG system have been evaluated as the
most realistic way forward in terms of national energy security.
LNG systems should not only serve as an “operational complementary
element” in case of unexpected failures of conventional energy sources
but also as a strategic part of the European energy system.
3 Liquefied natural gas deliveries
by inland transport – An alternative for landlocked countries
3.1 The specificities of liquefied
natural gas production and transportation
Liquefied natural gas accounts
for about 26% of the international trade in natural gas,Note
but only 12% in Europe.
This trade is growing due to the decline in domestic resources of
natural gas in gas-consuming countries, the wish to diversify supplies
and the increasing commercialisation of LNG by gas-producing countries.
LNG also represents an attractive supply option that is not constrained
by the capacity of existing pipeline networks or political factors.
It is particularly suitable for long-distance shipments, enables
countries to diversify energy imports and allows significant reserve
19 Once delivered to import terminals or local storage areas,
LNG can be used for further small-scale distribution by road, rail
or waterways to satellite plants or vehicle fuelling stations, as
is the case in the United States, some Asian countries and Australia.
However, the situation is different in Europe where LNG import terminals
mostly re-gasify LNG and send it out in a gaseous form via pipelines
to end consumers. There are some experimental schemes in Spain and
the United Kingdom for LNG transport by rail, road or waterways.
20 To obtain LNG, cooling technologies are used for the condensation
process and special insulation techniques are needed for transportation.
Although liquefying gas and adjusting infrastructure is not cheap, greater
recourse to LNG would help reduce investment and operational costs
in the medium and long term. Looking into the future, it is essential
to develop this energy option and to provide suitable policy guidance
to European decision makers both in the private and the public sectors.
21 The processes of liquefaction, storage and regasification
of natural gas are technologically demanding, but the technology
used is state of the art. The supply of LNG by maritime transport
from developing countries with large natural gas reserves to developed
countries with high natural gas consumption has been carried out on
a large scale since the 1960s.
22 The liquefaction of gas makes it much easier to transport
this commodity from remote production areas overseas by reducing
volumes: one litre of LNG corresponds to about 600 litres of natural
gas extracted naturally. This technique – cooling gas to minus 163°
centigrade – has been in use since the 1960s, making a huge contribution
to meeting the world’s energy needs. With worldwide production projected
to double between 2004 and 2010, LNG could soon represent about
a third of global gas movements and its volumes could reach over
300 million tons per year.
23 In Europe, natural gas was delivered through pipelines until
the end of the 1960s when the first LNG terminal was built in Spain
in 1968 and another was put into operation in Italy in 1971. Nowadays
European Union countries import natural gas mainly from the Russian
Federation (24%), Norway (17%) and Algeria (11%). Their remaining
needs are covered by domestic production (some 36%) and LNG deliveries
(some 12%) to coastal LNG terminals.
24 Although there are no direct LNG deliveries inland beyond
the pipeline routes to the end consumers in Europe, LPG (Liquefied
Petroleum Gas) and CNG (Compressed Natural Gas) transport by road
is well developed in countries such as Turkey, Spain, Portugal,
Poland, Norway, Russia, Finland, and, outside Europe, in the United
States, Japan, Korea and Australia. Some countries – including Germany,
Indonesia, Pakistan, Chile and Brazil – use CNG as a transport fuel.
To the rapporteur’s knowledge, only the United States (California)
and Australia use LNG as a transport fuel.
25 Because of its high density and low pressure, compressed gas
is widely prized as a transport fuel. It enables longer running
and cheaper refuelling, as CNG is about 30% cheaper than diesel
and, depending on the country, can benefit from lower tax rates.
Moreover, compared to oil per unit of weight, CNG and LNG have 31%
higher heating value. LNG also competes relatively well against
pipeline gas: the cost of liquefaction and transport is comparable
to that of the compression and recompression of pipeline gas.
26 LNG is odourless, non-toxic and non-corrosive, and is not
explosive in its liquid state. If spilled accidentally, it evaporates
quickly and leaves no soil contamination. As with all fuels, certain
precautions are necessary when handling LNG to avoid flammable leaks.
Technologies in use foresee LNG storage and transportation in double-hull
tanks that resemble giant thermoses. Minor losses through evaporation
are possible depending on the efficiency of insulation. When LNG
is shipped in tankers, these leaks are usually diverted to the engines
to power the vessel. Thus, up to 100% of this gas can be utilised.
27 The world tanker fleet mainly consists of sea-going vessels
with 120 000 m3 to 140 000 m3 capacity, whilst new ships will soon
double shipping capacity per vessel. For inland transportation of
LNG, vessels are of course smaller, with a capacity of up to 2 000-4
000 m3. Technically speaking it is possible to increase this capacity
to about 20 000 m3 – adjusting to local circumstances where rivers
have sufficiently high bridges. The draught required for river-going
LNG vessels is rather small given the low gravity of LNG (LNG is
2.5 times lighter than water). This property of LNG makes its transport
less dependent on water levels during the year. For instance, it
is estimated that transport of LNG on the Elbe River from Hamburg
to the Czech Republic could be operated for about 70% of the days
of the year and on the Danube River from Romania to Hungary, the Slovak
Republic and Austria practically all year round.
28 Using inland waterways for LNG transport is a particularly
relevant option for landlocked countries in central Europe where
river and canal networks are particularly dense and geographic,
demographic or environmental specificities do not justify laying
down pipelines. Another reason for resorting to LNG is the exploitation
of small gas fields of limited capacity whose productive lifetime
cannot justify building pipelines. Europe’s inland waterways offer
an attractive transport option for LNG. In fact, LNG deliveries
by rivers and canals in containers could be seen as a virtual pipeline
network in addition to traditional pipelines.
Planned European LNG terminals (by 2010)Note –
the map is not exhaustive.
29 The starting points for such
a virtual pipeline network can be marine terminals or intermediate
LNG storage areas. The storage tanks can be built above or below
ground. The maximum capacity of storage tanks currently in operation
is 160 000 m3 above ground and 200 000 m3 under ground – roughly
the size of an average LNG carrier.
3.2 Some economic considerations
for the expansion of LNG use
In 2005, there were about 50
LNG import terminals across the globe. Nine Council of Europe member states
– Belgium, France, Greece, Italy, Norway, Portugal, Spain, Turkey
and the United Kingdom – have at least one LNG import terminal.
These countries absorb about 25% of global LNG shipments. A number
of new LNG terminals are currently under construction or planned,
including in Croatia, Cyprus, Germany, Italy, the Netherlands, Poland,
Romania and Ukraine. Russia, the world’s biggest gas producer, opened
its first LNG export terminal on Sakhalin Island in February 2009
and is planning to build three more export terminals (at Shtokman
offshore field in the Barents Sea north of Murmansk,Note
the Yamal peninsula in the north, and in the far eastern city of
Vladivostok) by 2020. However, in general the countries of central
and eastern Europe are clearly lagging behind in embracing opportunities
offered by LNG technologies.
31 Western European countries that have LNG reception facilities
appear to be little affected by occasional disruptions in gas supplies,
such as those experienced by central and eastern European states
that import most of their gas via pipelines from Russia. In fact,
the last two Russia-Ukraine gas crises have revealed energy vulnerability
of countries in central, eastern and South-Eastern Europe, making
arguments for expanding LNG capacities in that region even more
relevant. At the same time, the world’s largest gas producing country
– Russia – has compelling reasons for expanding its own capacity
to produce and trade LNG on the global market.
32 The ongoing increase in LNG production worldwide and falling
gas prices is stimulating the pursuit of LNG projects in gas-importing
countries as part of diversification and “cleaner energy” strategies
for their supplies. For countries that choose to make greater use
of LNG for vehicle fuelling, additional benefits (multiplied by
three) are in sight when compared to the use of conventional natural
gas facilities. LNG is also a very suitable fuel option for storage
and back-up systems to compensate for shortages at peak times or
in order to minimise disruptions in energy supplies in general.
New LNG uses, such as for heating family homes and greenhouses,
are currently being tested in China and could in future lead to
massive practical applications in Europe.
A number of interrelated reasons speak for this:
- LNG is a systemic resource which
has yet not been taken into consideration in the energy balance
by many countries;
- its use is clearly complementary in terms of the energy
balance, even if many countries are technically not yet ready to
- trading sources of LNG are often separated from primary
sources of common natural gas both geographically (Qatar, Algeria,
Nigeria, but also Norway, Russia, Australia, etc.)and technically (liquefying stations);
- transport systems for LNG are in up to 98% of cases totally
separatedfrom transport routes
of natural gas;
- LNG can be used to boost strategic storage capacities;
- maritime routes are used for the basic supplies from sources
of origin and maritime transport can continue the shipping also
by inland (continental) waterways;
- the incorporation of maritime transport makes it possible
to optimise both economically and environmentally the transport
network with road and rail transport, which in many key points (European harbours)
is quickly reaching its capacity limits;
- practical experience with the deliveries, transfer and
use of LNG in many European maritime nations shows a strong business
- in this respect, a basic network for the import of LNG
into Europe is largely in place and it is its transfer and consumption
within Europe that is becoming the focus of further development.
Adopting LNG technologies requires important investments.
long-haul transportation costs are borne by exporters, most European
countries are only concerned by the reception, local distribution
and regasification processes. These need to be based on careful
feasibility and cost analyses, and require long-term political backing
at national and regional levels. Moreover, if inland waterways are considered
for the distribution chain, as your rapporteur suggests, additional
development studies are required.
35 A major element related to the enhanced use of LNG in Europe
is the fact that it also provides an exceptionally strong impetus
for investment across various economic sectors, in particular from
the commodity infrastructure point of view. Besides influencing
the energy choices of both wholesale and retail consumers, LNG provides
a strong impetus for the development of metallurgy, mechanical engineering,
regulation technology and also to the same or an even greater extent
for the construction sector, water management, agriculture, chemical
industry (fertilisers) and transport. LNG therefore represents an
exceptionally attractive field for economic development in Europe
and beyond. The inclusion of LNG as a factor in energy policy must therefore
be based on acceptance of the fact that LNG is set to become a permanent
feature of the energy system, rather than serving only as a back-up
source of energy.
3.3 The Danube – The case for
an international feasibility study
Europe has an extensive network
of inland waterways that offer a comparatively cheap, efficient,
clean and reliable mode of transport,Note
only three European countries make significant use of their waterways. Thus
the share of inland water transport in the Netherlands, Belgium
and Germany represents, respectively, about 44%, 14% and 13% of
all transport. In this connection, your rapporteur wishes to draw
attention to the huge potential of the Danube River and its basin
for LNG transport.
37 The Danube, Europe’s second longest river, connects Germany,
Austria, the Slovak Republic, Hungary, Croatia, Serbia, Montenegro,
Romania, Bulgaria and Ukraine and is an essential, though underutilised,
part of the inland transport network. Its depth permits the navigation
of large vessels and offers bridges of sufficient height for the
passage of river- and sea-going LNG tankers. Moreover, the river
links important gas-consumption centres (metropolitan and industrial
areas) in Romania, Serbia, Hungary, the Slovak Republic and Austria,
as well as main gas storage facilities and a variety of gas supply
routes. The Romanian Government is planning the construction of
an LNG terminal in Constanta for importing LNG from Azerbaijan via
Georgian gas liquefaction facilities. With the European Union’s
support, this project could be expanded in order to involve neighbouring
countries and to provide them with access to strategically important
38 With a view to fostering economic co-operation and multimodal
transport links in central Europe, there have been renewed efforts
to link up the Danube with the North Sea and the Baltic Sea via
artificial canals and the Elbe and Oder rivers. Czech, Slovak and
Austrian investors are looking forward to the realisation of the Danube-Oder-Elbe
Canal project in the framework of the EU’s Trans-European Transport
Networks and the European Agreement on Main Inland Waterways of
International Importance. This project aims to eliminate missing
links in the waterways network. Its implementation would enable
the region’s countries to maximise the benefits of trade, including
via expanded facilities for the transport of commodities such as
LNG and their storage in existing underground reservoirs in the
south-eastern part of the Czech Republic, western part of the Slovak
Republic and eastern Austria.
39 When assessing the economic and environmental feasibility
of this strategic project, the need to remedy the effects of long-term
neglect of water transport development in central Europe clearly
comes to the forefront. Considering the importance of the Danube-Oder-Elbe
water corridor – originally the Danube-Oder-Elbe Canal – it is necessary
for the relevant European bodies to intervene in order to ensure
an optimal protection of the environment in the territory earmarked
for the construction of the proposed corridor, notably in the Czech Republic.
Such an approach should seek to neutralise one-sided pressures –
from either environmentalists or local industrial lobbies – in line
with the legislation of the European Union and the Council of Europe.
40 From this perspective, the Danube and the main adjacent rivers
(the Oder and the Elbe) can be considered as a highly useful additional
corridor for the transportation of natural gas in central Europe
along the north-south axis and could help intensify regional co-operation
in several domains. At issue is not only the opening of a significant
transport route, but also the prospect of gaining valuable side
benefits in the fields of water management, energy, flood protection,
recreation and employment.
41 Your rapporteur therefore proposes that the Committee on Economic
Affairs and Development and the Parliamentary Assembly as a whole
reiterate their support for the accelerated completion of preparatory
works aiming at the implementation of the Danube-Oder-Elbe connection
and call for an international feasibility study on the development
of LNG transportation using the Danube River basin. Furthermore,
as the discussion in the committee has shown, any safety and environmental
implications of this project on the maritime traffic through the
Bosphorus straights and the entire region should be studied with
energy co-operation as a means for greater unity in Europe
Over the last few years, we
have seen major upheavals in the global and European energy markets.
The ongoing financial crisis and related economic hurdles across
Europe have severely reduced growth and energy consumption. Experts
from international energy bodies – such as the International Energy
Forum, the World Energy Council, the International Energy Agency,
the Energy Charter – and major energy companies – including Gazprom,
E.ON Ruhrgas, Statoil and ENI – reported a major slowdown of some
20% in energy production and investment activities for 2009 (although
gas consumption fell less dramatically – by about 9%) as a result
of the economic crisis.Note
reaction to market signals is expected to last for about two years.
The energy sector feels the squeeze mainly due to reduced
economic activity, lower demand for energy, more expensive borrowing
and price volatility. Key actors hesitate about long-term commitments,
which might lead to future shortages and breakdowns in energy supply.
Yet major investment is needed today so as to ensure smooth development
when Western economies recover and resume growth.
The importance of natural gas and
LNG is set to grow over time, especially for European countries.
As fossil fuels will continue to dominate Europe’s energy mix,Note
natural gas can serve as a bridge
to a cleaner energy future.
There is a strong need for more co-ordination and solidarity
at the regional level in order to optimise major technological and
investment decisions. Greater energy security for the future should
mean fair interdependence of buyers and suppliers, guided by clear
political incentives, long-term vision and greater market transparency.
“The scale and breadth of the energy challenge is enormous – far
greater than many people realise. But it can and must be met”, as
the International Energy Agency underscores in its latest World Energy Outlook
. Just to replace
ageing infrastructure for electricity and gas, Europe will need
to invest at least €1.6 trillion by 2030, according to a study by
the European Commission.Note
In 2009, European
Union member states adopted a €4 billion energy infrastructure investment
plan as a stimulus measure whose first effects could become visible
as early as 2010.
45 Central and eastern European countries remain too dependent
on a single supplier of natural gas (mainly Russia), while western
European countries need to maintain their diversity of supplies
in the light of gradually declining North Sea natural gas resources.
Energy experts estimate that increasing the LNG component in the
overall energy mix would enable European countries to access about
80% of worldwide proven gas reserves and thus provide enhanced supply
diversity, as well as greater access to more favourable spot market
prices for gas. This requires adequate LNG import terminal and storage
46 Capgemini studies have shown that if all planned new European
LNG terminals are built, there will be sufficient and maybe even
excess capacity. However, most of these terminals are being built
in western Europe. The construction of new major gas pipelines is
encountering many financing challenges. Your rapporteur is convinced
that the main challenge for European countries is to switch from
national security of supply concerns to a broader Europe-wide view
and to join forces in implementing a truly European energy policy
along with adequate national efforts.
47 The European Union can certainly play a major leadership role
in this respect, especially as regards policy guidance on enhanced
energy security, the implementation of energy efficiency standards
and the development of smart energy technologies. The European Union’s
Strategic Energy Technology Plan (SET Plan), together with the 7th
Framework Programme for Research and Technological Development (FP7), which
runs from 2007 to 2013 with a €2.35 billion budget, focus on non-nuclear
energy research and innovation. Although these plans are relatively
modest compared with the recent initiatives of the United States, Japan,
China and Korea, they could serve to initiate a feasibility study
on the better integration of LNG terminals with the inland waterways
transport network and prospects for developing the LNG sector in
central and eastern Europe.
Energy security is now a concern across Europe. This implies
close political attention to the issue and the need to better understand
our current and future vulnerabilitiesNote
in terms of energy
use. In this context, your rapporteur wishes to underline that a
growing European reliance on imports of certain primary sources
of energy does not automatically mean that our countries are becoming
more vulnerable. In fact, importing more energy at a sustainable
cost and from diverse sources might boost local competitiveness
while also stimulating development in energy exporting countries.
It is therefore important to distinguish between our short-term energy
vulnerability with requisite safety measures for coping with emergencies
and long-term vulnerability that requires structural measures for
the diversification of energy supplies. Your rapporteur believes
that European co-operation in developing an LNG network across the
continent can and must contribute to more balanced economic development
and enhanced energy security for all users.