At a Council on Foreign Relations shindig in New York on Monday the hot topic was the European Union and its lesser-of-two evils energy choice: Russia or fracking; but this paints a black and white picture that leaves out other fossil fuel alternatives coming on line.
Eni—Italy’s largest oil company—took to the podium with the message that only fracking or increasing Russian imports can provide sustainable energy costs for Europe.
"To imagine Europe living with such a differential in energy costs seems to me really quite dramatic," Eni CEO Paolo Scaroni said. "I think there's a real emergency on that point."
Scaroni also used this time to deride Western Europeans in general as talkers, singling out the British as being actors and describing the UK as the “most pragmatic”. “Europeans love to discuss theory, Brits like to do practice”.
At the same time, both Eni and Shell are skeptical that fracking could take off in Europe, in part because there is too much opposition to the process, and because the geology isn’t as friendly, equipment lacking and landownership rights more complex.
Despite their skepticism, they say that it’s either fracking or Russia—meaning, essentially, that they are dooming Europe to a life under Russian energy tutelage.
Let us offer you another theory here, though, one that sees Russia gradually losing its hegemony over the European gas market.
This theory is largely about Turkey, whose ambitions to become the key energy hub bridging Europe and the Middle East will be realized sooner rather than later. It also pits Europe in the middle of a game to control its gas market between Iran and Qatar, and this was largely what the conflict in Syria started off about—the race to the European market.
The Qataris are hoping to secure the European market by shipping LNG to Ukraine via the Turkish-controlled Bosporus strait. The Iranians also claim to be talking to the Ukrainians. Israel is eyeing a potential underwater pipeline to Turkey for its Levant Basin gas, which could then easily reach European markets. Kurdish gas is already making its way to Turkey, and a new pipeline slated for completion by the end of this year will boost those volumes. Azeri gas from Shah Deniz is will eventually make its way to Europe in large volumes.
One way or another, Turkey will become the new Russia, and the new gateway to the European market, while Russia increasingly eyes the Asian market and hopes to become a major LNG player in this region, where LNG fetches a much higher price.
While the myriad planned and (many failed) pipelines to Europe don’t offer a great deal of hope, LNG transport does. Even if European demand for LNG is low right now because of the high prices prompted by demand in Asia (most notably Japan) and because supplies are being diverted instead to this market—this will not last much longer, and we expect European LNG demand to rise steadily over the next 5-10 years, putting upward pressure on pricing. This is an issue we will examine in the coming weeks more in-depth in the premium Oil & Energy Insider.
In the meantime, be sure to check out this week’s issue of Oilprice Premium, in which we discuss the potential impact of Kazakhstan’s supergiant Kashagan oil field, and bring you the latest hot stock tip from trader Dan Dicker who has been watching a private commodity trader that could provide investors with very nice gains over the coming months.
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