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EU ‘sleepwalking’ into gas crisis, Eni CEO says

Europe has to build good relationships with Russia because of the continent’s “staggering” dependence on Russian natural gas exports, Italy’s top energy executive said Tuesday.

Paolo Scaroni, CEO of Eni SpA, the world’s sixth-largest oil company, raised the spectre of a gas-induced energy crisis unless European governments and energy companies „create strong and stable relationships with our suppliers,” notably Russia and, to a lesser extent, Algeria. He accused the European Union of „sleepwalking” into a potential energy security nightmare.

„In retrospect, it seems incredible that the EU, which debates and legislates on every aspect of our existence – including the curves of cucumbers and the bends of bananas – failed to spot what was going on in an area of such vital importance to Europeans,” he said in a speech about potential threats to European gas supplies at the World Energy Congress in Rome. The EU has made itself a willing hostage to imported gas.

Consumption has doubled in 25 years and could rise another 40% by 2020, Scaroni said. About 60% of the gas used in the EU is imported and the number will inevitably soar because the region has only 1% of global gas reserves. All of the gas imported by Finland, Slovakia, Bulgaria, Romania and Hungary, among others, comes from Russia. Austria, Poland, Greece and the Czech Republic depend on Russia for 80% of their gas imports.

The figure in Germany is 40%, rising to 60% in a few years as the EU’s own production declines and Russia builds new pipelines west. Scaroni said the dependency on Russia could prove disastrous for the EU if Russia shuts off supplies for political or contract-dispute reasons – it halted sales to Ukraine for three days in January, 2006 – or is unable to maintain export volumes because of peaking domestic production from existing gas fields and rising internal demand.

Within Russia, gas sells for one-quarter or less of the world price, encouraging extravagant use of the fuel. In a separate speech, Alexander Medvedev, deputy chairman of OAO Gazprom, the world’s biggest gas company, with a claimed one-third of global reserves, said European gas demand will rise 1.4% a year and that Europe will depend on imports for 70% of its gas needs by 2020. „We should be well placed to meet the increased supply to Europe,” he said.

But he made it clear that Gazprom is not happy with the EU’s proposal to separate energy distribution networks, such as gas pipelines, from the companies that produce the energy, raising the possibility of a Russia-EU political battle. If the so-called unbundling were to happen, Gazprom would be forced to sell its European pipelines. The company is fighting the proposal, which it thinks is „incompatible with private market principles,” Medvedev said. Eni’s Scaroni said the EU has to move on several fronts to boost the security of gas supplies.

ENI, for its part, wants agreements that would give it greater access to gas exploration and development in Russia. He also said diversity of supply is paramount. Algeria is emerging as a big gas supplier to southern Europe. Many foreign companies, including Canada’s First Calgary Petroleums Ltd., are developing Algerian gas projects.

Finally, he said, energy efficiency and nuclear power have to be pursued. „But even if we do everything I have just suggested, the truth of the matter is we are still going to be very reliant on a small number of gas suppliers,” he said. (theglobeandmail)