Russia’s annual gas row with Ukraine erupted again in December, shutting down exports for nearly two weeks. Brussels fretted, Moscow and Kiev swapped insults and their two state-controlled energy firms—Gazprom and Naftogaz—bickered, before reaching a compromise. (Russia wanted to raise Ukraine’s bill in line with European prices, while Ukraine wanted more money to transport the gas.) The dispute, more serious than its predecessor in 2006, will trigger yet more debate about Europe’s energy supplies. Three years of tough EU rhetoric, however, have yielded little progress. The EU’s flawed strategy—that market liberalisation will bring energy security—has been undone by energy companies careless of the continent’s broader long-term needs as they pursue short-term profits.
Gas is a particular flashpoint. It burns more cleanly than oil and coal, which is important for plans to slow global warming. Its power stations are also cheap, which energy companies like. This has pushed up demand: despite the recession European consumption will shoot up from 493bn cubic metres in 2010 to an estimated 625bn in 2030. Dwindling local reserves will see Europe’s gas imports almost double.
The EU is caught in a bind. It wants more gas in general, but less from Russia. One escape route could be importing more liquefied natural gas (LNG)—gas converted into liquid form so it can be shipped around the world. This is cheap, for the moment, but it needs expensive specialist terminals to receive it. And many of these are in the wrong places. Britain’s spare capacity, for instance, does little to help Bulgaria. Proposals to build new facilities normally stall because the sellers want guaranteed prices, while the buyers don’t have the money to build terminals without guarantees about supply. Energy companies, who do nicely out of a tight market, have little incentive to build new depots, so the LNG sails off to terminals that already exist, often in Asia. The result is typical of the market failures that should prompt the EU to rethink its liberal instincts.
LNG’s limitations make the planned Nabucco gas pipeline more important. It is expected to begin pumping 31bn cubic metres a year from Turkey to Austria in 2013. This effort, which is supported by the US, makes superficial sense. Central Asia has plenty of gas, as does the middle east. Andris Piebalgs, the EU’s energy commissioner, has banged his drum for years about the importance to eastern Europe of this “southern gas…