IEA believes Europe is growing dependent on Russian energy

Europe is becoming more and more dependent on Russian energy supplies, making it vulnerable to high prices that help Moscow reach growth and investment objectives, IEA executives say.
"The main risk is not so much that Europe will find itself in a situation with having no gas, but much more that a dependency on a powerful monopolistic supplier would put upward pressure on prices," Noe van Hulst, IEA director of long-term coordination and policy analysis said.

According to the International Energy Agency's figures, the European Union will depend on imported oil for 94 % of its total needs by 2030 if no changes are made before then.
"Gas import dependence will go up from more or less 49 % now to 81 % in 2030," van Hulst told.
EU countries currently buy around 40 % of their natural gas -- used primarily for electricity production -- from Russia, which is to say mainly from the state-controlled gas monopoly Gazprom.
"Europe will become increasingly dependent on Gazprom," van Hulst said.

The agency's chief economist, Fatih Birol, said that German moves to increase Russian gas imports were risky because Moscow "will need very high oil and gas prices in the coming years to maintain its growth targets".
Germany's appetite for fossil fuels will also grow as a result of its decision to abandon nuclear energy, which currently accounts for one third of the country's needs, the IEA economist added. Because European energy needs are rising sharply while EU supplies remain stable, "it becomes of increasing importance what is happening in Russia, will we see any reform of the gas sector, yes or no," van Hulst said.
"Well, it seems to be the case that we're not going to see much of that unfortunately."

Gazprom, the world's biggest gas producer, is creeping into the electricity and oil sectors as well, and has shown interest in Yuganskneftegas, the core production unit of embattled Russian oil giant Yukos. A takeover would put control over enormous resources back in the hands of the Russian state.
Van Hulst of the IEA noted that Gazprom would need massive sums of money for such a bid, and has been investing less in developing new supplies of its own, which could become a problem for European clients.
"You become dependent on whether they (Gazprom) will come up internally with the necessary investments to keep the gas flowing at a reasonable price," he said. "They need huge, huge investments in the sector to be able to come up with these increasing supplies of gas."

German Chancellor Gerhard Schroeder is reported to have urged top German banks and energy companies to create a consortium to invest in the Russian energy sector. But in light of what is happening with Yukos, which some say is being split up to punish the political ambitions of jailed founder Mikhail Khodorkovsky, investors want to be assured of a sound financial environment.
Whatever happens in Russia, Europe needs to diversify its sources and suppliers, the IEA says.
"Governments have been too early in thinking there would never be supply issues with natural gas and electricity," IEA overall director Claude Mandil was quoted as saying.

LNG and coal are among the alternatives, but they also leave Europe dependent on foreign suppliers. As a result, some analysts predict a comeback of nuclear energy, a key source of electricity in Britain, France, Finland and Spain.
"In Finland, they have even decided to build a new nuclear reactor... which is in a sense an interesting case because it's the first one in a (soon to be) liberalised electricity market," van Hulst pointed out. He nonetheless added that "from a purely economic point of view it's not the most logical choice for power generators. There are a lot of heavy up-front investments."
"For that reason we don't see a lot of that happening in liberalised electricity markets, even in those countries where its not a big political issue. The economics of it is not always that favourable."