69 – How the energy industry works 4.3 — Gas supply and markets: geopolitics “energy nationalism” — would prevail, turning the EU-Russia relationship into a business partnership. That, however, would go against the grain of everything Russia has done to regain control of its energy assets during Putin’s presidency, so is unlikely to happen. And, say some, Europe’s fragmented energy sector would make it easy for big foreign companies such as Gazprom to expand into Europe by buying up small European energy firms. The next couple years will probably see the Russian company’s influence over the European market grow. Gazprom even says it wants to buy utilities in Europe, an ambition the EU would find difficult to stop, given its ideological support for a free energy market. In the meantime, the EU is also trying to “diversify its energy sources”. What that jargon means in practice is that Europe has been encouraging other big producing countries in the Middle East, the area around the Caspian Sea in Central Asia, and elsewhere to start selling their oil and gas to Europe. But to do that requires a lot of new infrastructure. The EU has, for example, tried to promote a pipeline called Nabucco that would bring gas from those areas through Turkey and into southern and central Europe. The pipeline would cost about $6 billion. There is also a race on in Central Asia to build other pipelines that would supply Europe, avoiding Russia in the process. And, of course, the EU has also talked about using alternatives to oil and gas, including nuclear power, clean coal and other forms of green energy. But Russia has several advantages over the EU. The first is that it already has an established infrastructure to keep supplying Europe. And it wants to build more — such as a new pipeline between northern Russia and Germany that will run under the Baltic Sea. Another planned pipeline, into central Europe, would effectively target the same customers as the Nabucco route. Russia, unlike the EU with Nabucco, already has the gas to fill that pipeline so it stands a greater chance of being built first. Survival of the fittest Russia’s main advantage, however, is Europe’s institutional weakness. As a collection of states with their own interests, the EU finds it very difficult to speak with a single voice when it deals with Russia. Everyone in Europe knows what the EU’s strategic goals are. But getting Europe’s member states and companies to sacrifice, if necessary, their own interests in favour of the greater EU cause is difficult. Gazprom knows this and has successfully managed to deal unilaterally with a number of companies and countries in Europe — much to the frustration of EU politicians. But that, of course, goes back to the essence of the EU. And it is a problem that is unlikely to be solved soon — at any rate not until the EU develops a fresh energy policy that adequately deals with the “security of supply” question. In the meantime, the Kremlin and Gazprom, who most definitely do speak with one voice, will retain the upper hand. For anyone involved in the world of energy, Russia has become the country that cannot be ignored. DB Gas from western Siberia travels 5,000 kilometres by pipeline — taking seven days — to reach consumers in western Europe

70 – www.energy-future.com 5.1 — Powering the future Alternative realities Coal and natural gas generate most of the world’s electricity and will continue to do so for decades. But nuclear and renewables are growing in importance It won’t happen soon. Despite what the doomsayers predict, it won’t happen in your lifetime, either. But eventually the world will run out of oil and gas that can be taken out of the ground and turned into energy. If that is one certainty, another is that when it happens, the world will still need energy to keep us all in the lifestyles to which we are accustomed. As the decline of oil and gas happens, we will come increasingly to depend on a host of “alternative” energy sources. Some of them, such as solar, wind, hydro and nuclear power, already exist. In fact, in several parts of the world, some of these sources of energy are already in the mainstream, helping to power computers, toasters, streetlights and anything else that runs on electricity. Hydro-electric and nuclear power, to take two alternative forms, already account for almost 40% of the world’s electricity between them. Other future sources of energy exist only in the minds of bright engineers and physicists, working away in laboratories, hoping to find the technological Holy Grail that will guarantee cheap, green energy forever. Many companies, not least some of the world’s biggest oil and gas firms, are spending heavily on this kind of research, hoping that in doing so they will remain leaders in providing energy to consumers. Analysts estimate that the clean-energy business is growing by around 20-30% a year and will continue to do so for the next decade. Total investment in 2006 is estimated to have been some $63 billion, compared with $30 billion in 2004. Because even if oil and gas don’t run out, we’ll still need more energy. The International Energy Agency (IEA) predicts Photo courtesy Fortum Hydro (left, courtesy Vattenfall) and nuclear power (right) already account for almost 40% of the world’s electricity between them.