FT. Europe will face disrupted supplies and higher prices for gas next winter if tensions with Russia cut off flows through Ukraine, the head of Italy's largest energy company has warned.
Paolo Scaroni, chief executive of Eni, the Italian oil and gas group, said Italy, Austria and the south of Germany would be particularly at risk since they were principal markets for Russian gas piped through Ukraine. About 16 per cent of Europe's gas consumption provided by Russia through Ukraine.
Eni is one of the backers of the South Stream pipeline project, intended to bypass Ukraine by bringing Russian gas under the Black Sea to Bulgaria and from there on to Italy. If it is built, EU countries would probably be able to meet all their demand for Russian gas without taking any through Ukraine.
Countries from Germany to Greece were affected in January 2009 when Russia reduced the flow of gas into Ukraine during a dispute over pricing.
Gas has re-emerged as an issue in the current crisis. Ukraine already owes more than $1.8bn in unpaid bills for gas it has received from Russia, according to Gazprom, the state-controlled gas export monopoly. Gazprom said earlier this month it planned to put up the price of gas it charges Ukraine.
Nani Beccalli, president and chief executive of GE Europe, which has operations in Russia, told the FT on Monday that he was concerned about the situation in the Ukraine.
"My concern for Europe is what happens if the gas spigots are shut off," Mr Beccalli said.
South Stream took a step forward last Friday when the consortium for the offshore section of the project, which includes Gazprom, EDF of France and BASF of Germany as well as Eni, awarded a €2bn contract for construction of the first section to Bulgaria.
However, Günther Oettinger, the EU energy commissioner, told Die Welt newspaper last week that talks over the pipeline would be delayed. The project needs approval from the EU for its onshore section from Bulgaria to Italy.
Mr Scaroni said that with European gas consumption weak and storage high, the market could absorb an immediate disruption of Russian gas imports via Ukraine quite comfortably.
But, he added, disruption next winter would mean higher prices, and make Europe reliant on increased flows from Russia through other routes such as the Nord Stream pipeline under the Baltic. Europe would also be vulnerable to any problems hitting supplies from Algeria and Libya.
Speaking to the Financial Times in Houston earlier this month, Mr Scaroni also argued that in the short term it would be "impossible" for Europe to try to punish Russia by boycotting its gas.
"We need Russian gas every day. They need our money every year or two years," he said.
"If, in the middle of a tough winter, we don't have Russian gas, we are in trouble. But Russia is not in trouble if they get our money the day after."
Last year Russia provided 30 per cent of the gas consumed in Europe, including EU members, Norway, Switzerland, Turkey and non-EU Balkan countries, and that proportion is expected to grow as Europe's domestic production declines.
In the longer term, Eni argues that Europe could limit its reliance on Russian gas by developing its shale resources, and through increased use of other energy sources including nuclear and coal. It could also buy more LNG from the US as its new exports plants come on line, although that could be a relatively expensive solution.
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