Less N. Sea Gas Will Force Europe To Depend On Africa

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Written by Dana Sanchez

Dwindling North Sea gas supplies will force Europe to depend more heavily on politically unstable African countries, meaning potential supply disruptions and risk premiums being priced into the market, according to a FoxBusiness report.

Europe’s gas demand is expected to rise by around 20 percent to 580 billion cubic meters per year in the next 10 years as economic growth returns and governments switch from coal to gas for power generation, the report said.

Simultaneously, supplies to Europe from the North Sea are expected to fall by at least 20 percent as reserves dwindle. Established suppliers such as Russia and Norway will be unable to increase exports by much and Qatar will focus more on lucrative Asia markets.

Europe’s most reliable supply source – its own North Sea gas – will largely have to be replaced by supplies which the industry considers to be the most unreliable, the report said.

It will also make Europe’s gas market more like oil, which often sees price spikes due to security problems in Africa and the Middle East.

“Political violence could hit production or transit routes. Should Europe be reliant on these African gas producers, there is a potential risk that wholesale prices will rise,” said Amy Gibbs at political risk insurer Jardine Lloyd Thompson.

Britain’s energy regulator Ofgem commissioned a report on future supply risks.

The decline in U.K. continental production has inevitably resulted in increased reliance on international gas markets, the report said. This exposes Great Britain to additional risks including conflict in Africa.

Violent uprisings that toppled governments in Libya and Egypt have reduced supplies, while a deadly January attack on Algeria’s In Amenas gas facility run by BP and Statoil highlighted the risk there, the report said.

A report on African natural gas from consultancy Ernst & Young flagged high security risks in Algeria, Angola, Libya and Nigeria, and said that overall risk levels in all African countries with major natural gas export potential were either moderate or high.

Consultancy firm Control Risks also considers all African gas exporters to have medium-to-high political risk levels.

One of the biggest concerns is Algeria, Africa’s biggest contributor to European gas supplies.

The North African country supplies around a third of the gas used by Italy and Spain but is considered so unstable that they are seeking ways to reduce their dependence on Algerian gas.

Algerian gas exports have already dropped and the country faces a rising threat from militant groups, especially in its south, close to its borders with Mali and Libya, where most of its new gas supply reserves are.

BP said in May that it would delay two major Algerian gas projects despite government efforts to attract new partners.

Analysts also say potential new resources will be much more expensive to produce and connect to existing infrastructure, pushing up Algeria’s export price.

Ofgem said Britain should increase gas storage capacity to cope with a potential supply shortfall.