Tuesday, January 03, 2006

Dispute likely to boost arguments for nuclear power

FT.com / Europe / Brussels briefing - Dispute likely to boost arguments for nuclear power

By Thomas CatanPublished: January 2 2006 17:20 Last updated: January 2 2006 17:20
Russia’s row with Ukraine has triggered fresh concern over the security of Europe’s energy supplies and some see nuclear power as the biggest beneficiary.

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With no oil or gas of their own, many big European economies have long been almost wholly dependent on imports to meet energy needs. Germany, France and Italy are all big importers of natural gas, something that has rarely been a cause for concern in the past.
However, the situation is set to get more acute, with Europe projected to become far more dependent on imported Russian gas in the next 15 years or so. Britain, for example, is turning from being an exporter of natural gas into a major importer as its supplies from the North Sea run out.
According to the EU, two-thirds of its total energy requirements – and three-quarters of its gas – will be imported by 2020. Much of that will be provided by Russia’s state-controlled gas monopoly, Gazprom. A study commissioned by the EU last year warned that, with the arrival of the new eastern European members, EU reliance on Russian gas would increase further.
“The vulnerability of the EU to a disruption of gas supplies is growing, partly because of the increased gas imports in general and partly because of the high dependence on a single source, Russia, of the new member states,” the study found.
“The ability to diversify...is limited due to the fixed infrastructure and the organisation structure of the gas industry in Russia.”
Russia has become increasingly explicit about its intention to use its energy reserves as a foreign policy tool. The question now is whether Europe should work harder to reduce its reliance on imported energy.
One of the few options available to European countries would be to build more nuclear power stations. After the oil shocks of the 1970s, France embarked on a massive nuclear programme, and today, more than three-quarters of its electricity comes from nuclear power.
By contrast, around 20 per cent of Britain’s power is generated with nuclear power and that proportion is set to fall sharply. Unless new nuclear plants are built, Britain says it will rely on gas to generate 70 per cent of its electricity by 2020 – with the vast majority coming from Russia.
The UK government is poised to make a decision in the next six months on whether to allow a new generation of nuclear plants in Britain.
Germany, the largest consumer of Russian gas, has promised to close all its nuclear power stations by 2020. But many analysts believe the new government will agree to extend the lives of many reactors when the political climate is right.
If the country’s energy supplies are threatened by Russia’s spat with Ukraine, however, that moment could come sooner rather than later.
“It makes countries a little bit more nervous about using gas where they have other options, so it must directionally favour the prospects for nuclear power,” said Graham Weale, director of the European energy service for Global Insight, the consultants.
In recent years, many European nations have promoted renewable energy sources such as wind or wave-power. But those sources are not large or reliable enough substantially to reduce energy imports. Countries such as Germany and Spain still have coal, but any remaining deposits are expensive to mine and heavily subsidised.
New “clean coal” technologies can help deal with the additional pollution caused by burning coal instead of gas. But these, too, come at a high cost.
As Russia becomes more assertive about using its vast energy reserves to promote its foreign policy, it needs to be careful about overplaying its hand. In the 1970s, oil prices soared as the newly-formed oil cartel, the Organisation of Petroleum Exporting Countries, asserted its control.
The resulting price spike hurt the world economy and caused a crash in oil demand. It also spurred the development of a host of alternative energy sources, such as nuclear power, further reducing demand for oil. For those reasons, Saudi Arabia has been restrained about the way in which it wields its power since the 1970s, using it instead to enforce stable prices. Russia may find it has to do the same.
Russia has the world’s largest gas reserves within pipeline distance of one of the world’s largest regional gas markets. But as it takes the reins of the Group of Eight industrialised nations this month, it will have to be careful that its fight with Ukraine does not end up permanently denting its reputation as a reliable energy supplier.


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