City AM: Why Europe’s options for diversifying its energy supplies are strictly limited
Conflict in Ukraine has added another major geopolitical risk for energy markets in 2014. Gazprom’s cancellation of gas price discounts in Ukraine at the start of April significantly raises the risk that Russia will use short-term gas supply cuts for political leverage. While a short-term disruption this spring or summer would have muted market impact in Europe, in the event that tension escalates, more significant cuts to Russian energy exports could follow.
Some EU member states are more dependent on Russia than others, with countries in the Balkans and in southern Europe particularly exposed to cuts via Ukraine. But even those that have more diversified energy supplies are exposed to volatile market conditions in the event of a supply disruption.
In considering alternatives, pipeline gas options are limited and boosting liquefied natural gas (LNG) imports would add significantly to European end user energy bills. Since rising energy bills and falling industrial competitiveness are already major concerns, EU leaders hope to avert any supply disruption.