Europe's energy security still far off

Europe will not solve its energy security problems, even if it can build a new pipeline packed full of Iraqi gas, until it builds more backup storage, grid links and alternative sources of supply.

The Nabucco pipeline plan to reduce Europe's reliance on Russia by bringing gas from the Caspian and Middle East across Turkey could be kick started by a deal signed last weekend to get gas from Iraq.

But big political and operational obstacles stand between the gas fields of Iraq's Kurdistan and energy hungry consumers in Europe and the region will remain vulnerable to winter gas crises without more supplies, storage and energy alternatives.

"It is just one piece of a much bigger puzzle. OK, so we get Nabucco stuffed full of gas it's going to help but it's not going to solve the problem," said Paul Stevens, senior energy research fellow at think tank Chatham House in London.

"Insofar as it adds to the diversity of who is supplying gas to Europe again that's a big plus but it is not an occasion to have street parties."

Europe's appetite for gas had been growing steadily until the economic downturn cut demand over the last few months. But when and by how much demand will grow again is uncertain, making investments in new energy supply infrastructure more difficult still.

Europe still gets about a quarter of its gas from Russia and tens of thousands in central Europe were left without heating or electricity in January after a row between Moscow and Ukraine led to cut supplies.

Repeated delays and sluggish investment in alternative energy sources mean large parts of Europe will still be in trouble if a major supply route is cut again.

Even if Nabucco gets built and its backers find the gas to fill it, which remains in doubt, it will only be able to supply about 30 billion cubic metres of gas a year to a region that consumed over 530 bcm in 2007-2008.

Less than half that is likely to reach western Europe after the south east European countries it crosses on route to Austria have taken their share.

"In terms of the capacity you have to be very careful about what will actually end up in Austria," Rebekah Bostan of consultants IHS Global Insight said, estimating only about 11.5 bcm of gas would get to Austria by 2020.

"It's not an enormous amount of gas anyway. Europe's diversification strategy should be much more wide ranging - about renewables and LNG, as well as finding alternative sources to Russia," Tanya Costello, director of the Europe practice at Eurasia Group in London said.

"One of the big problems that were exposed with the recent Russia-Ukraine crisis was the interconnector problem in Europe. Interconnectors and storage need to be improved," she said.

"Some people would argue that is more pressing than choosing whether we are getting it from Russia or not," said Ms Costello.

Some countries have been building more facilities to stock up on gas in summer so they can get through supply cuts and peak winter demand periods.

But those hardest hit by last winter's gas cuts and most dependent on free-flowing fuel from Russia still do not have enough storage and no LNG terminals planned, while network bottlenecks in many parts of Europe continue to restrict the free flow of energy to where it is most needed. Analysts say there is plenty of gas in Central Asia, the Middle East and North Africa to meet Europe's gas needs for decades to come and wean it off Russian gas. An Iraq deal could help the development of the 3,300 km Nabucco pipeline which has been delayed by sourcing uncertainty, weak political support and arguments over transit terms through Turkey.

But analysts say Russia has made more progress in securing supplies with potential Nabucco suppliers and signing bilateral agreements with transit countries for its rival South Stream project because it acts alone and with a clear, single goal.