The UK’s Energy Supply: security or independence?

Memorandum submitted by Professor Alan Riley (UKES 31)

Professor Alan Riley, City Law School, City University, London, & Associate Research Fellow, Centre for European Policy Studies, Brussels.

Executive Summary

· Policymakers have not yet caught up with the impact of the unconventional gas revolution-they are still developing energy security and climate change policy on the basis that gas is a scarce, premium fuel with significant energy security problems. This is no longer the case

· Unconventional Gas resources have strong energy security values in terms of both the enormous scale of the resource base and variety of locations ie the numerous locations where unconventional gas is found.

· The energy security implications of unconventional gas are underpinned for Britain and Europe by the realisation that there is according to energy analysts CERA up to 173tcm of unconventional gas in place in Europe (the total Russian conventional reserve is only 47tcm).

· Unconventional gas is reinforcing our energy security by reinforcing energy liberalisation: There are now alternative sources of gas and alternative suppliers that can take advantage of gas liberalisation rules. A more complete single market in gas increases our energy security.

· Europe’s principal importer: Russia is being forced to ensure greater security of supply through liberalisation and support the rule of law in energy markets again enhancing our energy security.

· A world of radical gas liquidity will also remodel the climate change agenda with a greater focus on radical C02 cuts and efficiency rather than renewables. The real environmental danger here is for ‘gas complacency’ to set in.

1.0. Introduction

The received energy policy view is that gas is a fuel that raises significant energy security concerns. This view has gained considerable traction as a result of declining gas reserves within the European Union and the impact of the Gazprom-Ukraine gas disputes. However, this received view does not take account of the impact of the unconventional gas revolution. That energy revolution has transformed the energy security status of gas. Gas has gone from being a fuel with significant security liabilities to a fuel that provides the United Kingdom and the rest of the European Union with a security of supply guarantee. In part this is the sheer scale of the resource base of unconventional gas with Algeria alone reporting up to 30tcm [1] , India reporting at least 8tcm (300 times greater than previous conventional resources) and perhaps as much as 59tcm [2] , the United States, up to 90tcm [3] , China at least 76tcm [4] and Russia 150tcm [5] (by contrast the total Russian gas reserve, supposedly the world’s largest gas reserve, is ‘only’ 47tcm) [6] . This scale of resource base also leaves the existing LNG global supply largely to Europe and Japan and shale will also add to a growing LNG supply.

This enormous diversity of supply which will ensure the high energy security value of gas is underpinned by a number of other factors. First, Europe’s own resource base. A recent major report from Cambridge Energy Research Associates examining the scale of the gas resource base in Europe estimates that the unconventional gas in place is up to 173tcm [7] . This is an enormous figure which if even if only 10% is recoverable provides Europe with a gas reserve that amounts to one-third of the total Russian gas reserve of 47tcm. Second, a diversity of new gas suppliers makes rapid completion of the European gas market much more tenable again further underpinning European energy security. A third factor is that the only credible commercial Russian response to radically liquid gas markets is to adopt its own liberalisation model and access its own unconventional gas resources. To effectively open up those resources Russia will need access to foreign capital and knowhow forcing the Russian government to reconsider its attitude to transit regimes and investor protection. A more positive Russian approach to both liberalisation and investor protection will further enhance European and British energy security.

This abundance and variety of gas supplies to and within Europe is going to substantially enhance European supply security over the next few years. That abundance is also going to generate additional positive supply security effects both on the gas market liberalisation process and on our most significant external gas supplier, the Russian Federation. The reality of this security of supply will in addition have a powerful knock on effect on British and European energy policy encouraging a major switch to gas from coal. It will also affect climate change policy by delivering radical cuts in C02 via the gas/coal switch at far less financial cost than initially estimated than via renewables replacement. Radical gas liquidity is also likely to more broadly reshape how Britain and Europe decarbonises the economy between now and 2050 [8] .

This memorandum is divided into five parts. Part two considers the received view of gas as an insecure fuel source; part three looks at the impact on European energy security of the global unconventional gas revolution; part four examines the factors underpinning European energy security; part six offers a conclusion

2.0. The Received View: Gas as a Security Liability

The received view of gas is that it is a fuel with significant security liabilities. This view gained hold for three principal reasons. First, domestic European production from principally the United Kingdom and the Netherlands was viewed as a declining resource which would increase imports of pipeline gas from Russia, Norway and the Middle East.

Second while global production of Liquid Natural Gas (LNG) would expand it was unlikely that it would be able to add significantly to European supply diversity due to the growing demand for LNG in the United States, China, India and the rest of South-East Asia. In particular, Europeans expected significant competition for LNG sourced from Trinidad & Tobago, Algeria, Nigeria and Qatar with the United States.

Third, the Gazprom-Ukraine disputes in 2006 and 2009 [9] where Europe, caught in the middle, had suffered supply cut offs raised serious energy security concerns in respect of Russian gas supplies. These concerns were reinforced by research undertaken by the Swedish Defence Research Agency which identified 40 politically motivated cut offs between 1991-2004 undertaken by Russian state owned or controlled energy companies [10] .

This concern regarding Russian energy security was reinforced by evidence that the far greater Russian supply security question centred around Gazprom’s ability to maintain gas exports to Europe at all. The issue here concerned the depletion of the existing Nadym Pur Taz supergiant fields and the lack of investment in new fields which raised the prospect of a significant supply crunch mid-decade [11] .

In this context with the prospect of 84% of European gas coming from external sources by 2030 there were serious concerns for European energy security [12] . Gas as a major fuel source raised hard energy security concerns; scarcity concerns and consequent price concerns. Indeed Ungerer referred to gas as the ‘Achilles heel of European energy security’ [13] . It is not surprising therefore that policymakers began to seek to minimise the role of gas in the development of European and British energy and climate change policy.

3.0. The Global Impact of the Unconventional Gas Revolution

The story of the sudden arrival of unconventional gas onto the US market is now well known and does not need to be repeated here. It is sufficient to say that in 2009 the United States replaced Russia as the world’s largest gas producer; unconventional gas reserves are of the order of 90tcm [14] and causing a significant LNG supply diversion to Europe resulting in falling gas prices on European spot markets.

From a European and British energy security perspective the greatest impact of the American unconventional gas revolution is the transfer of unconventional gas technology and know how worldwide. The United States government particularly has encouraged rapid global development of unconventional gas by entering into technology transfer agreements with a number of states including China, India and Ukraine.

The incentives to develop this unconventional gas worldwide are very powerful. First, there is the hard energy security issues surrounding fossil fuels and the prospect of energy cut offs. Take for instance China. One major issue national security issue for China is that most Chinese oil and some gas and coal is shipped in across the Pacific. The US Navy controls the Pacific. From a Chinese national security perspective being able to source substantial sources of gas domestically is very attractive as it reduces its energy dependence on American power. This is reinforced by the recognition that in extremis gas can be converted to oil using gas to liquid technology.

Second, there is the impact on balance of payments. Domestic gas production can replace gas imports. In addition, it can also replace coal imports by switching from coal to gas [15] fired turbines. This brings a triple benefit. Significant cuts in C02 emissions; significant cuts in a range of poisons caused by burning coal and a better trade balance as coal imports are replaced by domestic gas production. This is in addition to the simple economic plus factor of increased tax revenues and employment that unconventional gas development brings to an economy [16] .

These security and economic factors provide compelling incentives to ensure relatively rapid scaling up of unconventional gas production worldwide over the next decade and a half.

This scaling up has major consequences from a British and European energy security perspective. As this scaling up gets underway it causes continuing demand destruction for LNG. This leaves the European Union and Japan [17] as the two principal remaining LNG customers worldwide.

This LNG effect is reinforced by the capital already committed to LNG liquefaction production which will take global production from 240bcm in 2008 to 410bcm in 2014 [18] .

Liquefaction production is likely to be further increased by the economic incentives to sell LNG into the high priced European market from the US. Already two shipments of shale gas LNG have been made into the UK market [19] . The US authorities have recently given national security clearance for shale gas to be exported as LNG. Given the economic incentives between low priced US gas and much higher priced EU gas there is a compelling economic argument export of shale gas sold as LNG into the European market between 2015 and 2020.

Due to the United Kingdom having significant LNG gasification capacity it is likely to become the principal destination point for US sourced shale gas as LNG [20] . This will both enhance British energy security and increase revenues resulting from dispatch and transit into continental Europe.

In addition, Russia itself has enormous unconventional gas resources a considerable proportion of which is near its existing infrastructure [21] . Ultimately the compelling economic logic of developing those resources than the more expensive and problematic conventional resources of Yamal and Shtokman will win out.

As a consequence even without any development of unconventional gas in the United Kingdom or any other part of the European Union unconventional gas will have a significant impact on our energy security. The worst case scenario is an increasing competition for the European market between LNG and LNG shale; existing conventional pipeline deliveries and new pipeline deliveries from Russian unconventional resources. Britain and all Europe therefore will be faced with significant gas market liquidity derived from a variety of sources fulfilling the Churchill standard for energy security [22] .

4.0. Impact on European Energy Security of Unconventional Gas

What will further underpin British and European energy security is the reality of substantial quantities of unconventional gas available domestically. According to a recent extensive study by Cambridge Energy Research Associates (CERA) unconventional gas in place in Europe is up to 173tcm. The CERA report goes on to predict gas production of between 60 and 200bcm in Europe by 2025 [23] .

Substantial domestic quantities of gas production combined with supplies from a variety of foreign importers will provide Britain and the rest of Europe with a very high level of supply security.

This supply security is reinforced by two other factors. First, a variety of suppliers of LNG from new and traditional supply sources, together with access to domestic unconventional gas supplies will reinforce the liberalisation of the European gas market. One of the difficulties of ensuring market liberalisation in Europe and a single European gas market is that gas supplies have been scarce. Either gas was produced by the domestic incumbent or it came from the domestic incumbent’s foreign partner on a long term supply contract. In either case the market was largely foreclosed and very little gas would be sold across national borders. In addition, none of the incumbents had any incentive to build cross-border infrastructure.

The third energy package and the Commission’s antitrust prosecution of energy companies has begun to reduce the power of incumbents and force unbundling in some cases [24] . The difficulty however remained that gas was scarce. If Gazprom provided most of a state’s gas supply liberalisation would not make that much difference, there would be still one gas supplier and no alternative physical infrastructures to carry a non-existent alternative source of supply. Furthermore, technical liberalisation, even ownership unbundling, would not physically open up the energy markets. It is true that with ownership unbundling the economic incentives of the unbundled network owner are much greater to increase capacity where there is economic need rather than just increasing prices and minimising capacity. However, where there is no alternative source of gas supply and no expectation of any additional supply even an unbundled network owner will not invest in new capacity.

The arrival of growing quantities of LNG and the prospect of significant supplies of domestic unconventional gas transforms that market dynamic. Large quantities of LNG and unconventional gas at often lower prices than pipeline gas create real economic incentives to increase capacity. As a result of domestic unconventional gas production additional capacity may well be built in Poland to deliver gas into the German market. Equally, LNG shipments into the UK may well see an increase in the laying of new supply pipelines across the Channel and onward west-east pipelines into the European market.

The interaction between EU liberalisation and antitrust rules and the entrance of LNG suppliers and unconventional gas producers into the European market bodes well for European energy security. These suppliers are likely to incentivise network owners to physically reinforce the single market in gas with new pipeline connections across national borders. In addition, LNG suppliers and unconventional gas producers will be able to rely on EU rules to ensure market access. Incumbents faced with well funded corporate actors who can rely on EU liberalisation rules and can call on the full force of the Commission’s Marines, DG Competition, with their powers to undertake unannounced raids on corporate HQs, issue market access orders and impose heavy fines if new entrants have their route to market blocked.

This interaction between EU rules and LNG suppliers and unconventional gas producers is likely to ensure the completion of the EU’s single market in gas reinforcing Europe’s supply security.

A second factor is the impact on the Russian gas market. Notwithstanding increasing quantities of LNG supplies and the prospect of unconventional gas production Russia has the potential of remaining a major gas supplier to Europe and adding to European energy security.

Although there has been concern at the prospect of politically motivated cut offs, especially after the incidents in 2006 and 2009 the deeper concern over security of supply has focused on the overall fall in Russian gas production. The great supergiant fields in the Nadym Pur Taz region where 80% of Russian gas is produced are depleting. The critique of the International Energy Agency has been that rather than investing in new fields Gazprom has been investing downstream while neglecting its fundamental productive capacity [25] .


From Gazprom’s perspective this reluctance to invest is not entirely unreasonable. The capital costs for developing the Siberian Yamal fields and the Shtokman field in the Arctic Sea are upward of $100 billion [26] . Given European gas market liberalisation Gazprom can legitimately question the safety of investment in these fields if it cannot rely on secure long term supply contracts to pay for the development of Yamal and Shotkman.

The development of unconventional gas provides Gazprom with a solution to its investment conundrum. Gazprom and other Russian energy companies have substantial quantities of unconventional gas around their existing energy infrastructures. There is no need to heroically and expensively develop Yamal and Shtokman. For much smaller investments Gazprom can begin to develop their own unconventional gas resources.

This however, poses two major difficulties for Gazprom and the Russian government. First, unconventional gas production is much more a manufacturing process which requires a much greater focus on efficiency in order to be profitable [27] . The existing Gazprom dominated Russian gas market which puts little premium on efficiency and which allows Gazprom an export and pipeline monopoly combined with dominance of the exploration, production, wholesale and retail markets is unlikely to be able to easily generate the efficiencies necessary to make unconventional gas production profitable.

However, the prospect of LNG and unconventional gas supplies cheaper than gas that can be produced in Yamal and Shtokman arriving in very large quantities into European markets threatens Gazprom’s market share. This market share is very important to Gazprom. While it represents only one-third of Russian gas supplies by value it is two-third’s of Gaprom’s income [28] and more than 12% of Federal tax revenue [29] .

Faced with the prospect of the loss of revenue and the loss of political and economic influence it is difficult to see how the Russian government will not consider some form of liberalisation of the Russian gas market.

It is not necessary for the Russian government to adopt a European model of liberalisation. The focus would be to ensure efficiency whilst maintaining state surveillance and control. It is possible to envisage a Russian approach to liberalisation which unbundles the pipeline network into one state company and then create a series of baby Gazprom production companies some state owned, some Russian private owned and some foreign owned to introduce the necessary degree of knowhow, technology transfer, capital and efficiency into the Russian gas market.

However, in order to encourage foreign capital and knowhow the Russian state will have to reconsider its approach to investor protection. Signals such as withdrawing from the Energy Charter Treaty in October 2009 undermined incentives for firms to invest in the Russian energy sector [30] .

The second major difficulty for the Russian government and Gazprom is their current pipeline strategy. If we have gas to gas competition in Europe it is imperative that Russian gas is delivered as cheaply as possible into the European market if market share is to be maintained. This requires not only some form of efficiency focused liberalisation at home but an entirely different external pipeline strategy.

The current pipeline strategy involving the delivery of new pipelines particularly Nordstream and Southstream significantly increases the cost of gas delivery. These costs can be carried in closed national markets where Gazprom has long term supply contracts which effectively foreclose the market and there is no alternative source of supply. Effectively the costs are passed on to the consumers. This however becomes increasingly difficult to maintain in markets which are being liberalised where new sources of supply are coming on stream.

Nordstream is now too late to stop as the capital has been committed. However, Southstream is not yet at that stage and can be stopped. In order to ensure Russian gas remains competitive the Gazprom and the Russian government have to rethink their pipeline strategy [31] .

In a liquid European market with gas to gas competition and spot markets price is fundamental. To keep the cost of transit down there is no alternative for Gazprom but to seek to extend and develop the Ukrainian pipeline network. It is much cheaper to refurbish than to develop Southstream and the Ukrainian network has a maximum throughput capacity of 180bcm, far greater than Southstream [32] .

The difficulty lies in the well known risks of Ukrainian transit. The Russian Federation and the European Union came close in 2006 to agreement on a Transit Protocol under the Energy Charter Treaty. There is a compelling argument for the Russian Federation to reopen negotiations. Given the difficulties with Ukrainian transit there is a compelling Russian argument for a very tough ECT Transit Regime. This would include including a distinct international legal regime for transit; a secretariat to supervise the transit system and a supranational tribunal to ensure enforcement of the regime [33] .

In essence in order for Russia to remain competitive and maintain a significant market share of the European gas market it has to follow to introduce a significant degree of legal security and market liberalisation into its gas market and its external gas market policies. This is partly about domestic liberalisation law and partly about returning to the Energy Charter Treaty regime for investor and transit protection purposes.

From a British and European perspective a Russian Federation focussed upon gas market liberalisation and seeking legalisation of the European transit system would be a welcome development. Unconventional gas would be delivering energy security to the European Union by encouraging Gazprom to develop its own such resources. No longer would Europeans be so worried about Gazprom running short of gas supplies. In addition, the prospect of liberalisation of the gas market and legalisation of the transit regime would reinforce European energy security by encouraging production and ensuring effective transit.

The triple impact of significant EU domestic unconventional gas supplies; completion of the European single gas market and a Russia compelled by market circumstance to liberalise to produce unconventional gas would significantly underpin British and European energy security.

5.0. Conclusion

Too many policymakers are still wedded to the gas insecurity and scarcity narrative which is no longer true. Half a decade ago a strong case could be made that gas was a premium, scarce fuel which carried significant energy security risk. No longer. The unconventional gas revolution is in process of transforming British and European energy security. The ability to access unconventional gas resources across the planet easily and relatively cheaply will result in the upturning of energy and climate change policies in every major nation. There are two key points to recognise in respect of unconventional gas resources first, the sheer scale of the resource base. It is several times of the order of magnitude of existing conventional resources. Second, the variety of locations where unconventional gas resources are found across the planet reinforces its energy security value.

In addition, unconventional gas production directly and indirectly, actually and prospectively is enhancing European energy security through reinforcing liberalisation and the attitudes of our principal importer. EU gas market liberalisation is being reinforced as new energy actors selling unconventional gas and LNG enter the market. These actors are able to deploy EU rules on liberalisation and create the incentives to build the necessary physical infrastructure to link up the European gas market.

Equally unconventional gas is beginning to make Russia gas importers to Europe rethink their commercial strategy. There is now a compelling commercial logic coming into place which is pushing Gazprom and the Russian government in the direction of liberalisation and the creation of an effective rule of law system in the energy sector. This is not due to Western pressure but instead commercial logic. It is in the Russian state’s own best interest for unconventional gas development to take off. That requires some elements of market liberalisation. The same commercial logic requires binding rules of international energy law to be put in place to encourage investment and ensure transit. Both these developments reinforce British and European energy security by making Russia a much more reliable gas supplier.

Given the scale and variety of locations where unconventional gas can be found combined with the relative low cost nature of the fuel; the low cost and speed of installation of gas turbines gas the incentives for a very significant expansion in Britain, Europe and round the world are compelling.

In addition, there is a significant climate change benefit. Major reductions in C02 emissions can be obtained as coal fired power stations are switched off and replaced with gas.

By contrast current climate change policy is in danger of failing due to the high costs of developing renewables to meet ambitious EU targets at a time of economic crisis.

The Unconventional gas revolution may well remodel British and European climate change policy. That policy is likely to shift to cutting C02 via switching from coal to gas and energy efficiency rather than renewables. It will also create a problem for policymakers. How to ensure that gas is a bridge fuel to a low carbon future rather than a destination fuel? One of the major difficulties, and perhaps the real environmental issue with unconventional gas, is the temptation to stop with gas. In a world of plentiful, relatively cheap gas supplies, which permits significant C02 cuts there is a tremendous temptation to not push on with decarbonisation. Policymakers will have to adjust climate change policy to that reality and the requirements of a progressive carbon tax to ensure we do not end up in gas complacency.

For the United Kingdom there is a powerful case for seeking a leading role in the development of European unconventional gas. Encouraging rapid development of our unconventional gas resources would enhance our energy security and help build up a British industry with export potential. UK policymakers could also lead European remodelling of energy and climate change policy to take account of a world in which there is radical gas liquidity. We could help ensure Europe did not fall into gas complacency and focussed instead on ensuring we continued to move down the path of effective and progressive decarbonisation.

March 2011


[1] Algeria Eyes Huge Domestic Shale Gas Reserves, Report of Speech by Mr Yousef Yousfi, Algerian Minister of Energy & Mines at CERA Week, Houston , Reuters, March 9, 2011 .

[2] This is based on an analysis by Schlumberger who are undertaking an assessment of the Indian unconventional gas resource base for the Indian national energy company ONGC. Shale Prospects Encouraging for India , Natural Gas for Europe , www.naturalgasforeurope.com

[3] Verrastro & Branch, Developing America ’s Unconventional Gas Resources: Benefits & Challenges, CSIS ( Washington , 2010). This paper gives several figures. The Potential Gas Committee gives a figure of 1800tcf of technically recoverable gas and a research paper of CERA in 2010 estimates 2000tcf but estimates that the further development of the resource plays will reveal a resource base of 3000tcf, that is approximately 90tcm. See http://csis.org/files/publication/101209_Verrastro_UncontentionalGas_Web.pdf

[4] The Chinese figures are based on full assessment of coal bed methane resources but only a partial assessment or assessment by analogy. Hence the figures given are probably very conservative. Xinhua, Status and Development Prospects of China’s Unconventional Gas Exploration and Exploitation, Ninth Sino-US Oil and Gas Forum, (Quingdao, 2009)

[5] World Energy Outlook 2009, IEA, (Paris, 2009)

[6] The non-Russian figures are also gas in place resource figures and not recoverable figures. Howver, if we take an extremely conservative view of what is recoverable, say 10% we still arrive at recoverable reserves which add enormously to the global resource base. The Russian figure of 47tcm is for recoverable gas, although a significant proportion of Russian gas may be technically but not commercially recoverable.

[7] Breaking with Convention: Prospects for European Unconventional Gas , CERA (March 2011).

[8] The Tyndall Centre have recently produced a paper arguing that replacement of coal by gas and consequent radical C02 cuts is not likely as additional gas production will just add to capacity and not result in any switch. The Tyndall paper does not however recognise two extremely powerful switching factors. First, the direct pollutions and poisons generated by coal are extremely unpleasant and damaging to human health. That fact alone provides a major incentive to switch from coal to gas. In particular, most of the global growth in coal consumption comes from China which has been grappling with immense public concern over the public health consequences of coal burning. It is therefore very attractive for the Chinese authorities to switch rapidly from coal to gas improving air quality and reducing public concern over this issue. Second, a significant number of the states import coal. Domestic gas production from unconventional gas is much more attractive than importing coal. Such domestic production increases tax revenue and employment and is either neutral or adds to the balance of payments. Coal imports do not generate additional taxes or employment and carry with it for many nations significant import costs on the national accounts. For the contrary Tyndall view see: Wood & others, Shale Gas: A Provisional Assessment of Climate Change and Environmental Impact, Tyndall Centre, (Manchester, 2011).

[9] Stern and others, The Russo-Ukrainian Gas Dispute of January 2009: A Comprehensive Assessment, OIES, ( Oxford , 2009)

[10] Larsson, Russia’s Energy Policy: Security Dimensions and Russia’s Reliability as an Energy Supplier , Swedish Defence Research Agency (Stockholm, 2006)

[11] Riley, The Russian Gas Deficit:Consequences and Solutions, CEPS, (Brussels, 2006).

[12] Ungerer, Some Comments on the Relationship Between Competition Policy and European Energy Security , European Review of Energy Markets Vol 2, Issue 2, (Brussels, 2007).

[13] ibid

[14] op cit

[15] The United Kingdom estimate is approximately a one-third cut in C02 emissions by direct replacement of coal for gas.

[16] In Pennsylvania unconventional gas development was estimated to generate $13.5 billion in economic value each year in addition to $1.4 billion in local and state tax revenues and almost 175,000 jobs by 2020. See CSIS, op cit 4, for a discussion of a Penn State University report on the economic impact of the Marcellus Shale.

[17] It is worth raising the question here of the impact of the recent earthquake and nuclear power problems in Japan on the gas liquidity argument. The short answer is as this point it is difficult to say. On the one hand we know that a significant amount of power capacity has been permanently eliminated: That is the four nuclear reactors at Fukushima . On the other hand there has been significant destruction of industrial plant which may or may not be replaced, which will reduce overall demand. Japan has a significant amount of installed LNG gasification capacity in reserve which would allow it to relatively easily increase LNG imports. A significant upward tick in Japanese demand would probably cause some tightening in supply and upward price pressure on spot markets (over and above the immediate price increases triggered by market speculation). Over and above the short run any medium to longer term Japanese demand will be able to be accommodated by the scale of unconventional gas development now underway; the ramping up of conventional global LNG production and the development of unconventional gas as LNG.

[18] World Energy Outlook , EIA (Paris, 2009).

[19] First LNG Cargo from US to UK in 50 Years arrives at Grain LNG , Platts, (London, November 2010)

[20] Total UK LNG gasification capacity is currently 53bcm providing already significant additional capacity for regasification for onward dispatch to continental Europe the BBL and UK interconnectors.

[21] IEA, op cit

[22] ‘Safety and certainty in oil lie in variety and variety alone’. Hansard, July 17th 1913. For a further discussion of the development of Churchill’s views on energy security see Yergin, The Prize: The Epic Quest for Oil, Money & Power , Simon & Schuster (1992, New York) p134-146

[23] CERA, op cit.

[24] Both E.ON and RWE have been forced under threat of competition law prosecution by DG Competition to unbundle and sell of their electricity and gas networks. The Commission has now launched over a dozen antitrust proscutions against major energy incumbents following the 2005 Sectoral Inquiry into the electricity and gas sectors. It is this prosecution drive that has really begun to open up the European gas market. However, the third package contained in Directive 2009/73/EC will allow DG Comp and DG Energy to pile further pressure on the energy companies by forcing unbundling or a very high degree of surveillance over network operators.

[25] International Energy Agency, Optimising Russian Natural Gas: Reform and Climate Policy, ( Paris , 2006) 29.

[26] EPRINC, Gazprom: Is it Time to Hit the Reset Button? (Washington, 2009).

[27] Unconventional gas production does not simply require one off drilling to maintain flow rates drilling and fraccking have to be repeated and to be profitable great attention to detail as to the means of driving costs down while maintaining the gas flow.

[28] Pirani, Russian Natural Gas Production and Exports-the Outlook to 2020 Baltic Rim Economies ( Turku , 2010)

[29] Abdelal, The Profits of Power: Commercial Realpolitik in Europe and Euroasia (Harvard, 2010) 16.

[30] For the official statement on the Energy Charter Treaty secretariat website as to Russia’s withdrawal from provisional application of the Treaty see http://www.encharter.org/index.php?id=414&L=1%2F\\\\\\\#c1338.

[31] It may well be that the Russian government is rethinking its strategy given that the Prime Minister Putin recently announced an investigation into the prospects of replacing Southstream with an LNG liquefaction terminal on the Black Sea coast.

[32] Pirani, Ukraine’s Gas Sector OIES (Oxford, 2007).

[33] Westphal makes a compelling argument for a revised Energy Charter Treaty Plus with Russian participation in the ECT. As he points out the ECT is the only multilateral energy investment and transit treaty we have. A revised ECT Plus could both assist in delivering energy security to the EU and Russa but also open up its territorial scope to the Middle Eastern states of the Arab Spring. See Westphal, The Energy Charter Treaty Revisted, SWP (Berlin, 2011).

Prepared 26th May 2011