Australia has offered to provide additional liquefied natural gas (LNG) to “friends and allies” in Europe, should Moscow decide to cut off energy supplies to European countries heavily reliant on gas from Russia.
Europe has been at the heart of an energy crisis since last year, when the lifting of COVID-19 restrictions put huge demands on depleted stocks of natural gas.
Trade Minister Dan Tehan said in a statement that Australian LNG exporters were “ideally placed to meet any demand that may arise globally, as Australia stands ready to support our friends and allies in the current challenging and complex, geostrategic environment”.
Minister for Resources and Water Keith Pitt added that Australia would “assist with any request for further supplies”.
“This shows how important Australian resources are to energy supplies around the world,” he said.
So, why is Europe so desperately in need of gas?
How large are Australia’s supplies of LNG? And what other industries might benefit from geopolitical instability in Europe?
Why does Europe need more gas?
Low supplies have driven prices to record highs for the European Union’s 447 million people.
And the EU depends on Russia for around a third of its gas supplies.
Gas is mainly pumped via pipelines that transit Ukraine or other eastern European nations, heating homes and powering industry across the 27-nation bloc and its neighbours, such as Britain.
Any interruptions to its Russian imports would severely exacerbate the existing crisis.
Russia’s state-owned energy company Gazprom has sold less short-term gas and hasn’t filled as much of its European storage as it normally does.
But Russian officials say the company has met its supply obligations under long-term contracts.
Analysts believe Russia may be underlining its desire for Europe to approve the Nord Stream 2 pipeline to Germany that bypasses Poland and Ukraine.
Gazprom has invested billions into building the 1,234-kilometre pipeline.
It would allow Russia to sell gas directly to a major customer and circumvent a pipeline through Ukraine, which has faced relentless pressure from Russia following Moscow’s 2014 annexation of Crimea and its support for separatist rebels in Ukraine.
Russian President Vladimir Putin has denied using LNG as a political weapon.
“This is just politically motivated chatter, which has no basis whatsoever,” he said in October last year.
Even before the 2014 hostilities, Moscow had launched efforts to diversify gas supply routes to the European Union, saying the Ukrainian system was dilapidated and accusing the country of siphoning gas.
Now, tensions between the EU and Russia are again soaring over the deployment of an estimated 127,000 Russian troops near the Ukraine border.
What is Europe doing in response?
Norway, among Europe’s suppliers, has stepped up with more pipeline gas.
The United States has offered reassurances that it will help its European allies find alternative supplies.
EU legislation requires countries to help each other in the case of a gas shortfall.
Governments can declare a gas emergency and shut off industrial customers to spare households, hurting the economy but sparing a humanitarian and political disaster.
Yet the system has never been tested, and there are questions about how willing countries would be to share gas in a crisis.
UK Foreign Secretary Elizabeth Truss said Europe needed to become less reliant on Russian gas when addressing the Lowy Institute in Sydney last week
“[Australia and the UK] are determined to act together … for our economic security,” she said.
“We’re pushing for alternatives in energy supply, so that nations are less reliant on Russia for their gas.”
Analysts say the solution is more investment in renewables such as wind and solar.
Yet European officials concede gas will play a role for years during that transition.
How might Australia step in to alleviate shortages?
The federal government hopes to meet some of Europe’s demand for liquefied natural gas.
LNG is sold worldwide to companies operating in countries looking to diversify energy sources away from coal, and Australia is one of the world’s largest producers and exporters.
According to Adelaide-based consultancy EnergyQuest, LNG exports from Australia hit a record high of 80.9 million tonnes in 2021.
Europe, meanwhile, started 2021 with gas storage only 56 per cent full, compared with 73 per cent a year earlier.
Lack of Russian deliveries on the spot market is one factor in the shortage, as is the advent of winter on the continent and robust demand in Asia for liquefied natural gas that comes by ship.
As it moves to reduce pollution caused by coal-fired power stations, China in particular has been scrambling for gas supplies to prop up its energy supplies.
Europe’s association of pipeline operators says cold weather would mean needing to import 5 per cent to 10 per cent more gas than the maximum volumes observed in recent years to avoid the risk of shutoffs.
Mr Tehan said geopolitical events could be a boon for Australian exporters.
“The current geostrategic environment that Australia faces is the most complex since the Second World War,” he said.
“This environment will continue to present both challenges and opportunities to Australian exporters now and into the future.”
The program director of energy at the Grattan Institute, Tony Wood, says the US is trying to coordinate the diversification, with Australian gas already used to supplement supplies.
“I’m sure the conversations are being had (but) it doesn’t mean that Australia actually supplies its gas to Europe — Australia is a long way from Europe,” he told the ABC.
“It could mean that gas that otherwise might go to Asia is diverted to Europe and then Australian gas replaces that gas in Asia.”
Mr Wood said it wouldn’t be in Russia’s economic interest to cut gas supplies to Europe.
Even so, agricultural regions near the Russian border could spark a supply shortage if exports are cut off in the case of an invasion of Ukraine.
Ukraine is one of the world’s most fertile countries, earning it the nickname “the breadbasket of Europe”.
Australian farmers could meet some of this demand.
“If conflict occurs, you’re effectively putting the world’s biggest wheat exporters at war with each other and, without a doubt, some of [the price premium] will flow back to Australian growers,” Brett Hosking, chair of industry body Grain Growers Limited said.
ABC/wires
