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. Last Updated: 07/27/2016

Europe Sets to Burn Growing Gas Supply

LONDON -- New gas-fired power stations are sprouting across Europe ahead of the completion of two vast pipeline projects that will bring in huge amounts of natural gas from Russia and the North Sea by the end of the century.

But while many more gas-fired power stations are being built, few countries will repeat Britain's large expansion of gas-fired generation capacity in the 1990s, analysts said.

"Most Europeans are saying there will be no British-style dash for gas," said James Ball, managing partner of Gas Strategies consultants.

"This sudden growth from zero to a massive amount in Britain was a unique occurrence."

A pipeline project running through Belarus and Poland will enable Western Europe progressively to tap deeper into the colossal gas fields of Russia, and by 2010 yearly pipeline capacity from Russia will be about 65 billion cubic meters.

And North Sea gas currently swamping Britain's gas market will find an outlet to Europe through the Interconnector pipeline, expected to supply as much as 20 billion cubic meters per year to Europe by 1998.

Other projects will increase Europe's gas supply, too.

The Maghreb pipeline linking Algeria's gas fields to Spain and Portugal, carrying some 10 billion cubic meters of gas per year, is due to come on stream later this year.

Another pipeline project linking Italy to Algeria, via Tunisia, doubled its annual capacity to 24 billion cubic meters last year.

But while gas supply to Europe is likely to surge and prices are likely to fall, power generation capacity should grow more slowly.

"Installing gas-fired power is not driven by the price of gas, it's driven by the need for more power," Ball said.

He urged caution in analyzing future trends, however.

"Europe faces two fat gas bubbles: one from the U.K. continental shelf, and the other from Russia," he said. "The impact on prices may or may not materialize. It depends on how this gas is managed, and on the long term timing of the arrival of supply.

"On the other hand there is also the danger of supply interruption for political reasons.

"Both Algeria and Russia could pose political problems although neither of them ever has. Norway has interrupted its customers far more often than Russia has."

"Today we cannot say anything with certainty except that we should be prepared for wildly different outcomes," he added. "But I believe there is a far greater danger of oversupply than of supply interruption." The International Energy Agency forecasts a 25 percent rise in gas consumption in OECD Europe from 1995 to 2000, from 270 million tons to 336 million.

The large share of this rise will result from an increase in gas-fired power generation, which the IEA says will grow from 266 Terawatt-hours (Twh) in 1995 to 471 Twh, or 16 percent of total electricity generated.

This compares with a nearly exponential rise in Britain from just three Twh in 1979 to 54 Twh in 1995, and a projected 94 Twh by the end of the century.

Michael Stoppard, research fellow at the Oxford Institute of Energy studies, added: "While France is a relatively unexciting market, I expect gas use to rise dramatically in Italy and Spain.

"But the big question is: Will we see it in Germany? It is potentially a huge market, but it is still not clear which way they will go."

He said he thought the IEA forecast for Germany of 81 Twh being generated by 2000, from 63 Twh in 1995, was a bullish one.

In Italy, gas-fired power generation is set to rise to 90 Twh by 2000, or 31 percent of total electricity supply, compared with 42 TWH in 1995.

Ball said gas reserves available to Europe currently stood at "15 years of oversupply ... but new discoveries will increase this. The U.S. has been running on 8-10 years of reserves for the last 15 years."