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Ukraine crisis to see energy prices rise

Monday, August 25 17:45:06

Europe needs to enforce its energy strategy and will have to pay more for gas if it wants to improve the safety of supply and reduce its reliance on Russia, the head of the West's energy watchdog said today.

The 28 country European Union is supposed to have a single market for power and gas, but in practice policy is still patchy, infrastructure poorly developed and not all governments follow the single policy line.

Europe has to better use its existing infrastructure, such as liquefied natural gas terminals, even if this pushes up costs, International Energy Agency executive director Maria van der Hoeven said.

"It's important that Europe enforces its internal energy strategy," she told Reuters in an interview. "Countries in Europe are not independent when it comes to energy because there's huge interdependence and decisions made in one country have an influence on other countries."

Russia supplies about 30 percent of Europe's gas, with some central European countries relying almost entirely on piped imports, leaving them vulnerable to supply cuts, like in 2009 when a spat between Ukraine and Russia reduced flows.

Supply worries flared up again this year after the West accused Russia of arming separatist rebels in Ukraine and imposed sanctions on Moscow, including on its financial and energy sectors. Russia hit back by stopping imports of many food products and raised the prospect of limiting car imports, but gas flows have not been affected.

"The dependency on Russian gas can't be changed overnight," she said. "You have to invest in infrastructure as well as your relationship with other suppliers. You need to use your LNG capacity which is now used at only a 25 percent rate. This of course all has a price."

Van der Hoeven said Europe also needed to increase its own production with Norway, now the continent's second biggest supplier, and shale exploration, potentially playing key roles. (Reuters)

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