Gas glut that risks spoiling Russia

For the past few years Europe has been fretting about its dependence on Russia for gas. The bout of Russian muscle-flexing with Ukraine and with western energy companies such as Shell and BP has intensified concern that Europe is becoming increasingly vulnerable to the big bear on its eastern borders.

But few seem to have realised that there may be an opportunity for European countries and their big energy companies to wield the stick against the Russians. The gas and related electricity market have traditionally followed the broad economic cycles, with the big difference that even in downturns they continued to manage to show modest growth. But this latest slowdown is different.

Indeed, for the first time since the second world war, the 27 countries that today make up the European

Union

have seen a fall in gas and electricity demand. According to senior representatives of the European gas industry, demand in Europe has declined by 36bcm (billion cubic metres) to 499bcm this year, compared with 535bcm last year.

The industry does not expect European gas demand to return to 2008 levels before 2012 or 2013. Oversupply comes as a result of increases in existing pipeline capacity, the coming on-stream of the Medgas pipeline between Algeria and Spain, and more production around the globe in countries such as Algeria and Qatar. The exception is Russia, where gas production has fallen by a dramatic 25 per cent this year compared with 2008.

FT.com