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The insoluble equation: How to balance Europe's natural gas supply and demand

The balance of supply and demand of natural gas in Europe is approaching a perfect storm, blown by geological, geopolitical and regulatory forces.

Although North Sea production is still very active, supply continues to decline, and production of the giant Groningen field continues to be reduced following earthquakes induced by the depleted reservoir.

On the other side of the equation, Europe's gas demand continues to increase in line with GDP growth. Also, many governments have agreed to phase out coal for power generation; gas is the obvious alternative. Countering this is the unachievable goal of reducing CO2 emissions by 20% of 1990 levels per decade and energy-efficiency initiatives in the industrial sector.

The equation has many unknowns, but there are options for filling the gap. Few technical barriers exist but many geopolitical considerations are on the table, informing views on the security of supply.

Additional gas imports are available via the northern corridor (Russia), the southern corridor (the Caspian) or, with new discoveries in the Eastern Mediterranean, from the Middle East and Africa. LNG is available from the usual sources, but with two new and competing players: the ever-growing capacity of Russia's Artic LNG projects, which are cheaply and reliably available now; or from new liquefaction projects yet to start up in the US.

In this paper, we will discuss the choices available to the governments of Europe, along with their relative merits and potential consequences, and paint a picture of just one of several futures for European gas.
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