“The EU still hasn’t got a sound energy strategy”

26-02-2016

The new European Commission plans, aimed at making the EU less dependent on energy from non-European states, clearly show that Brussels still lives in an ivory tower.

 

Energy and security expert Cyril Widdershoven: “Brussels should offer gas companies more support to use liquefied natural gas as a transition fuel” 

The dependence on Russia will continue to be significant in the years to come if the Commission and the member states are not willing to effectively tap new sources of energy. The call for greater energy independence is commendable, but will not feasible in the short and medium-long term. Alternative energy might partly reduce our dependence, but north-western Europe cannot serve as an example for the rest of the member states. Tough geopolitical choices are required. 

The 2006 and 2009 gas crises not only confronted large parts of Europe with a very cold winter, but should also have made officials and politicians realise that the current gas dependence on Russia must be broken. However, we are more dependent on them than ever before. Nord Stream 1 and 2 are examples of how Russia (Gazprom) has been able to play off the European member states against each other. The Netherlands and Germany have not been able to resist the smell of Russian gas. Various Eastern European states have warned against this for years, but their interests and concerns have not been taken into consideration in the discussion.

Put on the back burner

There are plenty of reasons to explain why this happened. They still had Groningen and Norway. These two gas producers would be able to take over in the even of a conflict with Russia. However, the situation has changed dramatically. Norway is currently faced with low oil and gas prices, as a result of which various additional projects have been put on the back burner. The Netherlands, the flexibility manager of the European gas market, took the unilateral decision to reduce the gas production of Groningen, the largest onshore European gas field. Many European parties are now getting worried, as the flexibility of the system as a whole is in danger. Reports of possible further production decreases do very little to dispel these fears.  

Prevent disorder

These developments will cause a situation in which Europe will need to go looking for new gas resources outside its own territory, especially for as long as shale gas is out of the question. Europe is the biggest importer of gas in the world and will retain that position for the coming decades. With 39%, Russia is Europe’s main gas supplier, followed by Norway (30%) and Algeria (13%). Qatar provides the most LNG (liquefied natural gas). Nigeria, Malaysia, Indonesia and Australia are also big producers, but their LNG volumes are under pressure.

The reduction in European gas production has forced the EU to take new measures to avoid disruptions and interruption of the supply. The Russian-Ukrainian crisis is one of the benchmarks a new strategy should be based upon, especially in view of Moscow’s current aggressive military approach of conflicts in and around the European territory. Apparently, NATO’s vision with regard to Russia is still not accepted by the bureaucrats in Brussels.

“Question remains whether LNG will strengthen or weaken the EU’s certainty of energy supply”

In 2014, the EU carried out a stress test, which showed that the European gas network is still too vulnerable to major interruptions in the supply of gas. Miguel Arias Cañete, EU Commissioner for Climate Change and Energy, has admitted this once again. Measures were taken, but they do not appear to be sufficient to guarantee the gas supply to Eastern and Southern Europe. Brussels is now calling for the European countries to start producing more energy. Alternative energy sources are necessary in order to reduce Europe’s vulnerability. This will certainly take many years, and will definitely mainly be implemented in regions where there are already sufficient other energy options, especially north-western Europe and the Iberian Peninsula. The rest of Europe poses a problem, as a result of insufficient financial resources and a lack of infrastructure. However, it would help is the network (gas, power) were improved.

Fragmented market

At the same time, Brussels, for the umpteenth time in the last years, is calling for more energy diversification. LNG is again classed as the “Egg of Columbus”. It seems like a no-brainer, but in practice, it is not easy to implement. At this moment in time, Europe is already a major importer of LNG, but many regions cannot yet be supplied with liquid gas because of a lack of reception points or gas infrastructure. The latter is really necessary, but does require the right delivery contracts, in addition to huge investments in the years to come. This was already mentioned in a previous EU report. Until now, not much has been done in this respect. For many potential suppliers, the very fragmented European market is an obstacle, with gas supply clauses, network management legislation and ownership rights further complicating things.

Risky customer

Question remains whether LNG will strengthen or weaken the EU’s certainty of energy supply. If the European member states and the relevant energy consumers only want to keep buying LNG on the spot market, the certainty of supply will not improve. Suppliers (Africa, Middle East) will continue to conclude their contracts based on the economic and geopolitical situation, which can vary from day to day. Placing our future in the hands of countries such as Libya, Iran, Iraq, Mozambique or Qatar, is also not without risks. The growing instability and geopolitical conflicts in and around these countries requires a totally new risk analysis policy, which European politicians and companies do not have at the moment. For instance, none of the EU’s analyses take the role of Asia as an importer of LNG into account. Many people also seem to forget that Europe, being the greenest boy in the class, is becoming a risky customer for many potential suppliers. The geopolitical strategies are also not in favour of the EU. From an economic or political viewpoint, many Arab states, including Iran, no longer see Europe as a strategic partner. The economic links with Asia (China, India) are much stronger, with military cooperation also playing a role.

“Brussels wants to see what happens, but does not want to take any legal and/or commercial responsibility”

For the European players, it would be far better to offer the intended gas exporters the opportunity to supply LNG or pipeline gas to their own projects or infrastructure in the EU. Gazprom has tried this and has been partly successful (Wingas/Nord Stream 1 + 2). This could also be interesting for Algeria (Sonatrach), Qatar and others. It is a real pity that this is impossible within the framework of EU agreements! The role of the European Energy Union is non-existent at the present time. Potentially, it is a very good idea, because it would give Europe one loud voice to approach the market. However, the majority of the European parties (politicians and gas/power suppliers) are not very keen on this idea. The fact that Brussels wants to play a role in the contract negotiations between European energy customers and non-European suppliers, is a thorn in the side of many parties. Of course, it isn’t right to give officials a say in commercial negotiations. 

Necessity

This again shows the lack of vision or strategy. Brussels wants to see what happens, but does not want to take any legal and/or commercial responsibility. European ideas flounder again because of completely outdated legislation and regulations from Brussels. A European Energy Union is a necessity. The challenges in the field of energy production and supply for the years to come are too big to let the various national governments make the decisions. The German Energiewende is a good example of a well-intended idealistic alternative, which has caused real problems for the neighbouring countries. 

A glimmer of hope

The new energy strategy from Brussels is still characterised by stalling tactics. It contains no new measures to break open the market and promote certainty of delivery. The only glimmer of hope after a long Arctic winter which only focused on alternative energy is that, reluctantly, the door has been opened for gas. Finally Brussels has admitted, and hopefully more parties are to follow, that the role of conventional energy has not been played out yet. Gas as a transition fuel is back on the table. It is now up to Brussels to offer the necessary instruments and give gas companies the possibility to implement them. Without the supply of gas (and production), Europe will run out of energy.

Cyril Widdershoven is an independent energy and security expert for Europe, the Middle East and Africa.

 

Source: www.energiepodium.nl