Has Europe cracked its energy-security problem?
The panic of previous years has abated, but the EU can still do more to help itself
A DECADE ago, energy security was – or seemed, in the context of energy-price inflation, bristling geopolitics and the tenacity of peak-oil theorists – an emergency.
The tense, standoffish relationship between the energy-deficient EU and its main natural gas supplier, Russia, matched the Malthusian mood: commercial disputes between Russian gas monopoly Gazprom and Naftogaz, its Ukrainian counterpart, led to interruptions in Russian gas flows to Ukraine in 2006 and 2009. They happened in January, too, the coldest time of year. Both times, European customers suffered.
The oil sector saw trouble too: during a pricing dispute between Russia and Belarus in 2007 – also in January – Russia stopped piping oil through the Belarus spur of the Druzhba (“Friendship”) pipeline for three days. Supplies to Europe weren’t interrupted, but they might have been: the same pipeline also reaches Poland and Germany.
Brussels panicked. Seemingly unstoppable global oil-demand growth and rampant energy-price inflation made energy security a genuine threat, not just to wonkish planners, but to individual consumers. In summer 2008, truck drivers in Madrid set up roadblocks across the city to protest against exorbitant diesel prices; within days filling stations were parched and ordinary folk left wondering when food supplies would dry up. It was all very Zeitgeist.
Since then, perceptions of energy security – “the uninterrupted availability of energy sources at an affordable price”, as defined by the International Energy Agency (IEA) – have changed. Under the guidance of the European Commission, EU countries have made genuine advances in enhancing their energy security, largely by improving internal integration through the addition of gas pipelines and electricity cables. Better grid connections have transformed consumers’ access to energy in the Czech Republic, for instance. Poland’s new Świnoujście LNG terminal, meanwhile, received its first cargo in December; with an import-capacity of 5bn cubic metres a year, the plant can meet a third of the country’s gas needs, reducing reliance on Russia.
The hand of friendship
“Overall, efforts to improve energy-supply security have been pretty successful,” says Tim Boersma, a fellow of the Brookings Institute, a think-tank. “Now, 80-85% of the continent has access to multiple supply sources.”
But Europe remains highly dependent on energy imports and vulnerable to supply shocks: it buys in 53% of the energy it consumes, including two-fifths of its coal and solid fuels, two-fifths of its nuclear fuels, 90% of its crude oil and two-thirds of its gas. The biggest risks to its supply security are in gas, mainly because of gas’s need for extensive infrastructure and the EU’s dependency on a small number of suppliers; imports meet two-thirds of the EU’s gas demand, and Russia, Norway and Algeria account for about 40%, 30% and 13% of those imports, respectively. Most of the gas comes in through large, long-distance pipelines. A growing proportion is imported as LNG, which, in recent years, has typically accounted for around 10% of imports – mostly from Qatar, Algeria and Nigeria.
The need for enhanced energy-security measures in gas is underlined by the outlook for the fuel’s consumption. Demand – which, at 400bn cm/y, amounts to about a quarter of EU energy consumption – is likely to remain robust given the fuel’s compatibility with intermittent renewables as a flexible source of baseload electricity generation, the comparative ease with which gas-fired power plants can be built and methane’s reasonable environmental credentials – in relative terms – when combusted. The outlook for nuclear, by contrast, is much less positive.
Meanwhile, external events have lessened the long-term security risk. American shale gas development, for example, has reshaped world supply and demand, swiftly turning the US’ lower 48 from potential LNG importer to an LNG exporter in the making. That shift has coincided with the completion of several new Asia-Pacific liquefaction terminals, mostly in Australia. Suddenly, LNG is more readily available and affordable, and, says the Commission, presents a “major opportunity” to improve gas security.
Opportunity is the operative word, though, because the Commission remains unsatisfied with EU energy security – especially in Russia-dependent countries in Eastern Europe. Stress tests carried out in 2014 across the EU to assess the system’s ability to copy with a complete halt in Russian gas imports showed Europe would still suffer, especially in the east. Bulgaria, for instance, still gets all its gas from Russia.
But systemic fragilities, the Commission said in February proposals to update EU energy-security policy, can be addressed by adopting a regional approach, as opposed to one built around a national mindset. Decisions taken at a national level in one country can harm another, it points out; restrictions on electricity exports in Bulgaria in 2012, for example, had a knock-on effect on Greece’s power and gas sectors.
Opportunity is the operative word because the Commission remains unsatisfied with EU energy security – especially in Russia-dependent countries in Eastern Europe
A regional approach to energy security also dovetails with other cherished EU policy objectives, such as the creation of liquid and transparent single markets for gas and electricity. Boosting the share of green energy in the mix should also – eventually – improve energy security; that too will depend on significant regional cooperation, because of the grid enhancements needed to manage the integration of intermittent renewables and, when operational, to balance the system.
LNG can help with the balancing act, but only if it can actually find its way to end consumers. The Commission says the EU already has sufficient regasification capacity – enough to meet around 43% of 2015 gas demand. But receiving plants are not “optimally distributed”. More infrastructure is needed to move the LNG to end users, especially in the Baltic and southeastern Europe. On the commercial side, meanwhile, the single market must achieve sufficient liquidity and transparency to send appropriate price signals to suppliers.
Storage capacity, also essential in balancing the system when supply and demand are out of kilter, is unevenly distributed too. Italy, France, Germany and the Netherlands have big facilities; but Eastern Europe, not so much. Greater cooperation between states would reduce that problem.
But while the Commission’s plan to cajole its members into greater cooperation makes strategic sense, the commercial case for unglamorous additions to gas infrastructure is less compelling. “The reason the connections don’t already exist is that there is insufficient commercial justification for them,” says Ed Chow, a senior fellow in the Energy and National Security Program at the Center for Strategic and International Studies. Indeed, in storage, weak profits are a threat to future investment and even existing capacity, admits the Commission. Continued resistance to open markets from incumbent companies in some parts of the EU doesn’t help either.
At least, though, the EU is in control of many of the measures that can improve energy security. “The concrete moves are mainly on the internal side, which is where they should be,” says David Buchan, a senior research fellow at the Oxford Institute for Energy Studies. “More can be done inside the EU to make the single market work better, rather than searching for strategic relationships with outside suppliers.”
"More can be done inside the EU to make the single market work better, rather than searching for strategic relationships with outside suppliers"
Efficiency in energy use is an obvious starting point. Half of the EU’s energy goes on heating and cooling buildings, for example, but, with its high proportion of old buildings, much of that energy is wasted. In February, the Commission announced plans to overhaul this area of its energy strategy; with the use of smart technologies, it hopes to decarbonise Europe’s building stock by 2050. That would reduce the role of fossil-fuels in the EU and help lower end-user prices, bolstering energy security.
A more active interest in identifying and developing shale prospects might help energy security too. To the US – where gas- and oil-rich shales have transformed energy security – French and German reluctance to exploit or even investigate their own shale potential is baffling.
Such aspirations seem distant, though. In the meantime, there are plenty of familiar 20th century problems to tackle, including the EU’s addiction to Russian gas. Tensions between the Russian and Ukrainian governments continue to threaten Europe’s security of gas supply. And the picture could change yet again if the proposed Nord Stream 2 pipeline project were to proceed. Run by a Gazprom-led consortium, this project would double the 55bn cm/y capacity of the existing Nord Stream gas connection from Russia to northern Germany under the Baltic Sea.
But that would seem a retrograde step: it would isolate Ukraine even more by diminishing its stature as a transit state and inflict more damage on an embattled economy. And it would tie European fortunes closer to Russia’s at a time when – principally through LNG, methadone to Russia’s heroin – there are plenty of other opportunities to diversify supply.