EU Energy Policy Needs Russian Gas

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European climate change strategy is closely linked to its energy policy, which will rely on decreasing costs of renewables and a key role for Russian gas until 2040, according to top experts speaking at the Centre for European Policy Studies (CEPS) on June 16.

The conference was organised jointly by the European External Action Service (EEAS) and think-tanks CEPS, Institut du Développement Durable et des Relations Internationales (IDDRI) and Istituto Affari Internazionali (IAI).

In March 2017, the EU Foreign Affairs Council agreed on ‘strengthening synergies’ between EU climate diplomacy and energy diplomacy and established priorities for 2017, mainly upholding the Paris Agreement and a ‘level-playing field’ in relation to third countries.

The deputy director-general for energy at the European Commission Christopher Jones sees climate change as both an opportunity and a threat. As technology and political ambition have driven down the cost of renewables, it contributes to oversupply with the perverse side effect that fossil fuel producers rush to extract their reserves as fast as possible.

“They have realized that the issue is not about producing enough to meet demand, but actually to monetise their molecules before nobody wants them [any more]”. In this context, he nonetheless sees Russia as a reliable supplier and expects it to increase its share in the EU gas market until 2040, at which point he expects demand for fossil fuels to have significantly decreased.

For Marc-Antoine Eyl-Mazzega, representing the International Energy Agency, Russian gas will be key both in the LNG market and European supply through pipelines. Actual exports of LNG will not match installed capacity in the short term, because of a lack of domestic production, political instability, or technical issues, in particular in most of the Middle East.

According to him, the greatest potential comes from Russia, the US, Qatar and Australia, in that order. Thanks to recent and current investments in Russian fields and infrastructure, the country has the potential to take up 10% of the global LNG share by 2025, he argues. Gazprom is making efforts to be price-competitive, which European consumers appreciate: European gas imports from Russia amounted to €60bn only 4-5 years ago, now down to around €30bn, says Eyl-Mazzega.

A senior German academic with experience in advising the government directly, Kirsten Westphal, expanded on the German strategy vis-à-vis Russia, which she qualifies as a mix of both containment and co-operation. Germany leads the sanction regime against Russia, but energy trade is a key area to build on trust and co-operation, an approach based on Germany’s strong support for a liberalised energy market, she says.

Germany is different from other continental European countries, as its market is very fragmented, with the biggest three players covering only 45% of the market share.

This situation avoids monopolies and encourages Germany to support commercial initiatives without bringing in politics, Westphal argues. Instead, she points to the persistent divide between EU states. They disagree on the role of gas; on the question of state involvement in gas markets; on the role of the European Commission; and on climate policies. Nord Stream 2 splits the EU in half, she said.

 

Sara Vargas