EU seeks alternative energy suppliers –

EU seeks alternative energy suppliers –


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When Guenther Oettinger, the EU’s commissioner for energy, warned last month that Russia might cut natural gas supplies to the continent in retaliation to western sanctions, he firmly placed energy security front and centre of the debate surrounding escalating tensions with Moscow.

“That [Russia’s President Vladimir] Putin would use false information, lies and weapons was beyond my imagination,” Mr Oettinger was widely reported to have said at a Brussels event. “That’s why I am not ruling out worst-case scenarios any more.”

European energy: Supply and demand

European energy: Supply and demand

The clash between the west and the Kremlin over the latter’s military action in Ukraine has led to the worst stand-off between both sides since the cold war, and the threat to energy supplies has accelerated calls for a move away from Russian energy sources.

The EU imports more than half the energy it consumes, and Russia is its biggest supplier of oil, coal and natural gas. In Europe’s capitals there is a palpable sense of déjà vu, in view of the 2006 and 2009 stand-offs between Moscow and Kiev, that held Europe to ransom.

As Mr Oettinger mediates talks between Russia and Ukraine to resolve a gas pricing row in an attempt to avert a damaging supply cut in the winter, the latest dispute has not only revealed what little room for manoeuvre Europe has, but also the diverging interests of EU member countries.

The conflict has also underlined – again – the competing claims of the EU’s three energy policy objectives: security of supply, environmental concerns and competitiveness.

Jonathan Stern, senior research fellow at the Oxford Institute for Energy Studies, says: “If you want to use less gas, in many countries that will mean more coal [usage] and you kiss your carbon dioxide emissions targets goodbye.” Renewables would need subsidies, while alternative gas imports would cost more, he adds.

In recognising the continent’s vulnerability to external energy shocks, the European Commission has spent the past few months conducting stress tests to assess how the continent’s energy networks would cope in the event of disruptions, particularly during the winter when gas usage is at its highest.

The aim of the tests is to develop short-term back-up mechanisms for emergency situations. The results will be released this month, before the commission meets to discuss its 2030 policy framework for climate and energy. This includes moves to increase gas stocks, develop infrastructure – such as reverse flow pipelines – reduce energy demand and switch to alternative fuels in the short term.

A wind turbine stands near the Mehrum coal-fired power plant (Kohlekraftwerk Mehrum) on March 4, 2013 near Hohenhameln, Germany©Getty

Old and new generators in Germany

Longer-term aims include improving energy efficiency, boosting production within the EU, diversifying supplier countries and access routes, constructing infrastructure and creating a more unified energy policy – a demand former Soviet states, such as Poland, have made strongly.

Laszlo Varro, head of the International Energy Agency’s gas, coal and power division, says: “Over the past five years there has been real progress on the infrastructure and regulatory sides, particularly in terms of increasing gas storage capacity and the construction of pipeline interconnectors to redirect gas flows across the continent.

“But the European energy network does not have physical resilience to a sustained disruption to Russian gas supplies. There is no way to cope if there is a complete shutdown.”

Mr Varro says that to make a real dent in the continent’s reliance on Russian energy sources would take the best part of a decade, hundreds of billions of dollars and a lot of political will.

Improving domestic supplies of gas, such as from Norway or the UK, is on the cards, but reserves are depleting while Europe’s fledgling shale gas industry has faced popular protests.

Gas from further afield, such as north Africa, the eastern Mediterranean, the Caspian and central Asia, Iran and Iraq have been considered, but each has its problems and will be a longer-term strategic focus. Bringing non-Russian gas to Europe will need infrastructure improvements and favourable regulations, and will only bear fruit from 2025, analysts say.

Although Europe could boost liquefied natural gas (LNG) imports, infrastructure improvements are necessary first. Prices are far higher than pipeline gas, as the continent competes with Asian consumers, such as Japan, whose needs have increased following the fallout from the Fukushima nuclear power plant disaster.

Following in the footsteps of Lithuania, Poland – one of the most hawkish European states towards Russia’s actions in Ukraine – is racing to complete construction of an LNG terminal on the Baltic coast, which should begin imports within 12 months.

At full capacity it could halve Poland’s reliance on Russian gas, from 66 per cent of today’s needs. But, even as the rush to the finish gathers pace, the country is importing coal from Russia to feed its power plants – an example of how deep energy relationships with Russia across Europe run.

The option of generating electricity from coal, instead of gas, has become an attractive economic proposition in Europe thanks to a falling global coal price, but it clashes with the EU’s long-held goals to cut greenhouse gas emissions. And coal-fired power stations are running at capacity.

Further, Europe is divided on nuclear policy. While the UK is pushing for new plants, countries such as Germany and Belgium are moving away from nuclear in their energy mix.

Implementing policies to reduce energy demand could be effective in the long term, as could accelerating the deployment of renewable energy technologies, which has stumbled in recent years due to the financial crisis, the impacts of the US shale boom and low carbon trading prices.

The renewable energy lobby has been a vocal supporter of the EU’s 2030 climate change targets, arguing for them to be even more stringent. But experts wonder if governments have the stomach to commit the considerable sums of time and money necessary to bring alternatives to market, and question whether that would be sufficient to offset existing gas supplies.

Renewables accounted for 11 per cent of the EU’s gross energy consumption in 2012, with a 20 per cent target set for 2020. Biomass and renewable wastes, derived from plants or animals, accounted for the bulk of that, contributing 7.3 per cent.

Bioenergy’s cost per kilowatt-hour could be almost halved over the next decade, the consultancy McKinsey wrote in a recent report, making the cost of electricity generation from the fuel close to that of coal.

Although steps have been taken to improve the resilience of the EU’s energy regime, they have had varying degrees of success. Some energy market watchers question if the most recent push is too little too late.

“Europe has sleepwalked into a deep dependency on Vladimir Putin’s gas,” says Gal Luft, co-director of the Institute for the Analysis of Global Security, a Washington-based think-tank focused on energy security.

“Europe needs to be much more introspective about its energy responsibilities for the future. For years, it has turned its back on all other forms of energy in pursuit of its environmental policies: coal, nuclear, shale, and now we hear it has problems with Russia. When you throw energy security under the bus, this is what happens.”