Massive EU gas investment a mistake
Friday's (27 June) gathering of EU ministers is the second time this month to discuss, among other things, Europe’s supply of natural gas.
The crisis in Ukraine has been a wakeup call, exposing Brussels' weak position vis-a-vis Russia which delivers 25 per cent of gas consumed in the EU.
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Gas totals one quarter of all energy used in Europe, but with price levels on the rise and domestic production falling, it is becoming increasingly expensive to continue current levels of consumption, furthering Europe’s dependence on imported gas.
In response, Europe is investing billions of euros in gas-related infrastructure. Of the 248 so-called projects of common interest (PCIs) identified by the European Commission, 110 are related to the storage or transportation of gas.
Harbours across Europe are being transformed into hubs for overseas liquefied natural gas, and new pipelines are planned to bring gas supplies to the EU from authoritarian regimes such as Azerbaijan and Algeria.
A significant part of the estimated €200 billion to build the PCIs will come from public sources of finance via direct investments or in the form of guarantees.
But pouring such a massive sum into gas-related infrastructure is a huge misstep that will not address the challenge of Europe’s energy demands.
First, gas is expensive. Between 2001 and 2012, gas prices tripled and are expected to continue rising. At the same time, new sources of inexpensive gas are unlikely, with the consensus about an American-style shale gas boom in the EU having been all but abandoned.
It is equally unlikely that the US – a gas importer – will ever export significant amounts of gas to Europe, partly because the transport and liquification of gas are expensive, and shale gas extraction in the US has peaked.
On the other hand, prices for renewable energy sources show a downward trend, and operational costs are much lower.
Gas is also often offered as the transition fuel to help Europe meet its climate change commitments and become a ‘low carbon economy’. To be sure, gas delivers a constant flow of energy and is less polluting than both coal and oil, the most carbon intensive fossil fuels.
But were gas to aid an energy transition, then a credible plan to phase out the most polluting of fossil fuels would be needed, which is currently not the case. To stay within a global warming scenario whereby temperature increases are kept below two degrees Celsius, gas consumption must decrease by two thirds by 2050.
Locking Europe into gas use for decades
By its own account, the Commission’s own 2050 Energy Roadmap scenarios suggest that planned investments in gas infrastructure will create overcapacity and lock in Europe to gas use for decades, while hampering investments in, and the development of, renewable technologies.
The other thread of the narrative underpinning these EU summit discussions – that Europe must invest in its own gas infrastructure in order to increase the security of its energy supply – only tells part of the story.
These investments may make Europe less dependent on imported gas from Russia, but we will come to rely on gas from other countries – Azerbaijan, Algeria, Qatar and Nigeria – not the most stable of democracies, where human rights abuses abound.
The silver lining is that alternative energy scenarios exist.
Research shows that investing in renewables and energy efficiency, in combination with a 40 per cent reduction target by 2030, can generate savings in gas consumption by about 40 percent, exceeding all imports from Russia.
Such a strategy would have the added benefits of improving the odds of meeting our climate targets, as well as developing cutting edge-technologies and jobs. Another energy future is within reach – it is simply a matter of political will.
Xavier Sol is director at Counter Balance and Kuba Gogolewski an Energy expert at CEE Bankwatch Network