Posted on 4/04/08 in Energy
One of the greatest challenges that the European Union faces is the need to simultaneously de-carbonise the economy and energy production, in order to rein in climatic change, while simultaneously ensuring future energy supply security.
Particularly in the context of climate change the energy source of increasing importance is natural gas, as it is the cleanest of all fossil fuels and can thereby act as an interim bridge towards a future sustainable energy system. The shutdown of nuclear reactors in Germany and the unacceptability of opening new coal plants in the EU without carbon capture and storage (CCS) technology undoubtedly suggest an increasing demand for natural gas. With decreasing domestic production, however, the EU will be´forced to rely on one major producer to meet its demand: Russia.
Russian gas currently makes up 40% of total EU gas imports, a figure that is expected to climb to 60% in 2030. But is Russia a safe bet when it comes to ensuring security of supply? In the light of the Russian-Ukrainian and Russian-Belarusian energy spats and an increasingly assertive foreign policy, the EU’s import dependency on Russia has been deplored by many as a geopolitical risk. This should not be overstated, as Russian leverage is undermined by Moscow’s dependence on revenue from energy exports. However, this geopolitical red herring tends to obscure the real issue at hand – is Russia even able to cover the EU’s future gas demand?
Having limited the role of foreign energy companies (e.g. Shell in Sakhalin; TNK-BP in Kovykta), Russia might find it difficult to raise the $550-$700bn required between 2000 and 2020 to meet Russian energy investment needs. In addition, Russia itself is confronted with a rising´domestic gas demand. These factors, amongst others, raise the spectrum of a future ‘gas crunch’ in Europe that besides affecting supply security would hurt the de-carbonisation efforts, as other fossil fuels would come back into play. As such, Russia is considering expanding its coal sector in order to fulfill domestic energy needs and making more of its profitable gas available to Western Europe, thereby aggravating climatic change.
Unfortunately, EU and memberstate policy has so far been rather ineffective when it comes to addressing these issues. What is needed is a coherent policy that not´only takes into account security of supply and climate change from the EU perspective when it comes to EU-Russian relations but also from the Russian perspective, as EU domestic demand affects Russian energy supply and might prompt a massive expansion of the coal sector.
Consequently, the EU and its member states need to engage Russia with mutually beneficial energy and climate policies. These should include amongst others tackling the issue of gas flaring as Russia flares about 50bn cubic metres of gas every year (about 50% of the gas that was consumed by Germany in 2004), preventing gas leakage during transmission and upgrading aged pipelines, increasing end-use efficiency and facilitating the insulation of houses in Russia and the EU, as well as engaging in technology cooperation in energy matters such as carbon capture and storage. In addition, the EU would be well advised to push forward the integration of a transparent, integrated and competitive electricity and gas market, increase the number of interconnections between member states, and invest in strategic gas storage.
(The views expressed in this article are those of the author and do not necessarily reflect the views of the Heinrich Böll Foundation)