Direct Speech, Energy, EU – Baltic States

This ‘umbrella strategy’ was also designed to fight climate change and create new ‘green’ jobs as well as a new type of sustainable economic growth in Europe. Last but not least: determination to reduce Europe’s fossil fuel import bill also drove the initiative.

As surprising as it might seem, Europe is already close to achieving these goals even with the current market design. Furthermore, the EU has already all necessary instruments to implement the key goals of the Energy Union. The completion of a single energy market will make the criteria of reliability, competitiveness and security of supply – mentioned as the key priorities of the Energy Union – less relevant, if not outdated, even with present energy regulations.

The single gas market increased competition and consumers in Europe have a vast of choice of alternative supplies – both in the form of LNG and pipeline gas –and they appear to feel comfortable with this choice. In a lunchtime press briefing on February 1, 2017 EU Commissioner Maros Sefcovic said that in regard to energy security, the situation has significantly improved in 22 out of 28 countries. This was due to better pipeline links between member states, together with significant improvements of energy efficiency and increased use of renewables.

Total European (EU28 plus Turkey) regasification capacity by the end of 2016 stood at 216 billion cubic meters (bcm), amounting to 40% of EU demand and 55-60 per cent of EU gas imports. This capacity allows (in theory) the full replacement of pipeline imports from either Norway or Russia which last year respectively exported to the EU28 107 bcm and 153 bcm. 

Furthermore, pipeline interconnectors also contributed to a free flow of energy across borders and a secure supply in virtually every EU country. In 2015 Central and Eastern Europe (CEE) reverse flow capacity stood at about 147 bcm/year, while a further 42 bcm/year of new interconnection capacity added within Eastern Europe and between Central and Western Europe in 2010 - 2015. Interconnectors had already managed to changed supply dynamics with gas deliveries shifting directions from “east-west to “west-east”.  For example, gas flows from Germany to Czech Republic went up from 8.7 bcm in 2011 to 35.6 bcm in 2015. The increased interconnectivity has led to price alignment almost everywhere in Europe with the higher priced markets now almost equal with the cheaper ones, and so making gas more affordable.

This connectivity also helped to spread the sense of confidence that exists in the mature markets in western Europe to the new member states. Gas is therefore becoming an ‘ordinary’ source of energy which can be sourced almost everywhere and its source of origin will be no longer a matter of concern for energy importing countries. In 2016 the use of LNG re-gasification terminals went down, thanks to the arrival of cheaper pipeline gas supplies, mostly from Russia. In January - April 2016, the average use of Europe’s re-gasification capacity was only 17%, while two thirds of the increase in Europe’s gas imports –around 30bcm in 2016 – was covered by Russia. These figures show that EU utilities were not afraid of Gazprom and are eager to buy cheap energy from Russia as they felt confident that they had a back-up supply option.

Changing market dynamics also forced non-European supplies to accept the new “rules of the game”. Non-EU companies have realised they are running the risk of rapidly losing their market share if they cannot effectively adapt to the new market and regulatory realities. For example, Gazprom, accused by the European Commission of breaking EU antitrust rules, accepted the requirement to amend its’ market strategy and it has submitted relevant commitments to the EC, whose anti-trust directorate has positively assessed these commitments.

Consequently, the European gas market is finally becoming depoliticised and natural gas is turning into an ‘ordinary’ commodity – like oil, where import dependency has become a secondary issue. The case of Sweden might offer a good example of what will happen with the European gas market. The share of Russian crude in Sweden’s oil consumption went up from 10% in 2000 to 44% in 2015 but these figures are not generally perceived as a critical dependence or a security threat. Alternative oil supplies are readily available and a short transport leg makes Russian crude commercially attractive to Swedish consumers.

The trend towards de-politicisation is still fragile, but might gain momentum if both suppliers and consumers were ready to invest in this relationship and respect the generally accepted “rules of the game” and each other’s interests. As we see, existing EU regulations and single market are fully sufficient to regulate supplies from the third countries and address all relevant consumers’ concerns.

Policy-makers for their part need to keep away from unduly influencing markets and determining the behavior of energy companies.  Markets and consumers could and should decide which project is more suitable and no energy project should not be discriminated if it respects market rule.

Disclaimer: The opinions expressed in this article solely reflect the views of the author.

The article is based on publications initially published on Flame Conference website on April 25, 2017

and in Natural Gas World on May 2, 2017