EU Energy Policy Blog

Forget the gloom about fossil fuels. True, oil is scarce; granted, coal is dirty – but natural gas is clean and plentiful. In terms of local air pollution, gas burns very cleanly indeed. In terms of greenhouse gases it emits half what coal does, per KWh generated. Unlike oil, or even coal, the world’s gas reserves are expanding dramatically. The coming decades could be a golden age for natural gas, as the International Energy Agency explored in a recent report by this title. However, it is doubtful that Europe will share in this new gas era.

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The UK energy and climate change policy is failing, and failing at a high cost. Electricity bills are going up as consumers are asked to pay for ever increasing subsidies to renewable energy, the deployment of which does nothing to reduce greenhouse gas emissions. The situation will get worse as other low-carbon technologies ask for, and obtain, specific subsidy schemes based on the argument that they, too, are ‘needed’ to de-carbonise the economy.
These patchworks of support mechanisms are destroying the electricity market, creating unmanageable uncertainty for non-subsidised investments. The claim that ‘the market cannot deliver’ is a self-fulfilling prophecy: ill thought-out interventions destroy economic mechanisms, leading to major uncertainty and underinvestment, leading to more intervention.

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The logic behind the question in the title is straightforward. Iran is a country with very large reserves of natural gas, a lot of it relatively low-cost. With the right investment it could become an exporter of global significance in about a decade. Europe is one of the largest gas markets in the world. Its combination of liberalised electricity markets and ambitious environmental policies favour gas in power generation, at least in the mid-term. Russia’s position in the European gas market raises concerns of market power and politicisation. The EU supports new gas pipeline projects from Central Asia and the Middle East through Turkey and the availability of Iranian gas could be essential to the success of this diversification strategy. Russia, on the other hand, should want to prevent or delay the emergence of Iran as a large gas exporter.
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In July 2009 the European commission published a proposal for a Regulation on the security of gas supply, due to replace the Directive 2004/67 on the same topic. The proposal has been discussed at the Council under the Swedish Presidency and the negotiation continues under the Spanish Presidency; a political agreement is expected in May 2010.

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Conventional wisdom has it that Russia dominates Europe’s natural gas market, and that European imports of Russian gas are growing and can only continue to grow. This supposedly places the EU in a dangerous state of dependency and compromises its strategic position towards Russia. All sides of the debate over Europe’s Russia policy share these premises, including those “realists” who argue that dependency on Russian gas makes it irresponsible for the EU to pursue policies that antagonise Moscow. But the conventional wisdom is wrong: Europe’s gas supply is not dominated by Russia, or, for that matter, by any other exporter.
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There is a broad consensus in Brussels on the need for an external energy policy to diversify suppliers and routes and loosen Russia’s grip on the European natural gas market.
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On both sides of the Atlantic, foreign policy analysts have convinced policy makers that the West faces a severe energy security challenge. They promote either ‘energy independence’ or a ‘strategic approach’ to energy security. The West, they say, should stop being naïve about markets. Exporters are renationalising the energy industries and placing their energy assets at the heart of their foreign policy. Large new importers secure their supply through government-to-government deals. Energy policy has become high politics and energy security is hard security. The appropriate institution to deal with these concerns is no longer the International Energy Agency but NATO. It is time to challenge this vision. Continue reading »

On July 13, Gazprom, the Russian state-controlled gas company, and Total, the French oil and gas major, announced they had signed an agreement to co-operate in developing the Shtokman gas field in the Russian waters of the Barents sea. Continue reading »