European Energy: Going for the Equilateral Triangle

The lengths of the sides of an equilateral triangle are all the same.

That’s how Europe’s “energy triangle” should look, according to Frank Umbach, Senior Associate and Head of the Programme “International Energy Security” at the Centre for European Security Strategies, who presented an European Centre for Energy and Resource Security (EUCERS) strategic paper on unconventional gas at the Unconventional Gas & Oil Summit in Warsaw, Poland.

“Let me start with the uncertainties regarding the EU’s future energy security,” he said.

The triangle Mr. Umbach presented comprised environmental issues, security of supply, and economic competitiveness. He said it was necessary to balance those issues instead of favoring one or the other, especially given that Europe’s energy imports were set to increase from 50% to 70% by 2020.

“Very often, like in my own country of Germany, the environmental or climate policies very often determine the other two factors rather than balancing the other two objectives.”

He said that EU policy focused on domestically produced greenhouse gas emissions. 

His presentation showed that more than 80% of natural gas was coming from three countries, in contrast to how the pie was made up for EU crude oil imports.

“There’s recognition in the European Commission by increasing LNG supplies from a variety of players,” he commented, showing a list of LNG terminals that were in the planning stages, increasing to more than 20% of supply in 2020 from 10% in 2009.

“I am more optimistic about the global and European prospects for unconventional gas,” he said. “In 2005-06 the production prices in the US were 50-60% higher than they are today, so that time and situation were not so different from the situation we have here in Europe despite the fact that there are many differences.

“The percentage for Europe is rather small compared with the overall global figures; the Middle East has a higher figure, interestingly. In North America being a net gas exporter by 2016 is currently being discussed. Australia will become a bigger LNG producer than Qatar by 2018-19 and might also be a very important producer of unconventional gas in the mid term perspective,” he added.

“The Asian growth of unconventional gas will outpace all other regions, increasing to more than 55 bcm by 2020,” which he said might be a bit optimistic.

Umbach continued: “This all has already had a pricing impact in Europe, where there is a gas glut.”

He highlighted what he said were a number of environmental challenges and concerns. “There are a number of new analyses which are addressing the risks – there are of course risks, but in many respects the risks are overstated, which is the conclusion of a number of independent studies that are not present in the public discussion.”

In terms of prospects for Europe, he said situations like the one in France contrasted with the picture in Poland.

“Here in Poland the new estimate has been significantly decreased, but again we’re at the very beginning of the debate, which again reminds me of the years 2005-06 in the US. Through technology innovations the prospects are not so bad. The situations like the one in Bulgaria could change in the coming years.”

“Unconventional gas will definitely support supply security as well as economic competitiveness,” he said. “Even in regard to environmental climate change mitigation it will be interesting to see those debates in the coming years, because if you compare it with the import of pipeline gas, particularly from new Siberian field, the CO2 emissions could be 30% lower than Russian long distance pipeline gas, according to a life cycle analysis.”

Of other positive developments for European gas sources, he mentioned another possible area, the East Mediterranean Sea/Levant Region, where gas fields had been discovered. 

Of there and the Middle East, Umbach commented, “Gas finds don’t just depend on the technological drilling expertise of companies, but also on geopolitical conditions – there’s a maritime agreement between Cyprus and Israel being signed, but Turkey opposes many of the Cypriot gas projects, so maritime boundaries have not been agreed and that would definitely hinder a number of investments in the years to come. If the political conditions were better, the prospects for the gas fields would certainly be more positive. Israel is already discussing whether it will be just an importer or could be an exporter of natural gas.”

Regarding EU climate targets, and looking at figures from the IEA, he said Europe was not really on its way to the “450 Scenario.” 

“If we take three 20% goals of the EU policy,” he said, “the ‘renewables goal’ is seen by the Commission and by industry as realistic; we will probably surpass that 20% target significantly. In contrast we see the 20% goal for efficiency doesn’t look so positive today.”

He offered what he thought this portended for overall gas demand in Europe, projected to go up from 330 bcm of gas demand to beyond 500 bcm by 2035.

According to him, overall energy demand would decrease as well as gas demand. But uncertainty remained.

“With the phasing out of nuclear, Gazprom had hopes to increase volumes,” Umbach recalled. “The economic reality in Germany is that almost no gas power station is being built for guaranteeing baseload stability. These would only run a few hours per day, which is not profitable at all for any kind of private investors.”

Then he said there was the question of the Southern Gas Corridor.

“If you add the new pipelines, TANAP, non Russian gas and add LNG expansion, taking into account imports from Norway, you come up with more than 300 bcm of oil and gas projects available,” he noted, adding that resource estimates for Turkmeni gas were looking even more positive.

He continued, “Azerbaijan has discovered new gas fields in the last year and a half. Their exports to Europe or to other places will increase.”