Cañete: Brussels wants more options, not more gas

Energy Commissioner Arias Cañete wants less reliance on Russian energy.

The EU is planning to revamp its approach to natural gas, with a strategy package due out early next year that plans to give the Commission the right to take a look at sensitive long-term supply contracts and take other steps to make the bloc more resistant to external supply shocks.

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It’s all part of an effort to reduce dependency on Russian energy and boost competition, said Miguel Arias Cañete, the climate action and energy commissioner.

“That’s why we’re going to deliver, in early 2016, a new security of gas supply regulation to enforce our resilience to any kind of disruption,” Arias Cañete said at a POLITICO Energy Visions debate on Wednesday night.

The package will also include a liquefied natural gas strategy, he said, adding: “We’re seeking diversification of gas,” not more gas to neutralize energy as a political tool.

A key measure in the making to undercut the market power of Russia’s Gazprom is to allow the Commission to have more access to information and review a set of “particularly important gas supply contracts” that lock European countries into long-term deals with the Russian gas giant.

To further boost transparency of energy agreements, the Commission is also intent on getting a look at inter-governmental gas agreements before they are signed. Brussels is considering various options for reviewing these agreements to make sure they comply with EU law, Maroš Šefčovič, the EU’s energy union vice president, recently told POLITICO.

That would include putting its officials on the negotiating team, reviewing the text, or adding standard clauses to the contracts.

The issue has been controversial, with countries like Germany worrying that such transparency could endanger confidential commercial contracts.

But the Commission says it is careful not to trample on commercial secrets, WTO rules or European Court of Justice case law.

“We’ve proven we know how to handle sensitive information; DG Competition has particular experience with that,” Šefčovič said. “But we think it’s very important to make sure that European members are more transparent in this area.”

However, that is still less than countries like Poland had been hoping for, keen to boost their bargaining power. They would like the EU to negotiate directly with Gazprom, in order to reduce the vulnerability of small countries now overwhelmingly dependent on Russian gas. But a mandatory joint purchasing scheme is not going to happen. Plans, seen by POLITICO, specifically rule this out, saying it “will not be proposed.”

A priority is to integrate disparate energy markets by building the missing links between countries, and so ensure that gas can flow from North to South, West to East and back to “make the internal market work.” This is especially relevant for the bloc’s LNG potential, which is a “real possibility” but hampered by the lack of connectivity.

And it’s Europe’s Eastern and South-Eastern members that lack the necessary links. The idea is to ensure that each country has access to at least three sources of natural gas, Arias Cañete emphasized.

Environmental groups question that emphasis on building new infrastructure, even if most of the costs are going to be borne by private companies. They point out that the EU’s long-term strategy is eventual decarbonization, which means an end to fossil fuel use, including that of gas.

“In the short term, yes, gas has a role to play,” Stephan Singer, Global Energy Policy Director, WWF International said. “But nobody talks about the transition scenario.”

Amid falling gas demand, there is concern that building up gas infrastructure across the bloc will lead to stranded assets in the near future.

According to Commission estimates, gas demand will be “in the range of 380-450bcm” in 2030, which is similar to the level of gas demand today.

But the counter-argument is that at least in the short- to medium term there are big benefits to be gained by investing in infrastructure. Lithuania is a case in point. The opening of an LNG terminal on the Baltic Sea led to a dramatic tumble of 23 percent in the price it had to pay for Russian gas as it cut into Gazprom’s previous monopoly.

That reduction was much larger than expected, and as a result has paid off the terminal “multiple times,” Rokas Masiulis, Lithuania’s Energy Minister said, even though the terminal doesn’t run on full capacity.

“Over-investment is not a problem for energy, with over-investment you have flexibility,” he said, adding that real alternatives are what mattered when “negotiating with tough partners.”

That doesn’t mean that Brussels is favorably disposed to all infrastructure projects. A recent deal between Gazprom and a group of big European energy companies to double the capacity of the Nord Stream pipeline running from Russia to Germany under the Baltic is raising eyebrows.

“There are missing infrastructures … but at the same time European companies are going for mega-projects,” Arias Cañete said, questioning the project’s commercial rationale given the existing pipeline only runs on half its capacity. He stressed that such projects have to follow EU competition policy regulations.

For E.ON, one of the shareholders in the Nord Stream project, Russian gas will be necessary to fill the gap caused by falling local production. “Whether we like it or not, there’ll be Russia in the picture,” Klaus Schäfer, a member of E.ON’s executive board said.

As the bloc is working to increase the share of renewables by at least 27 percent and boost energy efficiency by the same amount by 2030, gas will continue to play a role in the EU’s energy market.

Should the ambition level of the bloc’s energy efficiency targets be increased to 30 percent, rather than the current 27 percent and something Arias Cañete has been very vocal about achieving, gas will make a 21 percent share in 2030, he said.

“Gas is not the end of the road, it’s a bridge,” on the long road to decarbonize the globe’s economies by the end of the century, he said, adding that “in 2030, gas will be there … in 2050, gas will still be there.”

Sara Stefanini contributed to this story.