Today in Europe we are living through an energy crisis that many people have never experienced before. The roots of this crisis can be found in our relationship with Russia and a reliance on its fossil fuels, which were provided at affordable prices to European consumers – helping make industries competitive and household bills low. With the war in Ukraine and the restriction and shutting off of Russian gas supply to Europe, prices soared and put incredible economic pressure on Europe. It became quickly apparent that Russia was an unreliable partner and as such Europe needs to diversify supply of natural gas and boost renewable and low carbon gases urgently.
The European Commission brought forward the RePowerEU plan which stated a political aim to remove all Russian fossil fuels from the European Union by 2030, a statement which Eurogas supports. Russia supplied around 45 per cent of all gas to Europe prior to the invasion of Ukraine and today in April 2023 the amount stands at 7 per cent of all natural gas supplied to the EU. In the past year we have seen a fundamental change in the approach to gas supply in Europe – emergency legislation has mandated storage quantities, we have had demand reduction and we have also set up a platform to aggregate demand to offer to suppliers.
Yet the most interesting element of all the changes in the gas sector has been the new found partnership with the United States. As Europe scoured the Earth for new gas supplies it found a willing friend in Washington DC, like-minded governments keen on climate action and also understanding of the role of natural gas in the energy transition. In March 2022 Preisdent Biden and President von der Leyen agreed that the US would send 50 billion cubic metres (bcm) of gas to Europe a year through this decade. This was almost double the amount that had been shipped to Europe in 2021 and broke with the historical notion that Europe is the market of last restort for LNG.
The target was achieved in 2022 with around 55 bcm coming to Europe from the US, it will now be important to see if this level is maintained in the coming year. The implications of failing to deliver this could be serious for the European economy and its people, especially if there is a cold winter in 2023-24. More long term contracts with US LNG companies and increased US supply will be needed to really lift our security of supply concerns.
This change in supply also poses challenges to Europe in how to deal with this new found need for LNG. The existing gas system of Europe has been built with large supplies of Russian gas in mind – the transmission system by and large runs from East and North to West and South Europe. With the advent of the decline in Russian gas and the increase in US based LNG we have to re-imagine this system. Now the LNG terminals will be the focus of the gas system, alongside the pipeline gas from Norway, Azerbaijan and Algeria. This means that much focus will have to be given to making Europe LNG ready.
The German government has led the way in this regard, passing the LNG Accelerator Act which will take their LNG import capacity from 0bcm in February 2022 to 44,5 bcm in December 2023. At least 6 floating storage and regassification units will be located on the coast of Germany. A remarkable achievement in such a short period of time.
These actions have not been without criticism, especially from some national NGOs who see this as locking in gas, despite the need to address the climate emergency. In Eurogas we see the need to replace as much gas as we need, while supporting energy efficiency and demand reduction to reduce the levels of gas we need to help stabilise prices at lower levels than experienced in Summer 2022.
We also support the need to ramp up production of 35 bcm of biomethane as called for by the European Commission in the RePowerEU Communication, this sort of domestic diversity of gas sourcing makes full sense, especially when you also consider the environmental benefits of using biomethane to also address methane emissions from agriculture. Likewise the targets for 20 million tonnes (MT) of hydrogen are also welcomed in Eurogas, though we feel much more needs to be done to explain how the imports of hydrogen will be achieved in such a short time scale. Perhaps the US will be the source of our hydrogen imports? The Inflation Reduction Act puts a premium on the development of hydrogen and as such pushes the US ahead of the EU in terms of clean hydrogen production. We shall see if our new found LNG relationship with the US will continue into the hydrogen economy.
The last year has fundamentally changed the way we secure gas supply for Europe. The US has emerged as a key LNG partner for Europe alongside the Norwegian piped gas supply. Like-minded countries working together to address the energy security issues and the climate emergency at the same time is surely the best way for Europe to emerge from the energy crisis.