Eric Watkins
Oil Diplomacy Editor
The European Union's energy commissioner Guenther Oettinger has unveiled a 10-year, trillion-euro investment plan that underlines the need for political unity in an effort to achieve energy security for the 27-member bloc.
"There is no single energy market," Oettinger said, adding that Europe's current system is "like 19th century dukedoms rather than a modern open Europe." In a word, he said: "We need to render energy European."
Oettinger said the creation of a single energy sector would also strengthen Europe's voice on the international scene. The union's internal energy market was the world's biggest, he said, "bigger than China, bigger than the US."
Oettinger said, "I will be pleading for a common foreign energy policy," referring to the fact that his proposals will be scrutinized by EU leaders at the bloc's first-ever energy summit, scheduled for Feb. 4, 2011.
While much of the new strategy is concerned with improving the EU electrical grid, oil and gas are destined to play a considerable part in the bloc's energy mix, both now and in the future.
The share of renewable fuels is set to increase significantly, both in primary and final energy consumption, while the contribution of nuclear, at about 14% of primary energy consumption, is set to remain stable.
Safe supply routes
"For oil and gas, rising import requirements and increasing demand from emerging and developing countries call for stronger mechanisms to secure new, diversified and safe supply routes," the report said. "As well as crude oil access, refining infrastructure is a crucial part of the supply chain."
Oettinger's report states that oil will continue to be needed in industry as well as in air and heavy road transport over the coming decades even as urban transport and private vehicles shift to hybrids, hydrogen, and electricity.
Generally, Oettinger's report—called "Energy 2020"—sees the share of coal and oil in the EU's overall energy mix declining by 2030, while its gas demand will remain largely stable until 2030.
More precisely, the report sees EU oil demand developing in two different ways: decline in the core EU15 countries and constant growth in new member states, where demand is expected to grow by 7.8% during 2010-20.
The report notes that if climate, transport, and energy efficiency policies remain as they stand today, oil will still represent 30% of primary energy, and a significant part of transport fuels are likely to remain oil based in 2030.
It said security of supply depends on the integrity and flexibility of the entire supply chain, from the crude oil supplied to refineries to the final product distributed to consumers.
At the same time, the future shape of crude oil and petroleum product transport infrastructure will also be determined by developments in the European refining sector, which "is currently facing a number of challenges."
The report is especially concerned to ensure uninterrupted crude-oil supplies to land-locked EU countries in Central-Eastern Europe, currently dependent on limited supply routes, in case of lasting supply disruptions in the conventional routes.
Diversification of oil supplies and interconnected pipeline networks would also help to stabilize oil transport by vessels, thus reducing the risk of environmental hazards in the Baltic Sea and Turkish straits.
"This can be largely achieved within the existing infrastructure by reinforcing the interoperability of the Central-Eastern European pipeline network by means of interconnecting the different systems and removing capacity bottlenecks and/or enabling reverse flows," the report claims.
Gas imports dependency
Meanwhile, the report said that while the EU's dependency on imported fossil fuels will continue to be high for oil and coal, it "will increase for gas."
In the view of analyst BMI, "The strategy document is the latest attempt by the EC to push for a single energy market, at a time of growing concern of EU overdependence on Russian natural gas."
Energy 2020 says that gas will continue, "provided its supply is secure," to play a key role in the EU's energy mix in the coming decades and will gain importance as the back-up fuel for variable electricity generation.
"Although in the long run unconventional and biogas resources may contribute to reducing the EU's import dependency, in the medium term depleting indigenous conventional natural gas resources call for additional, diversified imports," Oettinger's report said.
"As regards gas, the dependency on imports is already high and will be growing further, to reach about 73-79% of consumption by 2020 and 81-89% by 2030, mainly due to the depletion of indigenous resources," the report states.
Gas networks face additional flexibility requirements in the system, the need for bidirectional pipelines, enhanced storage capacities and flexible supply, including LNG and CNG.
At the same time, markets are still fragmented and monopolistic, with various barriers to open and fair competition. Single-source dependency, compounded by a lack of infrastructure, prevails in Eastern Europe.
A diversified portfolio of physical gas sources and routes and a fully interconnected and bidirectional gas network, where appropriate, within the EU are needed by 2020.
"This development should be closely linked with the EU's strategy towards third countries, in particular as regards our suppliers and transit countries," the report said.
Southern corridor
In an annex, the report pays particular attention to the Southern Corridor as a gas supply route, calling it the fourth "big axis" for the diversification of gas supplies in Europe, after the Northern Corridor from Norway, the Eastern corridor from Russia, and the Mediterranean Corridor from Africa.
"Diversification of sources generally improves competition and thus contributes to market development," the report says. "At the same time, it enhances security of supply: as seen also in the January 2009 gas crisis, the most severely affected countries were those relying on one single import sources."
The aim of the Southern Corridor is to directly link the EU gas market to the Caspian-Middle East basin, which is estimated to hold 90.6 trillion cu m of gas or more than twice Russia's proven reserves 44.2 trillion cu m.
The strategic objective of the corridor is to achieve a supply route to the EU of roughly 10-20% of EU gas demand by 2020, equivalent roughly to 45-90 billion cu m/year of gas.
"The key potential individual supplier states are Azerbaijan, Turkmenistan and Iraq," the report states, noting that if political conditions permit, supplies from other countries in the region could represent "a further significant" supply source for the EU.
"The key transit state is Turkey, with other transit routes being through the Black Sea and the eastern Mediterranean," Energy 2020 states.
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