Variables to affect EU energy supply, demand to 2020

European Energy Commissioner Andris Pielbags recently introduced the first annual report of the Market Observatory for Energy.

Doris Leblond
OGJ Correspondent

PARIS, Feb. 17 -- European Energy Commissioner Andris Pielbags, introducing the first annual report of the Market Observatory for Energy just released, explained that the analysis of demand, resources, and investment in electricity generation capacity, which it provides "form the background for further measures to foster greater energy security at a time when the European Union has embarked on a major transition towards a low carbon and efficient energy economy."

The report examines energy demand to 2020. Demand is examined under two scenarios: The baseline scenario includes current trends and policies implemented in the member states to 2006. The New Energy Policy scenario includes agreed-upon EU targets to be achieved by 2020. These are a reduction of 20% less greenhouse gas emissions compared with 1990, a 20% share of renewables in the final energy demand, and substantial energy efficiency improvement.

Under the baseline scenario, the price of CO2 would equal $22/tonne. With the New Energy Policy it will equal €41/tonne ($53.33/tonne).

In both scenarios, moderate crude oil prices would be $61/bbl (in 2005 dollars) in 2020. The high price environment would have an oil price of $100/bbl in 2020.

Under the baseline conditions, the EU's energy consumption would rise 5-9%, depending on oil prices and driven mainly by transport fuels. Depending on oil prices, transport consumption in the EU will rise by 17-21%, according to the study.

Energy intensity—the quantity needed to produce one gross domestic product (GDP) unit—improves 24% by 2020 and could go as high as 27% in the case of high oil prices. This would result from a structural shift towards more services and less industry within a healthy GDP growth environment, but it also would include efficiency improvements.

Demand to drop
Under the New Energy Policy scenario, primary energy consumption decreases by 0.4-0.5%/year, depending on oil prices. Primary energy demand would fall by 6-8% from the current level.

After decades of rising energy demand, the EU's energy consumption would decline for the first time because of policies and measures on energy efficiency, with improvements of 34-36% by 2020.

However energy demand from transportation would increase 4-8% compared with current figures.

Oil, gas, and coal now account for 80% of the European Union's current energy demand. This figure should remain relatively stable under the baseline scenario to 2020. High oil prices could reduce the share of fossil fuels to 75%, while the New Energy Policy would further diminish that share to 70-71%.

Under the baseline scenario, oil and gas share in primary energy consumption is expected to remain stable in 2020 at the current level. High oil prices would reduce this share by 4% in 2020. Under the New Energy Policy scenario the oil and gas share would fall to 55-59%.

Under each scenario, oil remains the most important fuel of the EU's fuel mix despite a decreasing share. Pulled along by the transport sector, oil contributes currently to 37% of primary energy, and it will remain the most important fuel to 2020. With moderate prices, the share of oil decreases in a broadly comparable manner under both scenarios is by 1%. With high oil prices, the decrease is 3% in the baseline and slightly more in the New Energy Policy scenario.

Renewables, nuclear
The share of carbon-free and indigenous energy sources—renewables and nuclear—in the EU's fuel mix would grow to 28-30% under the New Energy Policy compared with only 21-25% under the baseline. The share of renewables would increase under both scenarios and price circumstances.

Natural gas is the second largest element in the fuel mix, accounting for almost one fourth in 2006. This is 6% more than the share of solid fuels.

The share of gas in primary energy consumption is expected to remain above 20% under both scenarios but should slow down if moderate fuel prices prevail. With a high oil price, there would be a slight decrease in gas share in 2020.

Under the New Energy Policy with moderate oil prices, gas is challenged by the massive penetration of renewables, and gas' share in the EU's fuel mix should fall to about 23%. Under high oil prices it decreases to 21%. As a result of the combined effect of the New Energy Policy and high oil prices, the natural gas share in the electricity mix will be no higher then 17% in 2020, according to the report.

The report notes that under the New Energy Policy, the electric power generation capacity expansion needed to meet future demand and replace ageing facilities during 2005-20 amounts to 360-390Gw, depending on oil prices, with gas and renewables accounting for about 300-315Gw. This is half the current installed capacity.

Under baseline, the capacity expansion needed is about 370-415Gw, with gas and renewables accounting for 265-290Gw.

Import dependency
Under each scenario, the EU's indigenous energy production declines sharply. Until 2020, gas production will decline at a slower rate (3-4%/year) than oil's 6%/year under various oil price assumptions and policy measures.

Under the baseline scenario, import dependency for oil could reach as high as 93% in 2020. High oil prices would only reduce it by half a percentage point. Even under the New Energy Policy, oil import dependency is expected to remain as high as 92% due to the lack of alternative fuels, especially in the transport sector.

Gas import dependency rises substantially to 77% in 2020 under the baseline scenario and moderate oil prices due to a strong 14% rise in primary gas demand. Soaring oil and gas prices lead to a 2% decline in the gas import dependency in 2020. The New Energy Policy promotes renewables and reduces gas share in addition to reducing coal consumption in power generation. It would, therefore, contribute to decreasing gas import dependency, which would stand at 71-73% in 2020.

Under both scenarios, the EU becomes more dependent than now on imports to meet its energy appetite. Currently estimated at over 54% of demand, external dependency would stabilize at around 56% in 2020, assuming implementation of the New Energy Policy and oil prices exceeding $100/bbl. It would be considerably higher—60% and 64% depending on oil prices—under a business-as-usual development.

The energy savings and diversification improvements with more renewables will, however, make the EU less vulnerable to the effects of volatile import prices. In any case, the dependency rate in 2020 would be markedly lower with the New Energy Policy than under the baseline scenario.

The report is careful to point out, besides, that this energy import dependency is not a problem in itself. But it requires "an active energy security policy, building up internal strengths through a well-functioning internal energy market with good interconnections, diversity in the types of energy used, clear regulations for supply security, and cooperation mechanisms to deal with crises."

It also requires effective external action aimed at diversification of suppliers and supply routes as well as close cooperation with producers and consumers.

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