EU Energy Policy Happenings
European Union gas regulators, academics, and private sector stakeholders today are opening the 36th Madrid Forum, a regular confab focused on the continent’s natural gas industry. Decarbonization, integration, and development are the catchall topics, which may only seem incongruous until one accepts the realities of energy transition – however long that takes.
Hydrogen regulatory frameworks are a key subject at the Forum this year. So too is infrastructure and integrated network planning. Nederlandse Gasunie reportedly will decide by summer’s end whether to convert its natural gas pipeline grid into a system for producing, transporting, and storing hydrogen. The question was forced by the country’s decision to stop extracting gas. Mother Necessity is again contributing to Europe’s now dual energy objectives of getting along with less Russian energy and decarbonizing. The latter, a long-term objective is more urgent now that President Putin has crossed a line that few would have thought he might.
The current ECB president and her predecessor have been busy working through the crises of this decade: pandemic and war. In a leadup to her trip to celebrate the 30-year anniversary of the Bank of Slovenia (whose nation has been a euro country for 15 years), Christine Lagarde on May 7 told Delo (the country’s daily national newspaper) that the prideful show of solidarity across the EU empowers its leaders to make the difficult decisions necessary to respond to this crisis. April 2022 EU retail energy costs are running 38% ahead of last year; Lagarde agrees with non-monetary policy makers that energy security is a top component of economic security. She noted near the end of the interview that crises have often strengthened the “European project.”
Italian Prime Minister Mario Draghi is in Washington for part of the week. Yesterday he met with President Biden, and last night received the Atlantic Council’s Distinguished International Leadership Award. Draghi leads Italy and certainly remains a European policy leader. He last month tended to his country’s domestic business by signing a deal to import 50% more LNG from Algeria beginning next year than current levels. Early readouts of his White House meeting indicate his work this week is on behalf of the EU economic and geostrategic interests.
EU Energy Strategy – What a Gas!
Europe’s absorption of gut punches is one way of discerning aspiration from reality. The continent’s decades-long, reasonably successful, plan to use less fossil fuels has been artificially jerked around the past two years, first by COVID-19 and now by Putin’s manipulation of energy markets. The pandemic has forced tough questions onto many governments, but none have been pressed more by the war in Ukraine than policy makers in Brussels, Strasbourg, Luxembourg, and Frankfurt (the cities of EU government).
As shown in the following graphic borrowed from Rystad Energy, Europe’s problem has less to do with available pipelines than the interconnection of those pipelines. The Gas Transmission System Operator of Ukraine reported a major service disruption as Russia decided to stop all flows on one major gas transit system (“the Sokhranivka entry point”). Authorities rerouted a different compressor station, allowing minimally interrupted deliveries.
The EU revised pipeline plans beginning three years ago (the Trans-European Networks for Energy), identifying nine priority corridors for electricity and gas transmission, and three priority areas (smart grids, electricity highways, and a cross-border carbon dioxide network). Not only does the EU promote cooperation among impacted countries, but it also provides funding for new energy infrastructure. This was agreed before the war began and illustrates that the EU had already set to de-emphasize Russian energy. For the interested, here’s a link to an interactive map of the various pipelines of Europe.
At the end of the last period of such large-scale military operations in Europe, one notable Brit observed: “If Europe were once united in the sharing of its common inheritance, there would be no limit to the happiness, to the prosperity and glory which its four hundred million people would enjoy.” That Brit was Winston Churchill, speaking at Zurich University on September 19, 1946. Churchill’s broader policy blind spots notwithstanding, his sense of optimism attached to sovereign rebirth certainly apply today.
Energy Market Outlook
We reiterate our call that the European project is the more interesting global policy task, while the US remains the most competitive region compared to G20 countries/regions. National and private investment plans in European sectors like energy, defense, agriculture, and climate science also offer long-run market themes.
