ClimateEnergyEnvironmentIndustry

Extraordinary times call for…ordinary measures ?

By François-Régis Mouton de Lostalot-Lassalle, IOGP, Regional Director Europe

The on-going Russian invasion of Ukraine has shaken the foundations of the European security architecture. It constitutes a geopolitical gamechanger the real magnitude of which we still cannot comprehend as the exit of this unpreceded crisis remains largely unpredictable.

Parallel to diplomatic efforts and military and humanitarian assistance to the Ukrainian people, the crisis has brought to light numerous sectoral interdependencies: from an energy perspective, it is the EU’s reliance on Russia for over 40% of its gas supplies which has come under the spotlight, just as Europe’s own demand soared as its economy recovered from the Covid-19 pandemic and found itself competing for resources on the global market.

As European leaders seek ways to adapt to the new geopolitical reality and plan for the future, they have found themselves reconsidering the use of certain energy sources which until very recently had become unpopular. The recent Versailles declaration proves the European solidarity and its determination to chart a long-term pathway to improve Europe’s Strategic Autonomy and resilience.

In such extraordinary times, Europe seems to be betting on ordinary but pragmatic measures

European Commission Executive Vice-President Frans Timmermans recently announced there could be ‘no taboos in this situation’, and signalled that EU Member States should be allowed to continue burning coal as long as needed. In Germany, Economic Affairs and Climate Action Minister Robert Habeck hinted at a possible U-turn of his country’s stance on nuclear energy. Who would have believed this to be possible a few months ago?

As for oil & gas, the question on everyone’s mind today is: how can we source them without compromising the EU’s Strategic Autonomy or climate neutrality objective?

Interestingly enough, while EU leaders committed in Versailles to a basket of measures including coordinated channelling of investments in energy systems, enhancing connectivity with our immediate neighbourhood, and the diversification of energy supplies, there is one low-hanging fruit EU leaders have been more reluctant to promote: giving Europe’s domestic oil & gas production a boost.

Today, the combined production of the EU27 + UK + Norway covers around 40% of the EU’s gas needs. In addition to the strategic importance and the substantial government revenues and industrial activity they generate, European oil & gas companies are also subject to world-class environmental and GHG emission reduction legislation which results in an environmental footprint 30% lower than imports on average.

With the right political signal and flexible investment framework, Europe can make sure this production continues, in support of both security of supply and climate objectives.

The revenues from this activity supports European oil & gas companies in the development of innovative energy solutions and services to help the EU on its way to climate neutrality. Aside from supplying cleaner energy and large-scale industrial emission reduction solutions such as Carbon Capture & Storage and low-carbon hydrogen, the oil & gas industry works restlessly to reduce its own operational emissions, including through the reduction of methane emissions.

Gas is also a European integration success story. Our policymakers can be proud of the EU internal energy market they have built. The resilience and responsiveness it demonstrated this winter once again showed why it is seen by many around the world as a model to follow.

But we must also recognize that the EU energy & climate discussions of the past few years have fallen victim to wishful thinking. By downplaying the current and future role of gas, discouraging or banning exploration & production, and going all-in on a few technologies in the race towards climate neutrality, Europe has forgotten its market fundamentals in the process: in 2022, oil & gas still account for a whopping 56% of the EU’s overall energy mix.

Until that changes, we cannot afford to relegate the issue of security of supply and domestic production at the bottom of the priority list. As the market reminded us in late 2021, what happens in 2050 climate neutrality scenarios and short-term reality are two very different things, on two different tempos.

While the Commission’s REPowerEU Joint Action Plan and the Versailles declaration rightly mentions the need to diversify EU gas supplies, the lack of an explicit push to boost domestic oil & gas production in Europe is concerning and, frankly, hard to explain.

Just a few weeks ago, as we entered 2022 and the global economy came out of a 2-year pandemic roaring, gas use across Europe hit record levels as alternative power generation capacities were either insufficient or unavailable. The balancing and transitional role of gas had become clear to all, and the European Commission proposed to enshrine it in the EU Taxonomy.

Now, as the war in Ukraine rages and emotions run high, many see in the EU’s decision to cut reliance on Russian gas a golden opportunity to get rid of gas altogether, and once again refocus policy support – and therefore risk – on a small set of solutions in the name of Strategic Autonomy. Not only would this jeopardize the resilience of the EU’s energy system, it could also lead to new long-term dependencies on raw materials and technologies, and therefore create new vulnerabilities for the future.

Europe is not cornered when it comes to gas.

It has a broad range of possibilities from the North Sea to the Eastern Mediterranean and Black Sea.

First, we can and must consume gas and energy overall in a smarter way. European businesses have the skills and manufacturing capacity to develop and deliver the full range of technological solutions to do so, from smart thermostats and boilers to LNG ship engines.

Secondly, the EU needs to boost its own production of natural, low-carbon and renewable gases. The European gas industry is one of the most skilled, innovative, and environmentally responsible in the world. The legislative proposals tabled by the European Commission over the past few months offer an important opportunity to strengthen security of gas supply while decarbonizing our gas system.

Finally, the EU can count on its long-time and emerging neighbouring suppliers from the Maghreb to the Eastern Mediterranean and Central Asia. As for EU LNG plants, they open endless import possibilities and can be fully exploited with minor improvements to the grid.

Most importantly, technologies to decarbonize gas itself exists in Europe, dismissing risks of a lock-in and enabling the large-scale production of low-carbon hydrogen for our strategic industrial players.

By giving its Member States optionality and incentivizing the production of all EU domestic energy sources, the EU can build real resilience.

Strategic Autonomy means having the freedom to make our own choices. These choices should be courageous and clear-sighted, like those made by the Founding Fathers of the European integration.

Since the Schuman Declaration, energy has been at the heart of this integration. 70 years later, it provides us once again with the opportunity to come together as Europeans, and determine our future.