Four lessons from the new EU energy agreements – European Council on Foreign Relations | Daily News Byte

2022 has seen nothing but a transformation in the way EU member states get their energy. Together with the European Commission, they have embarked on an unprecedented effort to reduce their energy dependence on Russia following its invasion of Ukraine.

To understand this change, the ECFR has established a new EU Energy Deals Tracker, which has identified 56 new energy deals that EU member states or the European Union itself have signed with third countries this year. ECFR’s team of researchers found that Italy, Germany and the European Commission were the most active players: they closed 12, 8 and 9 deals respectively. But 18 of the 27 member states have signed at least one new agreement this year. This is part of a big change compared to the relative stability of supply in previous years.

Under these headings emerge four key risks that European policymakers should address as they work to further strengthen the EU’s energy security.

Out with the old addiction, in with the new

Russia’s attack on Ukraine exposed the dependence of EU states on Russia for gas through the limited maneuvering space of policy makers in reacting at the beginning of the conflict. While Europeans are breaking away from Russia and looking for new supplies, they should take care not to fall into new energy dependencies.

Our tracker reveals that the EU and member states have so far amassed a fairly broad portfolio of new stocks; in other words, Europeans are no longer putting all their eggs in one basket. In addition, they began importing increasing amounts of liquefied natural gas (LNG), instead of relying mainly on pipeline natural gas. This allows Europeans to engage with a greater number of suppliers.

However, whether this translates into greater flexibility will depend on the details of the new deals, which are usually not public. Such questions include whether Germany has committed to importing a certain amount of Qatari gas and whether LNG suppliers are pressuring the Europeans to sign long-term contracts.

Indeed, clear warning signs flicker above some partnerships. By investing in a pipeline to import Azerbaijani gas and relying heavily on Qatar for LNG imports, the Europeans may encounter new constraints in this challenging relationship. And because they have become so dependent on securing any possible LNG or gas imports in the near future, it puts them in the position of pleading with other exporters as well – including Algeria, Nigeria, Egypt, and even Norway and the United States, which are now replaced Russia as the two main gas suppliers in the EU.

Despite the West’s current unity on Russia and Ukraine, potential friction is looming in transatlantic relations – from China’s politics, to the burden-sharing of aid to Ukraine, to the EU’s difficulty competing with US state aid for green technology industries under the Package of Laws on reducing inflation. These issues may intensify if a Republican president takes office in 2025. Anything other than a temporary increase in the United States’ reliance on “freedom gas” would therefore represent a failure to learn the lessons of overreliance on unpredictable partners.

EU unity piecemeal: The risk of a return to (Russian) gas

The EU’s determination to wean itself off Russian dependence has proven strong in 2022. A notable exception is Hungary, which continues to import gas from Russia despite its abhorrent actions in Ukraine. As ECFR’s tracker covers, Hungary has even signed new contracts with Gazprom.

However, our researchers discovered other risks. A gas interconnector with neighboring Greece should finally allow Bulgaria to stop relying on Russian pipeline gas – but political uncertainty in the country means it could still continue this relationship with Russia. Meanwhile, landlocked Slovakia, the Czech Republic and Austria, as well as industry-intensive Germany, find the move to diversify away from Russian gas particularly difficult. This is because LNG can be harder to come by or because of the large volumes of gas they require. If such countries struggle to access sufficient supplies of non-Russian fuel, calls to return to old practices (including using existing pipelines from Russia) could become increasingly popular. Anti-government protests in Prague are already a warning signal. Much depends on whether Germany can secure enough alternative imports and whether its neighbors can rely on Berlin not keeping everything for itself.

The opportunity costs of the rush to new gas infrastructure

The energy uncertainty facing Europe this year has prompted many member states to speed up some important infrastructure decisions. The deals they and Brussels have struck with third countries reflect that. Of the 56 jobs identified by the tracker, 33 have infrastructure implications. For example, externally, the EU has committed to investing in the Southern Gas Corridor pipeline to import large volumes of Azerbaijani gas, while some of the existing pipelines (such as those linking Algeria to Spain) may need increased capacity to service growing imports .

In addition, there have been numerous infrastructural developments within the EU. These include the newly opened interconnector between Greece and Bulgaria, plans to expand Croatia’s Adria pipeline and build a pipeline between Barcelona and Marseille, as well as new LNG terminals from Germany and France to Ireland and Estonia. These investments in European energy infrastructure should increase the EU’s energy sovereignty by ensuring greater resilience and better integration.

However, choosing to invest in much of this infrastructure will be an opportunity cost. European leaders may have to explain the implications of their choices to a nervous European public already suffering cost-of-living pressures. They will need to be careful not to invest in infrastructure that could prove outdated or prohibitively expensive in the long run. With this in mind, the EU’s strong focus on new gas infrastructure could halt its future transition away from fossil fuels. Businesses and politicians often claim that the gas and oil infrastructure built now will pay off over time because it can be repurposed for hydrogen. But the feasibility and cost-effectiveness of switching to hydrogen is far from proven.

Nuclear power: The coming return to heated debate

The role of nuclear energy as part of the decarbonisation process has long divided EU member states. Opponents of nuclear power raise concerns about nuclear waste disposal, the supply of raw materials and the reliability of this energy source, which came to the fore recently when a number of French nuclear reactors were shut down for maintenance.

However, the fluidity in the 2022 energy picture seems to be causing some member states to reconsider their positions. Countries such as Germany, Belgium and the Netherlands extended the operation of their nuclear power plants. Poland has just selected a company to build the country’s first nuclear power plant and is considering another. Latvia is discussing a possible investment in nuclear power, while Sweden is considering expanding its nuclear capacity. There will likely be more EU-level discussions on nuclear power during the upcoming Swedish EU presidency in spring 2023.

If nuclear power becomes more acceptable and subsidized, it could crowd out some of the political support and financial investment in renewables – heralding the return of a heated debate over the relative merits of these two decarbonisation strategies.

European policymakers are currently cautiously optimistic about the EU’s ability to make it to spring 2023 without a major crisis. This optimism stems mainly from the healthy level of gas storage in the EU, which according to the International Energy Agency exceeds 95 percent of capacity, combined with the warm autumn and winter so far. As ECFR’s Energy Deals Tracker suggests, the challenge now is to prepare for the next few winters, and beyond. There are also positive signs regarding the readiness of the member states to further cooperate on building energy sovereignty and to work together on the supply side. The question of how transparent member states are willing to be with each other, and with Brussels, about the deals they conclude will be tested in the Council’s discussions this week with the European Commission’s proposal for better coordination of gas purchases.

But there remains a clear need for the EU and member states to jointly reflect on the strategic outlook for their sustainable energy security – both geographically, to avoid the risk of over-dependence on actors with which relations could potentially deteriorate, and in terms of ensuring that decarbonisation remains on the way. For the latter, they should double public and private investment to rapidly scale up their low-carbon energy infrastructure. This will be vital to ensure that clean sources quickly become a viable option for a growing share of Europe’s energy mix.

Economies of scale will be vital, and, to take advantage of this, the EU and member states need to look closely at the mini-lateral forms of cooperation that have recently emerged. This includes the North Sea Offshore Wind Agreement agreed by Germany, Denmark, the Netherlands and Belgium, as well as its equivalent among the eight Baltic Sea EU countries. Such examples could act as nuclei from which pan-European cooperation can grow. The current adverse economic circumstances facing the EU are significant – but if the bloc slips off the decarbonisation path, the risks to the EU’s international credibility and the wider global consensus around the Paris climate agreement are enormous.