By Matus Muron, Transatlantic Energy and Environment Analyst
During the past decade, EU energy policy has focused on securing supplies, decreasing dependence on unreliable suppliers such as Russia, increasing interconnectedness among member states, and promoting efficiency standards and renewables. These efforts were largely spurred by events during the winters of 2006 and 2009, when Russia exposed the vulnerability of the EU to disruptions in natural gas supplies. EU members in Central Europe that import most or all of their gas from Russia were suddenly cut off without any other viable import option, while France and Italy saw dramatic drops in supply as well. The lack of infrastructure, as well as the inability of the existing infrastructure to reverse gas flows, left these countries extremely vulnerable. The EU recognized the importance of gas for the European energy mix in the future and enacted initiatives such as its Energy 2020 strategy, which aims to improve infrastructure, energy efficiency, smart grids, and international cooperation.
Yet the threat of supply disruption is set to diminish with shale gas discoveries across Europe. Europeans hope that they will be able to imitate the U.S. shale boom in the near future with significant discoveries in the UK, Romania, Ukraine, Lithuania, Poland, Norway, and elsewhere. As some of the world’s largest energy companies start exploratory drilling across Europe with commercial production expected to start around 2018, the need for supply diversification will decrease. Additionally, new infrastructure projects such as Nabucco West, the Trans-Adriatic Pipeline, and the Trans-Anatolian Pipeline are in their preparation stage or under construction, while gas flows into Europe continue to increase. Infrastructural development, shale gas exploration, and ongoing efforts to diversify gas imports all reduce the scope for possible energy supply disruptions.
If the EU is on its way to achieving a more stable supply of gas in the near future, its resolve and willingness to invest in Energy 2020 projects may weaken. But while attaining a stable energy supply has been the main driver of EU energy efforts, there are other aspects of this policy that should remain prominent in the future. It should remain focused on developing an interconnected and competitive internal energy market, improving energy efficiency, and promoting the sustainable use of energy. Phillip Lowe, the European Commission’s Director-General for Energy, said during a European Gas Conference that “because energy sources of power and heat were relatively limited by single sources of supply in Europe, there had been an ongoing goal to create an ongoing, competitive, interconnected, integrated market for energy, particularly in natural gas.” Even as diversification continues, forging such an integrated and competitive energy market has never been more important than it is now given the EU’s economic outlook.
While shale gas developments may reduce the vulnerability of countries like Bulgaria, the impact of such incidents could be further mitigated by developing the EU’s internal energy grid, allowing Bulgaria to import from other EU states. The Bulgarian example also demonstrates the importance of market liberalization and establishing a competitive environment for energy suppliers. The Bulgarian energy market is one of the least liberalized in the EU. The state-owned Bulgarian Energy Holding owns most of the country’s power generation capabilities and Bulgaria’s only electricity transmission operator, allowing it to exercise excessive control over the electricity market. This lack of competition, which the Energy 2020 framework attempts to eliminate, has led to higher prices for consumers. This demonstrates that interconnectedness and competition are just as important for the EU’s energy market as diversifying supplies.
In the future, less energy may be flowing into the EU from the east, but it will have to come from somewhere. Whether it will be from UK shale discoveries, a huge gas field spanning across Romania, Bulgaria, and Hungary, or Ukraine’s new shale reserves being explored by Chevron, the EU needs an interconnected and competitive energy market to assure the most stable supply and the lowest prices for consumers in a region with a bleak economic outlook. Therefore, while shale discoveries are and will continue to be important, EU energy policy needs to continue to play a major role with a special focus on market integration, competitiveness, energy efficiency, and renewables.