• 4 minutes Energy Armageddon
  • 6 minutes How Far Have We Really Gotten With Alternative Energy
  • 10 minutes Russia Says Europe Will Struggle To Replace Its Oil Products
  • 3 hours GREEN NEW DEAL = BLIZZARD OF LIES
  • 23 hours Reality catching up with EV forecasts
  • 3 days "Natural Gas Price Fundamental Daily Forecast – Grinding Toward Summer Highs Despite Huge Short Interest" by James Hyerczyk & REUTERS on NatGas
  • 13 days US Oil Independence is a myth and will always be a myth
  • 2 days A Somewhat Realistic View of the Near Future for Electric Vehicles Worldwide
  • 8 days The Federal Reserve and Money...Aspects which are not widely known
  • 17 days Natural gas price to spike when USA is out of the market
  • 13 days Oil Stocks, Market Direction, Bitcoin, Minerals, Gold, Silver - Technical Trading <--- Chris Vermeulen & Gareth Soloway weigh in
  • 16 days "Biden Is Running U.S. Energy Security Into The Ground" by Irina Slav
  • 16 days *****5 STARS - "The Markets are Rigged" by The Corbett Report
Iraqi Supreme Court Ruling May Reignite Kurdish Oil Dispute

Iraqi Supreme Court Ruling May Reignite Kurdish Oil Dispute

The Supreme Court decision renders…

Citi: European Oil Majors Could Become Acquisition Targets

Citi: European Oil Majors Could Become Acquisition Targets

Citi analysts are suggesting that…

U.S. Oil Rig Count Slips Again

U.S. Oil Rig Count Slips Again

The total number of total…

Colin Chilcoat

Colin Chilcoat

Colin Chilcoat is a specialist in Eurasian energy affairs and political institutions currently living and working in Chicago. A complete collection of his work can…

More Info

Premium Content

EU Energy Union May Be Biting Off More Than It Can Chew

With oil and gas still flooding the scene it’s a buyer’s market. For some however, picking isn’t easy. For the European Union specifically, an abundance of choice comes with its own set of logistical and geopolitical problems.

February 4 marked the launch of the EU’s Energy Union – an ambitious project that will establish a long-term plan for European energy and climate policy and set the politico-economic union on the path towards decarbonization. The doubters are many, but EU Commissioner for Climate Action and Energy Miguel Arias Canete confirmed the plan “will contain concrete measures” as well as “full and proper enforcement.” The framework strategy – still very much under discussion – is due for adoption on February 25.

Among the goals of the Union are enhanced energy efficiency, diversification and flexibility, in addition to increased deployment of renewable energy. More specifically, the EU is targeting electricity interconnection of 10-15 percent, a renewable share of 50 percent, as well as emissions reductions of more than 30 percent by 2050 – initiatives that will cost approximately $3 trillion, or nearly 15 percent of the current EU GDP. Addressing these goals will require massive infrastructure overhauls and timely investment, not to mention cooperation among the 28 vastly different member nations. In the early goings, that last bit is proving tough.

ADVERTISEMENT

Preliminary reports suggest that the European Commission lacks a consensus on one of the Energy Union’s more contentious ideas – a unified system of purchases for natural gas. Natural gas will remain an important transition fuel for the EU and its share in primary energy consumption is projected to remain the same, if not increase, by midcentury. Not surprisingly, imports of natural gas are also expected to rise every decade toward 2050. While diversifying the source of those imports, Brussels would also like to monopolize the system of payment.

The divide is predominantly East-West. Eastern Europe is largely dependent on Russian gas, which it buys through bilateral long-term oil-indexed take-or-pay contracts – a mouthful, I know. Some nations pay more, others less, but in general their negotiating position is fairly weak. In Western Europe, free-market principles are more in play and the region enjoys greater flexibility in terms of purchasing and consumption.

ADVERTISEMENT

The suggestion is to somewhat merge the two and create a single buyer who could negotiate more favorable, hub-referenced contracts – a system that President of the European Council Donald Tusk believes will save the EU approximately $41 billion per year. In principle, it’s a nice idea, but the suits at Gazprom aren’t sweating.

For one, Western European nations are rightly concerned that common purchasing is a violation of competition laws. That aside, Eastern hubs lack liquidity and the infrastructure to source LNG from Western terminals. With little depth to the market, Gazprom maintains its pricing power. That could all change relatively soon, but the EU-championed southern supply corridor only looks to bring in 10 billion cubic meters of natural gas in 2015 – about 6 percent of Russia’s annual contribution to the EU28. Perhaps most importantly, not all Central/Eastern European nations are ready to bite the hand that feeds.

If it’s competition that the EU wants, Gazprom and Russia are prepared to oblige – provided the EU meets it halfway. Neither side is particularly deft at bluffing and the mutual dependency is real, but Russia has the benefit of facing an often-divided 28-member bloc.

By Colin Chilcoat of Oilprice.com


Download The Free Oilprice App Today

Back to homepage


ADVERTISEMENT


ADVERTISEMENT



Leave a comment

Leave a comment




EXXON Mobil -0.35
Open57.81 Trading Vol.6.96M Previous Vol.241.7B
BUY 57.15
Sell 57.00
Oilprice - The No. 1 Source for Oil & Energy News