Governments across Europe are investing in infrastructure for producing and transporting natural gas to replace imports from Russia. This is warranted to some degree, yet risks an over-expansion and fossil lock-in, write Friederike Altgelt and Martin Albicker.
Friederike Altgelt is Senior Expert for Hydrogen and Synthetic Energy Carriers at the German Energy Agency (dena). Martin Albicker is a Senior Expert in Industry at dena.
Russia’s war against Ukraine has caused global disruptions in energy markets. Europe has been targeted by deliberately induced shortages since 2021, with several countries cut off altogether in recent months. This jeopardises the security of supply for households and industry and risks plunging Europe into its worst recession in decades. Gas shortages also lead to a rebound of coal-based power generation and thus significantly higher emissions.
Therefore, Europe must urgently prepare for Russia’s possible termination of gas imports.
The REPowerEU package stresses the EU’s need to become independent from Russian fossil fuel imports “well before 2030” – recent developments prove that this will have to be achieved significantly sooner. The package emphasises energy savings through improved efficiency and an accelerated roll-out of renewable energy to reduce and replace the consumption of natural gas in power generation, industry and heating. The third pillar is the diversification of supplies to substitute Russian gas.
This will undoubtedly require some new gas infrastructure, especially in Central Europe, including land-based LNG terminals and Floating Storage and Regasification Units (FSRU), which have advantages in terms of permit requirements, lead time, and cost. It will probably also need some additional exploration activities in Europe and/or LNG exporting countries (including, unfortunately, other autocracies).
At the same time, however, it is critical to avoid an expansion of gas infrastructure capacities exceeding demand as this would:
- waste money on “stranded assets” that would be better spent elsewhere
- lead to an oversupply of gas production and transport capacities in a few years, as European demand dwindles, making fossil gas attractive again as a “bridge technology” in Europe and abroad, leading to long-lasting higher global consumption and easing the pressure to decarbonise
- damage Europe’s international credibility on climate protection
- in many cases come too late to address the current supply shortage
Navigating the predicament between emergency measures to avoid acute gas shortages in the upcoming months and precautions to prevent over-investments in fossil infrastructure in the years ahead is challenging.
Any capacity expansion should thus be guided by demand forecasts based on ambitious decarbonisation scenarios on a European level. In particular, the necessity of investments into new gas infrastructure must be well-justified with a factually established supply gap considering expected demand reductions.
The current bonanza of new European gas developments casts doubt on whether this practice is consistently followed. An assessment conducted by the European Network of Transmission System Operators for Gas (ENTSOG) on behalf of the EU Commission concluded that it would be possible to fully compensate for the termination of Russian gas imports by a combination of demand reductions as proposed under the “Fit for 55” (Ff55) package and only “limited” additions of gas infrastructure beyond those already planned before Russia’s invasion of Ukraine.
However, the number of newly proposed or revived projects for gas infrastructure across Europe since February has already exceeded 20, with a planned capacity of more than 150 bcm/year, not counting planned upstream and transportation investment in the MENA region and elsewhere. In comparison, the total annual EU demand is approximately 400 bcm, 150 bcm of which were supplied by Russia in 2020 and 20216.
Yet, by the time all of the new and revived projects come into operation, total EU gas demand will be considerably lower than now: The European Commission projects that the proposals of the Ff55 package, such as renewable energy and increased efficiency, will lead to a sharp decrease of natural gas demand in Europe by 27% until 2030 if fully implemented.
The REPowerEU package, as well as national measures, will reduce demand further. High natural gas prices will constitute an additional “push” effect towards alternative energy sources/carriers.
Therefore, investments with a long lead-time or duration or high required capital expenditures for infrastructure should be avoided. This also means prioritising the accelerated exploitation of existing gas fields connected to existing infrastructure over the exploration of new ones.
This would also help Europe stay on a path consistent with the targets of the Paris agreement, which – according to decarbonisation strategies such as those outlined in the IEA’s “Net zero by 2050” scenario – are incompatible with the large-scale exploration of new fossil deposits.
Close European coordination is necessary to optimally integrate existing capacities into planning infrastructure expansion to minimise the required expansion and avoid redundant projects. European planning should have a binding character and be implemented on time.
The revised EU Climate, Energy and Environmental State Aid Guidelines (CEEAG) that were adopted at the beginning of the year stipulate that member states need to demonstrate that new gas infrastructure investments do not create a lock-in effect for the use of natural gas, e.g. by showing that they are ready for the use of hydrogen, and how they contribute to achieving the Union’s climate targets.
These provisions give the Commission a gatekeeper function in assessing the compatibility of new public investments in gas production and infrastructure with the Paris commitments for decarbonisation. It is crucial that these provisions be adhered to and not be watered down.
However, these assessments consider the effects of individual projects in isolation and lack comprehensive planning on the European level. The EU Energy Platform, established in April 2022 to purchase gas, LNG, and hydrogen, should be developed further to coordinate these processes.
For this purpose, it should bring together experts and stakeholders from EU institutions and national governments, considering existing and planned infrastructure and projected future gas demands.
This should be implemented as soon as possible. A timely involvement in the early phases of planning for new projects would allow the EU to focus its efforts on achieving energy independence without wasting money or jeopardising its climate commitments.