Opportunities From Europe's Energy Security Strategy

BMI View: The EU Commission's new European Energy Security Strategy will spell new opportunities for the energy sector in Europe. The ongoing Russo-Ukrainian crisis and Russian assertiveness on Europe's Eastern flank have (as per our expectations) galvanised the resolve of the European Council to seek greater diversification of energy supplies.

Europe's new impetus in strengthening the continent's energy security brings with it commitments to investment, especially in the construction of new pipelines and electricity transmission networks, storage infrastructure, and renewable energy, but also conventional and unconventional E&P. These will create new opportunities for energy sector stakeholders, from engineering companies to equity investors, project financiers, oilfield services, and upstream companies.

In its most forceful Energy Security Strategy (unveiled in late May 2014) published in recent years, the European Commission has set forth a series of recommendations on how to reduce the EU's vulnerability to (specifically) Russian dominance of energy supplies. The tone and language of the document, as well as the actual recommendations to the European Parliament and European Council, mark a departure from the more balanced approach taken previously.

Opportunities From Europe's Energy Security Strategy

BMI View: The EU Commission's new European Energy Security Strategy will spell new opportunities for the energy sector in Europe. The ongoing Russo-Ukrainian crisis and Russian assertiveness on Europe's Eastern flank have (as per our expectations) galvanised the resolve of the European Council to seek greater diversification of energy supplies.

Europe's new impetus in strengthening the continent's energy security brings with it commitments to investment, especially in the construction of new pipelines and electricity transmission networks, storage infrastructure, and renewable energy, but also conventional and unconventional E&P. These will create new opportunities for energy sector stakeholders, from engineering companies to equity investors, project financiers, oilfield services, and upstream companies.

In its most forceful Energy Security Strategy (unveiled in late May 2014) published in recent years, the European Commission has set forth a series of recommendations on how to reduce the EU's vulnerability to (specifically) Russian dominance of energy supplies. The tone and language of the document, as well as the actual recommendations to the European Parliament and European Council, mark a departure from the more balanced approach taken previously.

Ukraine Crisis Accelerating Diversification Drive Away From Russian Energy

We see this document as following on from two years of increasing assertiveness from the EU towards Gazprom's dominant position in Europe's energy sector ( see 'European Energy Grip Loosening', 17 October 2013). The proposal sets the pan-European framework for the implementation of the strategy of diversification from Russia as a top European priority.

In practice, it will be a slow moving process for Europe to noticeably reduce its reliance on imports of Russian energy, and we therefore maintain our view that the mutual dependency will remain in place for the rest of the decade ( see 'Mutual Dependency To Maintain Energy Trade Dynamic', 14 March). However, the EU's new policy framework also reinforces our view that the Russo-Ukrainian crisis was a catalyst for Europe to become more assertive in terms of pushing for alternatives to Russian energy imports and to reinstate energy security at the top of its policy agenda ( see 'Shale Gas Trailblazers Will Benefit From Russo-Ukrainian Rift', 11 March).

It is notable that the European Energy Security Strategy was commissioned and completed within one month, an almost unprecedented turnaround for a European policy document, especially one which involves highly divisive policy recommendations, from unconventional exploration to nuclear power.

The strategy aligns with the EU's 2030 climate and energy policy goals, and with a call for more renewables in the energy mix, it strengthens the EU's commitment to the sector (notwithstanding noting the concerns of rising costs to consumers from subsidies). This could help moderate some of the policy slippage we have seen over the past year, where opposing views on the role of renewables in the EU energy mix has created a stalemate in policy ( see 'EU 2030 Energy and Climate Package: Playing it Safe', January 24).

Europe's Unconventional Reserves To See Greater Interest

A newer dimension for internal energy production is the call for "a more accurate overview of the EU's unconventional reserves [...] to enable possible commercial scale production". Unconventional exploration in the EU has been a highly divisive issue, though we have argued previously that the EU will eventually move slightly more in favour of unconventionals. Including unconventionals in the European Energy Security Strategy validates our outlook and takes the policy environment one step more in favour of exploring the potential of indigenous shale resources in Europe.

New Measures To Strengthen Europe's Internal Market

A well functioning internal market is also a crucial consideration, and we believe this strategy lends new impetus to the Projects of Common Interest initiative, a list of 248 energy infrastructure projects (gas and electricity) that support the strengthening of the internal energy market and the diversification of supplies. Of those, the energy security strategy identifies 27 gas and six electricity infrastructure projects as critical towards achieving the goals of the European Energy Security Strategy ( see table). LNG import terminals feature prominently in the list, underlining the desire to import more natural gas volumes from a string of different and far-away producers including the United States, Middle East, North, East and West Africa.

South Stream Falling By The Wayside

Our expectation that the South Stream pipeline would be one of the early victims as relations between the EU and Russia deteriorated has also been verified, with South Stream explicitly mentioned as a project whose construction would be counter-acting the policy goals of European energy diversification ( see 'Far Reaching Implications From Ukraine Standoff', March 5). Alternatively, new sources of supplies such as the EU's flagship Southern Gas corridor will be on the top of the list for community project funds and more efficient permit procedures.

EU - Crucial Infrastructure / Projects of Common Interest
Natural Gas
Implementation: 2014- 2016
Country Project name Completed by
Lithuania, Latvia Klaip da - Kiem na Gas pipeline 2017
Poland LNG import terminal 2014
Greece, Bulgaria Natural Gas Interconnector 2016
Greece, Bulgaria Interconnector - Reverse flow 2014
Bulgaria Chiren gas storage upgrade 2017
Croatia, Hungary Reverse flow of gas pipelines 2015
Hungary, Romania Reverse flow of gas pipelines 2016
Bulgaria, Serbia Natural Gas Interconnector 2016
Slovakia, Hungary Bi-directional natural gas pipeline 2015
Implementation: 2017 - 2020
Poland, Lithuania Bi-directional natural gas pipeline 2019
Finland, Estonia Bi-directional natural gas pipeline - offshore 2019
Baltics LNG import terminal 2017
Lithuania, Latvia Interconnector - Upgrade 2020
France, Spain Midcat bi-directional pipeline TBD
Czech Republic, Poland Interconnector 2019
Poland, Slovakia Bi-directional natural gas pipeline 2019
Poland Internal gas network upgrades 2016-2018
Turkey, Greece TANAP gas pipeline 2019
Greece, Albania, Italy TAP gas pipeline 2019
Albania, Montenegro, Croatia IAP gas pipeline 2020
Croatia LNG import terminal 2019
Bulgaria Internal gas network upgrades 2017
Romania, Ukraine Reverse flow of gas pipelines TBD
Greece Compressor station, Kipoi 2019
Greece LNG import terminal, Alexandroupoli 2016
Greece FLNG import terminal, Kavala 2016
Electricity
Implementation: 2014- 2016
Baltics, Nordics Nortbalt 1&2 2015
Lithuania, Poland Electricity interconnector 2015
Implementation: 2017 - 2020
Latvia, Sweden Capacity upgrade - electricity interconnector 2019
Estonia, Latvia Electricity interconnector 2020
France, Spain High voltage, subsea electricity interconnector 2020
Source: Communication From The Commission To The European Parliament And The Council, European Energy Security Strategy, SWD(2014)330final, 28 May 2014
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