Gulf and European Energy Supply Security - Feem-project.net

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Energy Security: Potential for EU-GCC Cooperation • in case of energy shocks, this restructuring will the uncertainties created. This case would provide allow Europe to be largely protected by lower a very challenging setting for the development energy demand, higher contribution of domestic of cooperative relations between importer non-fossil fuels (renewable and nuclear) and a countries and their suppliers. New orientations much lower level of fossil fuel imports. may encompass economic collaboration on new Scenarios that involve no drastic change in low carbon technologies or reinforced economic Europe’s energy system imply the development cooperation in areas other than energy. of the energy security strategy in a conventional Scenarios with a new energy paradigm display setting: the main concern is to ensure that sufficient a lower demand and higher share of non-fossil supply is available, particularly of oil and gas. The domestic sources, whether renewable or nuclear. Energy Charter that currently provides the basis for Primary energy demand for oil and coal drops, while this policy is just one of the possible options. The gas demand is much less affected. key issue is the possibility of a timely investment for Total electricity production is almost unchanged the development of huge production and transport in the new paradigm scenarios because electricity is capacities. In that case, the Energy Charter should the main carrier of decarbonisation. Moreover, the at least be completed by other policies. role of renewable, nuclear and CCS increases with One of the permanent requests of exporting the strengthening of the carbon constraint. Wind countries is for the importers to ensure the demand and biomass play the major role in the increase of security that will guarantee the cost-effectiveness of the supply and transport investments. They also the renewable power plant capacity in Europe. call for the possibility of downstream investment. 2. oil This type of policy framework would result in There is no easy and immediate connection some upstream-downstream reintegration of between resource nationalism or political instability the industries with cross investments in common and global supply of oil and gas. This is emphatically projects or joint ventures. Based more on bilateral not because political developments are irrelevant relationships, this type of policy may, however, for influencing oil and gas supplies, but because enter into contradiction with the liberalization and this influence is highly variable and unpredictable. Energy Charter perspectives. Therefore, political considerations should not be Scenarios that imply a deep restructuring of the counted as the primary determinants of the oil and European energy sector and energy demand change gas markets but should be one of the factors that the market perspectives for the exporters. Demand, political leaders take into account when they look at when impacted by strong environmental constraints those industries. in Europe, will display very different dynamics, in The existence of conditions of financial stability particular after 2030. and growth is crucially important in determining If Europe is alone in its efforts to develop a new the attitude of producing countries towards the energy paradigm, then it is highly probable that desirable level of production and exports. Financial energy exporters will follow investment profiles instability, negative returns on financial assets and that will respond more to the demand dynamics of protectionism against the oil-producing countries’ the other regions. In that case, Europe may be less industrial exports all contribute to support the vulnerable to energy imports if its policy is successful, exporters’ view that it is best to keep resources in but more vulnerable in case of failure to implement the ground. the new paradigm. Similarly, expectations about future price If some kind of global climate regime is levels also influence political attitudes towards implemented, then energy will be more sustainable production and exports. Aggressive policies aimed in the long term, but in the short term there is a risk at decarbonisation and energy efficiency may have of producing countries under-investing because of an ambivalent effect: there may be a negative 114
announcement effect, because producers will fear demand destruction and invest less in expanding or maintaining capacity; and a positive market effect, when demand is effectively reduced. Hence, the policy indication is not to entertain policy objectives which cannot realistically be reached, but to emphasize cooperation and pragmatism. Restrictions of Passage The most dramatic situation for world oil supply would be the closure of the Strait of Hormuz. The SECURE project’s analysis has shown that closing the Strait is not easily accomplished; a good part of the Gulf production could be sent from other ports of the region and the shortage of crude oil could be made up thanks to strategic stocks under the IEA frame. The recommendation is to maintain readiness to reorient oil flows as required. The burden of this task falls primarily on the oil-producing countries. At the same time, it is necessary to maintain the capability to reopen the Strait of Hormuz, in the unlikely event that it might effectively be closed. The European Union should aim at mitigating the danger of closure of other critical sea lanes which might be caused by navigation accidents through congested passages, the most critical situation being that of the Turkish Straits. An option would be to seek a revision of the Montreux Convention of 1936, to allow for the imposition of size limitations and passage charges on tankers, to discourage free riding and create conditions for the commercial development of pipeline bypasses. The EU should aim at facilitating investment in infrastructure adapted to reduce the danger of accidents and vulnerability, by offering financial incentives and promoting even more stringent regulations for oil and chemical tankers. Functioning of the International Oil Markets The unsatisfactory functioning of the international oil markets and the resulting uncertainty and volatility in oil prices is the main security threat for future oil supplies. Price volatility and unpredictability is at the heart of the insecurity that is felt by European citizens and governments, while in fact physical availability, especially for SECURE Project: Draft Policy Recommendations oil, has never been in question. Price volatility and unpredictability discourages investment at all stages of the industry and increases the danger of supply interruptions. The root cause of price volatility is the rigidity of demand and supply in the short term. These are impossible to change and can only be alleviated through encouraging the accumulation of larger stocks. Increasing the relative weight of trading in real (“wet”) oil barrels rather than future paper contracts and their multiple derivatives would improve the situation. This hinges on the will and initiative of major oil-producing countries, but the EU should engage in a dialogue to encourage the adoption of better price discovery methods. The EU can also move in the direction of shifting the emphasis of price discovery from spot to forward pricing (normally less volatile) by imposing a time lag between the announcement and the implementation of price changes at the retail oil products level. The possibility of a flexible and adjustable price band should also be studied, to avoid price bubbles and/or spikes. The EU should establish a public agency to invest in larger storage facilities to be offered for use to oil producers (be they national or international oil companies) at low cost. The agency should be empowered to issue certificates convertible in physical barrels: oil deposited into the storage would be exchanged for such certificates, and certificates could be used to withdraw oil from storage. Stored oil certificates should be designed and regulated in such a way that they will be accepted as collateral by financial institutions. The availability of an “oil bank” of this kind would encourage investment in capacity additions in anticipation of demand, thus contributing to more comfortable supply conditions. In this perspective, the role of strategic stocks (which are rarely used and have not prevented or helped in containing major price oscillations), should also be redesigned. Their importance should be revisited in favor of a more flexible policy of encouragement to the accumulation of industry stocks. Vertical reintegration and reciprocity could also help. Specifically, the national oil companies 11
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Contents Introduction 5 I. The Euro
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Energy Security: Potential for EU-G
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Page 64 and 65: Energy Security: Potential for EU-G
Page 73 and 74: SESSION IV: LNG and Gas Supplies to
Page 75 and 76: had a drastically different vision
Page 77 and 78: now, China has preferred the LNG op
Page 79 and 80: considered an issue. Though the bor
Page 81 and 82: 70bcm/yr by 2020. Even if only a fr
Page 83 and 84: that Russia and China have started
Page 85 and 86: (Parliament) which favors the use o
Page 87 and 88: of unconventional gas, has already
Page 89 and 90: Geopolitical Issues of Europe’s F
Page 91 and 92: • • • • • • • • •
Page 93 and 94: SESSION V: Renewable Sources in EU-
Page 95 and 96: • technologies, overall technical
Page 97 and 98: Figure 2: Overview of Opportunities
Page 99 and 100: onshore (378 TWh/yr), large-scale h
Page 101 and 102: world. Hence, renewable energy supp
Page 103 and 104: case. Figure 8 shows the developmen
Page 105 and 106: Overview of RES Characteristics and
Page 107 and 108: keep the RES surcharges for the ene
Page 109 and 110: in the electricity sector, particul
Page 111: References • • • • • •
Page 124: Gulf Research Center Foundation
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