Thursday, June 4, 2009

Visions of the (Western) European Energy Future

So if Russia turned off all the gas taps to Europe, Europe would be fine, since other alternatives are possible - unless you are Bulgaria. Well, that was the viewpoint of one leading (Western European) academic of at the 6th European Energy Market Conference in Leuven, Belgium. I attended it last week (May 27-29, 2009).

To keep you in suspense and to keep you reading, I'll come back to the gas presentation, after I run through the contents of the conference and how actual alternative energy systems are very much part of the future, which also challenges the assumption of Europe, and let's not us forget Eastern Europe's ability to withstand a cutoff of Russian gas.

But I have to offer one disclaimer, in my notes I did not write the speakers name. I'll put this down having an awful cold during the conference, and even now I'm coughing up a lung. When the presentations are sent out hopefully they'll shed some more light.

One of the first speakers at the conference described the building of an intelligent network and distribution system which includes communication technologies relying on broadband internet and software forming it into a multilayered and interdependent system. He established the energy industry as the 21st century source of innovation infused with novelty and breakthroughs. On this point, all were in agreement, but thinking back on it, there were still limited examples of the actual application of these novel solutions. While we are only 9 years into the 21st century one can still hope that we will enter into it sooner rather than later. The fact, told at the conference, that much of Europe's energy infrastructure needs to be replaced, due to it's age, in the next 10 to 20 years offer this opportunity for re-engineering the transmission network. Maybe in it's replacement we see these smart concepts and a 21st century grid built.

The regulatory issues and Europe's third energy package were also discussed. Probably the best description of this debate is there is emerging a bidirectional flow of energy, information and money. And as we know the proper implementation of regulation can aid and foster this bidirectional flow.

The greater coordination of regulation and infrastructure building also offers opportunities to balance out reasonable prices, with security of supply concerns and the environment, as explained by one speaker from Electrabel. Importantly, as expressed by ETSO, the investments that occur today need to be informed by scenarios beyond 2020. Scenerios that include smart cars and smart grids. But as I will note below, does this include the cutting off of gas from Russia?

Regional markets and their importance and the importance of a regional regulator were espoused. I love it all and it is spot on. The solutions lie in regional cooperation with practical solutions such as 'social transmission charges' for communities not directly benefiting from transmission lines. I guess this could be labled as 'local blackmail' or 'political opportunitism', but from a geographical point of view, it can be called 'locational advantage'.

Cool word: fugitive emissions

Best useful factual thought: oil volitility depends on past volitility, natural gas volitility responds to unanticipated events such as supply interruptions or reduced stock.

Now we arrive to the Friday afternoon session on the European gas market. Or rather the geopolitics of gas. And yet another important quote speaks from my notes, "natural gas may become the fuel of consequence because of the delays in building enough renewable energy sources and implimentation of CCS technology." And despite predictions, gas demand won't drop until at least 2020, because of the failure to diversify now. Due to the low CO2 from gas and the ability to build gas generation quickly it can fill this technological gap.

Diversification was spoken of. Diversification from the Ukraine, through Nabucco and LNG. The consideration was there of mutual dependency of Russia and Europe on Russian gas supply. I think it needs to be examined, just like the concept of 'mutual destruction', was considered, how 'mutual gas dependency' influences the political and economic activiities of Europe, Russia and the US. Does this ursurp mutual destruction?

However, at the same time it is seen that cross-border flows, mainly within Europe's interconnectors, are key to the continents long term security of supply. But national protection needs to be avoided. Strategic gas storage is unsound and should be avoided - it is for the short term and does nothing for the long term security of supply.

So now we come back to the point about Russian gas. Easily for the next 10 to 20 years we have increasing demand for gas while the 21st energy system is being developed and deployed to a limited extent by 2030. To satisfy this increase in demand for gas, the solution will come from building more LNG facilities and gas pipelines from Russia and central Asia. However, even if planned LNG terminals are built in Poland and Croatia and interconnector capacity is increased, by design, there will still be a large dependency on Russian gas. As pointed out by a speaker, if the failure to build adequate renewable energy sources and a technological hurddle exists for CCS, then gas will become an increasing part of the electricity mix with new capacity meeting this new demand, thereby not displacing Russian gas. Thus reliance on Russian gas and all the geo-economic-politics that goes along with it should not be seen as diminishing in the foreseeable future, nor the effects of turning off the taps. Energy independence and security of supply are boosted when external threats to supply disruptions, with consideration of cost, are reduced to a small percentage. It remains to be seen whether Russia will be a reliable supplier to Europe once alternatives to Ukrainian transit are removed.