New fuel for cooperation

New fuel for cooperation

Maroš Šefčovič
The energy potential of the Eastern Mediterranean has intensified the Euro-Mediterranean synergy and, in the future, will increase the liquidity of the European gas market and will have a positive impact on prices for end customers, as well as on the well-being of those who live in the heart of the Energy Union

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Efforts to promote ambitious and effective energy cooperation among the EU and the Eastern Mediterranean countries have been deployed for several years, in different formats (for example, the Barcelona process, the Neighborhood policy, and the Union for the Mediterranean). Some important results have been achieved so far, in terms of policy dialogue as well as of financial support for technical assistance and investment projects. Discoveries of natural gas in the Mediterranean Sea come at the right time - when the European Union has approved the EU LNG and Storage Strategy and new rules for security of supply. With significant resources available in Cyprus, Egypt, Israel and Lebanon, the Eastern Mediterranean might become a promising source of gas supply for the EU. At the same time, it could create a win-win situation for the whole region and contribute to peace and stability.

In February, we put on the table a consolidated and solid security of supply package, in which we took good note of increased LNG supply coming from countries abroad such as the United States and Australia. Significant discoveries of gas in the Mediterranean Sea might add to the new world gas map. Up until now, Cyprus has been almost entirely dependent on imported oil products. Now the significant gas resources found or estimated to be found in the exclusive economic zone could be a game changer. Cyprus is not the only country in whose territory new gas sources were discovered.

Challenges will not go away

Today's EU gas demand of 380-450 billion cubic meters is projected to remain relatively stable in the coming years, but the expected decline in domestic gas production may increase the need to import more gas. Being the biggest economy in the world, the EU is also the biggest energy importer. It is true that policies designed to achieve 2030 energy and climate targets will lead in the long run to a reduction in gas usage, particularly due to energy efficiency improvements in heating and cooling, as well as in industry. But in the short - and medium term, gas will continue to be an important element of the energy mix, and act as a bridge to the increasing share of renewables. Moreover, for Europe, it is very important to diversify energy sources, routes and supplies. Therefore, gas will continue to play a key role in the transition to a low-carbon economy. Substitution of coal and oil with gas in the short- and medium-term will help to reduce emissions with existing technologies.

The new proposals will strengthen solidarity and transparency

In this context and against the background of the findings of the European gas stress tests of 2014 that showed vulnerability in some parts of the EU and high dependency on single suppliers, the European Commission came up with the Security of Supply Package of February 2016. As the nature of the energy crises often goes beyond the borders of one country, the Commission proposed shifting from a national to a regional approach to make the EU even better prepared than today for possible energy supply interruptions. Regional cooperation is the best tool to overcome potentially severe gas crises. We must make sure that across Europe we do not have regions that are left behind. We have to improve how gas is sold and traded in the EU. We need to do our utmost to make sure that everyone in Europe pays fair and competitive prices. Therefore, the February package also proposed ex-ante assessment of draft intergovernmental agreements (IGAs) between one or more member states and one or more non-EU countries which have an impact on the security of the EU’s energy supply and the functioning of the EU’s internal energy market. These ex-ante compliance checks of IGAs helps diminish possible doubts regarding their compatibility with EU law, in particular with internal energy market legislation and competition law. The Commission's involvement in such compatibility checks will provide an essential added value by resolving problems, most notably conflicts between obligations of member states under international treaty law and EU law, and strengthen the legal certainty and viability of the agreements. Thus, such assistance from the Commission side could be beneficial not only to the negotiating position of member states, but also to their partners from other countries. Being a part of the Package, the EU LNG and Storage Strategy calls for actions to complete the internal gas market and create missing infrastructure to allow all member states to benefit from access to international LNG markets, either directly or via other member states. It also asks for close cooperation with international partners to promote free, liquid and transparent global LNG markets and to consider usage of LNG as an alternative fuel in transport, heat and power. All the aspects of the strategy are very important to the Mediterranean Sea should they orient to gas exports.

Euro-Mediterranean Platform on Gas

The Energy Union fully acknowledges the energy importance of the Mediterranean region and calls for the establishment of strategic partnerships with the Mediterranean producing and transit countries. Since last year, the Euro-Mediterranean energy cooperation got a new impetus through the establishment of 3 thematic platforms: 1) natural gas; 2) integration of electricity markets and 3) renewable energy and energy efficiency. This new cooperation mechanism has been put forward at the high-level conference on energy cooperation in the Mediterranean held in Rom in November of 2014 and endorsed by the Senior Officials Meeting in March 2015. The Union for Mediterranean platform on gas was launched in June 2015 in Brussels. Its primary objective is to promote dialogue and exchange of views between public and private stakeholders, including policy makers, industrial representatives, regulators, energy stakeholders, and international financing institutions. Over time, it is expected that this role will evolve and become more active, with the platform providing advice and consultation to stakeholders with a view to identifying energy projects of common interest, partnership actions, and assisting in the development of Euro-Mediterranean energy relations. I am convinced that the impact of potential new gas discoveries in the EU territory and in its vicinity, once they reach the EU markets via LNG terminals or offshore pipelines, will be largely positive, as they increase the liquidity of the European gas markets and diversification of gas sources. They would shift towards gas-on-gas pricing, shorter-term contracts, the use of spot markets and the rise of intermediaries such as portfolio players and traders. The new amounts of gas should also have a positive impact on prices for final consumers, the welfare of whom stands at the core of the Energy Union.

See the OMC 2015 Special