Questions and answers on security of energy supply in the EU

European Commission

MEMO

Brussels, 28 May 2014

Questions and answers on security of energy supply in the EU

Why is the European Commission presenting a European Energy Security Strategy now and what are the next steps?

The EU's energy dependence is of course not new. But it did gain an added dimension in the light of recent geopolitical events, i.e. the crisis in Ukraine. Temporary disruptions of gas supplies in the winters of 2006 and 2009 already provided a wake-up call for the EU, underlining the need of infrastructure development, increased cooperation and of a common European energy policy. Since then, the EU has done a lot to strengthen its energy security in terms of gas supply. However, the work is not completed yet and further steps are needed. Against the background of the developments in Ukraine the European Council in March put a strong focus on energy security and invited the Commission to prepare an in-depth study of energy security and a comprehensive plan to reduce import dependence in time for the European Council in June .

The in-depth study on energy security and the Communication on a European Energy Security Strategy presented today will be discussed by Heads of State or Government at the European Council on 26-27 June.

To what extent does the EU depend on energy imports?

The EU's energy import dependence has been on the rise since the mid-1990s. Today, the EU spends more than €1 billion every day on importing energy. This is almost a fifth of the EU's total import bill.

In 2012, 53% of the EU's energy consumption was linked to imports. In particular, we imported (percent of consumption)

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  88% of crude oil
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  66% of natural gas
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  42% of solid fuels
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  Less than 4% of renewables. Our dependence on renewables is negligible and mostly concentrated on biomass.
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  95% of uranium. The EU is highly dependent on uranium imports, but benefits from a diversity of supplier countries, with major producers such as Australia and Canada being long-standing partners.

Suppliers of oil:

Based on latest figures from 2013, a third of imports came from Russia, 11% from Norway and 8% from Saudi Arabia. The EU paid about €300 billion for the crude oil imports.

Suppliers of gas:

Based on latest figures from 2013, about 39% of imports came from Russia, 34% from Norway and 14% from Algeria. In total, the MS paid about €85 billion to the extra-EU suppliers.

Suppliers of solid fuels:

Based on figures from 2012, about 26% of imports came from Russia, 24% from Columbia and 23% from the US. About 240 million tonnes of solid fuels were imported in the EU in 2012, of which approximately 220 million tonnes came from non-EU countries.

Which Member States in the EU depend most on Russian gas?

As regards gas supply it can be noted that six Member States in the EU depend on Russia for their entire imports: Finland, Slovakia, Bulgaria, Estonia, Latvia and Lithuania. The vulnerability of a certain country depends on many aspects, e.g. on the reliability of its external suppliers, on the diversity of its energy sources and on the size of its domestic production. Moreover, the integration into the European pipeline network (i.e. the level of interconnection and the reverse flow possibilities) plays a crucial role.

What does the EU energy mix look like?

The energy mix varies significantly across Member States. Overall, a gradual decrease in solid fuels consumption and a growth in the use of renewables can be observed for all Member States.

In 2012 EU energy demand stood slightly above 1700 million tons of oil equivalent (mtoe), almost 130 mtoe below the 2007 pre-crisis level, and similar to 1995 levels.

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  34% of our energy comes from oil and petroleum products. The EU is the second largest oil consumer in the world after the US. Most of it is used in transport (95% of transport fuel comes from oil) and the petrochemical industry.
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  23% of our energy comes from gas. Gas is mainly used for heating and in electricity production. Almost 19% of all the electricity generated in the EU comes from gas. The residential and service sectors account for approximately 40% while industry accounts for about 25% of gross inland consumption.
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  17% of our energy comes from solid fuels. These include coal, lignite and peat. The EU is the third largest coal-consuming region, after China and North America. Solid fuels are mostly used in electricity production and district heating plants.
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  13% of our energy comes from nuclear power. It provides 27% of our electricity, with most plants in France, UK, Sweden, Germany, Belgium and Spain.
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  14% of our energy comes from renewable energy (measured as share of final consumption). Almost half of this comes from hydro power, a quarter from wind, 19% from biomass and wastes and 8% from solar power. 24% of electricity is produced from renewables.

How much energy is produced in the EU?

Compared to other world regions, the EU has few fossil fuel resources. At the end of 2012, the EU's proved oil reserves amounted to only 0.4% of global reserves. Our natural gas reserves amount to 0.9% of global reserves and coal reserves form 6.5% of global reserves. Comprehensive information on shale gas reserves is not yet available as exploration is still at an early stage.

Between 1995 and 2012, the EU's primary energy production decreased by almost one- fifth. Natural gas production dropped by 30%, production of crude oil and petroleum went down by 56% and production of solid fuels decreased by 40%. Renewable energy production, on the other hand, has significantly grown during recent years, renewables account for 22% of primary energy production.

The biggest oil producers of the EU are the UK (61% of EU production) and Denmark (14%). The EU produces 12% of its oil consumption domestically, which stood slightly below 600 million tons of oil equivalent (mtoe). Concerning gas, domestic production accounts for 34% of consumption. In 2012 consumption dropped below 400 mtoe (around 420 billion cubic meters) for the first time since 2000. The Netherlands (43%) and the UK (26%) are the largest producers of natural gas, followed by Germany (7%) and Romania (6.5%).

The EU is a large coal producer, meeting more than half of its demand. The most important producers are Poland (34%), Germany (28%) and the Czech Republic (12%).

What has already been done to increase the security of supply since the gas crisis in 2009?

Increasing the security of supply has been an overarching goal of the EU energy policy for several years. Since the gas crisis in the winters of 2006 and 2009, the Commission has done a lot to strengthen the EU's energy security in terms of gas supplies and to reduce the number of Member States exclusively dependent on one supplier. Significant progress has been made towards the completion of the internal energy market. Rules for network use have been put in place to avoid congestion at cross-border infrastructure. Another important step to secure uninterrupted supplies in case of external supply disruption refers to installing reverse flow options that provide a possibility to operate the pipelines in both directions.

In 2009, the European Energy Programme for Recovery was set up to support the building of missing infrastructure links with € 2.4 billion. Around € 1.4 billion of that was allocated for gas projects.

In 2010 new rules to ensure uninterrupted gas supplies entered into force, the so-called Security of Gas Supply regulation (see MEMO/10/641 ). The Regulation requires natural gas undertakings to secure supplies to the protected costumers (notably households) under severe conditions:

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  in the event of a seven day temperature peak occurring with a statistical probability of once in 20 years;
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  any period of at least 30 days of exceptionally high gas demand, occurring with a statistical probability of once in 20 years;
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  for a period of at least 30 days in case of the disruption of the single largest gas infrastructure under average winter conditions.

In addition, Member States have to develop preventive and emergency plans.

Moreover, the Gas Coordination Group , which had been established in 2006, was reinforced in 2011. This EU-wide platform, which consists of Member States representatives as well as stakeholders, is together with the Commission in the lead when it comes to coordinating security of gas supply measures.

What can be done to further lower the EU's energy dependence…

… in the short run?

First, it is recommended to perform a risk assessment (energy security stress test) of the EU energy system to identify supply disruption risks in the upcoming winter. This would be conducted on the regional or EU level by simulating a disruption of the gas supply. The aim is to check how our energy system can cope with security of supply risks and based on that develop emergency plans and create back-up mechanisms.

The exact details of these stress tests have not yet been agreed.

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  The back-up mechanisms could include
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  Increasing gas stocks;
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  Developing emergency infrastructures like for example reverse flow options;
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  Decreasing gas demand via fuel switching (in particular for heating);
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  Reducing energy demand in the very short term.

Another short term measure to decrease Europe’s energy dependence could be pooling parts of the existing energy security stocks at EU or international level into a virtual common capacity reserve - for instance under the International Energy Agency.

Moreover, security of supply plans at regional and EU level could be developed, as it was outlined in the Joint Statement adopted on 6 May 2014 at the Rome G7 Energy Ministerial meeting.

… and in the long run?

The strategy proposes actions on several key areas:

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  Completing the internal energy market and building missing infrastructure links is essential to quickly respond to possible supply disruptions by directing energy flows across the EU as and where needed. The Commission has identified 33 infrastructure projects which are critical for the EU's energy security (These projects form part of the list of Projects of Common Interest presented in October 2013). Apart from that, the Commission proposes to extend the target as regards interconnection of installed electricity capacity to 15% by 2030, while taking into account the cost aspects and the potential of commercial exchanges in the relevant regions. Member States have already committed to ensure interconnectivity of 10% by 2020.
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  On the regulatory side, the third internal energy market package sets the framework within which the European internal market needs to develop. Heads of State or Government have agreed that the internal market should be realised by 2014. There are positive developments, but much remains to be done. Regional cooperation between Member States should be strengthened where interconnectors, balancing arrangements, capacity mechanisms and market integration are contributing to energy security.
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  Diversifying supplier countries and routes. While the EU will maintain and strengthen its relationship with reliable partners, for example by reinforcing its partnership with Norway, it will seek ties to new partner countries, e.g. in the Caspian Basin region by further expanding the Southern Gas Corridor; developing the Mediterranean Gas Hub and by increasing LNG supplies.
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  Strengthening emergency and solidarity mechanisms and protecting critical infrastructure. In this respect the Commission will for example review the provisions and implementation of the Security of Gas Supply Regulation. In addition, new solidarity mechanisms should be developed both at EU and international level as regards natural gas and the use of gas storage facilities. The legal framework concerning strategic energy infrastructure should be strengthened to better protect our energy security interests.
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  Improving coordination of national energy policies and speaking with one voice in external energy policy. The Commission aims to be involved at an early stage in envisaged intergovernmental agreements with third countries that could have a possible impact on security of supply. Moreover, the Commission will ensure that all such agreements and all infrastructure projects on EU territory fully comply with the relevant EU legislation.
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  Moderating energy demand. As buildings are responsible for 40% of our energy consumption and a third of natural gas use, this sector plays a crucial role. In addition, further efforts to increase the energy efficiency in vehicles and products need to be made.
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  Further developing energy technologies.
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  Increasing indigenous energy production: This includes further deployment of renewables, the safe use of nuclear energy, where this option is chosen, and sustainable production of fossil fuels.

What is the relation between the European Energy Security Strategy and the 2030 Framework for climate and energy?

The Union's energy security is inseparable from the 2030 Framework for climate and energy ¹ . The transition to a competitive, low-carbon economy will reduce the use of imported fossil fuels by moderating energy demand and exploiting renewable and other indigenous sources of energy.

The European Energy Security Strategy should be managed in full compatibility with the 2030 policy Framework on climate and energy. It is important, therefore, that decisions are taken on this framework soon, as indicated by the European Council, and that Member States gear up collectively to prepare and implement long-term plans for competitive, secure and sustainable energy.

What about the idea of EU wide gas purchases that Polish Prime Minister Donald Tusk i put forward?

Poland has been pleading for an energy union, which would among others strengthen the bargaining power of Member States and the EU vis-à-vis external suppliers. The proposal envisages several possible instruments to do so, ranging from an ex ante screening of IGAs, over enhanced transparency of commercial terms, to joint purchase agreements between undertakings or an Agency acting as single buyer. The proposal also underlines the importance of antitrust enforcement against abusive practices by dominant suppliers. The European Commission widely agrees with the proposals for an energy union which were presented by the Polish Prime Minister Donald Tusk. Several crucial points raised by the Prime Minister Tusk are also addressed in the strategy presented today. As regards EU wide gas purchases, well targeted and carefully designed and executed joint purchasing initiatives or mechanisms could be beneficial to supply security in the EU. They would need to be fully in line with EU and trade law. A working group (comprising experts from Poland and the Commission) has been set up to analyse related questions in detail.

Is the European Energy Security Strategy only about gas?

No, the strategy also covers other forms of energy like for example oil and electricity (see interconnection target of 15% by 2030 mentioned above). As regards oil, the Commission recommends discussing with industry and Member States how to diversify crude oil supplies to EU refineries to reduce dependency on Russia. Moreover, the strategy aims to identify EU-wide strategic assets in the oil value chain and coordinate action to ensure that consolidation of the EU`s refinery capacity is done in a way that improves the EU`s energy diversification.

Furthermore, Russia is a key competitor in nuclear fuel production, and offers integrated packages for investments in the whole nuclear chain. Therefore, particular attention should be paid to investments in new nuclear power plants to be built in the EU using non-EU technology. It is important that these plants are not dependent only on Russia for the supply of the nuclear fuel: the possibility of fuel supply diversification needs to be a condition for any new investment, to be ensured by the Euratom Supply Agency. Furthermore, an overall diversified portfolio of fuel supply is needed for all plant operators.

Why is the EU more concerned by gas than by oil?

The reasons are the different patterns of the oil and gas market. About 90% of oil imported to the EU arrives by sea and this offers lots of flexibility to change supply sources and routes if needed. In addition, the EU is well prepared to cope with temporary disruptions as it is equipped with emergency oil stocks to cover more than 100 days of net imports.

Contrary to that, in the case of gas, transport routes are determined by the pipeline network, as only a small fraction is shipped by sea. Several EU Member States depend from a main supplier with limited or no possibilities to receive alternative supplies. This is the case in the Baltic region and in several countries in Eastern Europe.

What exactly is the EU doing in order to diversify its gas supplies?

The EU gas supplies are already today much more diversified than 10 years ago, mostly thanks to the emergence of new liquefied natural gas (LNG) producers, such as Qatar and Nigeria, and to the development of regasification capacities in Europe. LNG will remain an important source for diversification also in the future, as the EU will aim to receive or increase imports from countries or regions like Northern America, Qatar, Australia, Nigeria and Africa.

The EU is now focusing on supporting the building of new gas pipelines to new supplier countries like Azerbaijan. The so-called Southern Gas Corridor will connect the EU market to the largest concentration of hydrocarbons in the world, loosely defined as the Caspian and Middle East region. In a first phase it is expected that 10 billion cubic meters of natural gas produced in Azerbaijan will reach the European Market through the Southern Gas Corridor by 2020.

The EU will enhance cooperation with North Africa and Norway to explore the possibilities to increase gas imports.

In addition, the EU is looking into possibilities to raise its bargaining power with its external suppliers and to increase transparency on energy markets worldwide.

How could the revision of the Security of Supply regulation look like?

The Commission will review the existing provisions and the implementation of the Security of Gas Supply Regulation before the end of 2014. In this respect the Commission will analyse the possibilities of a more precise EU wide definition of “protected customers” and of an increase of the number of days during which companies have to ensure deliveries to these protected customers under severe conditions.

Which measures are taken to further improve energy infrastructure?

In October 2013 a list of some 250 key energy projects - mainly gas and electricity links within and between Member States - was drawn up. These projects will benefit from a much shorter permit granting procedure than usual and they can also be eligible for EU co-funding under the new Connecting Europe Facility (CEF). This facility provides €5.85 billion for energy infrastructure between 2014 and 2010. The first call for proposals for CEF funding is currently open see IP/14/547 .

In addition, 33 projects have been identified as critical for the EU's energy security in the short and medium terms. The Commission will intensify its support to these projects by bringing together the relevant stakeholders in order to speed up the implementation of the projects.

To which extent is reverse flow already possible in the EU?

Reverse flow possibilities are essential in order to be able to respond to a supply crisis. They have already been put in place between several countries: for example, Czech Republic and Slovakia, Austria and Slovakia, Italy and Austria, Poland and Germany, Germany and Austria.

Poland is a good example how reverse flows can contribute to decreasing import dependence. The country covers around two-thirds of its gas demand by imports from Russia. Due to the physical reverse flow on Yamal pipeline introduced in April 2014, Poland would be able to cover up to 30% of domestic consumption in case of disruption of deliveries. Moreover, together with its LNG terminal and interconnectors Poland would be able to replace deliveries from Russia by deliveries from other directions. Similarly Slovakia is able to cover missing supplies from Russia by the use of reverse flow capacities from its neighbours.

Do we have sufficient gas storage?

Europe's underground gas storages are important to provide secure supplies in the winter period. Because of the mild winter behind us, current storage levels are healthy (around 47 billion cubic meters or ~59% of total capacity full) and injections are ongoing. These levels can cover some weeks of disruption during the summer. In order to ensure sufficient protection for winter, by the end of October 2014 the stocks must be at least at the level of 66-70 bcm. The total technical storage capacity in the EU is around 90 bcm. For storage levels in EU Member States see Gas Infrastructure Europe .

The internal market, the interconnections and reverse flows, which have already been put in place during recent years, help to send gas to where it is most needed in the event of a crisis. However, further reflection and discussion is needed to assess whether increased storage obligations are warranted - and if so, to what extent.

For further information

IP/14/606

The In-depth study of European Energy Security as well as the Communication "European Energy Security Strategy" can be found on the following website of the European Commission: http://ec.europa.eu/energy/security_of_supply_en.htm

¹ :

http://ec.europa.eu/energy/2030_en.htm