Energy Demand

In the issue brief "Europe's Southern Gas Corridor: The Italian (Dis)connection," Atlantic Council senior fellow John M. Roberts gives an update on where things stand in completing a crucial component of the Southern Gas Corridor, the Trans Adriatic Pipeline (TAP). The pipeline - which will bring Shah Deniz gas from Azerbaijan to Greece, Albania, Italy and other Western European markets - is officially scheduled to open in 2020.

Modelling studies suggest that COP21 targets can be met with global gas demand peaking in the 2030s and declining slowly thereafter. This would qualify gas to be considered a `transition fuel’ to a low carbon economy. However, such an outcome is by no means a foregone conclusion. There are limited numbers of countries outside the OECD which can be expected to afford to pay wholesale (or import) prices of $6-8/MMbtu and above, which are needed to remunerate 2017 delivery costs of large volumes of gas from new pipeline gas or LNG projects. Prices towards the top of (and certainly above) this range are likely to make gas increasingly uncompetitive leading to progressive demand destruction even in OECD countries. The current debate in the gas community is when the `glut’ of LNG will dissipate, and the global supply/demand balance will tighten. The unspoken assumption is that when this happens – generally believed to be around the early/mid 2020s – prices will rise somewhere close to 2011-14 levels, allowing a return to profitability for projects which came on stream since the mid-2010s and allowing new projects to move forward. Should this assumption prove be correct, it will create major problems for the future of gas. The key to gas fulfilling its potential role as a transition fuel up to and beyond 2030, is that it must be delivered to high income markets below $8/MMbtu, and to low income markets below $6/MMbtu (and ideally closer to $5/MMbtu). The major challenge to the future of gas will be to ensure that it does not become (and in many low-income countries remain) unaffordable and/or uncompetitive, long before its emissions make it unburnable.

A new round of political activity to promote the Southern Gas Corridor from the Caspian to Europe has begun. In February, European energy ministers and supplier nation officials met in Baku. In June, first gas entered the Trans Anatolian Pipeline (TANAP) across Turkey, and the first substantial source of supply for the Southern Corridor, the Shah Deniz II project in Azerbaijan, started producing. Shah Deniz II will ramp up to peak output of 16 bcm/year by 2021-22. Europe will then receive around 10 bcm, no more than 2 per cent of its overall demand, via the Southern Corridor, compared to the 10-20 per cent that had been envisaged in Brussels. While political leaders continue to paint the corridor’s prospects in very bright colours, the market dynamics – in the Caspian region itself, in the Caucasus and Turkey, and in Europe – are less promising. Commercial conditions for the Southern Corridor’s success have deteriorated as political support for it has grown. This paper argues that, up to 2030, the corridor will most likely remain an insubstantial contributor to Europe’s gas balance. At best, there may be sufficient gas for a second string of TANAP, but only at the end of the 2020s. The paper considers the potential sources of supply for the Southern Corridor (Azerbaijan, Turkmenistan, and others including Iran, Kurdistan, and the East Mediterranean); demand and transport issues; and the conditions under which Southern Corridor gas will compete with other supply in the European market.

China is on course to lead the world in the deployment of nuclear power technology by 2030. Should it succeed, China will assume global leadership in nuclear technology development, industrial capacity, and nuclear energy governance. The impacts will be strategic and broad, affecting nuclear safety, nuclear security, nonproliferation, energy production, international trade, and climate mitigation. Especially critical is whether China achieves an industrial-scale transition from current nuclear technologies to advanced systems led by fast neutron reactors that recycle large amounts of plutonium fuel.

Germany’s historical experience explains how the energy transition (Energiewende) came about, and largely explains the resilience of the policies to abandon nuclear power and to scale-up renewables in the face of the challenges they have posed to Germany’s consumers, utilities, and international competitiveness. Whereas the success of the Energiewende to date has come from the way it takes a unifying approach to energy, environment, and labor policies, its success will require expanding the scope from a German to an EU-wide scale.

US energy policy is on the brink of a dramatic shift as President Donald Trump seeks to dismantle the Obama Administration’s environmentally-friendly energy initiatives, remove environmental and climate concerns from US energy policies, and reorient focus on producing low-cost energy and creating American jobs. To achieve the desired increase in domestic fossil fuel production and energy employment, President Trump, his administration, and his allies have promised to implement the America First Energy Plan, intended to reinvigorate the US coal industry, expand domestic fossil fuel production, cut regulations, open federal land for fossil fuel exploration, and reduce federal support for climate and environmental programs.

The monitor helps to define the world energy agenda and its evolution over time. It provides a high-level perception of what constitute issues of critical uncertainty, in contrast to those that require immediate action or act as developing signals for the future. It is an essential tool for understanding the complex and uncertain environment in which energy leaders must operate, and a tool through which one can challenge own assumptions on the key drivers within the energy landscape.
This ninth iteration of the monitor is based on insights provided by more than 1,200 energy leaders to provide over 30 national assessments across six regions. It first discusses global issues regarding energy, then deliver country by country assessments of what the latter's national energy agendas should look like.

"The energy challenge is a challenge with many dimensions. At the broad level there are issues like sustainability of energy use, security and competitiveness of supply. These broad issues themselves can be broken down to many smaller but no less important issues as e.g. global and European energy demand and supply, the availability of fossil fuel resources, renewable energy, energy transmission networks, prices for oil, gas and electricity to cite only a few of them. All these issues can be further broken down from a geographical point of view, from the global to the European, to the national and potentially to the regional level.
This large number of dimensions makes it difficult to get hold of all the issues involved in the energy challenge at the same time, nevertheless this paper aims at providing an overview of the energy challenge and its dimension. At the same time it is clear that this overview can only be the start of a much more detailed analysis, hence it is considered to be a more or less suitable basis for further research. After all this seems highly necessary in order to develop a clear view on what the effects of the energy challenge on the European regions will be.
The present paper, which intends to cover most of the dimension of the energy challenge, develops a specific structure of analysis in order to present the results in a coherent way. Amongst the many possibilities our structure splits the energy dimensions according to whether they pertain to the supply or the demand side of energy or whether they pertain to the transaction from the supply to the demand side. Thus on the supply side we analyse: Global and European energy supply, renewables and technology. With respect to energy transaction issues we focus on pipelines and LNG, energy (electricity) networks, oil prices, electricity and gas prices (incl. environmental taxes). On the demand side we analyse: global and European energy demand, GHG emissions, energy efficiency, economic effects, emission trading and finally carbon storage.
Given the number of raised issues the intention of the analysis if to provide an overview of, while an in depth analysis of each point would be far beyond the scope of the paper.
Given this the paper finally attempts to analyse the potential negative and positive impacts these dimension could have on regional disparities. Given the severe data and information limitations at the regional level and, given the fact that the energy challenge as such is a complex issue, it is extremely difficult to define two clear scenarios, as many assumptions have to be made about potential positive and negative developments in each of these challenges. Therefore, the scenario analysis is a highly speculative exercise that goes most of the components of the energy challenge and analysing them whether on to what extent they might affect the EU regions. All components are analysed with respect to their potential positive and negative impacts on regional disparities as well as with respect to the data available to investigate this issue further. As such the analysis below provides modules for scenario building, allowing to chose for each component of the energy challenge whether it is assumed to apply until 2020 or not."