EU Energy Policy

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.

Two years after the EU formally launched its strategy for an Energy Union, this Report examines the energy challenges facing the different regions of Europe, investigating shared priorities and common projects, as well as barriers to integration and cooperation. A series of chapters devoted to distinct regions examines what role the Energy Union can play to help address their energy challenges, including those related to energy security and relations with external suppliers. The Report also looks at efforts to push forward with the construction of the Energy Union via regional initiatives, including some that reach beyond the borders of the EU. Such initiatives have shown how progress on all five pillars of the Energy Union is important for the energy security of the EU and how progress need not be uniform across Europe. Notably, the deepening and interconnection of energy markets – nationally, regionally, within the EU, and beyond its borders – are central to this process