Flying to Washington with my colleague Energy Commissioner Kadri Simson, the global context appears worrying ahead of the EU-US Energy Council that I will co-chair with Secretary of State Anthony Blinken this Monday.
Energy prices have boosted inflation
Energy prices have surged due to global supply and demand issues. Gas prices in the EU are six to ten times higher than they were a year ago, putting great strains on electricity prices, due to the way these prices are determined on the wholesale electricity market in Europe. It has already boosted inflation at the end of 2021. If energy prices stay high throughout 2022, feeding higher inflation, this will seriously affect the post-pandemic recovery.
With the severe crisis that we are currently going through with Russia, it has become not only a price issue but also a matter of security of supplies. Energy policy always looms large in EU-Russia relations: over forty percent of EU gas imports come from Russia and sixty percent of Russia’s import revenues come from the EU. As I said last week, by reducing the overall gas import ratio from Russia, we will be investing not only in the green transition but also in reducing our strategic dependencies. However, in recent years, Russia has enhanced its resilience against economic sanctions, by increasing its foreign currency reserves, more than we have done to enhance our capacity to face potential gas supply cuts. We should urgently consider developing EU strategic gas reserves and the possibility of joint gas purchasing, as the Commission has suggested. This would enhance the security of all at a manageable price, as set out in a recent report (link is external) by the think tank CEPS.
Russia has already in the past used energy supplies for political purposes. In recent weeks, although Russia has been fulfilling strictly its contractual commitments, the Russian-state owned Gazprom has refused to send additional supplies to re-fill European storage facilities, creating further nervousness in the market.
So what can the EU and the US do to address short-term challenges while at the same time addressing the imperative of moving to net zero and cutting our dependence on fossil fuels? Together with the US and other partners, we oppose the use of energy supply as a weapon and geopolitical lever. The recent EU-US joint statement on energy security already places resilience to future price shocks and safeguards against geopolitical tensions at the centre of the transatlantic energy security agenda. We are committed to ensure the energy security of the EU and our neighbours, including Moldova, Ukraine and the Western Balkans.
“Together with the US, we oppose the use of energy supply as a weapon and geopolitical lever. We are committed to ensure the energy security of the EU and our neighbours, including Moldova, Ukraine and the Western Balkans.”
The starting point of our strategy is the European Green Deal and the energy transition that we want to accelerate in light of the climate emergency. We know that the path of this transition is not straightforward, but we cannot allow current events to put us off track.
The immediate problem of security of gas supply
However, in the short term, we face, and we must tackle, the immediate problem of ensuring security of gas supply. This means working for greater diversification of import routes and sources. The US already is Europe’s largest Liquefied Natural Gas (LNG) supplier, and we are intensifying our cooperation to ensure that our gas supplies are safe throughout the months to come. Beyond the US, we are also talking with Norway, Qatar, Azerbaijan, Algeria and others to expand LNG supplies. We will also have to work rapidly to better integrate the Iberian peninsula, which is actually an electricity island in Europe, in the European energy market because it has more LNG receiving capacities than other European countries. These efforts are more likely to succeed if we invest in relations with potential LNG suppliers, not as a short-term fix, but as part of our interest in developing more strategic relationships, working also on renewables like hydrogen and solar.
While we seek to address the EU’s own energy and climate goals and enhance our resilience, we must do the same for Ukraine. In terms of energy security, Ukraine today is already better prepared for any conflict. As in the rest of Europe, true energy security can however only come through more investment in domestic renewables and better connections with the EU market. Our meeting will be an opportunity to seek even tighter coordination on energy market reforms needed in Ukraine to reinforce corporate governance and transparency ahead of Ukraine’s synchronisation to the European electricity network, planned in 2023. We will also work on increased reverse flows within the existing gas transportation infrastructures.
“In the end, reliable, affordable and secure energy will only come through a decarbonised energy system. This is also why technologies like energy efficiency, renewables and hydrogen are high on our common agenda with the US.”
There is a broad lesson in all this: in the end, reliable, affordable and secure energy will only come through a decarbonised energy system based largely on renewables. This is why we are also cooperating closely with the US on technology. Energy efficiency, renewables (such as wind power) and hydrogen are high on our common agenda. A new EU-US High-Level Climate Action Group has been established last year, and we have aligned our positions ahead of the COP26 in Glasgow. This Energy Council will jumpstart the Transatlantic Green Technology Alliance on innovation and rapid, at scale deployment of key clean energy technologies globally, including heat pumps, advanced metering, long-duration energy storage, notably by reinforcing our common efforts on codes, standards, certification and regulatory frameworks.
Energy transition will change geo-political balances
The energy transition will continue to change geo-political balances, shifting power from those controlling fossil fuels to those developing clean energy technologies. This will require countries that now heavily rely on fossil fuel exports to diversify their economies and we need to be ready to help them take this big step forward (link is external). The net zero and just energy transition is vital to save our planet but will also have foreign policy benefits: a world run on clean energy will be a more stable and better world for all, although it will also create new dependencies because of the materials it requires. A new EU strategy on international energy will be published this spring, to set out in more detail our response to the wider challenges on this issue.
In cooperation with the US, the EU will continue to build a global energy transition that is socially just and takes care of the geopolitical challenges. Tomorrow, we will work together on this broad agenda, sending a strong message to those who seek to divide us.