EU energy ministers to spar over gas strategy

The geopolitics of gas looms large ahead of Tuesday's summit.

EU energy ministers to spar over gas strategy

EU energy ministers on Tuesday morning will discuss how to avoid future repeats of the gas-led energy price spike assailing the bloc.

It’s a touchy time: Governments are struggling to fight off a popular backlash from fed-up consumers, mitigate knock-on effects like soaring food costs, protect its climate agenda, and defend the existing liberalized energy market system against demands for radical structural changes.

Taunting from Russian President Vladimir Putin that the European Commission has made its own bed through bad energy policy — by discouraging long-term gas supply contracts in favor of a buy-when-you-want spot market — isn’t helping.

Some governments are standing firm and hoping to wait out what they insist is a temporary phenomenon.

“We cannot support any measure that conflicts with the internal gas and electricity market, for instance an ad hoc reform of the wholesale electricity market,” reads a joint statement released on Monday by Austria, Germany, Denmark, Estonia, Finland, Ireland, Luxembourg, Latvia and the Netherlands. “This will not be a remedy to mitigate the current rising energy prices linked to fossil fuels markets.”

The nine-country coalition instead favors a faster rollout of renewables to wean the bloc off natural gas, more electricity interconnections between countries, and increased renovations so buildings consume less energy.

Meanwhile, countries like Spain want a more in-depth rethink of how EU markets work, while Poland is pushing for an investigation into whether Russia’s state-backed Gazprom has broken any rules in refusing to make additional gas available to the EU on the spot market.

Kremlin rescue

U.S. Senior Global Energy Security Adviser Amos Hochstein — who is tasked with hammering out conditions under which the Russia-to-Germany Nord Stream 2 pipeline can be completed without U.S. sanctions — said on Monday that Europe’s current situation is a sustained crisis that only Russia can fix by sending more gas through Ukraine.

“I raised alarm bells several weeks ago … that I was concerned that this crisis that we are facing, if not addressed, was not just about money and higher prices, it was literally something that endangered lives across Europe,” Hochstein told reporters. “It’s not been a spike that came back down to earth, but rather stayed at these elevated prices … and it reflects the fact that the markets are looking at these [gas storage] inventories in Europe as significantly below where they should be.”

Ira Joseph, head of global generating fuels and electric power pricing at S&P Global Platts, said that the difference between historic EU gas storage levels over the past five years and this year’s lower fill is mostly due to Russia-owned gas storage, mostly in Germany, sitting well below normal.

“Russia is producing more gas than they’ve ever produced, but basically they’ve decided to store gas in Russia rather than in their European storage in a more meaningful way this year, that’s the really big change, ” Joseph said. “If it’s stored in Germany and ready, it’s there and can meet immediate market demand, whereas if it’s cold in Russia and in Europe this winter, there’s no telling where the gas could flow.”

EU Energy Commissioner Kadri Simson and Europe’s association of energy regulators ACER have both said that Europe’s current gas reserves, which are filled to about 77 percent, are adequate to make it through a cold winter, but Hochstein countered that “under any scenario for a winter that is colder than average, there could be an availability of resource crisis” in Europe.

LNG squeeze

Ministers will discuss collective gas purchasing at the Energy Council, as well as whether countries should be required to keep reserves of natural gas in the same way they have to hold emergency oil stocks.

But as global demand outstrips supply, the EU risks being left dateless on the dance floor as it searches for gas to buy.

Joseph pointed out that while Norway has exported 7 percent more gas over the past year, “the volume that was going to Germany is now going to the U.K. instead.”

And while the U.S. has been exporting LNG, “more of it is going to Asia, and also to Brazil because of the drought … so Europe kind of got shaved twice, they’re not getting as much from the U.S. as before.”

While former U.S. President Donald Trump was vocal about signing deals to get U.S. liquefied natural gas producers into the EU market, Hochstein said: “The U.S. government does not direct our companies in who they sell to.”

To make matters worse, Enagas data shows booked gas flows to Spain through the Medgaz pipeline are currently at zero for November due to an ongoing spat over tariffs between transit country Morocco and supplier Algeria — something that can only be partially offset through higher direct flows from Algeria to Italy.

Meanwhile, Asian buyers are busy lining up suppliers for years to come.

“In the past few months Chinese buyers have signed supply deals for a collective 10 million tons of LNG from U.S. and Qatar, which is a significant amount, all to start in 2022 and 2023, ranging from three-year to 20-year deals,” Joseph said.

EU countries like Poland, Hungary and Italy still have locked-in gas supplies through long-term contracts with producers in the U.S., Qatar, Russia and Azerbaijan.

But there still could be space for others to get in on the game. “Qatar has a lot of long-term deals that are expiring and is building capacity that isn’t yet sold, so the EU would be a logical market for it,” Joseph said.

This article is part of POLITICO’s premium policy service: Pro Energy and Climate. From climate change, emissions targets, alternative fuels and more, our specialized journalists keep you on top of the topics driving the Energy and Climate policy agenda. Email pro@politico.eu for a complimentary trial.

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Rich countries break ‘totemic’ $100B annual climate pledge

That undermines a bargain where developing countries were to cut emissions in return for climate finance.

Rich countries break ‘totemic’ $100B annual climate pledge

The world’s richest countries admitted Monday that they broke a promise to deliver $100 billion a year to developing nations to help them cope with climate change.

A report prepared by ministers from Canada and Germany found the pledge — meant to run from 2020 to 2025 — would not be met until 2023; it came on the same day that the U.N. repeated a warning that the world is not doing nearly enough to rein in global warming.

That’s likely to heighten tensions at next week’s COP26 climate talks, where developing countries have tied their efforts to cut emissions with wealthy countries making good on the climate finance pledge.

The financial promise was made in 2009 and reinforced in 2015, but German State Secretary for the Environment Jochen Flasbarth told reporters: “The developed world did not deliver on the commitment.” That, he said, was “extremely unfortunate … it’s not right that the developed countries didn’t do it in due time.”

Flasbarth and Canadian Environment Minister Jonathan Wilkinson surveyed wealthy countries and multilateral donors and laid out projections for future climate finance in detail for the first time. 

It’s likely that the 2020 flows fell $20 billion short, but the survey found that over five years from 2021 to 2025, the financial flow would “likely” be around $500 billion — meaning that rich countries might reach the $100 billion-a-year mark on average over the whole period.

U.K. COP26 President Alok Sharma, who commissioned the report, said the signal that the promise would be met — albeit late — was “significant progress on a totemic issue … This has been a source of deep frustration for developing countries and I absolutely get this.”

Flasbarth said he thought the outcome “is not bad enough” for countries “not to be constructive in Glasgow. And now we really urge all parties to come to Glasgow in a spirit to solve the remaining issues.”

Meeting the mark

No developing countries were invited to the press conference. The Bhutanese chair of the group of 46 least developed countries, Sonam Phuntsho Wangdi, tweeted they appreciated the efforts of the COP26 presidency “to ensure that developed countries provide $500bn over five years up to 2025.” He said that should be provided as grants — right now 71 percent come as loans and should provide more funding for adapting to the impacts of climate change, he said.

Others were less sanguine. Mohamed Adow, director of Nairobi-based think tank Power Shift Africa, said the financing failure was “utterly shameful and the deal announced today is still short despite the U.K. government trying to spin it as ‘mission accomplished.’ Poor nations will not be conned and the leaders of the developed world need to pull their finger out and get this money on the table if COP26 is going to be a success.”

Sharma, Wilkinson and Flasbarth argued that, while the rich world hadn’t hit the mark, the report could provide certainty that there was a commitment to arrive at the destination, even if with a delay. That, Wilkinson said, should give poorer countries “confidence that the monies are going to continue to flow over the course of the coming year.”

The consequence of not getting an agreement on faster emissions cuts was laid out by the U.N. report, which found that national climate plans collectively have the world on track to warm by 2.7 degrees Celsius by the end of the century — something scientists warn would be catastrophic.

Wilkinson and Flasbarth’s report found that the shortfall was mostly due to a failure to mobilize private capital alongside public funds.

That highlights that even the current, and unmet, financial promise is much too small, Wilkinson said: “We need to see trillions of dollars that are mobilized for this, not $100 billion.”

One of the biggest problems is the U.S., which largely backed out of international climate finance under Donald Trump. Despite a recent promise to quadruple donations under Joe Biden, the U.S. remains the lowest climate finance contributor among the rich world, according to several measures of its fair share compiled by the World Resources Institute.

According to reports, the U.S. tried to delay the release of the Canadian-German report.

Flasbarth said he and Wilkinson met resistance from some of their peers when they sought assurances about delivering their share of the $100 billion goal. “Jonathan and I really pushed developed countries during the last weeks very hard, and not all of our conversations were really seen to be polite,” he said.

This article is part of POLITICO’s Sustainability Pro service, which dives deep into sustainability issues across all sectors, including: circular economy, waste and the plastics strategy, chemicals and more. For a complimentary trial, email pro@politico.eu mentioning Sustainability.

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