Fully end EU dependency on Russian energy

The EU has dropped its share of Russian gas imports from 45% to 19%, thanks to the REPowerEU Plan, launched in May 2022 to reduce the EU’s dependency on Russian energy. 

However, the EU saw a rebound in Russian gas imports in 2024. The European Commission has therefore presented a roadmap to ensure the EU fully ends its dependency on Russian energy, while ensuring stable energy supplies and prices across the EU. 

The roadmap will see a gradual removal of Russian oil, gas and nuclear energy from the EU markets in a coordinated and secure manner as the EU transitions to clean energy. EU countries will prepare national plans by the end of 2025 setting out how they will contribute to phasing out imports of Russian gas, nuclear energy and oil. At the same time, efforts will continue to accelerate the EU’s energy transition and diversify energy supplies to eliminate risks to the security of supply and market stability. 

The roadmap includes measures to 

gas:

stop all imports of Russian gas by the end of 2027 by improving the transparency, monitoring and traceability of Russian gas across the EU markets. New contracts with suppliers of Russian gas will be prevented and spot contracts (for immediate payment) will be stopped by the end of 2025.

oil: 

take fresh action to address Russia's ‘shadow fleet’ (vessels employed by Russia to evade sanctions) transporting oil

nuclear: 

restrict new supply contracts co-signed by the Euratom Supply Agency for uranium, enriched uranium and other nuclear materials deriving from Russia 

By phasing out Russian energy, the REPowerEU roadmap will reduce the security risks the EU is facing. It will also contribute to the economic plan set out by the Competitiveness Compass, the Clean Industrial Deal and the Affordable energy action plan. 

A cleaner and independent energy system helps boost the economy while also making a huge contribution to Europe's decarbonisation ambitions. The Commission will put forward legislative proposals to support the roadmap next month. 

New Year’s Resolutions - Energy

 

As the confetti from New Year’s Eve celebrations settles, it is only fitting that we prepare our 2024 New Year’s Resolutions. Our resolutions are often about a change we wish to see in ourselves, but what about making them around the change we wish to see in our homes and our world? Making energy efficiency and sustainability part of your New Year’s resolutions opens a pathway to savings, community resilience, and a safer, healthier Earth for future generations to call home. 

Consumption of oil, gas, and coal has been growing, and all three fuels hit new record highs in 2023. But, at the same time, renewable energy has been booming. Production from wind and solar power worldwide in 2023 was about 55% higher than in 2020.  

Nonetheless, it's worth noting that despite the recession fears that marked much of the last year, a U.S. recession hasn't materialized so far. Oil demand in the U.S. and globally has been quite good too. I want to point out that the oil prices aren't meager compared to the pre-pandemic years. Natural gas may be low and many U.S. gas-focused producers are generating negative cash flow, but many oil investments remain profitable. I wrote a lot throughout the year about the performance differentiators, but even in the onshore services space factors such as gas vs. oilier basin exposure, the proportion of private vs. public clients or fleets contracted long-term vs. participating in the spot market would matter a lot.

Turning to 2024, I will first lay out my macro expectations.

A solar slowdown, relief for OPEC+, the rise of blue hydrogen, and other trends to watch out for in the year ahead. Even though total global solar capacity will continue to grow rapidly over the coming decade, the pace of growth in annual installations will start to slow in 2024 compared to the rates seen in recent years. If our forecast for 2023 holds, the average annual growth in capacity installations over 2019-23 was 28%, including 56% growth in 2023. By contrast, annual average growth from 2024-28 will be about zero, including a few years with contractions. Growth in the global solar market is following a typical S-curve. Over the last few years, growth has climbed rapidly up the steepest part of the curve. Starting in 2024, the industry will be past the inflection point, characterized by a slower growth pattern. The global solar market is still many times larger than it was even a few years ago, but it’s natural for an industry to follow this growth path as it matures. 

Not every region is currently in the same place along the S-curve. Africa and the Middle East, for example, have a long way to go before they hit their growth inflection points. But two major markets are driving this global growth pattern: Asia Pacific, dominated by China, and Europe. 

No U.S. recession or at best a very modest one.

Continued deceleration in inflation but not down to the coveted 2%; probably down to 3% with some upside risk in 2024 H2;

The Fed and other central banks cut a bit, though, pushing up commodities.

Weaker dollar/stronger emerging markets. In the conclusions of the first Global Stocktake at COP28, countries acknowledged that the remaining global carbon budget is shrinking rapidly, with a risk of overshooting the 1.5 °C goal. That means hundreds of billion tonnes of carbon dioxide will need to be removed or captured and stored to get the world back on course for no more than 1.5 °C of warming by 2100. 

Geoengineering techniques can be used to enhance the carbon absorption capacity of the planet, and to reflect sunlight back into space, helping to keep the earth cool. For example, aerosols or other chemicals can be released a few kilometers up into the atmosphere, thus reflecting more sunlight away from the planet’s surface. I believe that in 2024, governments and scientific institutions will come together to study this fascinating subject more deeply and discuss the pros and cons of pursuing it. 

In the energy space, I expect an average of $70-$80 crude oil (OIL). Some push-pull between geopolitical risks and OPEC's spare capacity while U.S. shale production growth moderates. The ambitions for low-carbon hydrogen around the world, reflected in government policies and corporate project development, are quite remarkable. As is a 108 - mtpa global project pipeline that skews 80% to green hydrogen, made from electrolyzing water. However, the rate of project maturation for electrolyzer hydrogen will remain slow as developers struggle to overcome key obstacles. 

Two of the most important challenges that green hydrogen projects will face are achieving competitive costs and securing firm commitments from off-takers. Projects with credible counterparties and those targeting hydrogen as a feedstock in existing applications are most likely to move ahead. Those targeting new applications will struggle to achieve costs that compete with traditional fossil fuels. Blue hydrogen projects will also move slowly through the project development cycle, but more will achieve FID as they benefit from competitive economics and scaling more quickly.  

More downside for U.S. natural gas in 2024 H1 as we are already halfway through the winter with no major events so far.

Sustained international and offshore capex, with flat U.S. activity and single-digit growth in Canada. A quote often misattributed to Albert Einstein is that nuclear power is "one hell of a way to boil water". It was actually coined in 1980, after the Three Mile Island reactor accident that helped to turn the tide of public opinion against atomic energy. In 2024, however, nuclear power is set to win widespread support as a key solution to the world's energy crisis, for the first time in over half a century. Nuclear power has faced and still faces, challenges of public acceptability and economic competitiveness against renewables and fossil fuel generation. But it is the only reliable, dispatchable, small physical-and-material footprint, plug-and-play zero-carbon solution for power generation. 

That is all from me and the rest of the Croatian Center of Renewable Energy Sources (CCRES) team for 2023. Many thanks to all of you for reading last year. Have a great holiday, and we will be back again and again in 2024. Happy working and trading in the new year, and feel free to share in the comments where you see the most upside going into 2024. Zeljko Serdar

Southern gas corridor still needs ITGI

The selection of the Trans-Adriatic Pipeline (TAP) project for the Italian pipeline portion of the Southern gas corridor is only a "provisional decision", says Harry Sachinis, chairman and chief executive of the Public Gas Corporation of Greece (DEPA). In an exclusive interview with EurActiv, he insists that TAP lacks the necessary licences ITGI has. 

Azerbaijan recently announced it has selected he Trans-Adriatic Pipeline (TAP) project for the Italian pipeline option of the project to bring gas to Europe from the Shah Deniz II offshore field. The other competitors in the Southern gas corridor - the Turkey-Greece-Italy Interconnector (ITGI) in which DEPA is a shareholder, Nabucco and British Petroleum - hope to obtain the 10 billion cubic meters per year from the offshore Shah Deniz II field. A decision is expected in summer [more].
Harry Sachinis spoke to EurActiv Senior Editor Georgi Gotev.

What is new with ITGI, the Interconnector Turkey-Greece-Italy project, since the recent news that the Shah Deniz II consortium has given its preference to a competitor, the Trans-Adriatic Pipeline (TAP) pipeline, for the offshore section to Italy?
Thank you for giving me the opportunity to give you the information from firsthand. Let me explain what the ITGI system is in general. It includes also IGB -the interconnector Greece-Bulgaria, known as Stara Zagora-Komotini - and then IGI which is the interconnector between Greece and Italy. The idea is - in terms of timeline – IGI to be completed in 2014 and for it to actually carry early Caspian gas before the gas from Shah Deniz II becomes available, and also carry LNG gas that would come from our Revithoussa LNG terminal in Greece. This is very important because as we have seen from the press in the past couple of months, the region has suffered a crisis of gas supply. The reasons are the weather, but also because of other reasons like the fact that this winter Turkey proved to be unreliable, as it stopped providing the gas system in Greece.
And the interconnectors are independent from the bid for Shah Deniz?
Yes, because we are talking way before Shah Deniz II. Shah Deniz II is going to have the first gas in 2018 but the area can’t wait for solutions until then.
Now about Shah Deniz II. As we know there are four pipelines looking for which way the gas from Shah Deniz II will go. One of these pipelines is the IGI, part of the ITGI system. So the interconnection between Greece and Italy ... can be ready before Shah Deniz II gas is available. Because of commercial issues and one might say for negotiation tactics, and because the suppliers have a share with TAP, they made a provisional decision - those were the words they chose – to proceed with that project.
But TAP does not have all the necessary licences and approvals for it to be ready before the time that Shah Deniz II needs to make its final investment decision. And that’s a key thing because if that project is delayed because it doesn’t have the appropriate regulatory approvals, licences and intergovernmental agreements in place that ITGI has, that puts Shah Deniz II at risk of delay. So Shah Deniz II will have two options. One is to go through the northern route [to Austria], or come back to ITGI to actually resolve the commercial issues. And there is an important difference between these two choices. I believe – and I think this is shared by even the European Commission - that the link between Greece and Italy is extremely important for the security of supply of southeastern Europe, because in case of any disruptions for whatever reasons, the fact that there is a pipeline connecting Greece to Italy means that all of southeastern Europe can enjoy having this kind of back-up because you can bring back from Italy - reverse flow – or even from North Africa to Italy to Greece and to all southEastern Europe.
Yes but you can achieve this goal with TAP, it’s not only ITGI that provides this possibility.
You are absolutely right but you have to combine my two points. One point is that TAP cannot be ready for Shah Deniz II to make the final investing decision on time.
Are you offering your cooperation to join strengths with TAP?
I’m not going to comment on market speculation or what has been written. But if one looks at the combination of commercial capabilities and the strength of the routing and the approval that ITGI has, I think you know one may seem how one can resolve commercial issues and potentially also resolve all the timing issues and at the same time killing three birds with one stone, resolving the issue of security and supply in southeastern Europe.
The Commission has repeatedly said that many of the existing projects should combine strengths. Are you going to get a stake with TAP, what is your strategy?
One here has to take into account two things. TAP is a supplier project and just for Shah Deniz II gas. Shah Deniz is not necessarily the only supplier of gas into the area. I don’t want to say more about this now, but there needs to be a balance between suppliers and buyers - and maybe the combination of the commercial interest of the suppliers and buyers, and also with the quickest opening with the southern corridor based on the maturity of the ITGI projects based on the licences and intergovernmental agreements. There is some interesting space there, and as I said, combining that with another element that cannot be missed - especially after what we went through in our region for the last two months - the issue of security of supply. Because of the unreliability of Turkey, you need to have a linkage between southeastern Europe and Italy.
So you keep the cards close to your chest.
Wouldn’t you? [Laughter]
Look, as you can understand we are in the middle of a real game, a real negotiation and I'm not referring only to ITGI but to everybody - Nabucco, TAP, Shah Deniz II, whoever else is involved in bringing new gas sources into Europe. I think that this big negotiation that is moving to the most interesting time.
Is the fact that DEPA is one of the Greek [government] assets earmarked for privatisation, has it impacted of the decision of the Azerbaijani authorities to pick up the TAP option?
In terms of making their provisional decision, obviously having that uncertainty was an issue. But by far the key issue for the suppliers was the commercial issue, in terms of making more money for their gas. But in terms of DEPA, I should tell you that it has been doing extremely well.
We are having a second year of record profits that are going to be announced in a few days - officially. All the sectors of the group are performing extremely well, both the conventional companies, the distribution companies, pipeline company, everyone had a stellar year and were very pleased to report that. The indications are that there are some 20 very good companies interested in DEPA, also because it has a very strategic location. So I think this is going to be very interesting but of course there is the uncertainty of who is going to come.
Should Gazprom bid for DEPA? Are they allowed to bid?
Yes, they are free to bid. But I think the people who will bid the most interested in DEPA and who put the most money in, are people who actually see the opportunity to bring new gas into the market.
What is the time horizon for the privatisation?
This week the call of interest is going to be published.