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25/08/2016

EU risks wasting billions on gas infrastructure ‘white elephants’

Europe's East

EU risks wasting billions on gas infrastructure ‘white elephants’

Anti-government protests in Kyiv. The protests drove Viktor Yanukovich from power, and led to Russian aggression. 29 December, 2013. [Sasha Maksymenko/Flickr]

EXCLUSIVE: The European Union risks wasting billions of euros on unnecessary gas infrastructure because of pressure to wean itself off Russian energy after the Ukraine crisis, new research has found.

Gas pipelines paid for by the Connecting Europe Facility (CEF), a funding mechanism to drive cross-border infrastructure, will be left “stranded” because there will not be enough demand for the gas they transport, according to environmental think tank E3G.

EU predictions to assess potential pipelines assume a 72% higher gas demand than their projections where the EU’s 2030 energy efficiency goals are met, the E3G study, to be published later this week, found.

Those goals, a 40% CO2 cut, a 27% share of renewables in Europe’s energy mix, and a 30% improvement in energy wastage by 2030, will be discussed at October’s meeting of EU leaders in Brussels.

“There is a serious risk that public money will be wasted on subsidising white elephant gas infrastructure projects that then become expensive stranded assets,” Jonathan Gaventa, of E3G, said.

Gas demand has fallen by 9% over the last decade and is likely to fall further as the efficiency targets are hit, he added.

The European Commission estimates energy efficiency measures could reduce EU gas imports by 174 Mtoe per year by 2030.

That’s about 20 times more than projected import volumes from the Southern Gas Corridor, the EU’s flagship infrastructure project.

It is twice the projected import capacity of all the gas projects currently under consideration for funding under the Connecting Europe Facility (CEF).  

€5.85 billion is allocated to energy projects under the CEF, the first time that the EU has directed funding specifically to energy infrastructure. 

Exact figures on how much could be wasted cannot be estimated as funds have not yet been earmarked for specific projects.

Apart from the Southern Gas Corridor, other potential CEF projects include liquefied natural gas (LNG) projects in Poland, the Baltics, Sweden, Belgium, Ireland, Malta, Italy and Slovenia, Croatia, Greece and Romania.

How to respond to Russia?

The EU’s energy infrastructure was exposed as being weak enough to give Russia a powerful bargaining chip, during the crisis in Ukraine and subsequent Russian annexation of Crimea.

Good gas and electricity networks are needed to allow member states to share energy resources. That ability is vital when facing threats by a supplier such as Russia’s state-owned Gazprom to “turn off the taps”.

But the crisis has led to the EU prioritising gas at the expense of electricity infrastructure, which would be a better investment, Gaventa said.

Unlike gas pipelines, which are limited to just gas, electricity networks can transmit energy from a variety of sources.

Gavanta said, “The current focus on gas as a result of the crisis is leading to a myopic view of Europe’s infrastructure priorities.” 

The EU’s long-term energy security will depend more on its electricity transmission networks and smart grids than it will on gas import pipelines, he added, and more CEF funding needs to go towards electricity.

The Commission predicts an increase in electricity demand of 14% by 2030 and 28% by 2050, despite energy demand as a whole dropping by 30% by 2050.

EU Energy Security Strategy

There are 132 electricity projects on the CEF potential project list, representing €50 billion of investment costs. There are 107 gas projects, with investment costs of €53 billion.

But a shorter list in the Commission’s Communication on the European Energy Security Strategy has 27 gas projects compared to just six electricity projects.

The 5 May paper was produced after the Ukraine crisis erupted in November 2013 and the annexation of Crimea in March this year.

E3G is concerned the shorter list will influence policymakers when they dole out the CEF cash.

The report said there was no transparency on how the list was developed, the criteria used in drawing it up, or how the list will be used to inform the allocation of CEF funding.

There was also no information about whether the projects were assessed against decarbonisation objectives, it said.

In order to avoid “policy cannibalism”, where one set of actions subtracts from a separate policy objective, there needs to be a consistent approach, the report said.

For example, the methodology for evaluating gas infrastructure projects is “substantively different” to that used for EU decision on energy efficiency and other energy policies, according to the report.

Shortly after publication of this article, the European Commission was contacted for comment. The story will be updated once a response is received. 

Positions

Dr Jan Stambasky, president of the European Biogas Association said in a letter responding to the article,  "Investments in gas infrastructure are certainly not any “waste of public money”. Similarly to “green electricity”, there is also “green gas” with a huge potential to decarbonise the European energy sector. "

 

Background

The Connecting Europe Facility (CEF) will see almost €30 billion in public money targeted at enhancing the EU's transport, energy and telecoms networks.

The crisis in Ukraine erupted after its former President Viktor Yanukovich cancelled plans to sign trade and political pacts with the EU in November 2013 and instead sought closer ties with Russia, triggering protests that turned bloody and drove him from power.

Moscow annexed Crimea in March following a referendum staged after Russian forces established control over the Black Sea peninsula in the biggest East-West crisis since the Cold War.

Pro-Russian militants control buildings in more than ten towns in eastern Ukraine after launching their uprising on 6 April. On 11 May pro-Moscow rebels declared a resounding victory in a referendum in Donetsk and Luhansk, which the West called illegal and illegitimate.

The fighting escalated sharply after Ukrainian President Petro Poroshenko ordered on 1 July an assault on the separatists. The EU's resolve to punish Russia strengthened after the downing in Ukraine on 17 July of a Malaysia Airlines passenger plane, killing all 298 people on board. 194 of the passengers were from the Netherlands.

Western leaders say pro-Russian rebels almost certainly shot the airliner down by mistake with a Russian-supplied surface-to-air missile. Moscow has blamed Kyiv for the tragedy.

On 27 August NATO and the US said Russian incursions into Ukraine took an ‘overt and obvious form’ and on 28 August, Poroshenko said Russia had invaded Ukraine.

A United Nations report this week said more than 2,200 people had been killed so far, not including those who died when the Malaysian airliner was shot down.

Timeline

  • 23-24 Oct.: Member states decide on the energy efficiency targets in the EU Council

Further Reading