ELS #Energy - Security of Supply to Merge with Climate Transition as New European Energy Paradigm Takes Shape

Germany’s recent about-face and turn away from decades of policies was the final sign that European energy policy and over time European energy markets will shift focus and shape. In a speech on Sunday, German Chancellor Olaf Scholz not only set out a doubled German defence spending, meeting long-time NATO requirements, and allocated a one-off €100bn fast-rearmament fund. He also made clear that Germany would prioritise weaning itself of a reliance on Russian gas, by pursuing all other necessary options in the energy sphere.

The u-turn was further emphasized in an interview by Green party co-leader and Economy Minister Robert Habeck, who underlined that slowing down the coal phase-out (currently targeted for 2030) and prolonging the life of Germany’s three remaining nuclear reactors were options currently on the table. There are no taboos he said, adding that he would no longer reject nuclear power “on ideological grounds” in comments to Germany’s ARD.

Germany is now battling to get out of the corner it painted itself into over the last 10-20 years, with increasing dependence on Russian gas as first its nuclear and then its coal powered fleet is phased out. In the meanwhile, as ELS Analysis wrote just last week, the onshore wind expansion has slowed to a trickle, casting visions of a fossil-free Germany in doubt. Offshore wind holds significant promise for German renewable growth but lacks the potential to on its own offset both German coal and gas burn.

Over the long-term, LNG imports will have to increase, but given the projected growth in global LNG supply this market too lacks the ability to swiftly deliver the required volumes at a price not leading to German (and wider European) demand destruction. To preserve German industry’s competitiveness, an increased coal burn in the coming decade will be next to impossible to omit. Over the longer term, renewable growth, in and around Germany, together with the increased storage and transport opportunities provided by a hydrogen economy, should manage to push coal back, particularly if Germany, or at least its neighbours, expand their nuclear fleet.

Germany will also purchase gas centrally for storage. Overall, strategic storage and an energy storage economy is coming into sharp focus throughout the EU. In the EU Commission’s own about-face, the union will now mull purchasing LNG centrally, on behalf of members under long-term contracts (as opposed to favouring only spot contracts traded on hubs). While long-term climate change mitigation policies will remain core priorities in Europe, they will now be paired with values like flexibility and security of supply. It might mean the transition takes somewhat longer, but it will be more resilient, or sustainable in the word’s most expansive meaning, to internal as well as external shocks.
#gas #energystorage #energymarkets #energysecurity


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