Natural-gas pipeline projects in the EU which are about to be completed, have just begun, or are still in the planning stage are surrounded by increasingly polarised discourse. The whole picture might be highly confusing to an outside observer: it is quite difficult to navigate through the conflicts of interests in politics and business. It has equally become more difficult to overlook environmental aspects, which nowadays take on more importance in addition to supply diversification. While the issue of energy supply has long been an important element of geopolitical, business, and technological dominance, the way the transition period takes place today is becoming growingly interesting with the advent of new technologies. So we need to find out: what is worth spending extra money on? Experimentation, however, is quite an expensive thing, and we are yet to see where the EU is expected to be more permissive: in technological or geopolitical experiments.
Natural gas—in all of its forms
Natural gas is likely to remain an unpleasant companion to Europe in its efforts to combat climate change for a longer period of time, based on the “lesser of two evils” principle. Almost 90% of the natural gas used in the European Union is imported, and 40% of these imports come from Russian sources. In addition to its economic interests, Russia has always viewed fossil fuels as a way of gaining political influence. It seems, however, that this influence is more limited to the Balkan countries in Europe nowadays; diversification efforts by the Western European member states seem to leave less and less room for such energy clout; moreover, these countries increasingly seek to take market-based decisions, avoiding geopolitical games.
Over the past decade, the European gas-trade map has also been considerably marked by a significant increase in liquefied natural gas (LNG) trade: the United States, Australia, and Qatar are now among the largest exporters to the continent. Although all three countries possess a sufficient amount of extractable natural gas, they have no option for exporting it to Europe via pipelines, due to their geographical location. That is why they send it by maritime transport to LNG terminals in major ports. In the global arena, Japan and China have become the main markets for LNG, as it is an important alternative for them in the absence of a proper natural-gas pipeline system. In our region, having been mainly fed by various Russian gas–supplied pipelines, constructing LNG infrastructure previously emerged more as a way of building up safety reserves; LNG first appeared to be a realistic alternative after the 2009 Russia–Ukraine gas dispute.
Importing LNG as an alternative to land-based transport has, however, significantly increased on the continent in recent years. With its consumption of 84 billion cubic metres per year, the EU is today the world’s third-largest consumer of liquefied natural gas after Japan and China, which imported 102 and 91 billion cubic metres of LNG last year, respectively. However, the average capacity-utilisation rate of European LNG terminals between 2015 and 2018 was still around only 27%. But the new LNG terminals built after 2009 and running at low utilisation rates also have the secondary function of providing Europe with a good bargaining position. Their deployment could also be an excellent tool for the United States to deprive Russia of a significant portion of its main source of revenue. That is why the European Commission and Washington have long been arguing for constructing new LNG terminals and pipelines in the region in order to have as many rivals for the Russian majority state-owned energy giant Gazprom as possible. However, Russia has reacted quickly: in the first quarter of 2020, it was already the EU’s second-biggest source of LNG imports behind the United States.
In 2009, the European population could gain first-hand experience of the fragility of their natural-gas supply. The already mentioned Russia–Ukraine gas dispute led to supply shortages and significant price increases. The EU then began to strongly urge its member states to start diversifying their gas-import sources.
As for the demand
Thus, in response to Russian sanctions, remarkable EU-funded network development took place on the continent after 2009, resulting in a significantly transformed supply market. Due to a number of new pipelines that have been built over the last decade, some of which enable bidirectional transmission, natural gas has become available to European consumers from a number of sources. Meanwhile, demand for natural gas in the European Union has not grown radically in recent years.
In the European market, most of the natural gas is consumed by the industry, gas-fired power plants, and residential heating. Together, they account for 86% of total European gas consumption. In Europe, a wholesale price of around USD 0.4-0.5 per cubic metre had to be paid for natural gas a few years ago, and forecasts projected an increase in natural-gas consumption. Ten years ago, Qatar appeared to be a realistic alternative to Russian-only natural-gas imports, so Europe’s supply was far from being diversified.
In 2018, residential heating accounted for 64% of European household energy consumption. It is frightening to think of how many European households depend on natural gas for heating and domestic hot-water supply. Transforming this consumption structure would mean a significant investment and a protracted transition period.
Hydrogen and the trap of stranded assets
In order to reach the EU’s goal of becoming climate neutral by 2050, natural gas, which isrelatively clean fossil fuel (compared to coal or oil) is expected to remain an uncomfortable ally for the transition period or at least as long as coal-fired power plants are removed from the European energy market, which is one of the union’s main priorities. This step would be followed by the decommission of nuclear power plants. Russia obviously expects these efforts to either fail or come to fruition only with significant natural-gas use.
During the transition period, the European Union’s hydrogen strategy will provide a loophole for pipeline networks. It is, therefore, understandable that the loudest members of the hydrogen lobby include market-leading natural-gas companies. They also signed an open letter calling on the European Commission to accept blending hydrogen into natural gas–fed pipelines as a temporary solution in the parts of Europe where member states cannot afford to build new networks. Proponents of such a solution argue that blending can lead to greater reductions in greenhouse gas emissions at lower costs in the short and long term than using new hydrogen-only infrastructure. Many in the sector hope that, due to this solution, the natural-gas pipelines under construction and the ones currently being planned can play an important role in the future European hydrogen transport. They also hope that the millions of euros already invested in the pipelines will not be wasted as stranded assets.
Incidentally, blending hydrogen into natural gas is still a matter of serious professional debate. The technology itself does not work with particularly exact numbers, as blending-rate recommendations range from 5% to 15%, so the two extremes are fairly wide. Given the lack of an extensive network suitable for hydrogen transport and the difficulty and cost of adapting the current one, it is certainly worth considering the its advocates’ arguments for using this technology.
However, one of the main counterarguments by environmentalists is that blending labelled as a temporary solution favours the long-term use of natural gas. If the EU insists on its vision of becoming climate neutral by 2050, it will definitely need fast-acting energy-supply systems during the transition period. Today, gas-fired power plants are “cheaper” to turn on and off than anything else, so, if relatively economically viable backup power plants are needed, this technology means the most efficient solution.
It is enough to think about the link between the German greening policy called Energiewende and Nord Stream 2, its hidden pillar: Germans argue for the construction of the second Baltic gas pipeline, highlighting their energy supply difficulties during the transition period. “If we phase out nuclear power and coal at the same time, natural gas will be needed as a bridge into the hydrogen age. Seen in this way, the end of Nord Stream is the beginning of American liquefied gas. It’s a lot more expensive and polluting, but it’s business for the U.S.,” German European Parliament Member Markus Pieper told Euronews in early 2021. “So for the U.S., whether Trump or Biden, Nord Stream is not about security interests, it is about their own business with fracking—at the expense of the environment,” he added.
Failing natural-gas projects
Due to Germany’s intransigence, the North Stream 2 will most likely “scrape through” soon. However, the European Union’s financial resources have severely been burdened by a number of similarly pending natural-gas pipeline projects in recent years. It is estimated that the EU has spent EUR 440 million on seven Projects of Common Interest since 2013 which have not been implemented or have been only partially completed but most likely will never actually be used according to the international NGO, Global Witness. This way, almost 10% of the EU funding for natural-gas projects has been lost.
The vast majority of this EUR 440 million sum—more than EUR 430 million—was spent on the BRUA pipeline, which aims to deliver Black Sea gas to Bulgaria, Romania, Hungary, and Austria. The first section of the BRUA pipeline in Romania was completed in November 2020. The pipeline would be able to transport 1.75 billion cubic metres of natural gas per year between Romania and Hungary, in both directions. Although it has recently been a priority in Bulgaria and Romania, offshore gas exploration has come to a complete standstill in the former country. Another unpleasant detail is that the section of BRUA which has so far been built by Romanian national gas operator Transgaz is entirely located in Romania, reaching neither the Black Sea nor the country’s neighbours.
“It is essential for the European Commission to build a gas pipeline, developing gas transport in the Black Sea region, regardless of the route it takes to Austria,” said European Energy Commissioner Miguel Arias Cañete in Bucharest in 2019. “The security and diversification of energy supply is a priority for the EC, and such interconnectors will be needed to ensure the security of supply in Central and South East Europe,” he added. Investors fear now, however, that the BRUA project will fail in its entirety, as ExxonMobil announced in 2020 that it would sell its licence. All these doubts led to the April 2020 withdrawal of the plans for extending the BRUA pipeline to Hungary.
However, Transgaz CEO Ion Sterian considers the construction of BRUA in and of itself as a success, as it improves Romania’s internal supply network, connects Romania and Bulgaria, and provides access to Black Sea gas reserves. Maria Manicuta, head of the Romanian Energy Regulatory Authority (Autoritatea Naţională de Reglementare în domeniul Energiei, ANRE),was less optimistic, though, saying, “We hope BRUA will be finalized this year, but since we did not solve Black Sea gas extraction, I am wondering what we will be transporting through this pipeline.”
According to an article in the Hungarian press in May this year, the Romanian state-owned Romgaz currently made a bid for acquiring ExxonMobil’s stake in the Black Sea gas-extraction project. According to ANRE Deputy Director Zoltán Nagy-Bege, gas extraction from the Black Sea basin should start within two or three years; otherwise, the project is unlikely to be implemented. On the other hand, Romania’s economy minister Virgil Popescu believes the BRUA pipeline has not become redundant at all, as its primary goal has always been to transport Azeri natural gas and US and Qatari liquefied natural gas from Greek ports.
The estimated value of the BRUA project reaches EUR 479 million. The project-financing agreement was signed in September 2016. It is important to note that the cost analysis by Global Witness is far from being complete, as its calculations only include EU-managed grants, i.e., the grants of the Connecting Europe Facility, the European Regional Development Fund, and the European Investment Bank. However, PCIs might also receive grants from additional sources, such as national governments or the European Bank for Reconstruction and Development. In fact, the latter has lent EUR 60 million for the BRUA project in 2017.
According to research by data-science company Artelys, Europe would not need to invest in new gas pipelines at all, for existing fossil gas supply infrastructure can satisfy EU demand under any scenario; therefore, extra spending on unnecessary gas projects would simply be a waste of additional money. Incidentally, their opinion is also shared by other experts. Last year, Politico magazine listed twenty-eight natural-gas pipeline projects that the European Commission had identified as PCIs, meaning that they are entitled to receive priority financial support in addition to the accelerated approval and authorisation process. It raises serious doubts whether it is worth—and if so, in what form—spending additional sums on the construction, development, and transformation of the natural-gas infrastructure.
The BRUA gas pipeline project is just one of those cases that seem to fail due to differences between economic and political interests. However, it is also worth looking at plans that still exist on paper if they fit with the principles of the European Union’s hydrogen strategy and whose interests they really serve.