Energy Strategy of the European Union and its Impact on Oil and Gas Industry - Assignment Example

Energy Strategy of the European Union and its Impact on Oil and Gas Industry Table of Contents Introduction 3 Energy Sources in the Current European context 5 Energy Policies and Technologies in Europe 7 The Impacts on Oil and Gas Industry and measures to tackle 9 Conclusions and Recommendations 11 References 12 Energy Strategy of the European Union and its Impact on Oil and Gas Industry Introduction European Union (EU) is aiming to improve its energy resources and also energy efficiency by reducing its dependence on oil and gas. They are aiming for it in order to attain better energy security because at present the EU depends to a great extent on Russia for gas (nearly one third) which has led to several unpleasant political issues (Tindale, 2014). Reducing the energy dependence on Russia is the most crucial necessity for the member states of the EU. Several energy related policies and ambitious measures are being planned and executed by the member states of EU in this account. To make these plans work out quickly and efficiently, additional emphasis must be laid on issues like attaining greater energy efficiency, tapping alternate sources of energy, maximising the use of renewable energy, and making use of nuclear power (Tindale, 2014). However, when additional emphasis is laid on these above issues, it can influence the functioning of the oil and gas industries. Furthermore, in this venture, preserving the environment is also very much indispensable and so focusing on carbon capture and storage (CCS) technology is also important (Tindale, 2014). So, this report will focus on the EU’s energy strategy and its impact on the oil and gas industries. Apart from the above-discussed political scenario, the need to come up with environment-friendly energy options has prompted EU to come up with energy efficiency policies from the start of the new millennium. That is, from the mid-2000s, EU has been setting targets for its member countries to improve its energy efficiency on short-term and importantly long-term basis. Long-term basis in the sense, at the end of 2006, the EU pledged to reduce its annual consumption of primary energy options of fossil fuels by 20% by 2020. On the same lines, the European commission as a policy directive also framed the Energy Efficiency Directive (EED) for the EU, which establishes a general agenda for the promotion of energy efficiency within the member states. The main objective of the EED is to aid the EU’s member states to achieve a target of saving 20% of their energy consumption by 2020. According to the European Commission, the EU is on track to achieve a 20% reduction in 2020, 30% in 2030, and importantly the long term target 80% reduction in 2050 (Ea Energy Analyses, 2012). Fig 1: Roadmap for moving to competitive energy-efficient economy by 2050 (Ea Energy Analyses, 2012) According to EU’s policies, the member states are stipulated to achieve energy efficiency in the above-depicted sectors including industries, transport, household, and importantly power or energy generation sector (European Commission, 2013). In the households, people are provided with individual metering scheme along with free of cost access to real time energy consumption data which would help them in managing their energy consumption in a far better manner. In the case of industries, the EED has recommended for the conduction of audits at regular intervals for identifying any malpractices (European Commission, 2013). In the transport sector, member states, its business, and is scientists are encouraged to come up feasible energy-efficient vehicle options. The targets and strategies for the power generation sector will be discussed below. Energy Sources in the Current European context Renewable sources of energy like wind, solar, geothermal, and others play a vital role in diversification of energy resources. It is already contributing sizably to the energy needs. “Taken together, the various renewable energies covered 14% of final gross energy consumption in 2012 against 12.9% in 2011” (EurObserver Report, 2013). Among the various renewable energy sources, wind energy and photovoltaic based solar energy are the two sectors or energy options that have provided the maximum input to renewable production. This significant contribution by renewable sources has placed EU only 6 percentage points away from its stipulated target for 2020 (EurObserver Report, 2013). In addition, certain countries are doing better than these stipulated targets. For example in the case of France, “its indicative trajectory for renewable input by the end of 2012 was 12.8%; thus at 13.7% it is ahead of target” (EurObserver Report, 2013). Renewable energy has several advantages like environment friendliness, and it can be tapped from domestic resources reducing the need for dependence on foreign countries (Klare, 2009). At the same time they have some potential pitfalls too. Too much dependence on a particular renewable source of energy without considering the other contending market forces can prove to be unproductive (Klare, 2009). The use of coal in the generation of electricity helps EU to meet its energy demands (European Commission, 2013). However, it is not environment-friendly. “Environmental side effects and the release of greenhouse gases are huge constraints on options like Coal” (Vactor, 2010, p. 11). Gas power plants are also used in electricity generation in addition to the coal power plants. Gas power plants have slight advantages over coal because green house gas emissions are reduced by nearly 50% when compared to coal power plants (European Commission, 2013). However, coal is being maximally used in certain countries for energy purposes, although there is opposition to its utilization because of its high emission nature. “At the center of Europe’s coal renaissance is the region around the German-Polish border, already home to five of Europe’s most polluting coal plants” (Mock, 2014). The other key reason for its use is that coal is a far cheaper alternative to renewable sources and also oil and gas. Below figure shows how coal usage is more than oil and gas (Kopalek and Raghuveer, 2013) However, the bottom line is that the usage of coal, gas, and oil contribute to Carbon-di-oxide emission. So, regulatory steps are being taken to control this emission in the venture of transforming EU to a low-carbon economy (European Commission, 2013). Another source of energy that contributes to the energy requirements of the EU is the nuclear energy. Nuclear power plants play a major role in the generation of electricity because more than one quarter of EU’s electricity is obtained from the nuclear power plants (European Commission, 2013a). The ‘Energy Roadmap 2050’ published by the European Commission stated nuclear energy as “a significant contribution to the energy transformation process” and “a key source of low-carbon electricity generation.” (European Commission, 2013a). There are 132 operating nuclear reactors in 14 member states of the EU (European Commission, 2013a Many more nuclear reactors are being planned and under construction to meet the growing energy requirements and concerns over climatic changes because of usage of fossil fuels. Energy Policies and Technologies in Europe The Carbon Capture and Storage (CCS) is one of the most important technologies that plays a key role in reducing the green house gas emissions and resolving to a certain extent the dubious role of fossil fuels in EU. Carbon capture and storage is a technology by which the carbon-di-oxide emitted from the fossil fuel power plants and industries is captured and transported to a storage site thus preventing it from entering into the atmosphere. Usually the captured carbon-di-oxide is stored in depleted gas and oil fields or deep saline aquifer formations (Rackley, 2009). EU has adopted the CCS policy directive to provide an official framework for the capture, transport, and storage of carbon-di-oxide emissions. Constructing a CO2 transport network has seized the top position in the energy infrastructure priorities of the member states of the EU. The European Commission as policy decision has set the European Industrial Initiative (EII) on carbon capture and storage and it has been established as an integral part of the Strategic Energy Technology (SET) Plan (European Commission, 2013). To sum up, the oil and gas industries continue to be the major source of power generation in EU but at the same time, they remain significant contributors to carbon-di-oxide emission. So, carbon capture and storage has a very important role to play here because EU has committed itself to the reduction of greenhouse gas emissions by at least 80% by 2050 (European Commission, 2013). The establishment of CCS technology in all the oil and gas industries of EU may demand a very expensive infrastructure. Oil and gas industries might not be reluctant to this expenditure because adopting it can elevate its functioning, its ethical image and thereby its profits as well. Funding programmes or policies from the EU for instance European Energy Programme for Recovery (EEPR) and others can greatly help in this regard (European Commission, 2013). Apart from this main technology and the related policies, EU through various policies is promoting use of solar based Photovoltaic (PV) technologies. As far part of the EU’s policy of attaining energy efficiency targets by 2020 as well as 2030 and 2050, EU and its member countries are promoting Solar based PV usage in an optimal manner. “Solar photovoltaic technology has proven in recent years that, with the appropriate regulatory framework in place, it can be a major contributor to the EU energy system. EPIA scenarios show that solar could provide between 10% and 15% of Europe’s electricity demand in 2030” (European Photovoltaic Industry Association, 2014). In addition, EU is adopting PV technologies as a productive venture by promoting the Feed-in-Tariff policy. That is, installing PV panels not only cuts down the electricity bill but by producing more energy, the users including businesses and individuals can sell them to the network, for which they will financially compensated. This increased use of renewable technologies can impact the oil and gas industry because their role could be just minimized not nullified. The Impacts on Oil and Gas Industry and measures to tackle EU’s initiatives to reduce its dependency on Russia for energy options can impact the oil and gas industry in three ways. Firstly, although the EU is focusing on renewable energy options to reduce its dependency, there are practical difficulties with each of the option, which will make the oil and gas industry an unavoidable sector thereby impacting its functioning. Secondly, although steps are being to taken to find alternate ways to avoid Russia, it will take sizable time to actualize the alternate infrastructure and that also makes the oil and gas industry particularly the domestic industry inevitable. Thirdly, the oil and gas industry has to reduce its emissions through constructive options. Although renewable energy seems to be promising in the improving the energy security strategy, it would not be able to meet the proliferating energy needs of the consumers of the EU. The usage of renewable energy can only be an additional option to meet the energy needs and it might not be the sole source of the ever rising energy requirements. So, the role of local oil and gas industries cannot be underestimated as they serve as the major source of energy requirement for the member states of the EU. On the same lines, although nuclear energy seems to be significant contributor to EU’s energy requirement and a means to control environmental pollution, it cannot rule out the importance of the oil and gas industries because of the crucial safety requirements associated with the management of nuclear energy (Shrader-Frechette, 2011). Nuclear energy needs careful handling because of the chance of accidents in nuclear plants like the recent Fukishima disaster in Japan and the chances of harmful radiations associated with it. Authorities have to inspect for nuclear safeguards to make sure that the nuclear materials are only used for energy generation purposes and not for malicious activities. So, the role of oil and gas industries in EU is noteworthy despite their carbon emissions because even more risk is associated with the nuclear energy. Measures are being taken to improve the infrastructure to allow gas to be pumped through alternative back up lines that have been established through the Trans Adriatic Pipeline to import gas from Azeri (Voice of America, 2014). However these alternate options to attain energy security is not an easy task. It needs long term planning and coordination. The required infrastructural modifications need several years to get implemented. Though several strategies are being adopted to import gas from other foreign countries, the significance of domestic oil and gas industries cannot be denied (Tuodolo, 2009). They remain as a consistent source of energy for the EU because reliance on other foreign countries cannot guarantee the supply of gas at all times like in the case of Russia. Also the infrastructural needs to import gas from foreign countries demand huge expense and several years for implementation. Oil and gas are the most energy intensive of industries, and so they have a noteworthy potential for energy efficiency improvements. “With a view to the big picture, decisions by governments on whether, how, and when to deal with global climate change would likely have the most significant impact on the use of fossil fuels and thereby oil and gas industry” (Hilyard, 2012, p. 274). The oil and gas industries have a tendency to consume a significant amount of their own output for their own processes like extraction, processing, and marketing (IPIECA, 2013). So, achieving energy efficiency will be a great challenge for these industries. As per the guidelines stated by the EED, the oil and gas industries must take all necessary steps to improve their performance in terms of energy efficiency by reducing their own demands for energy. This will enable the oil and gas industries to improve not only their profitability but also their environmental performance. They will have to incorporate energy management systems which will help them to judiciously utilize the energy resources and reduce their amount of emissions (IPIECA, 2013). Conclusions and Recommendations A country or even a grouping of countries can attain sustainable growth in terms of its economy, social progress, and so on, if it becomes not only energy sufficient but also efficient. That is, it has to reduce environment as well as humankind damaging energy options, and instead adopt renewable energy options. EU’s focus on energy efficiency, alternative sources of gas, renewable energy, nuclear power, and coal and gas with carbon capture and storage in order to reduce the dependence on Russia for gas, will have both positive and negative impacts on the oil and gas industries. However, as discussed above, it is possible to state that the role of oil and gas industry cannot be totally eliminated. In that direction, even while lessening the negative effects of oil and gas sector by using effective technologies and optimal strategies, EU has to promote renewable energy options. The EU has to promote research and development on alternative energy sources with generous subsidy programmes which will encourage the member states to actively participate in the venture of establishing alternate energy resources to the maximum possible extent. So, if EU implements the above discussed five options continuously even while lessening its dependence on oil and gas sector, it can definitely prove to be fruitful for EU to ensure its energy security, foreign policy, and climatic benefits in the long-run. References Berg, LR and Hager, MC. (2008). Visualizing Environmental Science. New York, Wiley. EurObserver Report. (2013). The State of Renewable Energies in Europe. [Online] Available from: http://www.energies-renouvelables.org/observ-er/stat_baro/barobilan /barobilan13-gb.pdf(Accessed: 19 November 2014) European Commission. (2013). Communication From The Commission To The European Parliament, The Council, The European Economic And Social Committee And The Committee Of The Regions. [Online] Available from: http://ec.europa.eu/energy/coal/doc/com_2013_0180_ccs_en.pdf(Accessed: 10 November 2014) European Commission. (2013a). Nuclear energy – What do we want to achieve? 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Coal Renaissance Risks Tarnishing the EU’s Green-Energy Credentials. [Online] Available from: http://blogs.wsj.com/brussels/2014/09/03/coal-renaissance-risks-tarnishing- the-eus-green-energy-credentials/(Accessed: 19 November 2014) Rackley, S. (2009). Carbon Capture and Storage. London, Gulf Professional Publishing. Shrader-Frechette, K. (2011). What Will Work: Fighting Climate Change with Renewable Energy, Not Nuclear Power. Oxford, UK, Oxford University Press. Tindale, S. (2014). How to reduce Dependence on Russian gas. [Online] Available from: http://www.cer.org.uk/insights/how-reduce-dependence-russian- gas(Accessed: 10 November 2014) Tuodolo, F. (2009) Corporate Social Responsibility: Between Civil Society and the Oil Industry in the Developing World. An International E-Journal for Critical Geographies. 8 (3). p.530-541. Van Vactor, S. (2010). Introduction to the Global Oil & Gas Business. Oklahoma, PennWell Corporation. Voice of America. (2014). Britain Sets Out Europe's Energy Alternatives to Russia. [Online] Available from: http://www.voanews.com/content/britain-sets-out- europes-energy-alternatives-to-russia-/1875205.html(Accessed: 10 November 2014) Read More