Oil and natural gas is featuring more and more prominently in the European energy debate at the moment given the immediacy of the energy crisis facing the continent. From making the import of LNG a top priority for Europe to member states now urgently investing in transportation and storage infrastructure, it is clear that oil and gas is recognised as the way to keep the lights on across Europe.
The reliance on oil and gas to power industry and heat homes, means that the European Union is facing difficulty in sanctioning Russia for its invasion of Ukraine. Recently, Brussels pulled back on plans to ban the EU shipping industry from carrying Russian crude because of anxiety among some member states about the economic impact. Similarly, Hungary withdrew its support of an EU proposal banning the import of Russian oil, due to its heavy dependency on Russia for its energy.
Europe is now facing a re-think when it comes to oil and gas domestically and increasingly working together to share the valuable commodities cross-border. Poland, facing being shut off from Russian gas, now looks to Norway for gas through the new Baltic Pipe Project which could supply the country with additional energy as early as this fall. While Bulgaria looks to a gas producer in Azerbaijan to plug its shortfall.
Such is the changing tide of attitudes towards the oil and gas industry that many wonder if the call for investment to move the commodities around Europe through additional pipelines and transportation routes, is consistent with the EU’s commitment to meet its own net zero targets.
The EU is also looking to LNG to plug the gap with Xi Nan, vice president LNG Markets at Rystad Energy stating:
“LNG is probably the only way to get additional gas into the system’ in the short term.”
“The EU has been working with international partners to diversify supplies for several months, and has secured record levels of LNG imports and higher pipeline gas deliveries. The newly created EU Energy Platform, supported by regional task forces, will enable voluntary common purchases of gas, LNG and hydrogen by pooling demand, optimising infrastructure use and coordinating outreach to suppliers. As a next step, and replicating the ambition of the common vaccine purchasing programme, the Commission will consider the development of a ‘joint purchasing mechanism‘ which will negotiate and contract gas purchases on behalf of participating Member States.”
In the United Kingdom there is similar sentiment around boosting oil and gas companies’ expenditure as a means to increase the country’s self-sufficiency when it comes to the energy sector. UK Chancellor Rishi Sunak has gone so far as threatening oil majors Shell and BP with additional tax burdens if they do not ramp up investment in their operations in the country stating:
“Nothing is ever off the table in these things. Right now, what I believe is the right thing to do is to encourage these companies to invest so that we have more energy security and support the economy.”
As EID has noted previously, windfall profit taxes historically have had the opposite effect on production and actually caused it to decrease. But the fact it’s being considered in Europe demonstrates this shifting political sentiment that Bloomberg recently reported with the headline: “Pariah oil CEOs who were ‘not welcome’ at the Glasgow climate summit are now invited to Downing Street and encouraged to increase investment”.
Similarly, Gilad Myerson, chairman of Ithaca Energy Ltd, a leading North sea oil and gas operator has stated:
“We’re seeing commentary that is much more supportive from the Prime Minister… The view is that energy security is absolutely critical.”
Back in November at COP26, the attention being focused on ramping up the domestic oil and gas industry in Europe would have been unthinkable. However, the urgent need for energy and the long-term nature of alternative sources such as nuclear and renewables, points to the oil and gas industry having a role to play in Europe’s energy security for decades to come.
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