The EU got everything wrong on energy and Russia. Clò speaks
The European Union was wrong to consider energy "a commodity like any other", claims Albertò Clò, economist and former Minister of Industry. The in-depth analysis by Andrea Greco and Giuseppe Oddo taken from their new book, " The gas weapon " (Feltrinelli)
In the last quarter of a century, Europe has played the energy game by relying on a liberalist plan that has not stood the test of facts. The idea of dismantling national gas monopolies – liberalizing downstream supply in individual EU countries, in a sector dominated upstream by a restricted oligopoly of producing countries such as Russia – is the result of an abstract vision of the energy market . A monopolist like Gazprom, directed by the Kremlin, was allowed to use European liberalization rules to enter the gas sales and distribution sector in countries like Germany and Italy without European companies being allowed, in compliance with the principle of reciprocity, to enter the energy market of the Russian Federation.
THE EUROPEAN MISTAKE, ACCORDING TO CLÒ
“Energy was considered a commodity like all the others… Hence the conclusion that there was no longer any valid reason to remove energy systems from regimes of full competition and private ownership,” claims Clô, one of the leading experts in the sector.
But what kind of market is it that stops functioning because one of the subjects that compose it, and who is based in Russia, one fine day decides to make the product missing? It is certainly not a competitive market, or perhaps not even a market at all.
THE REALITY OF DETACHMENT
Now we have to deal with reality. First of all with the uncertainties to which the detachment from Gazprom's supplies and the rapidly growing contribution of liquefied gas to our energy consumption exposes us. LNG, according to the IEA, satisfied on average 35% of European demand for "blue gold" in 2022, compared to 12% in the previous decade. For the first time, EU countries imported more gas from sea than gas transported by pipe (170 billion cubic meters versus 151 billion). But over 50% of their LNG purchases occurred on the spot market, characterized by very opportunistic and speculative behavior, which makes them more vulnerable. Furthermore, around 60 billion of liquefied gas arrived in Europe from Russia, which is trying to regain part of the position it has lost in pipe sales. According to Energy Flux, the European continent has spent 1.12 trillion dollars to supply itself with gas in the last two and a half years, an amount similar to the GDP of Saudi Arabia; that is, it paid out an amount equal to that of the previous ten years even if its consumption fell to the lowest level of the last twenty-eight years.
THE COSTS OF THE GAS EMERGENCY
And here we are at the problem of emergency costs. The first news that circulated in spring 2022 about the price of giving up fossil fuels imported from Russia – released by the Reuters news agency – referred to a 210 billion euro EU emergency plan lasting five years, focused on search for new suppliers, on the reduction of energy consumption and on the expansion of renewables. It was immediately clear that the price to pay would be high.
Just to build the 46 regasification plants and the 6 gas pipelines already planned at continental level, a hundred billion will be needed. In the meantime, 657 billion have been spent by the 27 countries of the Union to help families and businesses (including 100 billion to fill storage). And billions more will be needed to subsidize the energy-intensive industry, whose production costs have become unsustainable due to the increase in prices: we are talking about steel mills, petrochemical plants, cement factories, glass factories, paper mills which have been declining in competitiveness for years because already before the war they paid for energy at values higher than those of their Chinese, Indian and American competitors.
All these interventions should secure hydrocarbon supplies to Europe starting from 2025 and further reduce prices.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/energia/europa-russia-energia-clo/ on Sun, 15 Oct 2023 05:32:17 +0000.