Alternative Sources of Energy for the European Union - Case Study Example

Alternative sources of energy for the European Union Name Professor Institution Course Date Alternative sources of energy for the European Union Executive summary This report is formulated to discuss Russian foreign relations with EU, the importance of alternative sources of energy to the EU member countries and how the EU new policies and technologies will impact the Oil and Gas Industry. Russia supplies nearly a third of European Union’s gas. Over the past, there has been reliance on Russian gas from many countries, and this prompted a summit on 20 and 21 March 2014 to discuss ways to reduce the dependency. However, instead the meeting discussed Russia, Crimea and Ukraine issues. Many criticized the summit and claimed it was right to suspend debate of the targets, but it was wrong to delay action on the reducing EU’s dependence on the Russian gas. Table of Contents Alternative sources of energy for the European Union 2 Executive summary 2 Table of Contents 3 1.0 Introduction 4 2.0 Russian foreign relations with EU 5 3.0 The importance of alternative sources of energy to the EU 8 4.0 How the EU new policies and technologies will impact the Oil and Gas Industry 10 5.0 Conclusion 14 6.0 References 14 1.0 Introduction In the 21st century, energy has become an important factor in improving economy (Spencer, Sartor & Matthieu 2014). Today, many countries need energy to operate their companies and light their home. However, with population increasing, many countries are facing shortage of this precious product, and are now depending on other countries to meet their needs. One such situation is being faced by the European Union countries. According to Tindale (2014), Russian has been supplying one third of the EU’s gas for quite sometimes. However, this situation is being threatened by foreign relations breakdown between Russian and several EU countries. Today, Europe has stepped up its endeavors to cut its exposure to prospective blackmail by Russia over the energy supplies, introducing a determined strategy intended to weaken Russian domination of EU’s gas imports (Singh 2014). The move is also aimed at venturing into renewable sources of energy. The benefits of renewable source of energy are massive since they can fulfill the global energy demand several times. Based on the analysis, this report discusses Russian foreign relations with the EU, the importance of alternative sources of energy to the EU member countries and how the EU new policies and technologies will impact the Oil and Gas Industry. 2.0 Russian foreign relations with EU In the recent years, foreign relations between EU member countries and Russian has been weakening (Euractiv 2014a). Russia-European foreign relations are the global relations between the European Union and its major bordering nation, and Russia in the East. The relationship of EU individual and Russia differ, although in the 90s a common foreign policy outlining a common agenda with European Union foreign policy was agreed. The EU President Van Rompuy alluded that Russia is pursuing ‘divide-and-rule’ vis-à-vis policy on EU countries (Euractiv 2014a). From the time when the Soviet Union disintegrated and nationalism has re-surfaced as a divisive in addition to the cohesive aspect in Eastern part of Europe, people have doubted whether the nationalist political elite of Russia would accept the Ukraine independence, and to some extent of other previous Soviet Republics. The expert analysis believed that the issue of independence of former republics was not the main concern during the Yeltsin tenure (Euractiv 2014b). This was also not a key concern of Kremlin until Putin 2012 when came back to presidency. Cunningham (2014) claims that after Ukraine-Russia gas dispute in 2009, the repute of Russia on supplying gas had been dented. Following striking of a deal between the EU and Ukraine in 2009 to improve the gas pipelines of Ukraine, Vladimir Putin threatened to assess relations between EU and Russia (Singh 2014). Putting even stated that if the interests of Russia are overlooked, they will also begin reviewing their relations with the EU. According to Singh (2014), Russian minister for Sergei Shmatko stated that the strategy looked to attract Ukraine lawfully closer to EU and could harm the interests of Moscow. The relations were further worsened by the Ukrainian revolution. After the disintegration of pro Russian administration in Ukraine, Russia started an intervention of the Ukraine by setting up a military base in Crimea Peninsula including Ukrainian borders (Johnson 2014). European Union energy markets have been worried concerning effects of invasion of Crimean peninsula by Russia and the risk it sends to Ukraine, could bear on natural gas supply in the continent. Johnson (2014) argues that many leaders are thinking that Russia is using gas to hold Europe. The prices of natural gas in Europe went up from March 2014 because the diplomatic and military standoff between Ukraine and Russia. The situation has extended to the rest of EU member countries. Russia has demonstrated in the previous fifteen years how keen it is to apply energy supply as a bargaining tool, reducing gas supplies in many European countries (Johnson 2014). It is Russia that is likely to suffer because half of its government budget depends on gas and oil export. Figure 1 shows the trade relationship between EU and Russia. The issue drew a lot of concern making some countries to impose sanctions on Russia. European Union leaders agreed to extend the number of Russians and Ukrainians whose assets could be frozen and their freedom also to be restricted in a reaction to the annexation of Crimean peninsula by Russia (Singh 2014). Singh (2014) claimed that in March 2014, the US President Obama claimed of more than 30 officials in Putin’s administration. While meeting in March 20 2014 to discuss energy, climate and how to reduce dependency on Russia’s gas, they postponed the issues to discuss Russia, Crimea and Ukraine (Tindale 2014). It was important to discuss the cause of a gas shortage, but more importantly the alternative source of energy. Figure 2 shows EU dependence on Russian gas. Figure 1: trade relationship between EU and Russia Source: (Johnson 2014) Figure 2: EU dependence on Russian gas Source: (Financial Post 2014) 3.0 The importance of alternative sources of energy to the EU Euractiv (2014b) claimed that after the collapse of EU and Russian foreign relations, most leaders have called for venturing into alternative source of energy. Some of the alternative the European Union has is diversifying the supply, changing its focus to American oil and using its own reserve. The Danish and Swedish foreign ministers, Martin Lidegaard and Carl Bildt have focused on the significance of alternative energy in reaction to the invasion of Crimea by Russia (Tindale 2014). This will just to move away from “stubborn” Russia, but also from conventional source of energy. Fatthou & Sen (2013) contend that conventional sources of energy from oil, natural gas and coal have demonstrated to be an effective driver of the economic growth though similarly damaging the human health and environment. In addition, they have the tendency to be cyclic in nature, owing to the impact of oligopoly in manufacture and distribution (MIT Energy Initiative 2010). Even the Foreign Minister of Poland Radek Sikorski had demonstrated and led the calls for decreasing energy reliance on Russia. Most experts agree that the post-Crimea energy approach in Europe should emphasis on five factors including alternative gas sources, renewable energy, gas and coal with carbon storage and capture (CCS), nuclear power and energy efficiency (Tindale 2014). Even Germans call for energy alternative energy and reduced reliance on the Russian gas. The renewable will be a better alternative for the continent which is already grappling with pollution. Fatthou & Sen (2013) posit that although the renewable energy market share of the continent has risen from, more investment is required to be conducted in this vital industry. The Table 1 below shows the increase. Table 1: Increase of renewable energy in the EU Source: International Energy Agency 2009 Nations such as Netherlands, Spain and Azerbaijan are rich in oil while nations like Germany that is shifting from the nuclear energy, clearly require finding new sources of energy to meet the needs of its power starved industries (Helm 2005, p.7). Renewable consist of wind, hydro-electric, tidal power, biomass and geothermal energy. More sources of renewable energy will make the European Union to reduce greenhouse gas emissions. However, there is shale gas which is efficient and environmental friendly source of energy (Gas Strategies, 2010). Currently, the major common mode of extracting natural gas employs high-pressured horizontal hydraulic and drilling fracturing (Huntington 2013). This process has been prohibited in some countries, but due to the urgency and its long term benefits, such Europeans countries like France, Germany and Bulgaria must allow the process to continue (Tindale 2014). Netherlands is the leading producer of natural gas in the European Union. Its Groningen field is also among the top 10 major gas fields globally (Cunningham 2014). This can act as an alternative supplier of natural gas to some European Union as search for other alternatives countries continues. Other projects are also underway as Shah Deniz project in Azerbaijan is set to convey gas to Western Europe through Turkey, avoiding both Ukraine and Russia (Tindale 2014). The venture is run by the London-based company BP and is projected to materialize by 2020. Cunningham (2014) asserts that once ready, it will offer more than 10 billion energy to Europe annually by means of long-term pacts with 9 European consumers, consisting of Italian company Enel. It is also beloved that the EU member states will gain from shale revolution that had recently been discovered in the US – either by means of imports of the liquefied natural gas, or by installing the same unconventional drilling methods in Europe (McGowan 2011). McGowan (2011) also claims that this recent increase of extraction of shale gas in the US has offered Europe with feasible alternative which can be a long term solution. The strategic alliance between the US and Europe on several issues present it with an opportunity to talk about the oil business in periods of emergency (Kefferputz 2010). The oil exports from US across the Atlantic are intended to begin in 2016; however this alternative to realize the energy independence, it will be a costly affair. One clear strategy was to increase liquefied natural gas imports, and when President Barack Obama toured Europe in February, officials from European Union countries discussed with him to open the America’s natural gas as a means to assist the US allies and to weaken the position of Russia (Euractiv 2014a). 4.0 How the EU new policies and technologies will impact the Oil and Gas Industry The EU Energy policy addresses concern of energy development consisting of energy production, transportation and consumption. European Commission (2010) postulates the features of the energy policy take in legislation, international ties, and incentives of investment, taxation and principles for the conservation of energy. In the recent past, pollution over the world have gone up tremendously prompting the countries of the world and trading blocs to try and find a solution to mitigate the same (Hulbert 2010). Spencer, Sartor & Matthieu (2014) argue that the European Union is dedicated to cutting greenhouse gas emission to 95 percent by 2050 and to 20% by 2020. The European Union is thus reviewing the problems of decarbonization. In 2011, the EU Commission published the plan for shifting to viable low carbon economies by 2050 (Euractiv 2014b). This policy recognized that the European Union required beginning working right away on the strategies to fulfill plan which targets 2050. It was applied as the foundation for the EU’s Energy Roadmap 2050 printed in 2011. Its intention is to formulate a lasting European agenda for the energy supply that would match, as opposed to replacing local, national and regional endeavors to modernize supply of energy (European Commission 2010). It recognized the unfeasibility of projecting the future as far as energy sources and needs of supply are taken into consideration. It then offered different strategies towards decarbonization of the energy system, comprising of the four major carbonization options; renewable energy, energy efficiency, nuclear, and carbon capture and storage (European Commission 2010). According to Tindale (2014), the meeting held in March 2014 maintained that all European countries have to collaborate to expand and enhance electricity grid while focusing on the Baltic, Pyrenees and Mediterranean and North Seas. The EU is now adopting a policy emphasizing on the use of gas in the generation of energy. Tindale (2014) stated that renewable gas can be generated from farm waste and food, sewage and manure. Renewable gas is already in use Austria and Germany. Utilizing the wastes to create renewable gas is a way to enhance water quality, since its residue can also be used in the farm as fertilizer than being released into water catchment areas such rivers, lakes or oceans. Greater usage of the renewable gas is a step ahead in achieving the objectives of climate policy, including energy security (Tindale 2014). The Kyoto protocol policies have also had greater impact on the Oil and Gas Industry (International Energy Agency 2009). Beyond the restrictions of EU, European Union energy policy comprises developing and negotiating comprehensive international pacts such Kyoto Protocol and post-Kyoto agreement on the energy efficiency. The Kyoto Protocol is an international treaty which binds industrialized nations to reduce greenhouse gases emissions into the atmosphere (Spash 2010, p.169). This policy has made the EU countries like Germany to resort to manufacturing hybrid cars that are energy efficient and environment-friendly. Most EU member countries have their focus ion renewable source energy such as solar energy (Fatthou & Sen 2013). The current policy by EU also calls for the increase in use of advanced technology in the oil and gas sector. The according to Berge et al. (2008, p.336), future of this industry depends on constant technological advancement, but professional observers have noticed slow adoption of new technologies by global oil and gas corporations. The application of sophisticated technology is important to the contemporary industry tasks of establishing oil and gas sites (Sauter & Watson 2007, p.113). The reservoirs where oil wells are found are normally covered with several rocks which make it hard to observe the deposits. However, the discovery of the three-dimensional (3D) seismic together with the considerable emergence of computational power has enabled the oil and gas sector to develop quite proper models of the surface (Bergek, et al. 2008, p.352). Demand for data access and process has gone up. Sauter & Watson (2007, p.117) claim that extra data processing needs are prompted by services which sustain geophysical mapping such as reservoir simulation and seismic imaging, to help firms evaluate place wells and reservoirs. Wireless sensor network managing and controlling numerous functions on the distribution facilities and wells will contribute to the requirement for a powerful data processing and networking platform (Bergek et al. 2008, p.346). Further, gas and oil sector has to take part in an international supply-chain environment comprising local and global transportation, import or export issues materials handling and dealing with several nations, downstream distributors and upstream suppliers. Oil and gas firms that efficiently use technology to manage disparate systems and model data will gain a major competitive edge over in the future (Huntington 2013). Fracturing technology, which is used to extract shale is improving with advancement of technology. Even though hydraulic fracturing has been claimed to have effect on the environment, yet it benefits is much greater. It produces shale gas which is environmentally friendly and also efficient in terms of cost (Gas Strategies 2010). Technology has also played part in making of vehicle engines which conserve. Escalating fuel prices all over the world has enabled motor vehicle manufacturers in European countries as well all as other parts of the country to make hybrid and electric vehicles which is energy efficient (Cheah, Haywood & Kirchain 2010). Toyota is the largest company to produce and sell hybrid electric automobiles in the marketplace (TMC 2014). For instance, Toyota Company brought their first car Toyota Prius in the market 1997. TMC (2014) contends that Toyota has also been the leading company in environmentally-friendly car technology, most particularly Toyota Prius and RAV4 EV. Toyota executed its Environmental Action initiative in 2005. The program consists four main themes entailing the environment and the business development, design, manufacturing, and sales (TMC 2014). 5.0 Conclusion Trade ties between EU member countries and Russia has been of mutual benefit over the years. While EU countries have gained from Russian gas, Russia has also benefited from funds which it uses to finance its budget. However, until every country respect the sovereignty of another, there can never be proper agreement between one another. It is clear that Russia does not want to back off in Ukraine and works to strengthen its cling over that region. However, such intention to occupy Ukraine will is likely to face sanctions from the EU and the US. With strong sanctions, economy of Russia will greatly suffer particularly the oil and gas sectors. 6.0 References Bergek, A., Tell, F., Berggren, C & Watson, J 2008, Technological capabilities and late shakeouts: industrial dynamics in the advanced gas turbine industry, Industrial and Corporate Change Vol.1, No.2, pp. 335-92 Cheah, L., Haywood, J & Kirchain, R 2010, The Energy Impact of U.S. Passenger Vehicle Fuel Economy Standards, MIT Sloan School. Cunningham, N 2014, Ukraine crisis: How Spain could ease Europe's energy woes, viewed on 25th 2014 from http://www.csmonitor.com/Environment/Energy-Voices/2014/0430/Ukraine-crisis- How-Spain-could-ease-Europe-s-energy-woes European Commission 2010, Stock taking document - Towards a new Energy Strategy for Europe 2011-2020, viewed on 25th 2014 from http://ec.europa.eu/energy/strategies/consultations/doc/2010_07_02/2010_07_02_energy _strategy.pdf Euractiv 2014a, while US sanctions Putin's top aides, EU hesitates at summit, viewed on 25th 2014 from http://www.euractiv.com/sections/global-europe/while-us-sanctions-putins-top-aides-eu- hesitates-summit-300850 Euractiv 2014b, EU plans to reduce Russian energy dependence, viewed on 25th 2014 from http://www.euractiv.com/energy/eu-leaders-discuss-reducing-ener-news-534344 Fatthou, B & Sen, A 2013, The Tight Oil Revolution in a Global Perspective, Oxford Energy Comment Paper, Oxford Institute for Energy Studies. Gas Strategies, 2010, Shale Gas in Europe: a Revolution in the Making? Gas Strategies. Helm, D 2005, The Assessment: The New Energy Paradigm, Oxford Review of Economic Policy, Vol. 21, No.1, pp. 1-18. Huntington, H 2013, Changing the Game? Emissions and Market Implications of New Natural Gas Supplies, Energy Modeling Forum Report 26, Stanford University Hulbert, M 2010, Unconventional Gas: Producer Pickle or Consumer Curse? CSS Analysis in Security Policy No 76. International Energy Agency 2009, World Energy Outlook, Paris, IEA. Johnson, K 2014, Gas Attack? Markets are spiking because of fears Putin will use energy as a weapon. Here's why he won't, viewed on 25th 2014 from http://www.foreignpolicy.com/articles/2014/03/03/gas_attack Kefferputz, R 2010, Shale Fever: Replicating the US Gas Revolution in the EU? CEPS Policy Brief No 210. McGowan, F 2011, Putting Energy Insecurity into Historical Context: European responses to the Energy Crises of the 1970s and 2000s, Geopolitics, forthcoming Michaux, E 2010, The advent of LNG and unconventional gas: what impact on EU energy security? Mimeo, ETHZ. MIT Energy Initiative 2010, The Future of Natural Gas: an Interdisciplinary MIT Study, Cambridge, MIT. Sauter, R & Watson, J 2007, Micro-generation: a disruptive technology for the energy system?. In: J. Murphy, Editor, Governing Technology for Sustainability, Earthscan, London (2007), pp. 110–128. Singh, P 2014, A Europe-Russia energy standoff: the crisis neither side wants, viewed on 25th 2014 from http://www.diplomaticourier.com/news/topics/energy/2232-a-europe-russia-energy- standoff-the-crisis-neither-side-wants Spash, C 2010, The Brave New World of Carbon Trading, New Political Economy, Vol. 15, No.2, pp.169–195. Spencer, T., Sartor, O & Matthieu, M 2014, Unconventional Wisdom: An Economic Analysis of US Shale Gas and Implications for the EU, IDDRI Study 02/14. Tindale, S 2014, How to reduce dependence on Russian gas, viewed on 25th 2014 from http://www.cer.org.uk/insights/how-reduce-dependence-russian-gas Toyota Motor Company (TMC) 2014, Toyota Official Website, viewed on 25th 2014 from http://www.toyota-global.com/ Financial Post 2014, How Europe is turning to North America to wean itself off Russian energy exports, viewed on 25th 2014 from http://business.financialpost.com/2014/03/18/how-europe-is-turning-to-north-america-to- wean-itself-off-russian-energy-exports/?__lsa=4b12-7634 Read More