Out-Law / Your Daily Need-To-Know

Out-Law News 3 min. read

EU Commission strategy to cut energy imports will be ready by June, says Barroso

The European Commission will develop its strategy to cut EU dependency on imported energy in time for a meeting of the EU's 28 heads of state at the European Council next month, the Commission has said.

The European Energy Security Strategy will outline how the EU could lower its dependency on imported energy, increase domestic energy production and conserve energy, the Commission said. It will also focus on how the trading bloc can complete the creation of an internal energy market.

The Commission confirmed its deadline for delivery of the strategy as EU leaders and energy sector stakeholders met in Brussels to discuss ways to lower EU dependence on imported energy.

The conference was held amid growing concern in the EU about the trading bloc's dependence on non-domestic energy resources, following Russia's recent activity in the Ukraine and subsequent EU sanctions against Russia.

It also came as Russia's state-owned Gazprom signed a deal with China National Petroleum Corp to supply it with up to 38 billion cubic metres (bcm) of gas a year for 30 years, beginning in 2018, according to a report by the Financial Times. No official price has been announced for the deal, however it is believed to be worth more than $400bn, according to a BBC report.

According to the Commission, the EU currently imports 53% of the energy it consumes, at a cost of more than €1 billion a day. Almost 90% of crude oil is imported and 66% of natural gas comes from sources outside the EU. The bloc also imports 42% of its solid fuel and 40% of nuclear fuel energy. Russia was the source of 33% of the EU's oil imports and 42% of its natural gas imports in 2013.

European Commission president José Manuel Barroso said: "The Ukraine crisis once again confirms that it is in our own interest to choose a path towards a low carbon, competitive and energy-secure EU. Increasing our security of supply has been an overarching goal of European energy and climate policies for years. Now it is time to take it one step further.

"The Commission will make very clear proposals to the June European Council. It is then for our member states to run with that ball," said Barroso.

EU energy commissioner Günther H. Oettinger said the EU must diversify its supplier countries, in particular in the sourcing of gas. He described as "crucial" the development of the southern gas corridor, a European Commission initiative for the supply of gas from the Caspian and Middle East to Europe, and which will enable gas deliveries from Azerbaijan from the end of 2019.

"In addition, we need to intensify our efforts in the area of energy efficiency," said Oettinger. "A key element for increasing energy security is of course the completion of the internal energy market and upgrading the gas and electricity infrastructure in the EU."

The EU extended its sanctions against Russia earlier this month due to its activities in neighbouring Ukraine which the EU and the US say have undermined the sovereignty of the Ukraine. The updated sanctions included two companies which are both involved in the development of oil and gas deposits. The EU and the US have also since said that Russia could also face sectoral sanctions if it disrupts Ukraine presidential elections due to take place on Sunday, a US official told Reuters.

John Gilbert of Pinsent Masons, the law firm behind Out-Law.com, said: “These meetings reflect the ongoing concerns about security of gas supply into Europe arising from the tensions between Russia and Ukraine."

Gilbert said that a number of factors have contributed to "volatility" in gas supply in Europe and eastern Europe since 2006, when Russia cut gas supplies to Ukraine.

Last month Russia's state-owned Gazprom billed Ukraine's Naftogaz an additional $11.4 billion for gas. Gazprom said that Naftogaz already owes it  $2.2 billion for supplies in 2013 and 2014, according to Reuters. According to the news agency the bill relates to Naftogaz's failure to meet a "take or pay" clause for gas supplies, which requires consumers to pay for gas, whether they take physical delivery or not. Neither Gazprom nor Naftogaz commented on the report, Reuters said.

Gilbert said: "Since 2006, when gas supplies into Ukraine from Russia were cut, the EU has worked closely with Russia to avoid another crisis. However, the large sums claimed by Gazprom from Naftogaz, the disputes regarding the supply of gas to Crimea and the impact of sanctions all add to worries about the volatility of the situation."

"These attempts to ensure that the gas keeps flowing are important in the short term," said Gilbert. "In the longer term, it will heighten the EU’s desire to secure alternative sources and lines of supply, for example from the Caspian and through liquid natural gas imports.”

Gilbert previously said that Gazprom's deal with China is unlikely to effect gas supplies to Europe, despite EU concerns about energy security within the trading bloc.

"This is unlikely because the gas supplied to China will come from fields in the far east of Russia which could not be transported economically to Europe," Gilbert said. "Moreover, the deal is for the supply of 38 bcm per year, which is a relatively modest volume particularly given the other available sources of supply into Europe."

We are processing your request. \n Thank you for your patience. An error occurred. This could be due to inactivity on the page - please try again.