Ladies and Gentlemen,
Let me start by thanking Jean-Claude for the kind invitation to be here today. Gas Infrastructure Europe continues to be the leading voice in the sector. Your members – whether they work on transmission pipelines, storage facilities, or LNG terminals – are on the front line when it comes to producing and delivering Europe’s energy.
I didn’t hesitate to accept the kind invitation to speak here to you in Dublin today, for two simple reasons:
The first reason is that we share with you the deep conviction that a well-functioning energy market is the cornerstone for ensuring security of supply in Europe.
And the second reason is that you represent those actors in Europe that actually do invest in and build the infrastructure that we are all convinced is needed. Without it there will be no real internal market, nor a meaningful Energy Union.
And I am also pleased that my first GIE annual conference is so well timed. Because we are now putting in place the concrete parts of the puzzle – the policy actions that will help make the Energy Union a reality.
Gas infrastructure will play a key role across different areas of the Energy Union. Today I want to go into more depth on three of those areas:
- The first of those is how to ensure that Europe has access to sufficiently diversified external supply sources so as to mitigate political risk and not to be dependent on individual suppliers.
- Secondly, I want to touch on the role of the internal market and what infrastructure we need to achieve that. It is the key to a diversified and competitive supply.
- And lastly, I will speak about creating the investment friendly climate without which gas infrastructure projects simply cannot get off the ground.
Before I do, let me recall briefly why the challenge to ensure stable and competitive gas supplies for Europe remains high on our agenda.
First, natural gas can and will remain an important component of our strategy to decarbonise our energy mix.
For this, however, it is necessary to produce, transport and use it as intelligently and efficiently as possible. This will require the gas industry to be dynamic and innovative. We must also embrace the changing role of gas in our energy system – whether that be new uses in transport or as supporting renewables in the power sector. This should not be seen as threats but rather opportunities. The bottom line is gas will still be needed in Europe for the foreseeable future.
Second, continued EU import dependence is a lasting fact. Our best estimate is that it will in fact increase to almost three quarters of consumption in 2030! . On the other hand, Europe is geographically close to the majority of the world’s gas resources. Beyond this ring of immediate suppliers there are liquefied natural gas exporters who we can reach out to and bring into our market. This means that while sufficient gas resources are physically available for Europe, managing political risk is a key challenge for Europe.
The question for us is therefore: How do we manage our import dependence intelligently?
1. Access to new external sources
First we need to ensure that Europe, and its countries and regions, have access to sufficiently diverse external suppliers.
As the stress tests have shown, still too many EU countries are entirely dependent on Russian gas for their supply.
The situation in Ukraine has sharpened our sense to the risk those dependencies entail. Thanks to our efforts to broker a trilateral deal with Ukraine and Russia, gas transit has remained stable during the last winter. But we clearly need to reduce our exposure to geopolitical risk.
First of all we need a clear diversification strategy. We have to diversify supply, energy sources, suppliers and routes. All Member States should benefit from a choice of suppliers in the future.
The benefits of such a strategy are very clear.
Take the example of Lithuania, a small gas market just like Ireland. Last autumn, the aptly named “Independence” LNG storage and regasification terminal in Klaipeda was opened. With it the monopoly power of a single supplier was broken and competition arrived. After it opened Lithuania’s import price reportedly went down by almost a quarter!
During this Commission’s mandate we will do everything we can to ensure that all countries in Europe can enjoy the same benefits.
That has already started – take South Eastern Europe where we have recently set an objective that all Member States should have access to at least three sources of gas. I think this would also be a worthy objective to pursue on a European level.
But all of that requires additional infrastructure. So how are we making that happen?
We have made very significant progress in pursuing the opening of the Southern Gas Corridor. This will enable Central Asian countries to export their gas to Europe.
The opening of the Southern Gas Corridor will require the construction of complex and expensive pipelines, namely the Trans-Adriatic Pipeline, but also the Trans-Anatolian Pipeline and the expansion of the South-Caucasus Pipeline. TAP’s initial capacity alone – of 10 billion cubic meters of gas per year – is equivalent to the energy consumption of approximately seven million households in Europe!
As important as it is, the Southern Gas Corridor is not the only new pipeline infrastructure which can bring gas to Europe. There are other new infrastructure projects in the Mediterranean region, or from Norway, that can also be pursued.
But beyond pipelines we also need to put Europe back on the map when it comes to LNG. European LNG imports almost halved between 2011 and 2014. The EU has effectively become a residual market, getting what Asian countries do not need or cannot afford.
That needs to change.
We need to focus on the most important LNG infrastructure projects. And I can today announce as part of the Energy Union package, that we will come forward with a comprehensive strategy for LNG and storage early next year.
This strategy will mark the role of LNG in the context of our mid-term gas demand and supply scenarios. It is our intention in this context to work together with Member States to develop a clear strategy how to increase the competitiveness of LNG and make Europe an attractive market for key suppliers such as Algeria, Nigeria and Quatar.
We will also seek to remove obstacles to LNG imports from the US, and focus on the necessary transport infrastructure linking LNG access points with the internal market.
Lastly, we also want to revitalise our energy diplomacy and enhance our international dialogues with all key strategic partners.
We have already launched a high-level dialogue with Turkey, and I will hold the first dialogue with the Turkish authorities in July.
Moreover I will visit Algeria next month to relaunch our dialogue there. And I will go to Tunisia and Egypt to reinvigorate our gas relations with two key strategic supplier and transit countries.
But let me also make it clear that when we are talking about our energy diplomacy, it is about creating a political framework for the industry to invest in new and potentially difficult projects. It is not about us taking commercial decisions.
On the contrary, we believe that we should take a market-based approach wherever possible.
Which brings me to my second point: We need a fully completed and interconnected energy market. Both to ensure our security of supply and to make energy more affordable and sustainable for consumers and business.
2. Market and Infrastructure
This clearly makes economic sense – the benefit of completing the internal market could be up to €40 billion euros a year.
Hubs and power exchanges will play a key role in the construction of a competitive energy market. While we do not regulate hubs into existence, we do facilitate their emergence.
We do this on the one hand through adopting common market rules that remove obstacles to trade.
I am happy to state that for gas, we have made some progress with the adoption of a number of network codes. I am confident that we can complete the work on the two outstanding codes before the year is out.
This work is important also for our security of supply. Not only because it will facilitate trade. But because it will also help the market to provide important and correct price signals that will attract new deliveries of gas, including LNG, and limit demand.
But of course, liquid markets also need the missing links in our internal infrastructure to be constructed. That way gas landing on EU shores from different sources flows and competes freely on the internal market.
Our key instrument for this is the TEN-E Regulation and the selection and implementation of projects of common interest.
But in our recent strategy on improving interconnections and ending energy islands we have gone a step further. We explained how we intend to improve the situation in Europe’s most vulnerable parts through an enhanced regional cooperation strategy.
We have already put that strategy into action. For example, the new regional High Level Group will enhance the interconnectivity between the Iberian peninsula and the rest of Europe. The new high-level group on Gas Connectivity in Central Eastern and Southeast Europe will increase interconnections in that region in the post-Southstream world. And we are also working on an enhanced cooperation strategy for the Baltic region where we intend to sign a new Memorandum of Understanding in June.
To support all that work we will establish a dedicated Energy Infrastructure Forum to discuss progress with Member States, relevant regional cooperation groups, and EU institutions. It will meet for the first time in late 2015.
The philosophy behind all those initiatives is the same.
If we can build the missing internal links it will allow us to use the gas that we have in Europe efficiently. That will only enhance Europe’s competitiveness and security of supply.
And we think that this logic should also be extended to how we handle emergency situations.
This is the main reason why the security of supply Regulation will be one of the first to be revised under the Energy Union Strategy.
The Stress tests have clearly shown that minimising supply cuts during a serious gas supply disruption can best be achieved by increased coordination and cooperation before and during disruptions. That means maximising interconnector capacity, removing restrictions to cross-border energy trade, and working on joint infrastructure projects.
The Security of Gas Supply Regulation sets a framework for this but, in its present form, is not sufficient.
Let me thank all of you that responded to the open public consultation. We are going through your comments now and will propose a revised Regulation by the end of this year.
But I can already reveal that the new Regulation will focus on strengthened cross-border cooperation between Members States as well as at regional level. For this purpose we intend to propose preventive and emergency plans at least at regional level. We will also seek to step up the operational capacity to cooperate in crisis situations. Experience shows that the effects of a crisis would be notably reduced if such coordination were in place.
But of course enhanced co-operation and a smooth regulatory framework cannot buy hundreds of kilometres of submarine cables or physically build a pipeline.
That requires investment.
3. Investment in infrastructure
In fact as much as €1 trillion worth of investment could be needed for energy infrastructure alone.
So how do we fund these projects which are so important for Europe’s energy future and security?
The 5.85 billion available through the Connecting Europe Facility will certainly accelerate the implementation of PCIs. In March we issued the first of two calls for proposals for 2015 worth a total of €650 million.
Gas projects, which account for 107 out of the 248 PCIs currently identified, will benefit significantly from the grants available. I would also recall that PCI status has a number of additional advantages such as priority for authorisation procedures, which are sometimes the biggest obstacles in practice.
The bulk of the PCI money will go to grants, with the rest dedicated to setting up financial instruments for infrastructure development.
And it is there that we can plug the large investment gap for infrastructure. Clearly public money will never be enough.
Instead our strategy is to leverage as much private investment as possible from as little public funding needed.
And that is exactly the thinking behind the new European Fund for Strategic Investments (EFSI). Public institutions must act as a guarantor to incentivise private funding. The money the EU and its Member States are putting in will give investors the security to start investing.
And energy projects will be the single largest beneficiary of the 315 billion that the EFSI will put into the real economy. They are invariably capital intensive and require long term commitment and financing.
To help improve the access of projects to long term financing, EFSI introduces a guarantee instrument. That will cover the big gap in debt financing for mature energy infrastructure. Financial institutions will then able to offer long-term financing terms to projects with a higher risk profile.
But of course the projects we are talking about can also be thwarted by unbalanced and changing regulatory regimes. From our side we will therefore do everything to ensure a stable and predictable regulatory framework. That includes making sure that Member States fully implement European internal market rules and that international agreements are compliant with EU law before being signed. After all, we do not want to see companies basing their investment on agreements that we are then forced to declare void.
And perhaps most importantly, if investors are to trust in the regulatory framework, we need strong and independent institutions at both national and EU level.
Ladies and Gentlemen,
All that I have spoken about this morning leads me to two simple conclusions:
First, only by completing the internal market will we be able to guarantee security of supply for all Member States. And second, only by triggering private investment in infrastructure will we have such a market.
If we can do that and if we can bring real gas-to-gas competition to all Member States we will have achieved something important.
I have tried to show what small steps we as the Commission think we can take to achieve that – in terms of accessing new supply sources, allowing gas to flow freely in Europe and enable the investment that is the condition for both.
But we need your cooperation as the ones who will ultimately invest in and build the infrastructure we need to achieve that.
I am counting on your partnership for the work ahead of us and look forward to the debate today