Gas market reforms risk locking EU into a permanent energy crisis

Gas market reforms risk locking EU into a permanent energy crisis

Updated: 1 month, 16 days, 6 hours, 38 minutes, 8 seconds ago

Since Putin invaded Ukraine and began cutting off the gas supply to Europe, the European Commission has taken the logical step of updating Europe's energy policies to reflect the new reality — with one striking exception, which threatens to keep the bloc dependent on gas and energy prices sky-high.

Next Tuesday (25 October), national energy ministers must take the opportunity to fix the situation.

Europe will never use gas in the same way again, but it is planning as though it can. The Commission's proposed reform of the rules that govern the EU's gas market — the gas package — were written last year, in an age of abundant and cheaper gas.

This law should have been a framework for how to safely and fairly shut down large parts of Europe's gas grid as part of the clean energy transition. Instead, it leaves the door open to expanding it, deepening our dependence on a permanently expensive fuel that we urgently need to be rid of.

Unless the Commission revisits it, the results would be grim for European households and businesses already suffering from soaring energy bills and inflation. Not only would we be locked into expensive gas for the long term, but households could end up paying for costly — and unnecessary — hydrogen pipelines.

This scenario only benefits the companies that own and operate Europe's gas pipelines who are desperate to deflect the difficult debate about how to decommission their infrastructure.

Compared to a year ago when the Commission drafted its impact assessment for the gas package, the reality of gas has changed fundamentally in three important ways.

First, demand for gas will decline much faster than the Commission assumed last year. The Commission's REPowerEU energy plan is based on a 60% reduction in demand by 2030 — twice the level that the gas market reform assumes. On top of this, several member states have accelerated gas boiler bans and boosted building retrofit programmes, among other measures, which will quickly and permanently reduce gas demand.

The age of cheap gas is also over. European wholesale prices are much higher than in 2019, and are not expected to return to pre-Covid levels until well into the next decade — if at all. Shipped gas is necessarily more expensive than piped gas and Europe will be getting much more of its gas via LNG shipments as the most likely new suppliers are further afield — and competing with Asia on the global gas market. Meanwhile, renewable alternatives such as wind and solar are now substantially cheaper by comparison than last year. And energy savings measures make even more economic sense than before.

Finally, plans to roll out hydrogen as part of the gas package's plans to transition away from gas have also taken a serious hit. 99% of hydrogen produced in Europe is based on fossil fuels, mostly fossil gas. The idea that we need hydrogen produced from fossil gas as a 'bridge' to renewable hydrogen is over. No European government would waste scarce gas on such the inefficient process of producing hydrogen when cheaper, more efficient alternatives exist.

REPowerEU's plans to boost renewable hydrogen will not help here, as the most efficient way of displacing gas from Europe's energy mix is to use renewable power to displace gas in power markets, instead of using it to produce hydrogen.

No future beyond gas

These plans are also the reason why the Commission has failed to revise the gas package. It argues that its proposals are still needed to scale up hydrogen across Europe, but what it would mean in practice is that Europe will be denied the opportunity to plan a future beyond gas.

Because the Commission assumes gently declining demand for a cheap and abundant energy source, the gas package plans for the expensive expansion of the gas grid instead of looking at how to decommission it. It plans to blend hydrogen into gas pipelines instead of targeting it towards those industries that need it most. All of this would mean Europeans face a future of even more unaffordable bills as grid companies will add these pipeline costs onto consumer bills.

What Europe really needs is a set of gas market rules that prepares for the inevitable accelerated phase out of gas. This means fully independent and integrated grid planning that allows for the managed phase down of redundant gas grids — at the transmission and even more importantly the distribution level — and manages the inherent opposing interests of gas customers and grid operators.

Scarce hydrogen should not be wasted to heat buildings, and we must give up on the idea of fossil-based hydrogen as a 'bridge' to renewable hydrogen.

Unless the Commission revisits the assumptions underpinning its gas market reform proposals, MEPs and energy ministers risk agreeing on rules for a gas market that simply doesn't exist anymore.

Asking the Commission to revisit its proposed gas market reform should be high on the agenda for next Tuesday's meeting of EU energy ministers. Unless decision-makers urgently wake up to the new reality of gas, they will lock Europe into a state of permanent energy crisis. This is a future neither the people of Europe — nor the EU itself — can afford.

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