Antinomic European Energy Security Strategy Tweets

By: Andrew_McKillop

Roll Out the Antinomics
Antimony the metal (Sb) has a history stretching back to at least 3000 BC, when in Predynastic Egypt it was used to make kohl or eyeliner – giving the metal the name “wide-eyed”. However, by the start of the European age, it was also called the “monk-killer”. Combining the two, we have a wide-eyed monk-killer, which is a useful extra definition of antinomic. This is usually defined as a total contradiction in and between a pair of statements, or a paradox operating either internally, within the statement or statements, or relative to their external semantic referent.

Whoever Tweeted under the name of @BarrosoEU, at 3.35pm CET on 21 May said that “Energy security is intrinsically linked to the EU becoming a competitive low-carbon economy”. No disclaimer of any kind was added, for example that this is a “forward looking statement”, or simply antinomic.

The same Barroso was heavily involved in the Dec 2008 European Parliament vote in favour of the now infamous “climate energy package”. Among the things it claimed to be setting out to do was “improving Europe's energy security” but in the policy papers produced by the Commission, this was sometimes only implied. The goal of “reducing EU oil and gas import costs” was sometimes set as a main so-called Policy Pillar, without identifying energy security as the major goal.

The reduction of energy import dependence can be interpreted as simply trying to cut the costs of European energy supply – not improving energy security. This second goal specifically means an increase of the percentage of total energy demand covered by domestic-produced energy. The price and cost of doing that may however be high or very high – approaching the politically defined value of European Security, energy or other, when or if the financial and economic costs of this or these goals are calculated or can be calculated.

At some stage the two interests – Energy Security and Energy Costs – have to be reconciled and ranked by importance. With not much surprise, this has never been done for the “climate energy package”, from Dec 2008 to date in May 2014. Five lost years!

The European Energy Security Strategy 2014
Draft notes to this strategy are now available, and the full strategy will be published in June, titled “European Energy Security Strategy –  Comprehensive Plan for the Reduction of EU Energy Dependence.”

The draft notes issued by the EC say that: “The EU and its Member States have an overriding priority: ensure that best possible preparation and planning improve resilience to sudden energy supply disruptions, strategic infrastructures are protected, and  the most vulnerable Member States are collectively supported.”

The EU relies on imports for 70% of its natural gas consumption. Six member states depend on Russia as their sole external supplier for 100% of their entire gas needs, the Commission said. The EC “forgot” to say anything about EU28 dependence on Russian oil but we can do that for them. Almost exactly the same EU-average dependence as for natural gas - about 33% of Europe's total oil consumption - is covered by Russian exports.

One hyper-simple approach – never, ever used by the Commission – would be to first take the annual cost of gas and oil exports, and work out something rational for import substitution criteria, costs and payback.

Combined oil, gas and coal import costs were very roughly 350 billion euros in 2013, depending on plenty of factors which for oil include marine bunkering, air transport bunkering, trade offsets, financial offsets, onward sale of refined oil products outside the EU and even FX cross rates and ETRM assets and techniques used for settlements. Several of these physical, as well as “financial and non-physical offsets” also apply to coal and natural gas imports.

To understand how big or small this net amount is, the annual turnover of Wal-Mart Corp is close to 330 bn euros/year.

What percentage of this net annual amount would be a reasonable substitution goal? In what timeframe? Don't ask the EC because the answer is “coded” as quantitative European goals for carbon emissions reduction and substitution of (imported) fossil energy by (domestic) renewable and low carbon energy, without an explicit cost analysis.

In the climate-energy package the goals feature the 20-20-20 by 2020 slogan. By 2020 the EU intends to have 20% of its total energy supply from renewables. One first important fact is this does not mean that by covering 20% of total energy demand in 2020 this is the same thing as a 20% reduction in recent oil and gas consumption and imports. The NPV is not 20% of 350 bn euros/year but a lot less.

Because the EC does not want to give us any precise, or even reasonably accurate numbers we are not able to make hard-edged conclusions and recommendations, for “achieving European energy security”.

The EU's Eurostat agency makes a point of not giving global-comparable figures for total EU28 GDP but instead gives the EU28 average for 2012 (most recent data) as 25 600 euros/year per inhabitant for a total population of slightly above 500 million. At current USD/EUR rates this is about $17 660 billion per year. Total energy import costs on a net basis are therefore about 2.75% of European GDP.

The Problem of No Internal Policy Logic

Since 2008, European energy prices for final consumers have risen from already-high levels compared to other major regions, to sometime extreme-high levels. The UK RAC Foundation and similar groups in other EU countries monitors daily filling station average prices which for the UK are presently around 126 pence per liter (roughly $7.65 per US gallon or $320 per barrel) for gasoline and 136 pence per liter for diesel fuel  http://www.racfoundation.org/data/UK-daily-fuel-table-with-breakdown. Some EU states are above $9 per US gallon for car fuel which in the US would likely be able to spark street uprisings and revolt or revolution!

Electricity prices for final domestic consumers in Europe are provided by the EU's Eurostat agency, and for several states, such as Germany, are presently around or above 25 euro cents per kiloWatthour (equivalent to about $540 per barrel equivalent of energy).

At these energy price levels, logically speaking, domestically-produced alternatives would be numerous but this is sadly not the case in Europe. Policy logic, if there is any, argues that further and continuing European domestic energy price rises “can only” bring about energy transition to higher levels of local-produced low carbon energy, energy saving, and energy efficiency. In fact the present results, in the 5 years since Dec 2008, feature delocalisation and deindustrialization, loss of jobs, fuel poverty and large amounts of funds wasted on various kinds of energy gimmicks called “low carbon”.

With no surprise at all extreme high energy prices, further increasing since end-2008, intensify trends of falling energy demand, especially marked in the PIIGS countries. For the case of Italy, this article by Ugo Bardi is useful: http://www.resilience.org/stories/2014-01-28/italy-s-slow-collapse

The “embarked antinomics” in European energy policy have in some cases already pursued their track to complete paradigm breakdown in at most 5 years.

The classic example is EU biofuels, with a Dec 2008 goal of about 10% of all EU road transport fuel demand to be covered by biofuels in 2020. The goal has been whittled down to about 5% - 6% as of 2013, for 2020, but few or no experts believe this goal is in the realms of feasible reality. The role of domestic-versus-imported biofuels has also been constantly whittled back, possibly to only 2%-3% of EU road transport fuel demand in 2020. In other words, expensive road fuel produced from imported overseas-source maize, sugar, palm oil, soya oil or other biomass is acceptable. But importing fossil road transport fuels – at a lower price – is not. We can say that happily Russia is not a major vegetable oils and sugar exporter! Rationalization, on this failed paradigm include a lot of talk, but no action on “second generation non-food biomass fuels”.

The potential for the biomass fuel programme and its goals being “quietly forgotten” is now high or very high, but the economic collateral damage is large. This includes serial bankruptcies and job losses in European biofuel startups and biofuel enterprises.

Plausible Denial Is No Longer Possible

EU heads of state and ministers taking part in EU Council of Ministers meetings focusing energy have now “moved on” to a hybrid energy policy and programme set. This now includes, or in some national cases features shale gas and shale oil development. Inherited antinomics however means that, for example, “high carbon natural gas” will not be showcased as a highly feasible road transport fuel alternative – but European domestic shale oil will be! Likewise, producing domestic shale gas in Europe is OK, but creating a large market for it – as a clean transport fuel – is “haram” or unclean.

In a May 21 Brussels conference on “Paving The Way for European Energy Security”, the Tweeter (Jose Manuel Barroso) said: “The European Union currently imports 53% of the energy it consumes and is dependent on external suppliers for oil (almost 90%), natural gas (66%) and to a lesser extent also solid fuels (42%) as well as nuclear fuel (40%)”. 

This last Tweet number is mindboggling, because the real figure is 98%.

Barroso said that some countries are particularly vulnerable, especially in the Baltics and Eastern Europe. He also figured the net cost of EU energy imports, saying “Our external energy bill today represents more than 1 billion € per day”, that is 360 bn euros-per-year. 

At the same time Barroso more than admitted, he was proud to state the EU runs a net trade surplus with the rest of the world – and the only large net deficit is in energy and raw materials trade. Barroso also said that Russia exports 80% of its oil production and more than 70% of its gas output to the EU – making Russia market-dependent on Europe. Oil and gas revenues are key factors for the Russian budget. Revenues from oil and gas exports enable Russia to buy and import European goods and services.

Denial of this being a win-win is however what Barroso and other European and US politicians have levered up, on the back of the Ukrainian crisis. He at least added: “....energy must not be abused as a political weapon. Doing so would only backfire on those who try it”.

Saying that, but not doing it, is antinomics in motion. We can probably bet on that continuing to happen. The real lever of change is however the economic real world – as proven in the “quiet abandonment” of the grandiose EU biofuels program. It was basically much too expensive.

Finally, empirical logic will come home to roost - even in the excited heads of senior EU policy makers. Tye longer that takes, the more collateral damage.

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

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