Those of us involved in the US energy ecosystem find that our days are filled with a never-ending stream of new challenges such as increasing energy costs, supply chain issues, more stringent environmental regulations, narrowing reserve margins, increasing interest rates, and so forth. Can you imagine what is like to be in the corresponding energy ecosystem in Europe, where all these same forces are in play …. plus, there is a war going on next door, with threats of eminent curtailment in nearly 30% of your energy supply? Such is the situation faced today by nations of the European Union (EU).
While an ocean might physically separate the US from the EU, this same ocean will not isolate us from what is happening in the European energy world. In this article, we’ll look at actions that the EU has immediately taken to update its energy strategy in response to the war. Then we’ll discuss how these actions might affect the US and lessons that we might learn to enhance our own strategies as we move forward in this new world.
Those who are not familiar with the process of creating and implementing energy policy within the EU will be surprised at the formal, comprehensive, bureaucratic, and centralized process they follow. In contrast, here in the US it seems that our energy policy can be pivoted frequently by a wide variety of relatively isolated single events or actions, such as executive orders, court rulings, or the actions of a single Senator. The EU energy policy is largely driven by a series of constantly evolving policy statements, plans, and regulations that bind all EU members to a variety of actions.
Before Russia initiated the war in Ukraine, the most recent, comprehensive EU energy directive was the “Fit for 55” plan presented July 14, 2021. The focus of this plan was to describe policies and actions that the EU would take to reduce greenhouse gas (GHG) emissions to 55% of their 1990 levels by 2030, on a path to be “climate neutral” by 2050. Again, it can be hard for us in the US to envision how detailed and comprehensive these EU plans can be, but in the illustration below, each cell represents highly detailed plans for component pieces of the energy puzzle providing a clear picture of the detailed content of the Fit for 55 plan.
As recent and comprehensive as the Fit for 55 plan was, it did not anticipate the impacts on energy of the Russian invasion of Ukraine. For example, an important tool used in the plan to achieve near term GHG reductions was to use natural gas to replace coal for electricity generation. Before the war, about 40% of natural gas used in the EU came from Russia, so almost overnight, this key element of the plan was invalid.
In a matter of weeks following the invasion of Ukraine, the EU released on May 18 a revision of Fit for 55, REPowerEU, whose goal is “to rapidly reduce dependence on Russian fossil fuels and fast forward the green transition”. Just like Fit for 55, the REPowerEU impacts virtually every element of the energy ecosystem: natural gas, biomethane, wind, solar, hydrogen, infrastructure (both electric and gaseous), electric vehicles, synthetic fuels, conservation, international trade, work force training, emissions trading, finance, critical materials, etc. To achieve its more aggressive goals, REPowerEU calls for the EU to spend an additional 210 billion euro (~$225 billion at today’s exchange rate) between now and 2027. This updated plan has 4 main themes:
- Re-double energy conservation measures (especially buildings);
- Diversify energy supplies (e.g., more LNG from US and other secure sources);
- Accelerate clean energy transition (e.g, increase renewables from 40% in 2030 to 45%, largely via more offshore wind and hydrogen);
- Guide investments and regulatory reforms (e.g., streamline permitting)
To this analyst, one of the most interesting things we in the US can learn from REPowerEU is to better understand “What does it look like to transition a wealthy, industrialized population of hundreds of millions away from ‘fossil gas’”. The EU is trying to make this transition in a few years. Some in the US say we should do this within the next few decades. Can we in the US watch and learn from the EU, relying on our abundant domestic supply of natural gas to provide us a clean, lower cost transition period?
An important, near-term priority of the REPowerEU plan, and shared by many in the US gas industry, is a very aggressive stance toward renewable natural gas (RNG) from bio sources (animal wastes, landfills, and water treatment plants). Increasing RNG production is especially appealing in the EU since it directly replaces Russian gas as a “drop in” replacement.
In studying either the Fit for 55 or the most recent REPowerEU plan, the element that I believe would stand out to most readers is the important, essential role of hydrogen in the EU’s future energy system. The analysts and planners in the EU seem to understand that moving and storing massive volumes of energy in gaseous form has advantages that cannot be matched by electricity (and batteries) alone. The following chart shows that the EU planners expect that use of hydrogen (along with associated synthetic methane, aka e-gas) will surpass fossil gas by the early 2040’s.
Furthermore, both recent EU plans call for ADDITIONAL gas pipelines to move gaseous fuels both within the EU and from marine import terminals. These terminals would initially import fossil gas from US and the Middle East transitioning to green hydrogen from solar-rich regions (e.g., Africa, Spain). The EU energy planners understand that carbon-free, gaseous fuels have advantages over electricity due to costs of transportation and long-duration storage. Far from viewing new pipelines as a way to “lock in” use of fossil gas, the EU takes a longer view and recognizes that pipelines are an excellent way to carry renewable energy. A map of one such plan, including its new pipelines and connections to North Africa and the Middle East, is shown below:
It should be noted that this scenario of upgrading gaseous pipelines to be compatible with, and ultimately carrying, either methane or green hydrogen has also been proposed by SoCal Gas for its service territory. In addition, a Houston-based consortium has proposed a similar green hydrogen ecosystem for southeast Texas, the H2Houston Hub, that would be based on expanding existing hydrogen production, transportation, underground storage, and chemical engineering expertise.
As interesting as what the EU plans say explicitly is what they do not say but hold open for future options. A prime example of this is the role of nuclear power. Just as in the US, nuclear power is a somewhat of a 3rd rail in that some feel it is essential while others view it as deadly. The most recent REPowerEU seems to hedge this issue. Nuclear power could play a complementary role with hydrogen as its 24/7 availability would lower its cost by operating electrolyzers continuously instead of only when the sun was shining or wind blowing. Furthermore, low-cost hydrogen is key to the production of green synthetic fuels, including e-methane (for existing pipelines) and synthetic aviation fuels. It is interesting to note that, again motivated by the war in Ukraine and the associated desire to become more energy secure, Japan is moving to re-open its nuclear power plants.
There is much for us to learn, both as an industry and as a nation, as the EU moves to free itself from Russian gas. Those who are agile will find opportunities with both environmental and business benefits. The US can learn a lot from the EU about how to navigate the future energy challenges we’ll be facing as a nation.
Jeff is the Technical Advisor/Co-founder of Onboard Dynamics. He is an experienced entrepreneur, having founded or co-founded two companies in the energy and software industries before co-founding Onboard Dynamics.