February 20, 2018
ENERGY WATCH #1 by Karel Beckman
How solar and wind are overcoming intermittency and inertia (and threatening natural gas)
February 20, 2018
“Batteries and the threat to gas”, is the title of a recent article by Charles Ellinas in Natural Gas World Magazine.
Ellinas notes that until recently “the intermittency problem” was a major obstacle for the expansion of renewables. Reassuring for the gas industry, which has positioned itself as the ideal companion of renewables in the electricity sector.
But he wonders: has battery storage technology and deployment reached a stage in its development where it can start posing a threat to the use of natural gas?
The short answer is: you better believe it!
He cites two recent developments that may be indicative of what is to come.
One, “In California the Public Utilities Commission (CPUC) approved an order January 11, requiring the state’s biggest utility, PG&E, to change the way it supplies power when demand peaks. Instead of relying on electricity from gas-fired ‘peaker’ plants, the order requires PG&E to use batteries or other non-fossil fuel resources.”
Note that “One of the reasons behind this was the large natural gas leak near Los Angeles at the end of 2015, which threatened conventional energy suppliers and power deliveries in 2016 and even 2017. Part of the identified solution was large-scale battery storage.”
Two, “last November Elon Musk’s Tesla supplied a 100 MW lithium-ion battery to South Australia, the biggest battery ever, which is already performing exceptionally well. No sooner had this record been achieved, than it is about to be broken. Hyundai Electric & Energy Systems Co is planning to install a 150-MW lithium-ion battery in February in Ulsan, Korea.”
What these two landmark events show is that the Age of Renewable Energy plus Battery Storage is coming.
Driven of course, as you know, by continuing cost reductions. The price of lithium-ion battery packs has fallen by 79% since 2010 to around $200/kWh, although it needs to fall still further, to $100/kWh, to make renewables+storage cheaper than its alternatives. Bloomberg New Energy Finance (BNEF) expects that point to be reached in 2026, but Tesla has promised prices below $100/kWh by 2020 already.
California and South Australia are helping to drive this revolution – and in fact, for South Australia the investment is already paying back, because the Tesla battery is helping to reduce peak power prices enormously, as we explained last week.
And what this means is that operators of gas peaking plants will lose a very lucrative source of revenue.
As Ellinas concludes: “The successful combination of renewables and large-scale battery storage (Figure 6), used to complement intermittent solar and wind power, may spell trouble for coal and natural gas in power generation. And with coal in decline and gas on the ascendancy, at least in Europe and the US, increasingly this threat will be against gas. There are also those who say: “we got rid of coal so let’s now skip over gas.”
Needless to say, this process will take time. But in the meantime it will start putting pressure on natural gas prices and add to a feeling in the industry that gas may become part of a declining industry: “It is one thing to operate in a growing and confident gas market and another to have to do so in a declining market, where oversupply means more competition to secure a share and long-term low prices. This is what the industry has been experiencing over the last few years – low prices may now become permanent.”
Enter the Age of Digital Inertia
When we speak of the “intermittency” problem, we need to distinguish between short-term and long-term intermittency.
Grid-scale batteries can be used for short-term intermittency needs, i.e. to provide back-up power for at most a few hours, and usually shorter. Batteries will probably always be too expensive to provide back-up for longer periods.
This implies that, yes, back-up capacity would still be needed, but, it would not be needed anymore to provide peak power, which is where operators make the most money. It also implies that policymakers or grid operators need to organize long-time backup capacity, since this will not be interesting anymore for commercial generators.
However, speaking of short-term intermittency, critics of renewable energy might point out that there is another very important issue, which does not get a lot of attention in the general media, because it is fairly technical: the problem of inertia.
When the frequency in the power system suddenly drops, synchronous generators (usually gas-fired power plants) respond by slowing down, releasing energy from the still spinning turbines, thereby maintain power system frequency.
For this “inertial response” to work, it means that a large number of generators have to be running on the system, as each provides only a small part of the needed inertia.
Renewable sources obviously can’t provide inertia reliably, since they are intermittent, and have no spinning parts.
However, supporters of renewables have another card up their sleeve: batteries. They can provide inertia.
In fact, as Giles Parkinson points out in a recent article on the website Reneweconomy.com, according to a new study carried out in Ireland, batteries provide “digital inertia” which can replace the “analogue inertia” provided by synchronous generators, in a superior way. Because with digital inertia, much less capacity is needed.
The study, called Batteries: Beyond the Spin, and carried out by consultancy Everose together with Queens University Belfast, “hails the dawn of a new era of digital inertia”, as Parkinson puts it.
It says that “3,000MW of gas generators – the main providers of conventional inertia in Ireland – can be replaced by one-tenth of the capacity in batteries. It is time to go digital, it says, and change the rules accordingly.”
The difference between analogue and digital inertia is shown in this graph:
So, in Parkinson’s words, the “study finds that battery storage can arrest the fall in frequency and the rate of change. In short, even though they do not provide spinning mass, what the study calls a “digital inertia” response provides the same benefits – or greater – as inertia.”
He notes that “The study is well worth reading. It’s technical, but important, and provides a fascinating insight into how technology can change the game, and why regulators need to think differently so they can change the rules accordingly.”
As the report itself say: “It’s time to stop framing ancillary services around the incumbent technology, and create a genuinely level playing field.”
(For further reading on inertia, see for example this article: “Inertia in power system: we don’t actually need that much”.)
Indeed, looking at what is going on in the world, it seems clear that renewables and storage are rushing ahead, increasingly putting the squeeze on gas and coal power generation.
The New York Times, for example, reports that when Xcel Energy, a utility company with millions of electric customers in the middle of the U.S., asked for proposals to construct big power plants in Colorado using wind turbines and solar panels, the bids came in so low that the company will be able to build and operate the new plants for less money than it would have to pay just to keep running its old, coal-burning power plants.
The article does note that the low bids do “include some federal subsidies for clean power” – which will be phased out in a few years. Still, “the costs for renewable technologies are coming down so much that by the time the federal subsidies expire, wind turbines and large-scale solar arrays will still be competitive in large parts of the country.”
In Australia, the Climate Council has just come out with a new report concluding that “Australia is on the cusp of an energy storage boom driven by supportive policies and falling costs.”
Another new report, from technical services provider Lloyd’s Register, notes: “If there were doubts that renewable energy sources could ever compete effectively with oil, natural gas and coal in power generation, developments in the past two years should have dispelled them!”
Note, though, that the Lloyd’s report, which is not based on actual prices but on a survey of 800 professionals from the around the world, does not see grid parity for solar and wind yet. Its findings are fairly cautious:
- Respondents expect grid parity for solar to be achieved first in China (2022), followed by Spain and UAE in 2024, and by Australia and the US in 2025. For wind power generation, grid parity is expected in Germany and UK by 2024, USA and Denmark in 2025, and in Sweden by 2033.
- Although a minority of respondents (10%) believe that renewables have already overtaken fossil fuels in their country, or will do so in the next two years, 58% believe that this milestone will not be reached until after 2025.
- Renewable economics are unquestionably improving, but 62% of respondents say that high development costs remain the primary argument against pursuing renewables in their country. However, the cost of building solar capacity for utility-scale generation has more than halved in the past 10 years, which has helped to fuel the rapid expansion of solar capacity worldwide since 2014.
- More than 45% of the surveyed executives (including 55% of those based in Europe) say that resistance to onshore wind turbines in their countries is too strong to enable significant growth from this source.
- An overwhelming 71% agree that technology advances will do more in the next five (5) years to improve the economic case for renewables than policy or regulatory changes. There is an expectation for advanced metering infrastructure (AMI), demand response management (DRM) systems, networked sensors and accuracy of asset monitoring datato have a beneficial impact on operational performance. However, 36% identify policy inconsistency as an inhibiting factor.
- 37% of respondents indicate the slow development of storage technologies as the most important factor inhibiting the growth of renewables in the energy mix. Utilities need to be able to call on energy producers for additional power whenever it is required, whether for load balancing or meeting surges. Green hydrogen provides an alternative form of storage to electrochemical batteries as hydrogen fuel cells can store power for considerably longer.
- 42% of respondents agree that reaching grid parity will not be enough to cause a sustained increase in investment in renewables. Subsidies are critical to support developments in most markets.
It could be of course that the “800 professionals” who have been surveyed are behind the curve already on some points!
Methane even worse than thought
For natural gas in particular the renewables and storage news does not look too good. What is more, the climate effects of natural gas are also beginning to look worse.
New research indicates that methane has an even more potent warming effect than previously thought. As you presumably know, methane is a much stronger greenhouse gas than CO2, although it has a shorter lifetime.
EDF Energy Exchange, a NGO cooperating with the natural gas industry in the U.S. to bring down methane emissions, reports that the new study, published in the journal Geophysical Research Letters, finds that “the radiative efficiency—how much energy is trapped in the climate system by unit mass of methane—is 23% higher than estimates used in the 2013 Intergovernmental Panel on Climate Change (IPCC) Fifth Assessment Report (AR5).”
“Methane also impacts warming indirectly by creating more tropospheric ozone and stratospheric water vapor. Its global warming potential (GWP) accounts for both its direct and indirect warming effects. But the new research affects only the direct radiative properties. The net increase in methane’s GWP is 14% compared to their IPCC AR5 values (over both 20- and 100-year time horizons).”
ENERGY WATCH #2 by Karel Beckman
Renewables plus gas – renewables versus gas?
February 20, 2018
In the U.S., both renewables and natural gas are showing strong growth (unlike coal: the gas sector has even surpassed the coal sector as the largest emitter of greenhouse gas), according to a major new report from Bloomberg New Energy Finance (BNEF) published together with the Business Council for Sustainable Energy.
The 6th edition of the Sustainable Energy in America Factbook actually does its best to turn gas and renewable energy into a winning combination: “The rapid deployment of energy efficiency, natural gas and renewable energy in 2017 generated economic benefits without requiring increases in energy consumption or greenhouse gas emissions”, says the press release accompanying the publication.
It also notes: “The massive and historic transformation of the U.S. energy sector clicked into a higher gear in 2017, despite new policy uncertainties. Renewable deployment grew at a near-record pace, energy productivity and GDP growth both accelerated, and the U.S. became a serious player in the global liquefied natural gas market. All of this combined to squeeze U.S. greenhouse gas emissions to a 25-year low, while keeping costs in check for consumers.”
I must say I find it very odd for a respected think tank like BNEF to be promoting natural gas in combination with renewable energy and to be as enthusiastic about U.S. LNG exports as the Trump administration! This has no doubt to do with the fact that BNEF publishes the Factbook together with the Business Council for Sustainable Energy, which is an organization that specifically promotes renewables plus gas. It does not necessarily enhance the credibility of BNEF.
Having said that, it must be said that the Factbook is a great report, packed with fascinating information – and not just about the U.S. either, as it contains many international comparisons. I wish there was something like this for Europe on the market.
The Factbook covers everything from the U.S. electricity mix to things like “smart thermostat availability”, EV charging points, energy storage projects and everything in between.
Let’s look at some of the major findings. The nine charts that I am reproducing here tell their own story.
- Energy productivity has gone steadily up:
- Energy consumption in the power sector is going down – unlike the transport sector:
- Renewables still provide only a small part of total energy demand in the U.S.:
- Renewables score better in the electricity sector, where coal and gas are under pressure:
- In the last four years, virtually all investment in electricity generations has gone into renewables and gas:
- Greenhouse gas emissions from the energy sector are going down:
- When we look at some figures from the U.S. in a global context, it is clear that the U.S. is lagging far behind China and is about equal to Europe in terms of renewable energy investment:
- The North American industrial sector is blessed with the lowest electricity rates in the world:
- Finally this chart shows how close wind and solar are to coal and gas in costs:
All charts are from the 6th edition of the Sustainable Energy in America Factbook, published by Bloomberg New Energy Finance and the Business Council for Sustainable Energy
ENERGY WATCH #3 by Karel Beckman
The real big business in sustainable energy? Energy efficiency
February 20, 2018
Now which part of the “sustainable energy sector” provides by far the most jobs? And generates by far the biggest revenues for energy companies?
The answer will surprise many. It is energy efficiency.
Thus, BNEF’s America Factbook provides this fascinating overview of jobs in the U.S. energy sector, divided by segment:
So much for all of Trump’s talk about bringing jobs back. This is where the jobs are – not in coal.
The importance of energy efficiency is confirmed by the Clean200 ranking, a list of the 200 largest publicly listed companies worldwide by their total clean energy revenues, published by the organisations AsYouSow and CorporateKnights.
It turns out that the companies that contributed the most to the Clean200 list are involved in the provision of products, materials, and services related to energy efficiency.
How was the list composed? It ranks “the largest publicly listed companies worldwide by their total clean energy revenues as rated by Bloomberg New Energy Finance (BNEF). In order to be eligible, a company must have a market capitalization greater than $1 billion (end of Q4 2017) and earn more than 10% of total revenues from clean energy sources. The list excludes all oil and gas companies and utilities that generate less than 50% of their power from renewable sources, as well as the top 100 coal companies measured by reserves. The list also filters out companies profiting from weapons manufacturing, tropical deforestation, the use of child and/or forced labor, and companies that engage in negative climate lobbying.”
The number one was Siemens from Germany:
Measured by country, China is easily the largest player in clean energy:
Interestingly, the 200 companies on the list generated a return of 32.1% in 2017, almost double the 15.7% scored by the S&P 1200 Global Energy Index, which is heavily based on fossil fuel companies.
“While some feared the change in the political climate in the U.S. would bode badly for clean energy at the expense of fossil fuels, the opposite has happened”, the authors conclude. “After some initial market uncertainty following last year’s Presidential election, the Clean200 stocks have dramatically outpaced the returns of fossil fuel stocks, turning in almost double the performance.”
But the real takeaway, they add, is that “the clean energy story is global and it is no longer niche. Twenty-nine countries are represented by the latest Clean200 cohort, which have an average market capitalization of $9.4 billion and generate over $363 billion in clean energy revenues per year. While the stock market continues to break records in the short term, the long term clean energy economic expansion continues afoot, regardless of what happens in the White House.”
According to AsYouSow and CorporateKnights, 2018 was a “watershed year” for “mainstream investors coming out in favor of the transition from fossil fuels to clean energy.” They mention a number of examples:
- TheWorld Bank promised to stop virtually all lending for oil and gas projects in the developing world after 2019, sending a powerful message to global producers that financial institutions are reassessing the risks of fossil fuel development.
- The manager of the largest sovereign fund in the world, theGovernment Pension Fund of Norway, recommended that oil stocks be excluded from its equity benchmark index on risk grounds.
- The world’s second largest reinsurer,Swiss Re, switched over the entire $130 billion (U.S.) it holds in liquid assets to track ethical indices aligned with the energy transition.
- One of the largest pension funds in North America–The Caisse de dépôtet placement du Québec–with more than $270 billion in assets, set bold targets to shelter its portfolio against the impact of climate change, including plans to reduce the carbon footprint of overall investments by 25% by the year 2025, while increasing its exposure to climate friendly investments like wind power by 50%.
- BlackRock and Vanguard, which wield outsized clout … as the world’s two largest asset managers, also started flexing their muscles by voting for climate change scenario planning shareholder resolutions at ExxonMobil and Occidental Petroleum leading to majority votes that will hopefully result in material changes to “business as usual.
- PFZW, the $183 billion Dutch pension fund, has pledged to halve its carbon footprint by 2020 while increasing its investments in climate solutions fourfold.
- CalSTRS committed $2.5 billion to a Low-Carbon Index as part of a multi-faceted approach to align its portfolio with the market realities emerging from climate change.
- Irish lawmakers voted to require the U.S. $9bn Irish Strategic Investment Fund to divest from all direct or indirectly held fossil fuel assets.
- AXA divested from all coal holdings (mining companies and electric utilities deriving over 50% of their turnover from coal) and committed to triple its green investments by 2020.
All this means that the energy transition is becoming less risky to the global financial system.
Companies which make a significant amount of their revenue from environmental solutions now make up 5% of global investment indices; the Clean200 list of companies have a collective value over $1.8 trillion.
“Major investment indices are now only half as exposed to the fossil fuel sector (1.5% to coal, 6.3% to oil and gas) as they were five years ago”, notes the report. “This is not due to any active decision to divest, but rather because fossil fuel stocks have lagged while other sectors have produced healthy returns.”
And for who is still not convinced: “In the next 10 years, McKinsey expects oil demand growth to flatten due to growing fuel efficiencies and competitive technologies such as the electric car. Battery prices fell 35% last year, and electric car sales rose by 60%. By 2022, BNEF estimates electric vehicles will cost the same as their internal combustion counterparts, and if growth continues at the current pace, oil displacement by electric cars will reach 2 million barrels per day by 2023 — the size of the current oil glut and enough to drive global oil prices to record lows. Factoring in autonomous cars and ride-sharing services, electric cars could reach 50% of new car sales by 2040, according to BNEF, 50 times higher than what OPEC is projecting.”
“None of this portends an imminent conclusion to our fossil fuel age”, the authors conclude, “but it does suggest an end to fossil fuels as a long-term growth market and the beginning of a long run expansion of clean energy demand.”
ENERGY WATCH #4 by Karel Beckman
Ukraine: a European (energy) problem
February 20, 2018
The situation in Ukraine remains a huge problem for Europe, in many ways. The conflict with Russia does not seem to be going anywhere. At the same time, the Ukrainian government in Kiev seems to be making no progress in improving the political and economic climate in the country. Corruption is still rife.
A recent Dutch television documentary showed that despite massive evidence of corruption produced by a special anti-corruption investigating unit, no parliamentarians or government members have been prosecuted in the last two years or so.
Ukraine also has two highly sensitive energy dossiers that are both very important for the rest of Europe.
The first is its nuclear power sector. Everyone remembers Chernobyl. But the country is home to four other nuclear power stations with 15 reactors that last year supplied no less than 55% of Ukrainian electricity demand (although they represent only 25% of total capacity):
Source: the Ukrainian Nuclear Industry, Bellona Foundation, December 2017
According to a new report from the Norwegian Bellona Foundation, these reactors represent a ticking time bomb – although those are my words, not those of the authors. They describe their findings in a more circumspect way.
Bellona has written the report to “serve as a guidepost to international non-profits and policymakers who aim to assure the industry’s safety and eventual decommissioning while Ukraine makes its arduous transition to cleaner energy sources”.
“It won’t come as a surprise that safety would be a critical challenge still facing the nuclear industry in Ukraine”, they write. What may be a surprise, though, they add, is “the comparative lack of concise information on a national industry that supplies more than half of its country’s electricity in conditions of political and economic turmoil.”
That’s still a long way away: “these reactors, running at four separate nuclear power plants, supply 52 percent of the country’s electricity. It’s unlikely that Kiev will find the political will, let alone the funding, to retire any of these reactors anytime soon. This means most if not all of them will likely receive extensions of several years’ time on their engineered life expectancies, and continue to add to a supply of radioactive waste that is the second biggest in Europe for decades longer.”
In 2018, this problem will only get worse, notes Bellona, “when Russia, as per a long standing agreement, returns to Ukraine the spent nuclear fuel and radioactive waste it has been accepting and reprocessing since the Soviet Union’s dissolution.”
The problem of Ukraine’s overabundant radioactive waste “would seem less critical if the country were taking steps to build a long term repository”, says Bellona, “or indeed even had plans to do so. But … the bureaucracies in Kiev that are responsible for this are inefficient if not, in some instance, entirely lacking, and in any case have little in the way of public faith in their competent operation.”
The national nuclear regulator is, according to the report, “like the industry itself, a hand-me-down from Moscow, and it lacks independence from the structures it is supposed to be regulating. And even this imperfect arrangement is suffering financially. As our report reveals, even the computers the regulator uses are donated from abroad.”
This looks like a disaster waiting to happen. “The international community”, certainly the EU, would seem to have a task here, but fixing the problems will require a huge amount of money and resources, in addition to cooperation from the Ukrainian authorities.
The second problematic energy dossier relates to gas of course. It is becoming more and more clear that Ukraine seems to be on the point of losing a major source of revenue: the fees it gets from transport of Russian gas.
Even Ukraine’s staunchest supporters seem to accept that Kiev is losing the battle against the construction of Nord Stream 2, the pipeline that will shift transport of Russian gas destined for Germany away from Ukraine to the Baltic Sea.
Two weeks ago, we reported that Georg Zachmann of the Bruegel Institute, who worked as advisor for the Ukrainian government, had said Ukraine has “one last chance” to stop Nord Stream 2.
Zachmann frankly stated that “Ukraine is not doing enough to prevent Nord Stream 2 from happening. True, Naftogaz and some policy makers are trying to lobby in Washington and Brussels to prevent the pipeline from being built. But they do not have good arguments to convince influential European gas consumers.”
Zachmann noted that Ukraine has itself to blame: “The gas transit tariffs through Ukraine are currently more expensive than the expected tariffs for Nord Stream 2, and the Ukrainian tariff policy is neither transparent nor predictable. European gas consumers simply do not trust that Ukraine will be an inexpensive, reliable gas transit route for the next decade.”
Zachmann also criticized the government and the regulator, which he said is “politized and dysfunctional”.
Now, PISM, the Polish Institute of International Affairs, a long-standing opponent of Nord Stream 2, comes with a similar devastating analysis. Researchers Bartosz Bieliszczuk and Daniel Szeligowski of PISM are sombre about the desperately needed “reform” of the Ukrainian gas sector.
In the PISM Bulletin they write that “further reforms are hampered by the lack of political will among Ukrainian authorities. The slow pace of the reforms and a dispute between the government and management of Naftohaz [Naftogaz] have negatively affected Ukraine’s international image. These factors could lead to a situation in which gas transit via Ukraine no longer is considered a viable alternative to the new Gazprom pipelines, which would seriously undermine Poland’s diplomatic efforts in support of Ukraine’s opposition to Nord Stream 2.”
They note that “Naftohaz reform is … of key political importance. For years, Ukraine was dependent on the import of Russian gas, which allowed Russia to influence every Ukrainian government that followed, such as tying gas supplies to political issues (e.g., agreements on military bases in Crimea), and which favoured links between Russian and Ukrainian elites, enabling them to derive illicit revenues from the gas trade. The corruption led to an inefficient economy in Ukraine and further deepened its dependency on Russia.”
Naftogaz, note the authors, “is Ukraine’s largest enterprise in the energy sector and, together with subordinated entities, is the largest taxpayer in the country.” In 2017, Naftogaz paid almost €3 billion in taxes and dividends, amounting to almost 14% of the country’s budget revenues.
Although Ukraine did manage to become independent of Russian gas for its domestic consumption, the transit of gas by Naftogaz remains problematic. “According to the restructuring plan adopted by the Ukrainian government in July 2016 and based on requirements of the EU’s third energy package,” Naftogaz is to be unbundled. The EU demands from Ukraine “the creation of a transparent and competitive gas market and, consequently, attracting foreign direct investors.”
But the reform is failing, notes PISM: “In 2016, the Ministry of Economic Development and Trade tried to seize control of Ukrtranshaz, one of Naftohaz’s most profitable subsidiaries, responsible for gas transit and storage. The move went against the Naftohaz restructuring plan agreed with the Energy Community and European Bank for Reconstruction and Development (EBRD), and against an agreement for financial help from the bank. In the end, the decision was repealed after the international financial institutions threatened to halt the financial support for Ukraine.”
“The Ukrainian government also has attempted to take backdoor control of Naftohaz. In spring 2017, the government increased the number of supervisory board members from five to seven, thus gaining a majority on the board. In protest, two of the remaining independent members of the board resigned (another had already resigned). Under international pressure, the government in November 2017 accepted a new board with a majority composed of independent members.”
The government and the Naftohaz management “accuse each other of attempts to sabotage the unbundling. The government has delayed the establishment of the new entity responsible for the gas-transmission system. Naftohaz has instead created its own new branch responsible for this within Ukrtranshaz. The company also has enlisted Rothschild & Co., a financial advisory firm, to help with the restructuring and finding foreign investors. In response, the government blocked Naftohaz from negotiating with foreign investors.”
Another important element of the reform is liberalisation of the gas price for households. Despite price increases started in 2014, the price “remains lower than the market price, which results in inefficient gas consumption and corruption, since sales take place through intermediaries that do not provide information on gas consumption and its actual recipients. Naftohaz estimates that this system generates losses of about €1.3 billion per year.”
The authors, who note that “the unbundling has also been halted by a dispute between Naftohaz and Gazprom and now in a Stockholm arbitration court”, conclude that “the Ukrainian authorities seem to lack the political will to finish the restructuring. Their grip on the financial streams within Naftohaz and its companies will play a significant role in the campaign ahead of the 2019 presidential and parliamentary elections. It is also unclear whether the government [will] allow another gas price increase for households, fearing a loss of voter support. On the other hand, continuing the Naftohaz restructuring is essential to further support for Ukraine from international financial institutions.”
The Polish researchers write that “from Poland’s perspective, the restructuring of Naftohaz and the Ukrainian gas sector reforms—necessary to maintaining Ukraine’s international credibility—are a crucial argument against the Nord Stream 2 pipeline. Ukraine was able to ensure stable transit of Russian gas through its territory even when faced with Russian military aggression in the east. Thus, it is reasonable to demand that Ukraine does not waste this asset. Predictability in Ukrainian energy policy and transparency in its gas market are also crucial for joint projects, including the Poland-Ukraine gas interconnection.”
Poland, incidentally, is working hard itself (with EU support) to become independent of Russian gas. Poland does not use a lot of gas in the first place, it’s mostly reliant on coal. Still, the German newspaper Frankfurter Allgemeine Zeitung (FAZ) reports that the Polish governing party, PiS, has revived an old plan to build a pipeline, the Baltic Pipe, that would transport 10 bcm of gas from Norway via Denmark to Poland.
Poland, which imports about 13 bcm (and produces another 4 bcm) of gas, is already able to import 11 bcm via its LNG terminal and via reverse flows from Germany and the Czech Republic.
The project, which would be carried out by Gaz System, the Polish gas network operator (here more information on the Gaz System website), was recently recognized (again) by the European Commission as a ‘Project of Common Interest’ (PCI). It will get up to €33 million in EU funding.
But Poland does remain a strong opponent of Nord Stream 2 of course – just as Germany continues to back it.
Chancellor Angela Merkel and Polish Prime Minister Mateusz Morawiecki made that clear at a news conference in Berlin on 16 February. Merkel told reporters that “the planned Nord Stream 2 gas pipeline connecting Germany and Russia poses no threat to Europe’s energy security”, reports Reuters.
“We had different views on the Nord Stream issue,” Merkel said. “We think this is an economic project. We are also for energy diversification. We also want Ukraine to continue to have transit gas traffic, but we believe Nord Stream poses no danger to diversification.”
Morawiecki “disagreed with Merkel that Nord Stream 2 would diversify gas supplies: ‘This is gas from the same source, but via a different route. We indicate the risks related to cutting Ukraine from transit,’ he said, adding however that Merkel’s comments on assuring Ukraine’s gas traffic fees were important.”
Despite Morawiecki’s positive spin, the fact that Merkel openly backs Nord Stream 2 at this stage – after the coalition talks, and in the face of strong opposition from the U.S. government – it is clear that the Germans are not about to budge on Nord Stream 2.
Morawiecki warned that “Once Nord Stream 2 is going to be built (Russian President Vladimir) Putin can do with Ukraine whatever he wants. And then we have potentially his army on the eastern border of the EU.”
It’s not just the Ukrainian nuclear sector that is a ticking time bomb. It is the whole of Ukraine.