Greece needs to re-think natural gas policy, starting with demand
The need to adapt quickly to a Europe without Russian energy will prove challenging for Greece, whose national energy strategy leans heavily on natural gas as a “transition fuel”. Is it time to rethink Greece’s “dash for gas”?
The European Union’s REPowerEU action plan outlined on March 8 in response to Russia’s invasion of Ukraine calls for a reduction in imports of Russian gas by two thirds by the end of 2022, and total independence from Russian fossil fuels “well before 2030”. Geopolitical brinkmanship may force this change sooner. Short-term pain for Europe is inevitable, but recent events will inevitably have much longer-term consequences for national as well as EU energy policies.
Several studies produced in the past month have shown that at a pan-European level, going “cold turkey” on Russian natural gas is theoretically possible, if somewhat complex and painful economically in the short term (for example, this paper by the Bruegel think-tank and the recommendations from various other authors summarised here by Adam Tooze).
For Greece, the challenge is compounded by the fact that the thrust of national energy policy has been to aggressively promote the use of natural gas, first as a cheaper, cleaner alternative to coal and oil, and now more explicitly as a “transition fuel” to a zero carbon future.
This was a risky proposition from the start. With no easily exploitable domestic reserves, virtually all the natural gas consumed in Greece is imported. Since the strategic decision was made to introduce natural gas in the 1990s, Greece has diversified its sources of supply.
Russia, once the dominant supplier, has seen its share of the Greek market trimmed to just under 40 pct by 2020. The US has rapidly risen to second place thanks to increasing supplies of shale gas LNG, covering 25 pct of Greek demand. The remainder has been supplied by Turkey via pipeline and a variety of other sources including Qatar and Algeria via LNG. In the latest diversification move, the opening of the TAP pipeline from Azerbaijan at the end of 2020 is expected to contribute significantly more in the coming years.
In very blunt terms, though, if Greece were to follow the EU’s middle line, it would have to immediately find substitutes to satisfy around a quarter of its natural gas demand, and in pretty short order address the full 40 pct it has been importing from Russia, which in 2020 amounted to 2.3 bcm.
The problem is that the demand figure is not static but is in fact trending in the wrong direction because of proactive government policies.
Since Greece started using natural gas in the 1990s it has been growing its consumption at a pace of roughly 10 pct annually, against a backdrop of falling overall energy usage. By 2020, annual natural gas consumption had reached 5.5 bcm, gradually edging out lignite in electricity generation and heating oil in buildings.
The more radical approach adopted by the New Democracy government in 2019 to meet climate change targets is – somewhat counter-intuitively – set to prolong this upward trend.
Firstly, in order to implement a rapid phase-out of coal-fired power generation – the so-called “de-lignitisation” strategy – the national plan depends on an increase of gas-fired capacity from 5 GW in 2020 to over 7 GW in the next decade.
Secondly, Greece is not only licensing new gas-fired power plants, but is actively encouraging the uptake of natural gas for home heating and transport. EU funding is currently being directed towards subsidising the installation of gas boilers and extending the regional gas distribution networks beyond the main urban centres. In addition, new proposals set to be enshrined in the country’s first Climate Law – the main instrument for meeting the EU’s “Fit for 55” climate targets - include the phasing out of oil-burning boilers in homes in favour of gas boilers.
In 2019, 65 pct of natural gas in Greece was consumed for electricity generation, 19 pct by households and small businesses, and 16 pct by industry.
As it stands, the 2019 National Energy and Climate Plan (NECP) foresees that natural gas imports will be reduced by about 8 pct by 2030. This, however, depends largely on the optimistic and largely unsupported assumption that natural gas use in electricity generation will decline by about 20 pct after 2025. Outside the power sector, the target, according to the plan, is to increase direct use of gas by 50 pct from 2017 levels in households, industry, and transport.
Greece’s approach was already falling out of step with the EU’s climate strategy, which clearly signals a rapid phase-out of natural gas through mechanisms such as a ban on new fossil-fuel boilers and the extension of emissions cap-and-trade to buildings. The unfolding crisis looks likely to accelerate European pressure in the direction of less gas, while the national policies pursued by Greece are actively promoting investment in what are set rapidly to become stranded assets.
Having not yet fully internalised the last EU policy shift which came with “Fit for 55”, Greece now shows no sign of acknowledging – at least publicly – the full implications of the handbrake turn on Russian gas.
Putting the brakes on
Perhaps the clearest message of the European-level energy debate in recent weeks has been the need for governments to act rapidly to adapt their national plans to the new geopolitical reality. The second, and perhaps equally important, has been the recognition that demand needs to be managed much more robustly than previously thought possible or desirable in order to adjust to life without Russian gas.
The messages coming from the Greek government have centred almost entirely on the supply side: managing natural gas prices, substituting supply, and building more gas import and storage infrastructure - in other words doing everything to enable business as usual. Some of these actions will of course be necessary to avoid a major dislocation. Others, however, are more questionable on grounds of cost, time, climate impact and/or geopolitics.
Among the proposals that have been aired in the media are – in decreasing order of plausibility – the construction of additional gas storage and LNG regasification facilities, fast-track licensing for domestic hydrocarbon exploration, and a possible revival of the 6-bln-euro EastMed pipeline project to transport gas from the (as yet untapped) gas fields of Cyprus bypassing Turkey.
But while the government seems prepared to think big on the supply side, there has been virtually no discussion of managing demand, and in particular the potential in the government’s hands for curbing dependence on imported gas in the medium term:
- At the very least, we should be hitting the pause button on any policies which encourage switching to natural gas - households and businesses should not be committed to using a fuel which in the very best case will be phased out in the next 30 years and whose cost may become unbearable in the meantime.
- The de-lignitisation strategy should be re-examined even if the alternative is a temporary return to dirty coal – the wisdom of locking in several decades of emissions from natural gas versus extending the life of coal-fired stations for a few years while renewable capacity is built up has never been seriously scrutinised or debated.
- Investment in renewables is already surging particularly in the power sector, with licenses for some technologies outpacing the system’s capacity to absorb them – the emphasis should be on accelerating the integration renewables with storage and grid management, as well as on more investment underexploited technologies such as geothermal energy.
- Any major infrastructure projects should be assessed based on appetite and demand from neighbouring countries for imports and the prospects for repurposing in a post-gas world, for example for transporting alternative fuels.
None of this is simple or easy, but then neither is the alternative as straightforward and affordable as it once seemed.
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