Is the EU locking into natural gas despite its promise to lead the global phase-out of fossil fuels?

At the north-western tip of Krk, Croatia’s largest island and a top tourist destination, a jetty is being built and pipes are being laid down into the ground. By the end of 2020, a 280-metre-long repurposed oil tanker should be moored there, in a picturesque bay just outside the town of Omišalj. The structure – known as LNG import terminal or simply LNG Krk – will be an important entry point for the liquefied natural gas (LNG) coming to Europe by sea.

To minimise the cost of shipping gas over long distances (i.e. overseas), natural gas gets cooled to -162˚C and turned into liquid, which compresses it by up to 600 times. Liquid gas is then transported to LNG import terminals, such as the one in Krk, where it gets regasified and then distributed to consumers via gas pipelines.

At full capacity, the future Krk terminal will be able to process 2.6 billion cubic metres (bcm) of gas per year – equivalent to almost 80 per cent of Croatia’s annual gas consumption. The government is presenting it as a strategic project for Croatia, crucial for the country’s energy independence. Like most European countries, Croatia imports its gas from Russia – around 2.04 bcm in 2018, or two-thirds of the country’s annual consumption. The EU started to look for alternative gas sources following a series of Russian-Ukrainian gas disputes that resulted in halting gas exports. Subsequently, LNG has become central to the EU’s energy policy.

In 2016, the European Commission unveiled an EU strategy for LNG and gas storage that included building the necessary infrastructure “to complete creation of the internal energy market and identifying the necessary projects to end the dependency of certain member states on one gas supply source”.

The European transition from coal to gas is warmly welcomed by the United States, which seeks to become the largest exporter of natural gas in the world (it is currently the world’s third-largest exporter of LNG, behind leader Australia and second place Qatar). In May 2019, the US Department of Energy (DOE) attempted to rebrand natural gas as “freedom gas”.

The US Ambassador to Croatia W. Robert Kohorst expressed his support for the LNG terminal in Krk, but the project has been strongly denounced by the local community and environmental organisations. Many also oppose the project on the grounds of its economic infeasibility. So far LNG Hrvatska, the company that will be running the terminal, has received binding offers from just two buyers that have committed to a total of 520 million cubic metres of gas per year, significantly less than the 1.5 bcm of gas needed for the terminal to break even. Moreover, critics have said that with additional pipelines coming to the region (such as the Trans Adriatic Pipeline connecting northern Greece to Italy via Albania, part of the so-called Southern Gas Corridor) there will be even more cheap Russian gas for sale in Europe.

In recent years, most LNG terminals haven’t been working at their full capacity, because of the EU’s low demand for LNG, which is still more expensive than the gas imported via pipelines. But 2019 ended up being a good year for LNG imports to Europe. Exports of LNG soared, as a warm winter in Asia cut heating demand and prompted Asian importers to divert cargoes to Europe. For the gas importers and LNG import terminals in Europe – such as the one that’s being built on the island of Krk – this is good news, as it means that LNG prices are becoming more competitive.

“Sometimes the political discourse is disconnected from the market realities but in this moment, they go hand in hand. There is a coincidence between the geopolitical and economic interests in Europe, as we’ve had a big oversupply of natural gas [from the US],” says Kirsten Westphal, head of the Geopolitics of Energy Transformation project at the German Institute for International and Security Affairs, in a phone interview with Equal Times. “We cannot predict what the demand or the prices will look like in the future. It will all depend on the geopolitics, the markets, the traders,” she adds.

Transition fuel?

For local and international environmental groups, the potential economic viability of the LNG market doesn’t change anything. Croatian environmental NGOs such as Zelena Akcija (Green Action) have been pushing against the Krk terminal project, saying that it simply makes the country more dependent on fossil fuels.

“We are against the Krk terminal because we don’t want to ‘add’ more gas to the market. Natural gas is still a fossil fuel and is therefore bad for the environment. It accelerates climate change,” says Marija Mileta from Zelena Akcija. “Also, large quantities of natural gas on the market – produced in the US – are extracted using the technology of fracking, which is also damaging the environment,” she explains.

Natural gas has been widely promoted as a ‘transition fuel’, the bridge to renewable energy, that burns cleaner than coal or oil. Eurogas, an association representing the European gas wholesale, retail and distribution sectors, estimates that gas fuels are instrumental in achieving the EU’s long-term climate objectives.

“Switching from coal to gas in power generation, replacing inefficient oil heaters with gas, using LNG in marine transport and for goods vehicles will significantly contribute to meeting the EU’s increased emissions reduction target by 2030,” said Eurogas secretary general James Watson in an email. “Further down the line, the deployment of renewable and decarbonised gases – biogas, biomethane and hydrogen – will be indispensable for meeting the 2050 targets,” he added.

But a report, The New Gas Boom published in July 2019 by the US-based environmental NGO Global Energy Monitor, claims that methane, the chief component in natural gas, is responsible for 25 per cent of global warming to date.

The report also states that “measured by global warming impacts, the scale of the LNG expansion under development is as large or greater than the expansion of coal-fired power plants, posing a direct challenge to Paris climate goals”. Other critics of the natural gas estimate that, by building more LNG infrastructure, Europe could end up locked-in to natural gas.

“We are phasing out of coal, but we should not fall into a trap of overestimating the need for infrastructure,” says Lisa Fischer, a senior policy advisor with E3G, an independent climate change think tank. “Nowadays, the infrastructure in Europe has been planned in a way that the companies in charge of transmission systems at the national level have their plans aggregated in a common European plan. Then the bottlenecks are identified. Of course, if you are a company that builds and sells pipes, you solve the bottlenecks by building more pipelines, not less – this is not what your business model is,” she explains.

In October 2019, the Corporate Europe Observatory, a Brussels-based research and campaign group exploring the impact of lobby groups on EU policymaking, teamed up with environmental groups including Friends of the Earth and Greenpeace to publish research which showed that since 2010, just five oil and gas giants – Shell, BP, Total, ExxonMobil and Chevron – have spent at least €250 million on lobbying the EU. The push for more LNG infrastructure has come directly from the gas and pipeline industries.

The report also noted that the EU, despite its attempts to lead the world in the fight against climate change, has been generously subsidising gas infrastructure. “Over €1.6 billion has gone on gas projects since 2014 when we know that any additional infrastructure will lock us into a fossil fuel future,” it says.

Two months later, in December 2019, Europe’s Green Deal was presented. The Green Deal is a cornerstone policy of the new European Commission president Ursula von der Leyen, labelled as a growth strategy that aims to transform the EU into a zero-emission yet competitive economy by 2050. In order to achieve this ambitious plan, the Commission has developed an ambitious roadmap of key policies and measures, such as coming up with the first European ‘Climate Law’ by March 2020, which should enshrine the 2050 climate neutrality objective in legislation. By summer 2020, the Commission should also present a plan to increase its target to reduce EU greenhouse gas emissions by 2030 from at least 50 per cent and towards 55 per cent compared with 1990 levels. Moreover, last November, the European Investment Bank vowed to stop funding all fossil fuel projects at the end of 2021, converting itself into a ‘climate bank’, after having already ended its lending to coal in 2013.

But the European Union’s lending arm may continue to subsidise natural gas infrastructure. In a report commissioned by the European Climate Foundation and published by industry consultants Artelys in January 2020, it was estimated that €29 billion could be “wasted” on 32 mostly “unnecessary” gas projects. These projects are on the list of so-called Projects of Common Interest (PCI), key cross-border infrastructure projects that link the energy systems of member states, which the European Commission generously subsidises. The Krk LNG terminal, also a PCI, was subsidised by €101.4 million by the Commission, out of the total cost of €233.6 million. The rest has been provided by the state (€100 million), and Croatia’s power company HEP and transmission pipe operator Plinacro, both state-owned (€32.2 million).

“The PCI list […] is a positive step towards completing the missing links in the gas infrastructure in central, eastern and south-eastern Europe. The existent and new gas grids can carry renewable and decarbonised gas. We will need this infrastructure to deliver the climate targets of the EU,” noted James Watson of Eurogas. Moreover, Florian Ermacora, a senior official at the European Commission’s energy directorate rejected claims that new infrastructure meant the EU was locking itself into natural gas, reported Euractiv on 24 January.

The Artelys study claimed, however, that new gas grids weren’t necessary, because the “existing EU gas infrastructure is sufficiently capable of meeting a variety of future gas demand scenarios in the EU28

, even in the event of extreme supply disruption cases.” The researchers failed to convince EU policymakers. On 12 February 2020, the European Parliament gave its formal backing to 32 major gas projects, with a total cost of up to €29 billion of taxpayers’ money.