What Is the Future of Europe’s Energy Transition

FACING EUROPE’S ENERGY DILEMMA

I see Europe’s energy future in a very different way than most European governments do. My focus has always been to look at what the supply and demand factors are that determine energy prices, and that is, in my view, the driving wedge that determines the direction in which energy markets develop. By this I mean in particular which energy sources are used, as economically efficient as possible. Furthermore, it is always important for me to know which energy resources are available in a given region.


ENERGY GEOPOLITICS: A BALANCING ACT FOR GERMANY AND THE EUROPEAN UNION

For example, the availability of crude oil will drop dramatically due to peak oil. The factor here again is the available supply and the demand for the energy raw material. In the coming years, China will be a major player in the energy market and will have a major influence on prices. This means that both the USA and China will drive up prices on the demand side, but supply will be driven by the oil-producing countries, which still have relatively low net consumption. This includes the total production of crude oil minus exported crude oil and processed crude oil. In countries like Saudi Arabia, the net consumption within the country is increasing due to the increased consumption of crude oil by the local population, which inevitably leads to an increase in the net consumption of crude oil. However, this can be observed much more dramatically in countries like the USA, if one calculates the share of shale oil. Then it can be quickly seen that the net consumption of the total production quantity of crude oil is constantly increasing. To what extent this has political consequences depends on whether the countries can afford a high net consumption, or whether the leaders of the Middle East countries can do without the export revenues from the sale of crude oil.


GERMANY’S ENERGY ALLIANCE WITH RUSSIA UNDERMINES EUROPE’S RELATIONSHIP WITH THE UNITED STATES

Europe’s relationship with Russia is just as delicate, which is, and probably will remain, a very important supplier of energy to the European Union due to its enormous oil and gas reserves. We should remember here that the European Union will inevitably have to reckon with declining oil and gas production due to declining production rates in the North Sea oil fields. Nevertheless, it makes sense to try to develop the remaining oil and gas reserves in the North Sea and thus to provide a small amount of support for the domestic oil and gas market. In this respect, in view of the declining oil and gas reserves in the North Sea, the increased interest of the European Union and Germany in particular in doing business with the Russian Federation in the energy sector can also be explained. Even if there is fierce resistance from the American, Polish and Ukrainian sides, from an energy policy point of view it is extremely important for Central Europe to secure these supply volumes from Russia, otherwise the Chinese will do so. We have to bear in mind that Nordstream 2 is a natural gas project which can cover the basic energy demand in Central Europe in the long term, especially if we take into account the long-term nature of the current treaty agreements between China and Russia, which are extraordinary. The consistency of the quantities supplied from Russia is truly unique; by comparison, the security of supply of LNG from the USA is not always guaranteed and requires enormous safety requirements to avoid the worst risks, e.g. with regard to the flammability of the material. In addition, Russia of course has a geopolitical interest in doing business with various neighboring countries in order to protect itself from economic risks in the buyer countries. A major concern of the US-American government is NATO protection, as Germany indirectly co-finances the construction of the Russian military apparatus. Germany also spends a very small part of its national budget on armaments and defence.


GERMANY’S PROSPERITY DEPENDS ON RUSSIA’S ENERGY ABUNDANCE

This naturally raises the question of why Germany and the European Union do not rely much more on the Russian Federation when it comes to meeting basic energy needs in Central Europe. Europe has a hard time finding the right energy fuel that can guarantee stable energy supplies,  at a reasonable cost.  In all of this, NATO is an essential factor. On the one hand, NATO grants Germany a military umbrella which Germany would not have without the United States to send its goods exports safely to the ports of the world. On the other hand there is also a certain danger due to the fact that production in Germany is coupled to favourable energy prices and stable energy supplies. This relationship must always be in balance, and only then will there be an equilibrium in Germany between the need for protection in the absence of its own powerful military protection, which would cause discomfort in other European neighbouring states, and Germany’s export model which underlies Germany’s welfare state, which is dependent on cheap energy.


RUSSIA’S ENERGY POLICY AND GEOPOLITICAL INTERESTS

Russia’s geopolitical interests could open Pandora’s Box, with no telling where interaction with Russia begins and where it ends. Energy interests in Russia are always linked to political interests. The interests of neighbours such as the Baltic states, Poland and Ukraine must also be carefully weighted without overshadowing Germany’s own energy interests. Above all, the strategic interests of the United States must be compared with those of the European Union, with Germany being the linch pin. The danger here is that the cost of losing political links with neighbouring countries will outweigh the cost benefits of a common energy policy with Russia. The consequences of this can already be seen, because Poland is considering an alternative supply of LNG from the USA and would like to see the construction of a gas pipeline from Norway via Denmark through the Baltic Sea into Poland.


GERMANY IS GIVING UP ON NUCLEAR POWER

Furthermore, Germany should carefully consider which energy policy it has in mind for the future, taking into account the end of civilian use of nuclear energy. Because it is a major disturbance with regard to the energy price problem if one of the most industrialized countries in Europe aims to generate its electricity without nuclear power, although it is not even clear whether the demand for energy from abroad, in this case from Russia, can be met. Again, moral principles of environmental awareness are often contrary to geopolitical and energy policy objectives.

As a result, Germany loses its competence in the construction of nuclear power plants, as it no longer operates its own nuclear power plants on German soil, this inevitably leads to other european states obtaining expertise from outside the European Union for the construction of nuclear power plants. Also Areva, Europe’s leading company for the construction and operation of nuclear power plants had difficulties with the timely completion of the nuclear power plant in Finland, Hanhikivi 1. The Financial Times mentioned that the operational operation of the plant will be delayed by 4 years, which is ruinous for the cash flow of this project. Word Nuclear News reports that states like Serbia are looking for alternative solutions to the construction of nuclear power plants, and this is where Russia comes in, a country that has expanded its expertise in nuclear power over decades and is now building not only nuclear-powered submarines, but also nuclear-powered icebreakers. Russia has also learned a lot from the mistakes of the past with regard to the operation of the Chernobyl plant.


ALTERNATIVES TO NUCLEAR ENERGY IN GERMANY AND IN EUROPE

The fact that very few European countries, including Italy, have decided not to use nuclear power is due to the fact that this means a significant cut in the ability of a nation to remain competitive at the highest level in order to participate in the growth markets of the future, which means especially in the industrial sector and manufacturing the lowest possible energy costs, and not to become too dependent on external suppliers who later dictate the energy prices for which there are no alternative supplie


GERMANY’S ENERGY POVERTY THREATENS ITS INDUSTRIAL MIGHT

To name just one example among many, the German steel industry and the German chemical industry were leading industries in Germany that exerted a significant influence on the economic development of the country. However, due to high energy costs, steel production became increasingly unprofitable for the manufacturers, so that many of them increased and expanded production abroad. The German chemical industry is particularly dependent on cheap energy procurement, as many chemical processes require a lot of energy to produce chemicals, especially in the form of heat. While many chemical plants were still omnipresent in the Rhine-Main region in the 1970s, these companies were gradually pushed back, although it was in the interest of the Federal Republic of Germany to keep these companies on site in order to create an economic basis for economic activities based on them. So it can be assumed that the economic progress increasingly depends on how far the countries of the European Union are able to reduce their energy costs.


ENERGY-SAVING MEASURES MIGHT COME TO EUROPE’S AID AND HELP REDUCE ENERGY IMPORTS

Thus we come to the next point which has a significant influence on the technical progress of the next 20 to 30 years, in Germany and in Europe. To what extent are European countries able to reduce their energy consumption through energy-saving measures? Let’s just think of the German government’s goals of introducing smart meters in the majority of homes in the coming years, so that customers can assess their energy consumption precisely and save energy. The question we have to ask ourselves is to what extent the energy demand should be reduced, because in many German households the walls are undercooled and susceptible to mould. A strategy pursued here by the Federal Republic of Germany is to insulate homes. However, it must be considered that the insulation of entire streets has as a consequence that the aesthetics of the real estate clearly loses. As you can see, there are always compensation measures, if you solve a problem, a new one arises.


COMPLEX SOCIETIES REQUIRE MORE ENERGY IN ORDER TO FUNCTION

Basically, it also leads to the following facts, which Joseph Tainter describes as complexity costs. The main driver of how complex a society becomes is the availability and cost efficiency of energy. An ant colonies and termites, for example, have a well-balanced energy balance if one takes into account the availability of resources, including food, in their designated territory. The situation is similar for humans, who are related to the environment and the availability of natural resources. Thus, even climate change must be taken into account when it comes to how humans can thrive in a global ecosystem with the availability of certain energy resources. And so Germany and the European Union must also find ways to cover the gap between required and domestic resources through energy cooperation with the USA and Russia.

 

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