Coal Increasingly Seen as Option for European Energy Security

By Nick Cunningham:

The crisis in Ukraine has thrust energy security to the top of the agenda in European capitals. With Russia accounting for almost one-third of Europe’s natural gas, the prospect of the conflict escalating has stoked fears of a supply disruption. At the time of this writing, Ukrainian officials said that any crossing of the border by Russian troops would be viewed in Kiev as an “invasion,” suggesting that the conflict could come to a head in the coming days or weeks.

While Europe’s dependence on Russian gas has been on the decline for years, it is obviously not free of Russia’s grip just yet. The standoff over Crimea, and now the eastern provinces of Ukraine, has Europelooking for alternatives. Ukraine is at the crossroads for a significant portion of European energy flows – Europe gets 16 percent of its natural gas from pipelines that pass through Ukraine.

Major Gas Pipelines Through Ukraine

As a whole, the EU gets about 40 percent of its gas from Russia, and 20 percent of its oil.

Replacing Russian gas will likely include some combination of greater pipeline and electrical grid interconnections between countries, more LNG imports, renewable energy, and a push for the development of European shale gas.

But a campaign to improve energy security could have coal at its core, despite many European governments’ long-held goals to reduce greenhouse gas emissions. Coal is still a low cost energy, and countries like Germany and Poland are major producers. And although Europe has made major progress in its use of renewable energy, it’s done so while keeping an increasingly nervous eye on Russia. As Ladka Bauerova writes in Bloomberg News, the energy security that coal provides may trump Europe’s climate goals.

The Polish government, in particular, is pushing hard to expand Europe’s consumption of coal. Polandproduces 158 million tons of coal per year and consumes nearly as much, second only to Germany in both categories. And with coal accounting for 75 percent of Poland’s electricity, it is not nearly as vulnerable to Russia’s manipulation of energy supplies as other Eastern European countries are.

Polish Prime Minister Donald Tusk recently touted his country’s relatively secure energy position to other European heads of government, as he tries to make coal a key plank in Europe’s energy strategy. “We want the whole of Europe to acknowledge coal as a legitimate energy source,” he said on a TV appearance on March 29. “Poland has been consistently proving that it can guarantee energy security.”

With few other short-term options, chances are his viewpoint will hold sway in Brussels as the EU cobbles together its energy security roadmap, due out in June.

When U.S. President Barack Obama visited Europe in late March, it appeared that European policymakers were pinning their hopes on the U.S. exporting large volumes of LNG to undercut Russia’s position. EU leaders, including German Chancellor Angela Merkel, pressed Obama to green light LNG export terminals. Obama suggested that the EU could smooth the way to greater American LNG exports if a free trade agreement with the U.S. could be agreed upon. But beyond that, he advised Europe to do more to develop its own energy, reportedly saying, “You cannot just rely on other people’s energy.” In any event, liquid natural gas from the U.S. is years away from becoming a significant export and is more likely to be destined for Asia when it does.

European-produced shale gas – once thought to hold promise — is looking less like a solid energy option. The Polish government has been aggressively supporting the development of shale gas industry and its geology initially appeared to hold potential. Several big companies made investments in Poland a few years ago, but with nearly all of the wells coming up dry, ExxonMobil and Marathon Oil, among others, pulled out in 2012 and there have been few positive developments since.

That is not to say that Poland will ultimately fail to develop shale gas, but even it succeeds, it would take years before commercial volumes are realized. Other nations including France and Bulgaria have implemented outright bans on hydraulic fracturing.

Renewable energy will continue to play an important role in Europe and already accounts for around one-quarter of Germany’s electricity generation. But it will only incrementally be added to the grid, and in places like Poland, where climate change is not a priority, renewable energy could take a backseat.

That leaves coal, which many climate hawks in Europe had hoped to move beyond. But for a continent skeptical of fracking, turning away from nuclear, and looking to replace for Russian gas, coal may end up having a longer shelf life than those hoping to address climate change previously thought.

This piece is cross-posted from OilPrice.com with permission.