EU energy sector modernised profoundly in recent times – Maros Sefcovic

• EU must convince members  European approach is better

• LNG to be important to coal-reliant countries during energy transition

• Adapting to digital revolution should be next commission’s priority

LONDON (ICIS)–The full integration of markets and decarbonisation remain challenges for the incoming European Union administration in modernising the energy sector, Maros Sefcovic, the European Commission’s vice president for Energy Union said in an exclusive interview with ICIS.

Sefcovic described the European Union’s activities in the last few years as the most profound modernisation of the energy sector in recent times.

Reflecting on his five-year tenure which ends in October, Sefcovic said the EU’s energy union strategy, adopted in 2015, has set out some of the most ambitious goals globally with regards to bringing clean energy to consumers and pursuing the integration of electricity and gas markets.

Four years on, key projects are being implemented on time and by 2022, the EU´s energy system should be more resilient to possible disruption or shocks, he said. By then, member states should have access to three sources of gas.

“At the start, there was a need to convince member states why the European approach is much better. Mutual trust and solidarity also make economic sense,” he said.

“The EU’s energy union is just becoming a reality but is exceeding our expectation – we have opened up the free flow of [electricity and natural gas] more than expected,” he said.

The EU has a set of rules that could be applied to states which fail to comply with regulations. However, Sefcovic said Brussels had always “preferred to be on the more positive side, motivating, rather than punishing states into compliance”.

LNG

Sefcovic acknowledged that collateral factors, such as the rising tide of LNG globally, could help members, particularly those relying on coal, to make a smoother transition towards reaching the EU’s goals to reduce greenhouse gas emissions by 40% by 2030 and carbon neutrality by 2050.

Along with resource diversification, the full integration of energy markets, research innovation, the decarbonisation of the economy and energy efficiency are the five pillars of the energy union strategy, which Sefcovic has been spearheading.

The clean energy for all Europeans package establishes a binding target of 32% for renewable energy sources in the EU’s energy mix by 2030 and at least 32.5% for energy efficiency also by that date.

However, Sefcovic said that some coal-reliant countries such as Poland could benefit from importing LNG which is 50% less carbon intensive than coal.

“Eleven member states are already able to receive LNG through terminals and we can import 210 billion cubic metres of LNG, this is half of [the EU’s] yearly consumption,” he said.

Sefcovic said the EU had implemented the necessary legislation and built the right infrastructure to ensure LNG reaches member states, but added that the import of the fuel should be left to traders depending on the best price they can get for the fuel.

UKRAINE

A challenge that Sefcovic has faced as the EU’s commissioner for energy union was to support the liberalisation of Ukraine’s natural gas and electricity sectors since the revolution of 2014 and to manage tense relations between the country and neighbouring Russia.

Reform of the gas sector started almost immediately after the overthrow of the previous regime while the liberalisation of the electricity sector kicked in two weeks ago.

Some observers have argued that the country was lagging behind its reform objectives and some even feared it would miss its reform targets in the electricity sector or backtrack on promises to eliminate state aid.

“We do not give enough credit to Ukraine for those reforms. I come from a country that went through a similar transition and remember well how demanding those reforms are,”said Sefcovic, who ran for the Slovak presidency earlier this year.

“However, what I would like to see is a faster unbundling of the gas transmission system operator [from parent company Naftogaz] and the certification of the new transmission system operator (TSO) by the end of this year.”

The unbundling of the grid operator has been a key requirement of the Ukrainian liberalisation process. Earlier this year Naftogaz said it had established a new TSO, and would apply for certification this month.

It is also an important element in the future of Russian gas transit via Ukraine after 2020 which the three parties would need to negotiate when trilateral talks resume in September, Sefcovic said.

Historically, Ukraine has been the main transit route for Russian gas to Europe, but this could change from 2020 once the existing contract expires and Russia diverts volumes to its newly commissioned Nord Stream 2 pipeline.

He said the unbundling and certification of the new TSO would very much dictate the terms of the negotiations, including whether the off-take points for Russian gas would be moved from the west, where they currently are, to the east on the Ukrainian-Russian border.

Sefcovic also noted that the EU would be willing to discuss a proposal made by the current gas TSO Ukrtransgaz to create a four billion cubic metre stock in Ukrainian storages that would guarantee security of supply to eastern European countries in case of Russian transit curtailments this winter.

“I think it’s possible, but the EU will have to work in a concrete environment,” he said, stressing that discussions would also need to involve representatives of the Ukrainian parliament as well as the president.

TURKEY

Equally challenging for the EU is managing currently escalating tensions with Turkey over its intention to send two drilling ships, including one last week, in the Mediterranean Sea.

Brussels has threatened sanctions against Ankara amid claims it was “illegally” drilling for oil and gas off Cyprus, although Ankara has consistently rejected the claims and vowed to press ahead with the operations.

Sefcovic said the EU took a principled approach towards Cyprus, arguing that Ankara’s decision to start drilling was “a case of violation” of an EU member state’s rights.

However, he acknowledged Turkey’s growing role as a transit route for Caspian gas and a key component of the EU-backed Southern Gas Corridor.

The project is due to be commissioned next year and southern European countries such as Greece, Bulgaria, Albania and Italy are expected to start off-taking Azerbaijani gas transited via Turkey.

“The potential for cooperation for the EU with Turkey is quite high and we’ve been very helpful in making sure the Southern Gas Corridor is smoothly developed, although discussions about it were not easy,” he added.

DIGITAL TRANSFORMATION

Longer term, the biggest challenge for the EU will be to accommodate the disruptions that are or will be occurring as a result of the digital revolution, Sefcovic said.

He pointed out that developments in the area of robotics, artificial intelligence, clean mobility or smart grids would lead to more decentralisation, including in the energy sector, stressing the need for inter-sector cooperation.

“To manage this well, we need to think about people much more – to have a workforce in Europe that is adapted to the new challenges. I am constantly reminded that the current top ten jobs did not exist five years ago. This means there is a constant need for upskilling and upgrading.”

Sefcovic intends to remain active in EU politics when the new commission is formed later this year.

“We need to develop knowledge to be prepared for a new world,” he said.