The European Union’s USD221 billion (EUR210bn) REPowerEU scheme will accelerate the emergence of a hydrogen economy in the EU, while ending the trading bloc’s reliance upon imported Russian hydrocarbons by 2027.
The announcement by the European Commission’s DG Energy on 18 May that it was accelerating the pace of decarbonisation across its member states in response to Russia’s war in Ukraine was widely expected.
The scheme will seek to bring forward the end of the EU’s energy dependence upon imported Russian oil and gas supplies from 2030 to 2027.
The scheme takes the energy savings that the Fit for 55 package is expected to deliver (equivalent to 116 billion m³, bcm, or 30% of the EU’s current natural gas consumption), and extends the energy efficiency savings and consumption substitution schemes from previous EU packages. Fully EUR97bn investment in the scheme are intended to promote energy efficiency measures among energy-intense industries, as well as among other commercial consumers.
From a shipping perspective, the scheme includes short-term measures to expand the EU’s LNG imports and to expand gas pipeline capacity.However, the scale of the increase is quite moderate. The announcement only envisages a 40% increase in imported seaborne LNG volumes, with the scheme anticipating a rise in LNG imports of 50bcm. Pipeline supplies of natural gas will only increase by 10bcm.
In all, the EU only directly earmarked EUR10bn towards investments to import sufficient LNG and pipeline gas by 2030.
The biomethane sector has been treated separately, both because of its lower environmental footprint, and potentially because it would substitute imported LNG with local energy. The production of renewable methane has been allocated EUR37bn. The investment represents a significant change in ambition, dwarfing the EU’s previous support towards the biomethane sector. In July 2021 the European Commission announced investments of some EUR118 million in 32 bioLNG projects. However, even allowing for rapid growth in production, the investment will ‘only’ increase production to 17bcm by 2030.
The EU plans to offer EUR86bn to increase the proportion of energy produced from renewable sources by 2030.
The scheme represents a limited short-term increase in natural gas and LNG imports, and domestic biomethane production. Cumulatively, the scheme will only increase supply of natural gas, LNG and biomethane by 77bcm.
For the purposes of comparison, Russia typically supplied between 170bcm and 200 bcm via gas pipeline to EU customers before 2020. Russia has also supplied around 20% (close to 24 bcm) of Europe’s LNG imports in recent years from the Yamal project.
Renewables and hydrogen
The REPowerEU announcement reinstated the higher target for the proportion of clean energy in the bloc’s energy mix from 40% by 2030 to 45%. In part, this merely reflects the likely pace of the roll out of offshore and onshore renewables in the trading bloc’s largest economies, which have significantly exceeded the expectations of wind-sceptics since 2020.Achieving the targets will be easier to achieve as the proportion of coal fired power generation will decline rapidly across many parts of the trading bloc over the second half of the current decade.
The REPowerEU announcement also confirmed that the largest investments in the European Union’s scheme have been allocated to the expansion of the renewables sector and the stimulation of Europe’s emerging hydrogen economy.
The scheme included EUR113 billion, which included EUR86bn for the expansion of renewable production capacity and EUR27bn for the expansion of hydrogen electrolyser capacity.
The scheme envisages the production of 14 million tonnes of hydrogen or ammonia, around 8mt of which is intended to substitute existing natural gas consumption. This will lower natural gas consumption by around 27bcm, according to DG Energy.
In terms of the split between domestic production and imports of hydrogen or ammonia, 4mt will be produced within the EU, supported by the expansion in the EU’s green hydrogen production capacity (as well as the expansion in underlying renewable energy generation).
The scheme directly anticipates the import of up to 10 million tonnes per year of hydrogen or ammonia. This is likely to directly promote the development of green hydrogen supply in neighbouring Norway, and creates an opportunity for the UK, which will remain the largest producer of renewable electricity in Europe into the 2030s.
Assessment
The European Commission has not let the Ukraine crisis go to waste, and renewable energy advocates have increased renewable energy targets to 45%. Although the European Commission is supporting the expansion of biomethane production, and supporting the expansion of natural gas imports, the scale of the increase is lower than expected, and suggests that natural gas is being promoted as a near-term transition fuelto meet European Union demand over the coming five- to ten-year period.
The significant expansion in funding for hydrogen production is likely to accelerate the introduction of green hydrogen into the EU’s energy mix, and also create the conditions for the first commercial markets for imported seaborne hydrogen, and larger scale ammonia imports by 2027.
Significant questions remain unanswered by the announcement, which envisages a significant expansion in consumption of an energy vector that is not being produced at commercial scale, and potentially in deepsea ammonia transportation volumes. Beyond accelerating the development of Europe’s hydrogen economy, changes in the sources of supply and in the proportion of energy that Europe produces and consumes regionally will alter trade flows.
