The EU's gas policies and their implications for Cyprus

In addition to electricity, the new standards will have an influence on other energy sectors, including transportation, heating, and shipping.

The EU's petrol policies are contained in its RePowerEU plan, which aims to reduce petrol consumption by 30% by 2030 and continue to reduce it on the path to net-zero emissions by 2050.

The recently established aggressive climate targets for 2030 not only support but rely on it: reduce carbon emissions by 55% compared to 1990 levels, increase renewables share of final energy consumption to 42.5%, and reduce final energy consumption by 11.7%. These targets cannot be met unless fossil-fuel consumption is reduced.

In addition to electricity, the new standards will have an influence on other energy sectors, including transportation, heating, and shipping. Renewables must account for 62% of total energy consumption in the latter.

In response to Europe's new ambitions, Cyprus will be urged to raise its own targets in its 2021-2030 National Energy and Climate Plan. And, like the EU, Cyprus will be unable to meet the new targets unless it significantly increases renewables adoption while decreasing fossil-fuel usage.

Cyprus is now embroiled in a controversy over natural gas imports or the development of its own gasfields, which was begun by the country's new Energy Minister, George Papanastasiou. However, while this is essential in terms of shifting away from the use of oil in power generation, the priority should be renewables in light of the EU's energy strategy.

The European Commission's (EC) energy advice to Cyprus earlier this week outline the way forward. I repeat these because they provide a crucial framework for progress in the coming years. “To reduce dependence on fossil-fuels and to diversify the energy supply. To better exploit all the untapped potential of renewable energy production, to accelerate the development of renewable energy sources by using appropriate financial instruments and by making further investments to upgrade and modernize the electricity grid, including energy storage facilities. To accelerate the development of electrical interconnections. Expand and accelerate energy efficiency measures, also to tackle energy poverty, as well as the shift towards sustainable transport. To intensify policy efforts aimed at providing and acquiring the skills needed for the green transition.”

Petrol consumption in the EU

According to Eurostat, natural gas consumption in the EU declined 17.7% between August 2022 and April 2023, compared to the average for the same period between 2017 and 2022.

According to studies, even if energy becomes cheaper, petrol demand will continue to fall, with the EU on track to reduce petrol and oil use by 30% by 2030, as planned by RePowerEU.

Europe is on a 'irreversible' fossil-fuel-free road. This is what motivated Ursula von der Leyen, a member of the European Parliament, to declare that the "growth model based on fossil fuels is simply obsolete."

As a result, the EU has no need for additional gas supplies and opposes the construction of new gas import infrastructure. Long-term gas supply contracts are no longer being entered into by European energy providers.

According to a research published this month by Strategic Perspectives, the push for renewables to achieve the EU's new climate targets will result in energy prices falling by at least 25% by 2030. As renewables expand their share of electricity production, they increase the amount of zero marginal cost energy and drive down prices - solar and wind power generation require upfront capital expenditure but have little to no running costs. As a result, renewable electricity rates should be based on recouping the initial investment plus a sustainable profit. There is no need for prices to rise, resulting in huge profits. Superprofits must be recovered by the government.

If Cyprus takes a similar path, it might reap similar benefits, providing renewable energy projects are granted on a competitive basis.

What does this mean for Cyprus?

Cyprus has no control over natural gas. LNG imports and prices are subject to global market forces. Because of rising Asian demand, LNG prices in Europe are expected to continue over €50/MWh (about $75/barrel of oil) for the foreseeable future. However, because to low demand, the price is currently less than €25/MWh.

Natural gas production and delivery to the island are dependent on multinational oil and gas corporations' (IOCs') commercial interests and willingness to invest, as well as worldwide market prices. It is entirely up to them whether or not this occurs.

Cyprus has complete control over renewable energy production, which the island has a lot of. The European Commission highly encourages and will support this.

The energy minister was correct earlier this week when he stated that the state is to blame for rising energy prices. Tying EAC's hands has not only failed, but it may also be a contributing factor to high electricity prices. As I have repeatedly stated, EAC should participate in competitive bidding for additional renewable energy generation.

The desire to use natural gas from both the gasfields within Cyprus' EEZ and the wider region is understandable. However, in doing so, the emphasis and priority should be on removing all barriers to renewable energy use. As a means of cutting electricity prices and emissions, this should be the primary focus.

Rooftop solar should be at the top of the priority list. Cypriots have recognised its benefits, and those who have been fortunate enough to install rooftop solar have enjoyed significant reductions in their electricity bills. This should be promoted and helped in a positive way.

Finally, there is the EastMed.

Mr Descalzi's remarks that the construction of the EastMed gas pipeline necessitates Turkey's geopolitical cooperation are unreasonable. This is based on the unsustainable Turkey-Libya Maritime MoU, which no one recognises except Turkey and Libya.

In any event, while the EastMed gas pipeline continues to garner interest, it is primarily from politicians. Europe does not require any more gas, and Israel has no gas to supply it. Chevron has pledged to doubling gas exports to Egypt to 20 billion cubic metres per year by 2027 and is proposing LNG exports via an FLNG installed over Leviathan.

Mr Descalzi, on the other hand, has struck a nerve. And it is Turkey's unjustified continental shelf claims that infringe on Cyprus' EEZ, as well as Turkish Cypriot demands for Cypriot gas, that Turkey supports. Turkey's assertiveness, and demonstrated willingness to pursue this through hostile action, is viewed as a geopolitical risk by the IOCs, and especially by banks and financial institutions who will have to fund up to 70% of any gasfield development. Any such development ambitions may be jeopardised if the Cyprus situation is not resolved.

However, we should be able to see how the IOCs respond at the minister's May 29 meeting in Nicosia. Cyprus's energy requires a strategy.

By fLEXI tEAM