Navigating the Geopolitical Storm: Europe’s Energy Security | Joanna Pandera, Forum Energii

Okay, welcome everybody, it's my pleasure to be here, maybe I will say a couple of words about myself, of who I am. I establish and run Forum Energii, which is think tank supporting energy transition in Poland, Warsaw, however, so actually I manage the team of 30 people, we have three analytical teams, we focus on the power market, heating markets and also industry, but also I have some European banks, and I have a great background, I have a great background, I have worked many years in Germany, almost half of my professional career I have spent in Berlin working with energy, climate, and environment policies and since two years I am the special advisor of Dan Jorgensen which gives me also a kind of flavour of how European Commission thinks and what are the challenges ahead of us. I just need to tell you that even this week I had the conversation I had the conversation with myself from DG NR and this conversation says it's alright, Joanna, it is bad and it will be worse. So this nice intro to this conversation, to this let's say, to my presentation, I think is a good starting point, that the situation is really serious. However, my theory is that we shouldn't panic really. So there is some logic behind, there is some structure of the crisis which we see over the years. It's not the first crisis which we are facing. So today I prepared my presentation around three points. So first I would like to focus on energy shocks. I'm sure that you know all that because you are dealing with energy sector professionally. But a big structure, how it was, how it is and then what does it mean? So certainly this crisis which we are facing now has some implications. So in my view it's introducing a big policy change which we will see now. However, everybody now looks for the short term solution. But there will be certainly long term impact of this crisis. Not going back to the old tracks. And so what are the implications? What we may expect? So I try, once I prepare this presentation, to manage this complexity and create some structure. So starting with the first point, what is actually a big topic for us, which was actually, as I come from the country, which was always very focused on energy, resilience, independence. And Russian fossil fuels were never option for us, even if we use them for years. So I saw this difference in Brussels in approaching the energy sources imports. But the fact is that we are structurally dependent on the fossil fuels. We import almost 100% of oil, 85% of gas and solid fuels are still important. So we are structurally dependent. 57% of our energy is coming from abroad. And this is something that we will need to tackle in the context that those crises and those shocks which we see are happening again and again. However, it's not something completely unique. So if you take a look, since the last 40, 50 years, we face different crises. So starting with a big shock, which I think was in the 70s, oil crisis, two times, which happened. And then different disputes around Russia, around also Strait of Ormuz is nothing new. However, and of course, COVID also was a different kind of crisis. But actually, let's focus only on the last six, seven years and the nature of this crisis. So we can see that actually everything, what is, it started with, we may say, demand crisis in a sense that once COVID happened, the demand for energy sources dropped. And it was the first shock and we need to absorb it. So we need to, as decision makers, but also companies, we need to adapt that change very quickly, which was also, there was a lot of panic around what happens next, how we will recover from the crisis. So coming back to the old truck was also quite expensive. So number one. Number two, full-scale invasion of Russia in Ukraine was also something that was not expected. Because I remember even one day before the invasion of Russia started, I talked with some colleagues in Brussels, but also with some German colleagues. And they convinced me it will never happen because Russia is really needs us also. They need our gas contract. And then in the morning day after, after this conversation which we had, as I'm in some advisory group in Brussels, the attack really happened. And I think each year we are really surprised how far Russia is going. So it is creating, first of all, supply shock because Europe now is phasing out Russian fossil fuels. But I think it is also policy shock because we thought that we will continue that collaboration with Russia. So it's our more or less stable partner. So it is also a big change and new type of crisis. And also because it's very close to our borders. And Strait of Ormuz, which is another type of crisis, which is of course mainly around oil, but it's about transport and logistics, which is also quite relevant. So it should teach us how to behave. So generally it's a short slide which shows the importance of Straits of Ormuz. I think you know all of that. It's mainly around oil, but of course also gas, LPG, LNG is following this kind of crisis. But certainly what is happening now, I think there was a beginning where everybody talked about this, but there is continuation. So we don't see actually that this is really coming to, it is like recovering this crisis, but it is a kind of continuation where we see also fossil fuels are used or imports are used just a pressure measure on Europe, which will create certainly some policy response. And if you compare also because we saw different crises in the past. I try actually to compare it. It was really hard because also the level of dependence, like over the last 50 years. So all of them, they were different in the context of volume of how much energy sources we were, let's say, missing, what was actually the price reaction. So it was really hard to present it in a way that we will have an overview about the, let's say, crisis in the past, energy shocks in the past. So I just took from the World Bank report, commodities market outlook, some comparison which shows actually how big the current energy crisis is compared to the, to those in the past. So, we see, it is really huge. So, mainly when it comes to prices, but also volumes. So on this, on this slide, you can see that the price impact is really big, but also physical losses of oil supplies. So it will have structural and long-term impacts. So, because I really sometimes see that people expect that we will, once the war will be over, we will come back to the old tracks. Trump's saying each day that it's end of the war, but then it is not happening. But still, recovery from this crisis, it's quite complicated. So, there was this, let's say, an attempt to understand or structure our mind what energy shocks currently means, and that there are different types of shocks, and some, let's say, changes which are needed. So, I see a major paradigm shift. And also, here I talk a bit more from the European perspective, because indeed in my country, everybody, it was just like really paradigm that we don't want to make ourselves dependent. Of course, on the other hand, it was all about coal, that, you know, Poland is using a lot of coal. By the way, the share of coal is sharply going down. But nevertheless, it was always, let's keep our coal, because we want to be independent. Now coal is more or less over. But nevertheless, in the past, we thought that we have commercial ties as European countries. We are very strong. We are powerful. We are a huge continent. So, those contracts are relevant for our partners globally. And this is how we want to keep peace also, how we want to create relationships. Just naming the famous Wandel Durkhandel from Germany, which was also about, we want to keep Russia quiet. There was a first attack on Russia in 2014. This was a second attack on Russia in the Ukraine, which ended up actually with no reaction of the EU member states. With some EU energy strategy published in 2014, which actually foreseen that there will be diversification of gas supplies, which, by the end, did not happen, as envisaged, let's say, it was not treated seriously, at least by some member states. So, by the way, now European Commission will publish, end of the year, a new energy security strategy, which will be still, in my view, a bit less than it is expected from the market and from the, let's say, in the context of situation, because it will be revision of two regulations. But nevertheless, it was the old approach. And actually, it was not conviction that the supplier concentration is a major concern. So, because we are so strong and powerful, and the paradigm was that the lowest cost supply contract is the priority. So, it should be cheap. So, it is the old paradigm. Then, after COVID, after Russia invaded Ukraine, we see this major change, in my view, which is still not implemented entirely in some of the member states, but I see it in Brussels as a major move. So, also dealing with energy and climate, we talked a lot about green transition, about climate ambitions. Now we are talking about energy security, which means that energy and climate goes hand in hand. However, the challenge is that it is all costly, the situation in which we are. So, it is also shaking a bit, this approach toward energy security. So, we have different pressure now, which we need to address simultaneously. So, we have, of course, a big strategy of phasing out completely Russian fossil fuels. However, we see in some member states, there are voices we should come back to gas supplies from Russia, because it's cheap. We have growing dependence on China and growing pressure, let's say, in the relation with China. We have also very difficult trans-entrantic relationship, not going deep into details. And we see also that not only supplies, volumes are, let's say, under pressure, but also the import origins. So, it is new that we should really care from which we are buying the sources and what are the routes which are used for this. But, we see also, and this is something where, in my view, some politicians do not completely understand that those policy choices need to be reflected in price. So, when I also see everywhere the critics or big pressure on lowering the cost of energy transition, I think, and the expectation that once we will build renewables, there will be really, like, cheaper electricity. It is, in my view, a bit, I don't want to say fake news, but this is really simplification. As we all know that in order to make the energy system cheaper based on renewables, we need to have other measures like flexibility, integration of, redesigning electricity market. We need also greed and so on. So, this is also this vulnerability, how much we are put under pressure. And we see, actually, big unpredictability. So, I see all, everybody wants to minimize the risk or not have the risk at all. But I think that now navigating through this uncertainty is a strength. So, we should just adapt to these changes. We see also that the asset role is changing. So, we see greed, storage, demand, site response, demand-side response on the industry side, on the consumer side, as a key. We see renewables, which will be the core element of energy system. The challenge is only how to redesign the system, so it will be really based on variable renewables. We see natural gas, which will be still a kind of backup for the energy system. But its share probably needs to be really treated differently from the overall economy perspective and this kind of dependency side, not only as a single, let's say, source of energy in power market, heating market. We see also growing interest in nuclear. However, it's still the big question mark about how much is it feasible, how much it will cost. So, it's more of the hope than really real solution. What is also quite relevant, and this is, I only prepared this map, like, to really show that what is also changing and this growing, let's say, attention towards Baltic Sea, which is becoming, as being a bit, you may say, in the middle of the European Union, it is becoming very strategic when it comes to its importance for energy. It is becoming a kind of energy hub, where electricity, gas pipes are becoming relevant offshore wind farms and how we build them, how we will share the resources within the Baltic Sea. There is a lot of infrastructure, nuclear power plants and power plants around the Baltic Sea. So, certainly, there is a lot of interest, but also the threat when it comes to protection of that infrastructure, because it may become like heart of energy. Maybe I'm a bit exaggerating because still generation and greets in member states are relevant, but we should really pay more attention to the Baltic Sea and also protect infrastructure. Because also we see that the threat is growing through the hybrid attacks and it's still not enough to protect the infrastructure. So, the last part about the impact. So, we see how... I see a growing interest. I mean, electrification is the core of the strategy. We saw European Commission publish electrification action plan. So, the direction of travel is more or less clear. The challenge is the price of electricity. So, electrification will not be progressed when electricity will be expensive. Also, we analyze within Inforum Energy the challenge of gas taxation towards electricity taxation. And this is really a mess. So, we give really not the right signals for consumers to electrify. But nevertheless, what will be really emerging topics is district heating, transport, heating, storage, which will be integrated. So, we talk about integration within the country, system integration. But another trend is deeper European integration, which is something what already emerged in the Grids package published earlier this year. And this is the attempt of introduction of the common planning in the European Union. We were part of the project with several European think tanks where we show, actually, we did modeling for the entire EU. And we know that once we will better integrate and coordinate when it comes to energy infrastructure in a broader term. Like electricity, gas pipes, interconnectors, CO2. We may save 500 billion euro until 2050. But, of course, it is not easy. There is a lot of vested interest and TSO which are blocking also this process. But it will certainly continue. In the Grids package, there is a central scenario planning. And Dan Jorgensen, commissioner, saying we need to have a top-down approach when it comes to the infrastructure planning. And the conclusions. So, I just want to say that this situation which we are facing is changing paradigm. But energy and climate now go hand in hand. Flexibility is the key. And it has different dimensions, which I already mentioned. Baltic is becoming very strategic. And there will be a lot of projects and attention toward Baltic Sea. Also, more integration around Baltic Sea. And generally, the more collaboration, cooperation between the member states in the EU and sharing the resources will be the key direction of travel. But there will be a lot of pressure on cost and how to limit the cost of energy transition. Where, in my view, better data access, but also digitalization AI is creating new opportunities. And the last but not least, always forgotten energy efficiency, which is something what we actually do not see as a key. However, it is really important that we will not be able to subsidize all those price spikes. So, we need to really save energy in the future and prepare for this. So, thank you. Thank you very much, Adilio. Thank you. Thank you, Joana, for an excellent overview. I think that kicks off our day very nicely. Just a question really. I think you touched upon it there in one of your last slides. You talked about the interconnectedness of data, how important that was. You also talked about the Baltic. Now, we've seen actual attacks on physical infrastructure in the Baltics. We've seen, certainly, there was a reported case last week about a white hat hacker getting in and having access to over 30 gigawatts of solar. How concerned are you, for example, about the resilience of Europe's energy system? We work at Forum also in Ukraine a bit. So, a bit observing on how Ukraine manage its really heavy attacks on energy infrastructure. So, I'm frankly speaking not very much worried about us. The challenge is because everybody is afraid of only physical blackouts, which is, of course, happening. It may happen. It is a failure of the system. But, actually, the recovery from the blackout is really quick. So, when I really have some focus on some situations in Ukraine, I see how fast they manage it. The challenge is only how much it will impact our price. Because before really blackout is happening, those risks are just absorbed through the prices. And how also market participants are hedging that risk. And this is something what we see already now. Because my theory is that Europe is generally in energy crisis already since a few years. It is not managing, in example, building firm capacities toward variable renewables. There is this unified approach, which does not apply to each member state situation. So, this is a challenge. Absolutely. Absolutely. Any questions from the floor? I have one question as well about China. And there's a lot of talk about, you know, we're becoming very dependent on Chinese solar panels, Chinese batteries, Chinese cars. You know, and then let's talk about the kill switch. You know, if someone in Beijing wanted to, you know, cause a blackout or cause problems for the European energy system. Should that be a concern? I think it should be a concern. Because we see really, I also, we also have Chinese project, by the way, which gives us a bit insight in what is happening in China. So, they are growing extremely, extremely fast. It's the industrial policy. They want us, they want to make us dependent on Chinese supply. So, also, Chinese partners are really breaking some rules which were accepted many years ago through the WTO. So, they do not apply. So, we should be worried. But, of course, we will not break, in my view, this dependence from one day to another. So, this is why I am talking about this paradigm shift and also industrial policy which need to be redesigned. Because before we will, we just make it, we need to make it a gradual process where also state rules will be differently treated. Not, not as in the past. Because this market approach, like low cost supply, is now over. And this was also what was in this slide. So, we should really accept that we need to pay a bit more for something which is extremely relevant for our security and resilience. And not only count that we will end up with the cheapest supplies from, I don't know where, because it may end up one day. And then what we will do. Absolutely. I think from the age of semi-stability, at least, into the age of turbulence, I think we, we, it's a rocky road ahead. So, please join me in giving Johanna Pandera, was there a question here? Yes, okay, certainly. Please state your name and your company. Thank you. Johanna, thank you for a nice presentation. My name is Juergen Duyvenvoorde of Greenchoice, Dutch utility company. I was wondering, you mentioned diversification. And I was wondering how you view the road towards more diversification of the energy supply and the role of the European Commission, national governments and market participants. Would you share your views on who does what? How to get there? Okay. It's a very complex question, indeed. But I think the first, let's say, strategy point should be really to minimize that dependence. To minimize the level and treat, actually, energy imports as something which is now with us, will stay for a few years. But we should work on it to minimize it, number one. Number two, I think on the European Commission side is really the role of the Commission and how to build trust and how to create a platform for common purchases of gas and oil to avoid that the countries within the EU will compete with each other. Because this is the worst thing that may happen. We are just generally quite powerful as the EU, but as single member states, we are just weak, having China, US, India, and all of those big players on the ground. And then, really, awareness from whom we are buying those resources. So, what are they doing with those resources and naming only Russia case, which actually use it for weaponization and for really violent purposes. So, also, understanding of do we really have democratic partners with stable rules or not is also the third element. In very simple words, trying to answer this complex question. It is a very complex question. And I think the message is very clear from you, Johanna, that Europe is stronger united rather than separate. So, Johanna, please join me in giving Johanna a warm round of applause, please. Thank you. And here's a little present from us, Johanna. Oh, thank you. Thank you. Thank you.