SUSTAINABLE EUROPE
The Mediterranean Union’s first step must be a two-way energy deal
Autumn 2008
The aim of the new Union for the Mediterranean must be more than simply to provide a reliable source of oil and gas for Europe, says Pierre Beckouche. Europe and southern states have to create an industrial partnership that is a model for renewable energy efficiency
The major attraction for Europeans when they first considered forming a partnership with the Arab states around the Mediterranean was that it promised a reliable supply of energy. Europe’s energy dependence is going to grow, but its own resources, at least in oil and gas, are dwindling as North Sea reserves run out. On the other side of the Mediterranean, the southern shores have 5% of the world’s reserves of oil and gas. For Europe, Mediterranean countries like Algeria and Libya are very important either as suppliers or as transit territories like Turkey.
So the nature of the partnership seems clear: security of energy for Europe, security of outlets for southern Mediterranean countries. But it’s not that easy. In the first place, a deal with the Arab countries would not necessarily safeguard energy supplies. A number of decisions taken by the European Commission are unexpectedly complicating matters, in particular the supply of gas. The EU favours competition and is therefore limiting long-term contracts. But suppliers of gas need a contract of at least 20 years to justify the huge investments involved, whether for constructing gas pipelines or for plant to liquefy the gas. Without such long-term contracts, investments are hard to come by. Therefore – an unpleasant surprise for the Commission – the security of European gas supplies could not be guaranteed under present policy. As they say, the road to hell is paved with good intentions.
Apart from the problem of gas contracts, there is the question of North-South industrial partnerships. The southern Mediterranean countries refuse to be seen only as suppliers of raw materials. They demand to be associated with the whole industrial chain of production and transport of hydrocarbons. Until now, hydrocarbon contracts have been very straightforward; Europe buys the energy it needs and the South gets income. But when the contract is finished there is nothing left – no increase in engineering and industrial know-how, no development of new technological industries.
The spirit of the new Union for the Mediterranean that would bind Arab and European countries closer together calls for the Arabs to be equal partners in industrial activities. The Mediterranean summit convened by President Nicolas Sarkozy in Paris in mid-July proposed a “solar plan” that would not be limited to the production of solar electricity for the South and its export to the North; it includes an industrial section so that the countries of the South would participate in the production of the equipment required, instead of just importing from Europe the photovoltaic panels and other sub-assemblies.
The southern countries are rightly demanding a share in industrial development based on their raw materials, whether this be the construction of refineries (in particular for diesel, of which there is a lack throughout the region) or the manufacture of petrochemical products derived from oil.
Much as all like simple images – the North needs oil, the South produces it – the reality is much more complex. Most of the countries on the Mediterranean’s southern shores are not hydrocarbon producers, and they too need energy. Gaining access to energy is as essential to them as is security of supply to the countries of the EU.
The scale, and costs, of their needs is daunting. By 2020 the development needed in the South in production capacity and electricity networks involves investments totalling around €120bn. The region’s energy equipment needs add up to additional capacity equal to twice the current French electric installations. Leaving aside the renewal of existing power plants, this amounts to 460 new plants, each with a capacity of 500 MW. And if this sounds like an Utopian dream, look at what is happening in East Asia, and in China to understand that, if transnational investments were to be secured in the region, the countries on the southern shores of the Mediterranean could become the economic Dragons of Europe.
By connecting the European and Mediterranean electricity markets, a temporary shortage in one country could be met by transferring overcapacity from another. The more countries thus connected, the greater the efficiency in the pooling of risks. The European Union launched the idea in 2003 and Mediterranean electricity loop is now well underway. In technical, physical terms, the loop is nearly finished – “nearly”, because there are still several missing links, notably in Tunisia, Libya and Egypt. According to the trans-Mediterranean organisation Medelec (Euro-Mediterranean Electricity Cooperation), the loop could be closed up when the Libyan link is financed – not a greatly expensive operation, but complicated by the unresolved question of who should pay for this section because completion of the loop will benefit all the countries in the Mediterranean region.
The Union for the Mediterranean is the right level to solve this type of problem, especially so when bearing in mind its wider symbolism. Once it’s done, it should be possible to bring into line the technical and commercial standards of access to the different domestic markets and develop cross-border electricity exchanges. One example of the versatility of the interconnection is that it will make it possible to share the output of a nuclear power plant between Morocco and Algeria, whereas neither country’s domestic electricity needs would be sufficient to justify its own nuclear plant.
Europeans sometimes wrongly assume that cleaner energy and energy saving are solely problems of the North. Because the countries of the South consume three times less energy per inhabitant than do the northerners, they are generally believed by Europeans to be sheltered from the problems of wealth. Not so. The South, like the North, has to take the path of virtue and adopt a policy of ever-lower CO2 emissions as a contribution to the fight against global warming. And a policy of energy efficiency in the South would have the major merit of being transversal and obliging industry to take necessary actions, over habitat (site location) and urbanism (compact cities to favour public transport).
This sort of forward thinking is what governments in the Mediterranean’s southern countries have been bad at; they have a poor record on economic forecasting and the sort of regional coordination needed to build long-term policies. Algeria’s short-term oil extraction policy and the risk it carries of damaging the wells, illustrates the advantages that many of these countries would gain from taking the path of sustainable growth. And they would also become much more energy efficient.
All the more so because the South has major renewable energy sources. Solar power has great potential as the energy supply for specific projects; it can provide clean and cheaper electricity for new industries, for rural electrification schemes and for the creation of high-value jobs. Numerous wind power sites have already been identified in Morocco, Tunisia and Egypt. Even for oil producing countries, the greater use of renewable energy would help sustain their hydrocarbon exports to Europe. The North would benefit too as the whole Mediterranean region has a shared concern over global warming and energy transition. Working together, North and South could make the Mediterranean a model region for renewable energy and energy efficiency, and it is what the MEDENER (Mediterranean Association of the National Agencies for Energy Conservation) is now working towards.
Then there is the sensitive and controversial subject of nuclear power. The pressure of rising demand in the South is such that no energy option can be neglected. The development of civil nuclear energy, a complicated industry where security problems are particularly delicate, will demand major investment and cannot be done without close industrial cooperation between electricity companies of the South and the businesses that control the technology and treatment of wastes. The Union for the Mediterranean should set out the prospects for nuclear power on the basis of regional cooperation and industrial partnerships, reprocessing and environmental protection. Non-proliferation, training and know-how transfer would be part of its brief. With energy just as with all other spheres of economic activity, the key areas of the North-South partnership in the Mediterranean will be training and research.