pub.indd105/06/200917:12:16EnergyStrategyVision:FasterForwardto20201Energyandfeedstockefficiency13EU

Energy Strategy Vision: Faster Forward to 2020

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VISION 1

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Energy Strategy Vision: Faster Forward to 2020

Contents Key Issues

4-5

Energy security of supply

6-7

Internal EU market regulatory development

8-9

EU and bi-lateral law development Global WTO rules to correct unfair pricing of energy and natural resources

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Energy and feedstock efficiency

13

Climate change (carbon management)

14 - 15

Energy Mix and Use (natural Gas and other energy sources)

16 - 17

Conclusions

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1 N°

The fertilizer industry is the largest single sectoral consumer of natural gas in the EU’s manufacturing sector.

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Energy Strategy Vision: Faster Forward to 2020

Energy Strategy Vision: Faster Forward to 2020 As the largest single sectoral user of natural gas amongst the EU’s manufacturing sectors, the European nitrogen fertilizer industry applauds the EU institutions’ continued drive to establish a truly world competitive EU single energy and gas market.

EU manufacturing requires greater urgency and speed from EU authorities to achieve a competitive and efficient energy market across Europe.

Europe again is the world’s highest energy cost region. Actions at regional, national, EU and global levels are urgently required to correct this situation – especially when it arises from unfair energy pricing by suppliers inside or outside the EU. The vision and practice required must be aimed at a fully integrated – fully inter-connected - pan-European and inter-continental, transparent, free and fair marketplace.

For natural gas in particular – and for other energy commodities, it is necessary to develop financial and physical commodity hubs that promote and encourage transparent inter-connected prices. For gas, a European super-hub could supply enormous benefits to consumers.

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Energy Strategy Vision: Faster Forward to 2020 Energy Strategy Vision: Faster Forward to 2020

Key Issues Energy security of supply EFMA position:

this must be guaranteed by big and small new pipeline and LNG infrastructure which provides for diversification of routes and source supply. Then inter-connection and transparency across the whole Pan-European gas market is essential. All can and should receive legitimate EU or governmental financial support provided that it is within the established norms of EU competition law, OECD or WTO agreements.

EFMA supports the EU budgetary expansion of the Trans European Network – Energy budget, but again with the defined agreed norms of the EU, OECD and WTO.

EU and bi-lateral law development

EFMA position: trade, transit and investment relations with regard to energy including gas require better legal regulation. The EU’s internal market acquis should be more speedily developed into bi-lateral relations with key transit (Ukraine) and key supplier countries (Russia, Algeria, Egypt). This should be a core condition of the EU’s “good neighbourhood policy” with North Africa and the former Soviet Union.

Internal EU market regulatory development EFMA position:

it is imperative that the 3rd Gas Directive and the electricity and other market liberalization initiatives of the current Commission are completed in this Parliamentary and Commission terms, i.e. practically by spring 2009. Thereafter, the EU institutions should seek to address any “unfinished business”, i.e. they should move on to a 4th Gas Directive which promotes further again a transparent and efficiently integrated Pan-European gas market. Competition laws and investigations must be fully employed.

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Energy Strategy Vision: Faster Forward to 2020

Global WTO rules to correct unfair pricing of energy and natural resources EFMA position:

EFMA calls again for the WTO’s development of “Trade Related Rules for Energy Supply” (TRES). Unfair grossly discriminatory gas pricing practices are conducted by many gas supplier countries. These countries’ artificially low state fixing of gas prices or dual gas pricing policies should be made correctable under WTO laws. The EU fertilizer market continues to be targeted by competitors benefitting from such unfair gas pricing policies. Currently the EU corrects the injurious impact by use of trade defense actions. However, the WTO should simply “outlaw” and prohibit such damaging actions.

Energy and feedstock efficiency EFMA position:

the drive for energy efficiency is good business and environmental sense. The EU industry has an outstanding record of improved energy efficiency. Energy Efficiency should be a global private enterprise as well as public initiative.

Climate change (carbon management) EFMA position:

the EU industry accepts the EU Council’s goal of a 20% reduction in CO2 by 2020. However, without an international binding agreement leveling the playing field for carbon reduction, only a free allocation of emission rights for the EU fertilizer industry, based on benchmarks, can safeguard for EU competitiveness and prevent major carbon leakage.

Energy Mix and Use (natural Gas and other energy sources)

EFMA Position: the fertilizer industry supplies “plant nutrients” which feed the world. Up to 48% of the world’s population are fed by the use of mineral fertilizers. By 2030 the world need for cereals will rise by 50%.

As natural gas is especially efficient in energy and carbon terms in the production of fertilizers, EU energy policy must recognize that natural gas supply ultimately equates to food supply and security of food supply. Accordingly, EU policy makers must differentiate between energy resources best used for heating purposes, eg. nuclear, and other energy resources best used as feedstocks or manufacturing inputs. Renewables including bio-fuels present an interesting diversification but are best employed 5 when they are fully competitive against hydrocarbons and are long-term sustainable.

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Energy Strategy Vision: Faster Forward to 2020

Energy Security of Supply “Security of Supply needs more Infrastructure linked to more Sources and more Routes�

LNG represents more sources and more routes = security The EU authorities should assist proposed expansion of more LNG sources of supply. LNG is the best flexibility option available.

New LNG terminals in the Baltic and Mediterranean have an immediate strategic security of supply advantages over established pipeline supplies.

Isolated areas must be interconnected.tner Member States.

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Energy Strategy Vision: Faster Forward to 2020

Energy Security of Supply • Seasonal, cyclical and crisis factors must be accommodated for. Otherwise serious losses to the EU economy will prevail, eg.

Ukraine-Russia gas disputes in 2006 and 2009.

• Ideally market / physical hubs like Zeebrugge should be developed as these provide for physical, financial and all services. While they tend to serve short-term market needs they also ensure “market” based practices leading to long-term integration.

• EFMA supports the formation of a European super hub as a commodity price reference for gas for all industrial consumers in Europe.

• Strategically, the EU should consider a strategic gas storage facility based in each key sub-region of the EU. This storage should cover up to 90 days winter demand levels. This promises to be sufficient to hold off unsatisfactory supply situations or price hike problems.

Hub services typically serve short-term market needs • • • • • •

“Development of Infrastructure to serve combined long-term and short-term market and competitive needs”

Interchanges Exchanges Balancing Parking Banking Title Transfers

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Energy Strategy Vision: Faster Forward to 2020

Internal EU market regulatory development 5 • EFMA and other energy intensive industries call for rapid agreement and implementation of the 3rd Gas Directive.

Gains include promotion of unbundling, better cooperation between national regulators, a European Agency to secure integration and inter-connection and more transparency.

• Progress promoting pro-competitive conditions must be achieved over the short–term. Europe’s gas prices are again the highest in the world.

• EU competition powers must be employed against negative competition practices.

• Reduce control and reservation of pipeline capacity at borders by incumbents.

• Open up key and new entry points typically dominated by the incumbents, while also supplying information sources for verifying entry/exit capacities.

• Storage capacity and access should be made more transparent and priced at fair levels.

• More daily rather than hourly balancing network codes and the transfer mechanism between systems.

• Simplify and accelerate the regulatory discussion on gas quality issues. There needs to be investment in quality conversion infrastructure thus avoiding bottlenecks.

• The Energy Council’s June 08 agreement for an in-built review of the 3rd Gas Directive should be accompanied by another DG Competition “sectoral study” on gas and electricity. Thus, regulators and competition officials can work on the same agenda and audit the conduct of the incumbent supplier industry.

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Energy Strategy Vision: Faster Forward to 2020

Internal EU market regulatory development 5 • Capacity at border crossings remain in control of incumbents; newcomers must be allowed access.

• Capacity at borders must facilitate two-way flow connections.

• New market demands require new connections and inter-connections: planning approval, third party access and competitive supply conditions must all be accounted for in an efficient manner.

• Spare and unused capacity must be made available to consumers.

• The EASEE gas reform process to resolve barriers arising from gas quality and/or cross-border trade has been too slow. It should be replaced by the European Agency or sub-regional groupings of National regulators. These can manage producer and consumer inputs.

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Energy Strategy Vision: Faster Forward to 2020

EU and bi-lateral law development

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“European Union’s one voice on energy must promote Pan-European and International Legal Framework”

THE PAN-EUROPEAN AND INTERNATIONAL REGULATORY FRAMEWORK ON THE SUPPLY OF GAS IS UNDERDEVELOPED

EU must use its bilateral Partnership & Cooperation Agreement Treaties (PCAs) to develop market economy pricing, costing and structures for gas and energy.

This is especially true from a consumer’s perspective. It is either not adequately adhered to or enforced, eg. the Transit Protocol of the Energy Charter.

EU must use its diplomatic and consumer powers to establish dispute settlement mechanisms founded on law. Disputes such as Russia-Ukraine must be resolved by legal means.

Or It is underdeveloped as in the case of the absence of trade rules for energy in the World Trade Organization.

A basic set of legal rules should be agreed by the EU, OECD as consumers and major suppliers.

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Energy Strategy Vision: Faster Forward to 2020

EU and bi-lateral law development

Trade & Energy Policy Development

Trade and competition distorting measures such as state fixing of gas prices. Dual pricing or pricing below full costs must be outlawed under international law.

The WTO should agree a Trade Related Energy agreement (TRES) to regulate standards for trade in gas and energy products. Unfair state fixed pricing and dualpricing should be “outlawed� by the WTO.

Transit and transportation must be made totally free of political or peculiar interferences. For Europe the Energy Transit Protocol must be adopted and enforced by all – or urgently a new Treaty arrangement must be agreed between all interested parties.

Russia can no longer be allowed to be a laggard. Ukraine must meet its Protocol and Energy Community commitments on transit.

International energy products trade and competition should be subject to regular dialogue or summits between producer and consumer countries with the aim of avoiding energy supply crisis.

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Energy Energy Strategy Strategy Vision: Vision: Faster Faster Forward Forward to to 2020 2020

Global WTO rules to correct unfair pricing of energy and natural resources

“Several suppliers practice unfair dual-pricing and artificially low state fixed pricing to advantage local industries: Russia and Egypt are key examples.”

RUSSIA by PIPELINE to EU EGYPT by LNG to EU Current EU correction is by trade defence actions. In future the WTO should outlaw unfair pricing practices which distort a level playing field.

RUSSIA-ZONE 8

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RUSSIAN GAS at WAIDHAUS

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ZEEBRUGGE

LNG Price delivered (DES) Egypt to Spain

15.00

Egypt - Local gas 12.00

12

US$/mmBtu

US$/mmBtu

18.00 18

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6.00

6

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3.00 2

0

9 Jan-9

0.00

0 Jan-0

1 Jan-0

2 Jan-0

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9 Jan-0

2005

2006

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Energy Strategy Vision: Faster Forward to 2020

Energy and feedstock efficiency

“Energy Efficiency should be a global private enterprise as well as a public initiative”

ENCOURAGEMENT OF VOLUNTARY ENERGY EFFICIENCY SCHEMES PROMOTING BEST AVAILABLE TECHNOLOGIES AND PRACTICES

Gas efficiency in ammonia production, regional average

009

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Energy Strategy Vision: Faster Forward 2020 Energy Strategy Vision: Faster Forward toto 2020 Energy Strategy Vision: Faster Forward to 2020

Climate change (carbon management)

EFMA Perspectives on Climate Change • The EU industry predominantly operates plants which are natural gas based, i.e. the most efficient in energy used and carbon emissions; • The EU industry can make further contributions to energy and carbon abatement.

• However, the EU industry as the most efficient in energy and carbon management terms cannot accept a loss of competitiveness or profitability due to an uneven carbon reduction playing-field, especially with regard to near neighbours in Europe and in North Africa. These competitors already operate off subsidised gas costs.

• Real carbon leakage, i.e. closure of efficient EU plants while less efficient plants continue with no improvements is a “living reality” in the EU and world nitrogen fertilizer scene.

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Energy Strategy Vision: Faster Forward to 2020

300

250

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CO2 emission / t ammonia (relative to natural gas = 100)

300

200 150 100 50

200 150 100 50

Coal

Oil

Coal

Oil

Gas

0

0 Gas

New EU climate change regulations must take account of the risk of carbon leakage.

Energy consumption / t ammonia (relative to natural gas = 100)

Relative Energy Consumption and CO2-Release: Ammonia Plants with different Feedstocks

European fertilizer production has lowest emissions 9

t CO2-eqv per t N

8 7 6

Ship transport to WE From urea when used Fertilizer production Nitric acid production Ammonia production

5 4 3 2 1 0 AN/BAT Europe

AN from Russia

Urea/BAT Urea from Europe China

NOTE: Urea gives more emission from the soil, which is not shown in this graph 15

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Energy Strategy Vision: Faster Forward to 2020

Energy Mix and Use (natural Gas and other energy sources) Global Benchmarking of Energy Efficiency: Progress is achievable short and long term monia p

cy in am

ien Gas effic

Ukraine di Arabia

ge

nal avera

n, regio roductio

Egypt

The EU has many of the world’s most efficient ammonia plants.

Russia

Sau

Energy Efficiency in EU Ammonia Plants

GJ/t ammonia

EU 27

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450 400 350 300 250 200 150 100 50 0

USA

Birkeland-Eyde

Cyanamid process

Haber-Bosch Steam reforming natural gas

Today‘s technology is close to theoretical minimum.

1910 1915 1930 1950 1960 1975 2000

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Energy Strategy Vision: Faster Forward to 2020

Energy Mix and Use: Natural Gas and other energy sources

Natural gas is distinctive because: It is a feedstock used to make chemical and mineral fertilizers

Ultimately gas = food Ultimately gas = food security Therefore, the EU must work to reduce the foreseen

“supply gap� – and this inevitably means

substituting other sources for the energy only uses.

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, Energy Strategy Vision: Faster Forward to 2020 Energy Strategy Vision: Faster Forward to 2020

Conclusions on a 2020 European competitive and integrated energy scene

• Pan–European, inter-continental, inter-connected Single Energy Market.

• Free, Fair and Competitive Energy and Gas Trade relations backed by “good neighbour” relations, inter-connected infrastructure and law.

• Sustainable gas and other energy supply based on market economy standards respecting social, health and environmental care.

• Food security and safety backed by the rational and added value use of natural gas.

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Energy Strategy Vision: Faster Forward to 2020 Energy Strategy Vision: Faster Forward to 2020

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VISION 19

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Energy Strategy Vision: Faster Forward to 2020

KRAM 2009

Avenue E. van Nieuwenhuyse 4/6 B-1160, Brussels, Belgium Tel: +32 2 675 3550 Fax: +32 2 675 3961 E-mail: main@efma.be www.efma.org

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