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EU should encourage local gas production instead of importing expensive LNG

31 October 2023

The European Union (EU) should do more to support the European oil and gas industry because, in terms of security of supply, this would be the safest bet, according to Franck Neel, President of the Oil and Gas Employers Federation (FPPG).

„In terms of diversification, the most important thing is to produce in your country. Before talking about diversification, let’s talk about encouraging local production because it brings money, jobs, and security of supply. When talking about the EU intervention in terms of tax and regulation, we, as an industry, have the feeling that we are discouraged from investing in Europe”, Neel stated, at the Central-European Natural Gas Congress, organized by Transgaz recently in Sibiu, Romania.

EU seems more concerned about the diversification of gas sources and favors imports of LNG into the continent even if this is not a good strategy in terms of security of supply, affordability, and sustainability. “Gas has to be used in the energy transition for producing blue hydrogen and in gas-fired power plants because we need flexibility.”

Also, the fiscal regime and other obligations imposed on European companies, such as carbon storage, are very risky and contribute to making access to new energy sources more difficult.

According to Neel, Romania, for example, could use its gas reserves to produce blue hydrogen, but the EU does not provide any support for this kind of project. On the other side, when the EU is importing LNG from the US or Qatar, none of the European governments receive any tax.

To achieve the diversification goal, Europe still needs to import gas and the main source is in from the south of the continent. The high cross-border tariffs between EU countries are one of the main issues. Setting unique transit tariffs in terms of value could contribute to the increase of gas transit in the region and, ultimately, to ensuring the security of supply.

„The cost of transporting gas from Texas to Greece is lower than transporting it from Greece to Romania, and this accounts for a third of the total price paid by consumers”, Neel added.

There is also growing competition between European countries to secure gas transit corridors, especially from South to Central Europe, and this situation needs to be very carefully assessed before deciding to build new energy pipelines.

As to the Romanian gas market, some companies prefer to invest in Hungary due to a more friendly royalty regime. On the other hand, Romania should focus on its onshore gas reserves because the small producers are having a hard time being profitable.

„Only oil is profitable, but gas is not profitable anymore”, according to Neel. He added that onshore gas production needs to be increased.

Franck Neel also said that Black Sea gas has one of the lowest CO2 content and therefore should be recognized in the future fuel mix in Europe as a priority resource.

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