Could the Mediterranean Sea become the new energy hub to strengthen energy security and accelerate the energy transition in Europe? Considering the current geopolitical and geoeconomic scenario, this is a matter of the utmost importance. The issue has also recently been discussed in an Economist editorial depicting the Mediterranean region as a future powerhouse of green hydrogen and carbon-free revolution. The answer to the many questions arising from this topic may be coming from the recent agreement between the Italian and German governments about building a new gas and hydrogen-ready pipeline across the Alps, the so-called SouthH2 Corridor. According to Rome and Berlin, the pipeline will deliver green molecules from North Africa to the industrial heart of Europe.
the rationale behind this project
A political and economic agreement to invigorate Italy’s geostrategic position at the centre of the Mediterranean Sea and long-awaited recognition of its role as an energy hinge between Europe and Africa. The idea has been repeatedly asserted in the so-called Plan Mattei (Piano Mattei), a crucial development in Italy’s foreign policy towards Africa devised by Prime Minister Giorgia Meloni. The Plan is Rome’s natural response to the shifting of the European energy supply axes from an East-West model (focused on Russia) to one pointing to South-North connections (North Africa and Norway). On the other side, Germany’s Chancellor Olaf Scholz is leading a political coalition that continues to invest in the prowess of the country’s heavy industries. Berlin aims to maintain the competitiveness of its economy with other global economic powers. However, is that possible for these two strategies to coexist in such a destabilised European and fragmented global scenario? Related: COP28 Summit Approves Proposal to Hold COP29 in Azerbaijan
The Action Plan agreed between Italy and Germany in late November focuses on the “trusting cooperation and a close, long-standing friendship” between Rome and Berlin to promote strategic collaboration around five major areas: - Technology, competition and social cohesion- Climate protection- Global partnerships- Europe- Societal and cultural relations between the two countriesThe entire partnership has its core component in a new pipeline that should bring green molecules from North African to central Europe, involving partners such as Algeria and Tunisia, and European Austria and Switzerland. All the abovementioned nations are interested in elevating the role of hydrogen to balance and decarbonise their energy systems by 2050. In all these countries, hard-to-abate industrial sectors are still critically dependent on fossil fuels, and above all expensive natural gas. Yet, European nations are also looking to bolster energy security with new supplies during peak-consumption periods.In May 2023, Berlin, Rome and Vienna signed a joint letter of support for the development of the South H2 Corridor, a 3.300 km long infrastructure with 4 million tonnes per year (mt/y) of capacity. The pipeline would capitalise on the existing gas grid managed by 4 major operators (Italy’s Snam, Austrian GCA and TAG, and German bayernets) repurposing more than 70% of the existing gas infrastructures connecting European markets to the Algerian gas fields.
Projecting interconnections of non-existent market
With a projected demand of 20 mt/y of green hydrogen by 2030, the European Commission expects at least half of this to be produced within the EU through extensive investments in solar and wind technologies and electrolysers. The other 10 mt/y would be supplied through imports through six major corridors, including the South Central H2 Supply Corridor: a network involving seven members of the EU (Italy, Austria, Germany together with Slovenia, Croatia, Slovakia, and Czech Republic) and able to slash nearly 55 mt/y of CO2 emissions by 2030.
The South Central H2 Supply Corridor by 2030
Source: European Clean Hydrogen Alliance
The message from Meloni and Scholz to Europe has been delivered. Indeed, Brussels has included the four grids in the 166 projects list responding to the Green Deal criteria. Fast-tracked permits, shorter impact assessment procedures, and the financial assistance provided by the Connecting Europe Facility (CEF) are just some of the major advantages to infrastructures included in the union list of so-called Projects of Common Interest (PCIs) and Project of Mutual Interest (PMIs). Other public and private funds will likely come from the billions allocated for the Important Projects of Common European Interest (IPCEI).
The International Energy Agency has labeled hydrogen as a critical component to curtail emissions from hard-to-abate sectors in advanced economies. However, the entire sector is suffering because of obstacles in the supply chain, delays in the creation of economies of scale and a slow development of technologies and regulatory frameworks. These discussions are a vivid element of COP28. Meanwhile, environmental activists have described the EU list of Green Deal-aligned projects as a “wish list” of oil and gas majors, simply allowing natural gas to continue being transported through the same pipelines and silently delaying the phase out of hydrocarbons in the European energy mix.
Nevertheless, this has not stopped the EU Commission from launching with great fanfare the first auction of the European Hydrogen Bank to support the production of renewable hydrogen in Europe. Funds that, according to the Commission, will help to reduce the existing gap between the production costs of green hydrogen and the prices citizens are willing to pay for it. Only time, and continuous political support for the industry, will tell if this works.
Security and transition: tensions between two poles
The challenges the EU is facing are so tremendous that a new approach is needed in order to find common rules to play on the internal markets. The stiff competition from China and the U.S. makes that a revamping of the European industrial strategy is urgently required. This notwithstanding, the new strategic blueprint will have to face the fact that EU Member States have for long abandoned industrial policies, considered as geopolitical tools against other EU peers.
Furthermore, the EU must face this transformation in a new energy reality. Almost deprived of Russian gas and still striving to find a new supply equilibrium, Europe aims to use the Mediterranean potential in terms of renewable energy. A strategic choice dictating brand new and lavish investments in cross-border infrastructures, but also the relocation of industrial clusters closer to areas with higher competitiveness in terms of energy inputs such as the same Mediterranean regions, limiting costs and public expenditures – read also subsidies – to be paid by EU citizens.
According to Italy’s Premier Meloni, the Action Plan with Germany brings bilateral cooperation “to a new level” and accelerates the intergovernmental dialogue after seven years without a proper political platform.
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With limited economic instruments to prop up the European Green Deal, including the new European Hydrogen Backbone, the debate about the efficient use of financial assistance for decarbonisation will surely feed back into the campaign for the next European elections, expected for next June. A fierce clash will endure for the next six months. On one hand, there is the current political majority, headed by President Ursula von der Leyen. On the other, the challengers right-wing parties belonging to the Identity and Democracy coalition in the European Parliament, summoned up in Florence just a few days ago by the League (Lega) and Italian Vice-Premier Matteo Salvini. Notably, Salvini directly called the allies in the current Italian government coalition Forza Italia (European People's Party) and Brothers of Italy (European Conservatives and Reformists) to “free Brussels” and to end the “extremism” of the energy transition supported by the Socialists and Green parties.
A sign of the uncertain times ahead of us is the fact that the future of the South H2 Corridor is based on the political agreement between two coalitions sitting on very opposite sides of the European Parliament. Fairly anchored in right-wing and conservative ideologies, the Meloni government has focused the bilateral dialogue with a political partner as important as Germany on energy policies and strategies: probably the most divisive argument in the European political spectrum, together with migration policies. The German coalition led by SPD, together with Die Grünen and FDP, is a political alliance deeply characterised by environmental goals and the acceleration of the energy transition as a strategic element to face the challenges of a fragmented global economy. One thing to note is that Germany is the country investing the most in Europe on the future of hydrogen.
As we approach the European elections in mid-2024, these paradoxes will inevitably fuel the debate and the political implications could be dramatic for the future of the South H2 Corridor. Investors could be financially impacted and suffer consistent delays in the project implementation. Nonetheless, what is at stake here is much more fundamental, meaning the credibility of the EU energy security and transition strategies.
By Francesco Sassi for Oilprice.com
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