The European Union is seeking to re-regulate Europe’s energy sector to improve security of supply, sustainability and competitiveness. Energy transformation in Europe has exposed the shortcomings of over-regulation and national-centric policy, providing the Middle East with valuable lessons to manage supply, competition and future investment in its own market.
- Supply Diversification: Shale gas development in North America has exemplified supply diversification. Yet opinion on shale remains divided in Europe as environmental concerns are often perceived as outweighing diversification gains. The EU has enabled countries to pursue their own national policy on unconventional resource development by publishing environmental requirement guidelines earlier this year. The Middle East is host to the world’s largest energy producers and exporters with abundant conventional reserves. Yet with supply, export relations and policy impacted by the unprecedented growth in unconventional resource development, Middle East energy stakeholders may begin to explore their own unconventional deposits or invest in global shale plays.
- Regional Integration: Historically, the EU has approached energy targets and supply mix from a national perspective. Yet an integrated and regional approach would be more sustainable and would allow the region to tap into generation and distribution capacity where it is located. Similarly, the Middle East has not demonstrably integrated its national energy markets with GCC states independently pursuing development and distribution projects to reach their own national targets. However, the GCC Interconnection Authority (GCCIA) is currently developing an interconnection grid, a project often referred to as the backbone of GCC energy cooperation.
- Energy Assets: As the EU continues to face significant market uncertainty, Europe’s energy leaders are shifting their strategy to focus on core geographic markets and core business operations. This has resulted in the sale of certain network (distribution and transmission) and generation assets. To date, these assets have typically been repatriated and sold back to states (for example, Hungary is nationalizing assets) or being acquired by funds that are capitalizing on Europe’s distressed energy assets. As such, Europe’s key energy companies scale back their operations, expansion opportunities are being created for cash-rich Middle East energy stakeholders with global ambition.