Russian President Vladimir Putin’s war in Ukraine has shaken up Europe’s slow move to phase out Russian natural gas, but time is running out and consumers could be out of work and factories idle by next winter.
Whether the Kremlin turns off the taps in response to sanctions or Europe stops buying, European politicians agree they need to prepare for a future with much less Russian energy, if any.
Separating Europe’s gas market from Russia would mean a monumental change for a continent that has become so dependent on gas from Siberia’s permafrost that it has built little of the infrastructure needed for alternative supplies.
The European Union receives about 40% of its gas from Russia, and this dependence has increased in recent years. This week, as the West tried to shackle Russia with sanctions, the EU was paying Russia up to 660 million euros — roughly $722 million — a day, according to the Brueghel think tank. This is three times more than before the Russian invasion of Ukraine.
“It has become painfully clear that we cannot allow any third country to destabilize our energy markets or influence our energy choices,” EU Energy Commissioner Kadri Simson told the European Parliament on Thursday.
However, replacing Russian gas is easier said than done. Many liquefied natural gas terminals that receive supplies from the US and Qatar are loaded to capacity. The two new terminals, approved by the German government this week, will not be completed until three years from now, one of the companies involved said.
LNG tanker in the port of Barcelona, Spain. Spain’s LNG terminals are only 45% full, but analysts say pipelines across the Pyrenees can’t carry more and are difficult to expand.
Photo: NACHO DOCE/REUTERS
Analysts say it will take even longer for renewables to turn things around. Suppliers closer to home, such as Norway, Algeria and Azerbaijan, cannot increase production significantly. Internal links between Europe’s gas pipeline networks are heterogeneous, making it difficult to distribute excess gas.
Any new shipments of LNG would cost far more than Russian pipeline gas, threatening a European economy that is already struggling with inflation. Filling European storage facilities with gas ahead of next winter will cost at least 70 billion euros at current prices, compared with 12 billion euros in previous years, Brueghel said.
This leaves policy makers with unpleasant choices if flows stop, including energy rationing and using more coal, jeopardizing climate change targets.
“We will have to ask people to turn off the thermostat at home, and we will have to ask businesses to close for a certain period of time,” said Simone Tagliapietra, a senior researcher at Bruegel.
Analysts say that in the extreme case, this could lead to a temporary shutdown of chemical plants, smelters and other consumers of heavy gas. In practice, this could be achieved by having governments pay companies to limit natural gas and electricity consumption to a certain level through tenders, analysts say. Both gas and electricity will need to be rationed, which could lead to power outages and interruptions in heating.
Despite officials touting diversification efforts for years, Europe has largely failed to prepare. There are currently no LNG terminals in Germany. The EU gas transmission system body did not take into account the complete shutdown of Russian gas supplies in its annual crisis simulation. Russia is also the main supplier of crude oil and coal to the EU.
“Europe thought energy security was a thing of the past, it no longer poses a real risk,” Mr. Tagliapietra said. “We just sat and worked as usual.”
Coal-fired power plant in Germany. The turn to coal will jeopardize climate change policy.
Photo: Daniel Roland/Agence France-Presse/Getty Images
Europe’s dependence on Russia varies. Countries such as Germany, Italy and a number of countries in Central and Eastern Europe may be hit hardest as they are more dependent on Russian imports. The UK, Portugal and Spain, on the other hand, do not consume as much Russian gas, but even they will feel a pang from the higher prices. European gas prices broke records this week as traders assessed the impact of a possible disruption.
“If Russian gas stops, there will be no ceiling on prices,” said Martin Vladimirov, director of the energy and climate program at the Sofia think tank Center for the Study of Democracy.
Research agency Capital Economics cuts its forecast for eurozone economic growth this year by about 1 percentage point due to sanctions. It says that cutting off Russian gas supplies could reduce growth by another 2 percentage points and trigger a recession.
Officials and analysts agree that the effects of a total shutdown now will be overcome this winter and spring. Analysts say many gas-fired thermal power plants could switch to fuel oil within a week or so, with only a temporary shutdown. Industries may have to cut some of their activities.
Storage tanks at the LNG terminal in Rotterdam, the Netherlands. It will take years to build new LNG terminals.
Photo: Federico Gambarini/Zuma Press
Next winter – and beyond – will be more challenging.
According to Brueghel, record non-Russian imports will not be enough to sufficiently replenish storage ahead of the next cold spell, and Europe will have to reduce gas demand.
Even if European officials secure new supplies, getting them to the right place is another problem. Most of the European regasification capacity used to turn LNG back into gas is located on its west coast in Spain, France and the UK, but pipeline systems to Germany and the eastern flank are poorly connected to these locations. Analysts say Spain’s LNG terminals are only 45% full, but pipelines across the Pyrenees can’t carry more and are difficult to expand.
To the east, neighbors Bulgaria and Greece have been working for years to build a link that would allow Bulgaria, which gets about 75% of its gas from Russia, to connect to a Greek LNG terminal. He has not started his work yet.
Meanwhile, switching to coal not only jeopardizes climate change policy, but is equally vulnerable to a crisis. In 2020, the EU received 49% of its hard coal imports from Russia.
“Over the next 12 months, little can be done to remove the hard physical bottlenecks,” Brueghel said. The crisis scenario “will require improvisation and an entrepreneurial spirit.”
Having long resisted diversifying supplies with cheap and plentiful Russian gas, Germany on Wednesday instructed its gas market trading center to buy €1.5 billion worth of LNG outside of Russia. On Monday, the Italian foreign minister and the chief executive of the largest energy company, Eni SpA, traveled to Algeria to negotiate new supplies. Austrian officials have met with Gulf leaders in recent weeks.
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At the EU level, officials are working on rules that will force operators to maintain reserves at a certain level and expand the use of renewable energy sources in the long term.
Since LNG terminals take years to build, another option for policy makers is to rent or buy so-called floating LNG terminals, which are usually large ships.
The cost of building a traditional land terminal is less than half the cost, and commissioning takes several months. Vessels anchor in ports and distribute the gas through onshore pipeline networks. Lithuania managed to reduce its dependence on Russia when it opened such a terminal in 2014. It’s unclear if European authorities are currently taking the step, but analysts say there are about a dozen such properties available on the market.
In theory, hydraulic fracturing is another option in Europe, although it has faced significant resistance due to environmental concerns. Germany banned hydraulic fracturing in 2016, fearing that the chemicals in the process could contaminate the water supply, but it has some natural resources it could tap into if it changed its legislation – that’s not one of the options it says Berlin, he studies.
Write to Georgy Kanchev at [email protected]
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