Some European countries have reluctantly turned back to coal due to reduced Russian gas shipments and the persistent prospect of a complete supply disruption.
According to an announcer for the European Commission’s energy division, Gazprom and Moscow used energy supply as a “weapon of blackmail.”
Analysts estimate that the European Union’s best effort to replace Russian gas supplies this year would likely fall short, adding to economic pressure on the region.
As Russia’s war in Ukraine rages on, the EU intends to replace two-thirds of its Russian gas imports by the year’s end.
The need to move away from the nation’s gas supply increased after the state-backed Gazprom, claiming a delay in repairs on the Nord Stream 1 pipeline that runs to Germany beneath the Baltic Sea, curtailed deliveries to Europe by 60%.
The European Commissioner for Energy, will consult with EU energy ministers on Monday to explore coordinated actions, such as demand reduction and backup preparations, in case the situation worsens.
The EU’s current strategy to replace Russian gas appears to fall short.
The EU bought around 155 billion cubic meters (BCM) of natural gas from Russia in 2021. However, according to data from the EU Commission’s REPowerEU, compiled in a recent report from economic consultancy TS Lombard, the bloc’s proposed gas substitutes by the end of 2022 – which include LNG (liquefied natural gas) diversification, renewables, heating efficiency, pipeline diversification, biomethane, solar rooftops, and heat pumps – amount to about 102 BCM annually.
According to TS Lombard’s managing director for EMEA and international political research, the European Commission’s plans to replace Gazprom’s gas this year appear “wildly optimistic.”
“Russia is also a key supplier of LNG, underscoring the issue for Europe of getting appropriate LNG supplies,” says the author. “This is in addition to implementation delays of commissioning German LNG-receiving ports.”
With the amount of pipeline gas alone declining from 40% last year to 26% this year, the proportion of Russian gas imports to the EU has already reduced from 45% in April 2021 to 31% in April 2022.
Despite the decreased contribution from Russia, total LNG imports have reached records, with 12.6 BCMimported in April alone, indicating a 36 percent year-over-year rise. It would suggest that Europe’s attempts to diversify its economy are starting to pay off.
On Thursday, a representative for the European Commission’s energy department claimed that Gazprom and Moscow were using energy supply as a “weapon of blackmail.”
“Recent actions remind us once again of the unreliability of Russia as an energy supplier,” the spokesperson said. “Earlier unilateral decisions to stop delivering gas to several Member States and companies, the below average level of its gas storage facilities in Europe over the past year, and the latest moves.”
They also strengthen our resolve to fulfill the objectives of REPowerEU to phase out Russian fossil fuels. With the REPowerEU Plan, we will speed up the deployment of domestic renewable energy sources, cut energy consumption, and transition to alternative suppliers that are more dependable than Russia as sanctions on Russian coal and oil enter into place this year.
Last week, the European Commission and its member states signed a Memorandum of Understanding with Egypt and Israel to sell LNG from the eastern Mediterranean as part of their efforts to diversify away from Russian fossil fuels.
According to the Commission spokesperson, “We agreed on a joint statement with Norway to step up our cooperation to have a deeper long-term energy partnership and will work towards securing additional short-term and long-term gas supplies, addressing high energy prices, and cooperating on clean energy technologies.”
We also collaborate with other nations that produce alternative energy, including the USA, Qatar, and Azerbaijan, to name a few.
However, TS Lombard’s Executive warned that when Europe looks to other regions for gas supplies, there may be substantial financial ramifications.
Compared to its rivals, [the EU] will often pay more for its [non-Russian] oil and gas. According to the expert, more Russian oil will be purchased by Asian nations at a bargain.
“Due to transportation and liquefaction/regasification costs, LNG imported by Europe from the U.S. will cost more than the price paid by U.S. customers.”
Given the so-called “eternal sanctions” on Russia as the war rages on, this might have a significant negative impact on Europe’s economy when it is already hurting.
The prospect of a total ban on Russian gas supplies is another potential barrier to the region’s economy. Politicians in Europe are already concerned about it.
According to an economist at a renowned Research Institute, “if the situation were to develop going forward… then it’s likely that the EU may go so far as to restrict the import of Russian natural gas” in a research note published on Tuesday.
Russia may likely expand the scope of its suspension of natural gas to additional EU countries as a punitive action now that the G-7 has voted to forbid Russian oil imports.
In that scenario, it’s possible to imagine that the EU would decide to declare a ban on Russian natural gas imports to be ahead of Russia.
The eurozone economy might experience a significant downturn with Germany’s growth rate turning negative, if natural gas is subject to EU sanctions.
More generally, the International Monetary Fund has warned that tighter restrictions on Russian energy exports could result in even steeper energy price increases, deteriorating corporate and household sentiment, and disruption of the financial markets if major industrialized nations’ existing sanctions against Russia are increased.
Such a series of occurrences, according to the IMF, could lower its prediction for global growth by as much as 2%.