Is diversification away from Russian gas possible for the EU in the short term?

Copyright Dmitry Lovetsky/Copyright 2019 The Associated Press. All rights reserved.

by Francesco Gabrielli 

Unprecedented high energy prices, winter season and Russian gas: from this trilemma passes the reshaping of the EU’s energy security. On March 8, 2022 the European Commission issued the outline of a plan aimed at drastically reducing oil and gas imports from Russia, while enhancing diversification of the EU’s energy mix towards the clean energy transition targets. REPowerEU shall set the stage for putting an end to over-dependence on Russian fossil fuels. According to Frans Timmermans, the Executive Vice-President of the Commission for the European Green Deal, “Renewables are a cheap, clean, and potentially endless source of energy and instead of funding the fossil fuel industry elsewhere, they create jobs here [in the EU]”. Nonetheless, whether this will be feasible in the short run has yet to be proven.

The EU’s high import dependency from non-EU suppliers

Eurostat reported that in 2021, the EU’s natural gas import dependency rate was 83%, which is slightly less than 2019 (89%). Nonetheless, this decrease was significantly influenced by the fact that most EU Member States used stocks of natural gas that were imported in previous years. Another important aspect that should be highlighted is the continuous growth of the EU’s overall energy import dependency from non-EU countries.

Despite the increase in domestic energy production (mainly from renewable sources and biofuels), import dependency rose from a 56% share in 2000 to 60% in 2019. As to natural gas – considered the least polluting among fossil fuels and the transitional fuel par excellence – Russia has been the EU’s leading supplier (41.3%), followed by Norway (16%) and Algeria (7.8%). The two Member States that absorbed most EU natural gas imports were Germany (21%) and Italy (16%) in 2019, followed by France (13%). The latter figure does not only illustrate the considerable differences between Member States, but it also masks the negative impact of a potential import disruption of natural gas for the EU’s three largest economies. On top of that, even the EU’s crude oil imports are mainly coming from Russia (26.9%), and the former’s solid fossil fuels (oil and coal) import dependency was around 44% in 2019, thus leaving few short-term solutions to the issue of energy dependency.

The (apparent) trade-off between climate goals and energy security

External shocks and unplanned supply shortages have always contributed to enhancing the EU’s efforts in pursuing the three key objectives of its energy policy – sustainability, competitiveness and security of supply. The European Energy Security Strategy (2014), the Energy Union Strategy (2015), and the most recent additions to the European Green Deal, have confirmed and expanded the scope of the EU climate goals. Yet, the latter might seem conflicting with supply security targets, since the EU’s gross inland consumption – i.e. the overall supply of energy for all activities on the territory of EU Member States – is still led by petroleum products (36%) and natural gas (22% in 2019), while renewables and nuclear energy, which are mostly produced domestically, cover respectively around 19% and 13% of the EU’s energy mix. Notwithstanding the sharp increase in gas prices – which have risen by 723% in the last months of 2021 – and the growing concern for potential supply disruptions following Russia’s invasion of Ukraine, the pursuit of the same climate goals can enhance the EU’s energy security, mainly thanks to energy efficiency measures (EEMs), investment in new renewable capacity and (green) hydrogen.

The horizon of REPowerEU

This change of perspective is crucial for proceeding towards climate neutrality without having to dump almost thirty years of efforts in implementing sustainable development policies. REPowerEU has thus not only been conceived to boost the “Fit for 55” package, but also to absorb the short-term repercussions of the current emergency, as stated by Kadri Simson, Commissioner for Energy: “Europe needs to take swift action to ensure our energy supply for next winter, and to alleviate the pressure of high energy bills on our citizens and businesses”. The European Commission has indeed put forward a proposal to allow Member States to financially support farmers and businesses at risk of relocating, and to refill gas storage facilities to a minimum of 80% by November 1, 2022, while diversifying gas supply through an increase in deliveries (in form of LNG) from Qatar, the USA, Africa (around +50 billion m3) and via gas pipeline from Azerbaijan, Algeria and Norway (+10 billion m3).

Alongside the enhancement of bio-methane production (from waste), for which Member States can use the funds of their strategic plan for agriculture, the Commission has emphasized the need to implement projects for the production and transport of green hydrogen, in order to reach 20 mega tons by 2030. Another major objective is to boost the installation of solar panels up to 15 terawatt and to instal 10 million heat pumps within a year. According to the document of REPowerEU, the lessening of energy dependency from Russian fossile fuels is to be tackled also with energy saving in the short term: lowering the heating in homes by 1 ºC would allow to save around 10 billion m3 of gas. Nevertheless, by taking the sum of the above mentioned gas volumes, it is clear that much remains to be done in order to fully replace Russian gas, whose shipments to the EU amounted to 166 billion m3 in 2019 only.

Still too early to say “dasvidaniya” to Russian gas

Notwithstanding Brussel’s awareness of the long path towards independence from Moscow’s gas, the major European political players as well as some key national institutions have expressed concern not only about the ability to promptly replace the Russian commodity, but also about the adverse effects that such a decision could have in the very short term. On April 22, the Bundesbank (Germany’s Central Bank) warned that the European Union’s ban on Russian gas imports would cost Germany almost USD 1.95 billion, and that the embargo would plummet the country’s GDP by 5%. This came shortly after German Chancellor Olaf Scholz had stated that he did not think a gas embargo would stop Putin’s war in Ukraine. French President Emmanuel Macron further argued – in an interview with an Italian newspaper – that a full embargo on Russian gas imports is not currently on the table, but he also maintained that if Russia implements counter-sanctions on the EU’s energy imports, Europeans will be asked to make a greater effort to limit energy consumption. The consequences will however be felt mostly next winter, because gas stocks won’t be replenished if an embargo on Russian gas is to be imposed in the short term.