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Russian gas edging towards extinction in Europe

, March 11, 2022, 0 Comments

Germany has been tied to Russia through energy for decades. But as the EU moves to end its dependency on Russian energy, opposition from the continent’s biggest economy is fading into irrelevance.

russian-gas-eu-europe-marketexpress-inA few days before Russia invaded Ukraine, German Finance Minister Christian Lindner warned that if harsh Western sanctions were leveled at Russia in the event of a war, the country might retaliate by cutting off the gas it supplies to Europe.

Now, after two weeks of Russia’s brutal campaign, it is the European side which wants to turn off the tap first as it seeks to apply maximum pressure on Moscow.

EU leaders met at Versailles on Thursday where they discussed plans to dramatically reduce Europe’s use of Russian gas, oil and coal. The European Commission had already signaled that part of the plan is to cut use of Russian gas by two-thirds by the end of 2022, with a longer-term goal of having ended imports of Russian energy by 2030.

A full-scale, immediate boycott has also been mooted, but German opposition has been strong, along with other countries such as Austria and Hungary. On Monday, Chancellor Olaf Scholz justified exempting Russian energy supplies from sanctions, saying in a statement: “At the moment, Europe’s supply of energy…cannot be secured in any other way.”

German Foreign Minister Annalena Baerbock even suggested that banning Russian energy in Germany could result “in a situation where nurses and teachers are not coming to work, where we have no electricity for several days” and would plunge EU countries into chaos.

Alternative sources, turning down the thermostat

However, many experts say Germany could handle an embargo on Russian energy products, and at the very least, that the Commission’s proposals on a two-thirds gas reduction by the end of the year is achievable.

“I think it is a realistic plan because it is based on a portfolio of options,” Simone Tagliapietra, a senior fellow at economic think tank Bruegel, told DW.

“There are supply options like diversification of gas supply. There are of course also the demand side options, and energy savings play an important role there. And of course there are renewables.”

A study this week by the German National Academy of Sciences, Leopoldina, proposed a range of measures to help Germany cut its dependency on Russian gas over the medium term, but also noted that ending supply immediately would be “manageable.”

However, industry representatives say that an instant, full ban on Russian energy supplies would be too damaging domestically to be justifiable.

“An embargo on energy supplies from Russia would have massive negative effects on our economy and on consumers,” Kerstin Andreae, managing director of the BDEW, Germany’s energy sector business association, told DW.

“Every measure must be weighed up to ensure that it does not lead to unacceptable upheavals. As of today, we can only partially replace the import of Russian natural gas.”

All the gas that’s fit to ship

Replacing Russian gas, as opposed to its oil or coal, is clearly the biggest challenge for Germany.

Around 30% of Germany’s oil comes from Russia, according to a study from the Transport & Environment (T&E) think tank. However, alternative sources of oil can be found more quickly and easily than natural gas, of which about 50% of Germany’s supply came from Russia in 2021.

Ramping up supply of liquefied natural gas (LNG) is commonly cited as the main alternative, and Germany, along with the EU as a whole, has drastically increased LNG imports from the US over the past few months. Germany is also speeding up plans to develop its own LNG terminals.

However, a study by the Association of German Chambers of Industry and Commerce (DIHK), a business lobby group, says Germany would need deliveries from every LNG tanker in the world to compensate for a complete loss of Russian gas in the absence of any other alternatives or changes.

A coordinated international response

Beyond the clamor for an instant embargo, experts say the EU is already firmly on the path to ending its dependency on Russian gas.

Bruegel’s Tagliapietra points out that in the first two months of 2022, EU gas imports from Russia have already fallen dramatically compared with 2021, mainly due to Russia holding back deliveries with Gazprom in 2021. Russian gas accounted for 28% of the EU’s gas imports in January and February, compared with 47% for those months last year.

He said a concerted effort by EU governments, as well as by local authorities across the bloc, can cushion the impact of cutting off Russian supply. However, the most important factor in the short term will be firm commitments from the US and other big suppliers such as Qatar to continue delivering large quantities of LNG at competitive prices, he noted.

“We will also possibly need to continue the dramatic efforts of the EU Commission to ask Japan and South Korea to redirect supplies of LNG to Europe for the refilling season,” he said. “A coordinated international response by the Western allies would be the best way to deal with it so as to not increase competition among ourselves.”

Russian gas into the ether

If Germany fully commits to the European Commission’s pledge to reduce gas imports from Russia by two-thirds before 2023, the big challenge will likely be felt next winter. Sufficient reserves are already in place for the rest of this winter, but those reserves need to be replenished in the summer.

This week, the natural gas price in Europe hit an all-time high, briefly hitting €345 ($380) per megawatt-hour. Consumers and businesses will likely experience further price increases. That has led to calls for the EU and national governments to provide extra funding to limit the damage of price surges.

Tagliapietra said the debate about Russian energy is about timing, rather than substance: a question of when, rather than if, as he believes independence from Russian energy for countries like Germany is now inevitable.

“Timing is the crucial dimension here. That is where governments I would expect will fight,” he said. “But what we are discussing for full independence is really a horizon of probably five years.”

For Germany, which has had a largely uninterrupted flow of Russian gas for half a century, turning off the taps is proving a tricky sell. However, the European Commission’s determination to expedite Europe’s energy independence from Russia looks set to win the day.

EU climate policy chief Frans Timmermans summed up that mood when he said earlier this week: “It’s hard, bloody hard. But it’s possible.”