Russian gas on the verge of extinction in Europe | Business | Economic and financial news from a German perspective | DW
Days before Russia invaded Ukraine, German Finance Minister Christian Lindner warned that if harsh Western sanctions were imposed on Russia in the event of war, the country could retaliate by cutting off the gas it he supplies to Europe.
Now, after two weeks of a brutal Russian campaign, it is the European side that wants to turn off the tap first as it seeks to exert maximum pressure on Moscow.
EU leaders met in Versailles on Thursday where they discussed plans to drastically reduce Europe’s use of Russian gas, oil and coal. The European Commission had previously signaled that part of the plan is to cut Russian gas use by two-thirds by the end of 2022, with a longer-term goal of ending Russian energy imports from here 2030.
An immediate large-scale boycott was also mooted, but German opposition was strong, as well as 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 energy supply…cannot be secured in any other way.”
German Foreign Minister Annalena Baerbock even hinted that banning Russian energy in Germany could lead to “a situation where nurses and teachers don’t come to work, where we don’t have electricity for several days” and would throw EU countries into chaos.
Alternative sources, lowering the thermostat
However, many experts say that Germany could manage an embargo on Russian energy products, and at the very least, that the Commission’s proposals on a two-thirds gas cut by the end of the year are achievable.
“I think it’s a realistic plan because it’s based on a portfolio of options,” Simone Tagliapietra, a senior researcher at economics think tank Bruegel, told DW.
“There are supply options like diversifying the gas supply. There are of course also the options on the demand side, and energy savings play an important role in that. And of course there is to renewable energy.”
A study this week by the German National Academy of Sciences, Leopoldina, proposed a series of measures to help Germany reduce its dependence on Russian gas in the medium term, but also noted that the immediate cessation of supply would be “manageable”.
However, industry representatives argue that a complete and instantaneous ban on Russian energy supplies would be too damaging domestically to be justifiable.
“An embargo on energy supplies from Russia would have considerable negative effects on our economy and on consumers,” Kerstin Andreae, managing director of BDEW, the German energy business association, told DW. .
“Each measure must be weighed to ensure that it does not lead to unacceptable disruptions. To date, we can only partially replace the import of Russian natural gas.”
All gas that is fit to ship
Substituting Russian gas, as opposed to its oil or coal, is clearly the biggest challenge for Germany.
Around 30% of German oil comes from Russia, according to a study by the Transport & Environment (T&E) think tank. However, alternative sources of oil can be found faster and easier than natural gas, of which around 50% of Germany’s supply came from Russia in 2021.
Increasing the supply of liquefied natural gas (LNG) is often cited as the main alternative, and Germany, as well as the EU as a whole, has significantly increased imports of LNG from the United States to course of the last few months. Germany is also accelerating its development projects for its own LNG terminals.
However, a study by the Association of German Chambers of Industry and Commerce (DIHK), a business lobby group, indicates that Germany would need deliveries from all the LNG carriers in the world to compensate for a complete loss of Russian gas in the absence of any other alternatives or modifications.
A coordinated international response
Beyond the clamor for an instant embargo, experts say the EU is already firmly on the path to ending its reliance 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 to 2021, mainly due to delayed deliveries from Russia with Gazprom in 2021. Russian gas accounted for 28% of EU gas imports in January and February, compared to 47% for those months last year.
He said a concerted effort by EU governments, as well as local authorities across the bloc, can cushion the impact of the Russian supply cut. However, the most important factor in the short term will be firm commitments from the United States and other major suppliers such as Qatar to continue delivering large quantities of LNG at competitive prices, he noted.
“We may also have to continue the European Commission’s considerable efforts to ask Japan and South Korea to redirect LNG supplies to Europe for the filling season,” he said. “An international response coordinated by Western allies would be the best way to deal with this so as not to increase competition between us.”
Russian gas in ether
If Germany is fully committed to meeting the European Commission’s pledge to cut Russian gas imports by two-thirds by 2023, the big challenge will likely be felt next winter. Sufficient reserves are already in place for the remainder of this winter, but these reserves need to be replenished in the summer.
This week, the price of natural gas in Europe hit an all-time high, briefly hitting €345 ($380) per megawatt-hour. Consumers and businesses will likely experience further price increases. This has led to calls for the EU and national governments to provide additional funding to limit the damage from price spikes.
Tagliapietra said the Russian energy debate is a question of timing rather than substance: a question of when, rather than if, because he believes independence from Russian energy for countries like Germany is now inevitable.
“Timing is the crucial dimension here. That’s where governments I expect to fight,” he said. “But what we’re 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 accelerate Europe’s energy independence from Russia seems set to prevail.
EU climate policy chief Frans Timmermans summed up that mood when he said earlier this week: “It’s tough, damn tough. But it’s possible.”
Edited by: Uwe Hessler