Part 1: The Crisis & the Dilemma
As Russia threatens to choke fuel supplies, the EU is staring at an imminent energy crisis. This might be the right time to switch to alternative energy sources
First, a few interesting facts and figures:
- Europe imports coal, gas, and oil from Russia costing around $1 billion each day.
- Approximately 45% of Europe’s gas, 45% of its coal, and 25% of its crude oil supplies come from Russia
- A major European country like Germany is entirely dependent on Russia for all fuel oil and for 50% of its gas through pipelines.
- Germany alone pays Russia around $700 million (€640 million) per day on these accounts.
- Germany doesn’t have the infrastructure to take shipments of liquefied natural gas from elsewhere.
- 40% of Russia’s federal budget comes from oil and gas – and these two items also comprise 60% of Russian exports
- All networks of pipelines that Russia uses to supply gas to the EU countries pass through Ukraine.
- In view of the Ukraine war, the EU has substantially increased energy imports from the US. In the current year till date, around 75% of liquid natural gas (LNG)exported by the US has gone to Europe alone – compared to 34% the previous year.
The above facts do tell a story by themselves, but let’s dive deep.
A crisis-driven opportunity
The European fuel consumption market is staring at an imminent crisis. As Western nations impose strict sanctions on Russia for bullying Ukraine, the uneasy fact rests on every mind that European countries are almost totally dependent on Russia for its oil and gas supplies. And the no-nonsense Russian president is expected to impose retaliatory embargoes on these exports – just to teach a lesson to nations that oppose his Ukraine campaigns.
However, this threat might have a silver lining in the long run. The European Union now realizes that over-dependence on a single source for its fuel supply is a dangerous idea, and it could be the best time to shift the focus from hydrocarbons and seek alternative energy options. And investing in the alternative as well as renewable energy sources would be far better than pinning all hopes on fossil fuels.
It could be a double-edged sword – climate experts warn. Because short-term measures would definitely have a profound impact on the world’s race to reach net-zero greenhouse gas emissions; it may not all be negative.
Financier David Blood, co-founder of the Generation Investment Management with Al Gore, is optimistic that this war would be a huge boost to the green energy movements. As reported in the media, he categorically confirmed: “The irony is, this war is funded by the west’s dependence on Russian hydrocarbons. There is now significant evidence to show that hydrocarbons are not just environmentally unsustainable, but that they weaken the social, political and economic fabric of our world too…. This war provides even more evidence of why there is no time to waste in transitioning away from fossil fuels and towards a cleaner future.”
Europe in panic mode
Fearing that President Putin could soon go ahead with an energy embargo of his own, policymakers across Europe scramble to rethink their failing energy strategy. The EU plans to diversify gas supplies, improve energy efficiency, consider resurrecting nuclear reactors, run existing coal plants at full throttle and postpone the planned retirement of others. Not all of these are renewable or green options – but that compromise is bound to happen in the short term.
The race to abandon Russian fossil fuels is afoot and hectic negotiations are noticed across the western world. Sample the following:
- Washington and Brussels have set up a task force to reduce Europe’s reliance on Russian fossil fuels.
- During the US President Joe Biden’s visit to Europe, a deal was inked whereby the US will supply the EU with an additional 15 billion cubic meters of LNG this year, going up to 50 billion cubic meters eventually.
- The US and EU are jointly exploring ways to accelerate renewable energy plans and reduce dependence on gas by improving energy efficiency.
- German Energy Minister Robert Habeck made a whirlwind trip to Qatar and the UAE to secure alternative oil supplies.
- European Commission Executive Vice President Frans Timmermans and Energy Commissioner Kadri Simson are planned to be visiting the Gulf nations too.
Analysts say that while financial sanctions might impact Russia, it will certainly disrupt energy-market flows and hurt Europe in the short-term, forcing governments to invest greater in zero-emissions renewable energy sources, and secure energy independence. This could ultimately help fast-track a green energy transition for the bloc. The events find a strong parallel to developments in the 1970s when the OPEC crisis sparked investment into renewable energy.
Options exist, but confidence lacking
Europe is not really new to renewable energy. However, they have always been a part of an eclectic mix in the energy market. For example, just look at the energy distribution scenario in Germany.
It is obvious from the graphics that although renewable energy already occupied a larger share of the pie (50.5%) way back in 2020, no one is yet ready to consider them as a serious replacement for fossil energy. This ambivalence can be observed throughout the developed world, and the emission prices the world is paying are significant. Going back to the German example, buildings in Germany alone generate around a quarter of greenhouse gas emissions through their fossil-based energy consumption – especially heating. This, despite the fact that fossil energy consumption stands only at 36.5% there.
- While Russian gas would be the most challenging for the EU to replace, coal from Russia is likely the easiest to replace. After being banned by China two years ago Australia, the largest coal exporter globally, has been left with additional stock. Together, the US and Australia could meet the EU demand.
- Oil is a complicated issue. Any solution to oil shortages requires complex coordination between several countries. Being not really impressed with the Biden Administration’s dealings with Iran, the Gulf nations are not very interested in Western causes. And they could only partially substitute for Russian supplies and lower energy prices. And even if alternatives are secured, all intra-European oil pipeline infrastructure is designed for flowing east to west, complicating the transportation process.
- Nuclear power is more dependable and emissions-free. It could be an ideal alternative energy source. Unfortunately, it is not an immediate solution as setting up new plants would cost billions of euros and take years to be completed. The best that can be done in extending the lives of existing nuclear reactors is to help supplant the total energy demand.
Everyone would like to believe that burning coal and oil are no permanent solutions. Although reviving coal usage looks like the only immediate solution to curb spiraling natural gas prices and replace Russian gas. There would be severe pushback from environmentalists. However, in the face of rising public insecurity and economic pressure, a rise in emissions for the short term would be inevitable as the EU scouts for more long-lasting energy security.
The 10-Point Plan
Faced by the looming crisis, the International Energy Agency (IEA) has published this month (March 2022) a detailed 10-Point Plan to reduce the European Union’s reliance on Russian natural gas. Here’s a quick summary of the 10 action points it covers:
- Action 1: No new gas supply contracts with Russia
- Action 2: Replace Russian supplies with gas from alternative sources
- Action 3: Introduce minimum gas storage obligations to enhance market resilience
- Action 4: Accelerate the deployment of new wind and solar projects
- Action 5: Maximise generation from existing dispatchable low-emissions sources: bioenergy and nuclear
- Action 6: Enact short-term measures to shelter vulnerable electricity consumers from high prices
- Action 7: Speed up the replacement of gas boilers with heat pumps
- Action 8: Accelerate energy efficiency improvements in buildings and industry
- Action 9: Encourage a temporary thermostat adjustment by consumers
- Action 10: Step up efforts to diversify and decarbonize sources of power system flexibility
The IEA hopes that “measures implemented this year could bring down gas imports from Russia by over one-third, with additional temporary options to deepen these cuts to well over half while still lowering emissions.”
Access the full IEA document here: A 10-Point Plan to Reduce the European Union’s Reliance on Russian Natural Gas – Analysis – IEA
(Continue reading Part 2 for an overview of the renewable energy alternatives currently in focus)
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