Following Russia’s invasion of Ukraine, the European Union has declared that it intends to free itself from energy dependence on Russia, a country that still accounts for 40 per cent of Europe’s natural gas and 27 per cent of its oil supplies.
Although the EU is nowhere near phasing out Russian fossil fuels and the necessity of replenishing its storage capacity to 90 per cent before next winter might keep its demand on Russian gas steady, the Union continues the work on securing alternative sources of energy.
At the beginning of March, the European Commission presented a plan, suggesting that making Europe independent from Russian fossil fuels is achievable well before 2030, through the REPowerEU programme.
REPowerEU is expected to increase the EU-wide energy system resilience based on gas supply diversification, namely via higher Liquefied Natural Gas (LNG) imports from non-Russian suppliers, as well as import and production of larger volumes of biomethane and renewable hydrogen. Reduction of fossil fuel use through energy efficiency improvement, renewables expansion and addressing infrastructure bottlenecks is another pillar of the plan.
In parallel, the Union has enforced a ban on new investment across the Russian energy sector in anticipation to add to the economic pressure on the Kremlin and cripple its ability to finance its invasion of Ukraine. However, Vladimir Putin’s announcement this week that Russia will accept payment only in rubles for gas from ‘unfriendly’ countries, has challenged the EU and created uncertainty for those Member States that depend on Russian gas heavily.
Even though Russia has already managed to increase the value of its currency with the new ruble policy on gas exports, the EU’s intention to break ties with Russian energy supplies is as strong as ever. That the Union has a lot at stake in the event of gas supply disruption has been made clear but what does the same scenario mean for Russia?
For Nikolai Sitter, Professor of Political Economy at the BI Norwegian Business School and Public Policy at the Central European University, Russia’s main problem in the event of gas trade interruption with the EU is that it has no alternative market.
The speed at which Europe will make move to alternative energy routes and renewables should also be considered as it will affect the costs of the shift.
“China simply cannot replace the EU as a market for this gas,” he says.
“The faster the transition, the more expensive it will be. Russia’s invasion of Ukraine is likely to accelerate several policy initiatives designed to increase the share of renewable energy in the EU energy mix and improve energy efficiency. It is likely that this ambition will remain even if there are no gas sanctions and is no gas cut-off, but in this case, it might be paced over at least half a decade. In the event of a cut-off, things can move much faster”, he tells CEENERGYNEWS.
When considering longer-term effects, energy prices are likely to remain “higher than in recent years, but manageable as the EU accelerates its green shift and improves energy efficiency. There are paralleled here to what happened in the West after the 1970s oil price shocks.”
The energy crisis, according to him, will only accelerate the EU Green Deal since the transition toward a low-carbon economy now “has an added important security dimension. This was always there, inasmuch as renewable energy contributed to the security of supply. Now it has become more urgent and more important.”
Nonetheless, the role of fossil fuels will retain their critical role in the EU energy mix for the foreseeable future. Gas especially “will act as a bridge fuel between the old economy and the green economy but Russian gas is likely to have a rapidly diminishing role, with Norwegian gas and LNG trade on the global market assuming a much bigger role,” Professor Sitter highlights.
Based on the energy security interests of the Union, contours of a new geopolitical picture emerges which points to new relations between Europe and other energy-producing states.
Professor Sitter emphasises that for more than four decades, Russia has managed to build up a reputation as a reliable energy supplier and played down the threat of an “energy weapon” but with its invasion of Ukraine, it “[…] has effectively killed off its reputation as a reliable supplier of gas to the European market […]. In the last month or two, Russia has weaponised energy, simply by hinting at a cut-off and suggesting that the EU cannot afford to use economic sanctions. This politicisation of energy trade reinforces the EU’s geopolitical orientation away from Russia: until February, several EU political parties and quite a few governments remained geopolitically positive to Russia, even after the annexation of Crimea. Now, Russia has lost its few friends in the EU.”