Why Europe couldn’t kick off from its Russian gas addiction

European government leaders discussed how to become less dependent on Russian gas, coal and oil in Versailles last week. But that pledge has been made before. Also in 2014 and 2015, the EU had big plans to use less energy from Russia. Yet the EU now imports more Russian gas than ever. Time and time again, European government leaders make policies at home that go right against what they agree to in Brussels.

Already earlier in 2006 and 2009, Russian gas deliveries to Eastern Europe were disrupted by price disputes between Russia and Ukraine, which made it clear how dependent Europe is on Russian gas. But since then, Europe's energy dependence has only grown. Europe imported more than 60 percent of its energy needs in 2019 - the highest level in 30 years. So Europe's ambition to become more energy independent has clearly failed.

The reasons for the this are complex: Europe has started to produce less natural gas; Germany wanted to simultaneously phase out nuclear energy and coal; and Europe has proven difficulties to introduce large-scale energy savings. Moreover, energy policy is still largely the domain of national governments.

The aspiration of Western European countries was primarily to have a more efficient gas market. It is this focus on market thinking that was the deciding factor for many countries in recent years to import Russian energy after all. It was simply cheaper than alternatives such as building an LNG port or investing in renewable energy sources.

Energy imports

By far the largest share of European energy imports comes from Russia. In 2021, over 45 percent of the natural gas the European Union imported came from Russia. But the EU also relies heavily on the Russians for imports of other fossil energy; 46 percent of coal and 27 percent of oil imports came from Russia in 2021. Also, the EU imports about 20 percent of its uranium from Russia.

However, unlike oil or coal imports, natural gas imports from Russia are much harder to replace with other imports. The markets for coal and oil are global. These commodities are transported around the world in large ships, and Europe has more than enough facilities to handle those shipments in bulk. It is true that almost half of the imported coal comes from Russia, but without too much adjustment, these imports can also be obtained from, for example, the United States or Australia.

Skewed LNG distribution

The situation is different for natural gas. In the previosu decade the market for gas has become more global as well, with the emergence of LNG it can now be transported around the globe in large tankers. A major bottleneck are the number of LNG receiving terminals as the terminal capacity in Europe is limited and also distributed unevenly.

For instance, Spain has a relatively large number of LNG terminals, which means they can import more LNG than they consume. However, there is only one pipeline that runs from the Iberian Peninsula to the rest of Europe and its capacity is limited. So Eastern European dependence on Russian gas cannot simply be replaced by the LNG that Spain imports.

Domestic Production decline

One of the measures that actually increased dependence on Russia was the decision to cut natural gas production in Europe. In all member states except Ireland, less gas was produced than in 2013.

But nowhere on the continent was a more far-reaching decision taken in this regard than in the Netherlands.?The Dutch government lowered the production ceiling to 30 billion cubic meters per year. In the following years, the ceiling would be lowered more and more.

Within Europe, the Netherlands was a gas giant. The Netherlands produced 14 percent of the total European gas demand. Today, that figure is less than 4 percent. The decision to produce less gas in the Netherlands was rightfully a decision with geopolitical consequences.

Meanwhile, several member states are also taking measures that only increase dependence on Russian gas. Take Germany. No Member State has invested more money in solar and wind energy in recent years. Only, Germany is struggling with a large, decades-old movement against nuclear power. At the same time as investing in solar and wind, the Germans were therefore closing their nuclear power plants. Meanwhile, Germany has also announced a coal exit. All German coal-fired power plants must close by 2038 at the latest.

The consequence of all these measures is that Germany is actually using more gas and became more dependent on Russian gas in recent years. . Since 2014, German gas consumption has grown by around 20 percent. Because Germany has still no LNG terminals and also receives less and less gas from Groningen, in 2018 it agreed to the construction of Nord Stream 2: a gas pipeline from Russia through the Baltic Sea around Ukraine to Europe. Today it is very uncertain whether this pipe will ever be taken into operation at all.

Bright spots

It is not as if nothing has improved at all since 2014. In 2019, the European Commission found that almost all member states have access to at least two sources of natural gas. Poland will soon have access to natural gas from Norway, thus becoming virtually independent of Russian gas. The Baltic Pipeline project received permission for construction in Denmark recently and is expected to be fully operational early 2023. ?At the end of this year, the Polish contract with Gazprom expires and the government already announced that it would 'naturally' not extend this contract.

Elsewhere in Europe, too, there are 'more LNG terminals, more pipelines and more interconnections that make the market more flexible.

In 2022 it is somewhat easier than in 2014 to say no to Russian gas, mainly because of higher LNG capacity and interconnections. It still won't be easy. It will cost a lot of money. But those costs could be considered as an insurance premium that should be paid in the short term, to become more independent from Russia in the longer term. It seems doable.

Source: FTM