The Big Conundrum: responses and solutions to Europe’s reliance on Russian oil and gas

By Trishita Bose

While the European Union collectively condemns Russia’s invasion of Ukraine, it is their money that is paying for Putin’s tanks, jets and missiles. Despite years of wanting to reduce its reliance on Russian oil and gas, the EU has hardly taken any measures in that direction.

Pointing out the paradox at an EU leaders’ summit on sanctions against Moscow in February, Polish Prime Minister Mateusz Morawiecki said: “We are buying as the European Union lots of Russian gas, lots of Russian oil. And President Putin is taking the money from us, from the Europeans. And he is turning this into aggression, invasion.”

Russia is the world’s third-largest oil producer in the world and also the biggest exporter of crude oil across global markets. EU member states, in turn, relies on Russia for roughly 40% of its natural gas and about 42% of its oil, with Germany and The Netherlands being the biggest importers.

SOURCE: Politico, Eurostat, UN Comtrade, Gazprom

Such dependency has made it harder for Europe to put a more stringent ban on oil and gas imports from Russia, with Germany maintaining that its economy would plunge into recession as a result of a sudden loss of oil and gas resources.

SOURCE: Politico, Eurostat, UN Comtrade, Gazprom

Germany’s Vice-Chancellor and Green Economics Minister, Robert Habeck, said that his country could not afford the “loss of hundreds of thousands of jobs” that a full energy embargo would require. He added that at best, Germany could be freed of Russian coal by the autumn of 2022, of its oil by the end of the year, but could set no date for ending its reliance on gas.

After the United States banned its imports of Russian oil, which was about 8%, and the United Kingdom promised to phase out oil imports from Russia by end of the year, the European Commission showed fresh resolve and announced a proposal to cut its use of Russian gas by two-thirds this year and ‘’make Europe independent from Russian fossil fuels well before 2030.’’

The tensions are high after Germany froze the certification of the Nord Stream 2 gas pipeline. In retaliation, Russia’s Deputy Prime Minister Alexander Novak threatened to halt gas supplies to Europe on March 7.

In such a scenario, Europe might not even have a choice but to look for alternative resources. Ursula von der Leyen, President of the European Commission said, “We simply cannot rely on a supplier who explicitly threatens us.’’

So, if Europe cannot depend on Russia anymore, where does it get its oil and gas supply from?

EU climate policy chief Frans Timmermans said that Europe will be looking towards ‘’diversification of supply,” He added, “It’s hard, bloody hard. But it’s possible.”

Europe is in a unique position with its interlinked gas network, which means that supplies can be shared. The European Commission plans to import gas and liquefied natural gas from countries like the United States and Qatar which could this year replace about 60 billion cubic metres (bcm), of the 155 bcm Europe gets annually from Russia.

‘’Neither Qatar nor any other single country has the capacity to replace Russian gas supplies to Europe with LNG in the event of disruption from Russian supply’’, Qatar’s energy minister said on Tuesday.

Europe will need to compete with other major liquefied natural gas consumers like China, South Korea and Japan. The additional demand from Europe might push prices up higher for everyone.

Come April, the EU will propose rules requiring EU countries to fill gas storage to 90% by 1st October each year. EU storage is currently 27% full.

Europe has enough storage and alternative gas supplies for this winter, but analysts say a prolonged halt to Russian imports would hit Europe’s economy and require emergency measures such as factory closures and further rise in inflation.

Germany could import gas from Britain, Denmark, Norway and the Netherlands via pipelines.
The head of a gas lobby said Germany could increase its domestic production at fields concentrated in the north of the country.

Norway’s Equinor (EQNR.OL) is considering ways to produce more gas from its own fields during this summer, a season in which output is normally affected by maintenance.

Southern Europe can receive Azeri gas via the Trans Adriatic Pipeline to Italy and the Trans-Anatolian Natural Gas Pipeline (TANAP) through Turkey.

According to the International Energy Agency (IEA), Russia exports about 5 million barrels of crude oil per day. Of that, about 2 million could be replaced by some members of the Organization of the Petroleum Exporting Countries (OPEC). Saudi Arabia, Iraq, Kuwait and the United Arab Emirates could “simultaneously stretch themselves to their maximum capacity’’, said Vandana Hari, founder of energy intelligence firm Vanda Insights.

“There’s just no way even OPEC+ and even Iran and Venezuela combined could make up for it,” Vandana said to CNBC’s “Squawk Box Asia.”

There have been discussions with Venezuela to lift sanctions on its oil. But even if those sanctions were lifted, Hari said that would only free up another 100,000 barrels a day from Venezuela — “certainly nothing that would come even close to offsetting the disruption in Russian supplies.”

Since alternative supplies of oil and gas alone won’t suffice, Europe could diversify to renewables. Solar energy, wind energy, geothermal energy, biomass and hydropower have received a boost in recent weeks. As proposed by the IEA, Europe should also look into generating more nuclear power from plants based in France, Spain and Belgium, as they have the most operable nuclear reactors. However, Europe will not see a smooth journey to make its switch to nuclear energy.

Source: Council on Foreign Relations

Whether in the coming year or within a few years, Europe will now act more decisively to end its 58-year-old Russian dependence for oil and gas, putting an end to the so-called Friendship pipeline established in 1964, which has been a central feature of the European energy system. The only way to do it is to not just look into alternative places to get oil and gas imports, but also diversify to renewables and nuclear energy.

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