Russia’s invasion of Ukraine and what it means for Energy in Europe

Gas imports from Russia make up 40% of the European Union’s gas consumption. Following Russia’s invasion of Ukraine, Germany had announced cancelling Nord Stream 2. However, can Europe function without gas imports from Russia, given its excessive reliance? How can Europe diversify its energy imports and increase self-sufficiency?

Russia’s invasion of Ukraine and what it means for Energy in Europe

Gas imports from Russia make up 40% of the European Union’s gas consumption.

Without dwelling on the atrocities Russia is committing in Ukraine, Let’s look just into how the ongoing war could redefine the energy landscape in Europe. Just the last week alone, wholesale gas prices in Europe were at an all-time high (trading at $221 per MWh).

Barely having made it without getting frozen last winter, Europe will have to start now to refill its gas reserves to make it through the winter of 2022. Russia turning off the gas supply to Europe or Europe itself shunning Russian gas altogether owing to public pressure seem equally likely to happen now.

The 123 kilometres long, $11 billion worth Nord Stream 2 project that was completed in September 2021 and awaiting certification from Germany now stands cancelled.  One of the key reasons for Russia to build Nord Stream 2 was to bypass Ukraine, the gas supply contracts Russia has with Ukraine are up for renewal in 2024. Until the mid-nineties, most of the Russian gas exports to Europe passed through Ukraine. Between 1998 and 2021, Russia reduced the gas transit via Ukraine by 70% through the Yamal- Europe pipeline (through Belarus and Poland), Blue Stream and South Stream (through Turkey), Nord Stream 1 (to Germany through the Baltic Sea)

Nord Stream 2 when operational could have supplied 55 billion cubic meters of natural gas or ten percent of Europe’s annual consumption.

Europe has been putting all its eggs in the same basket. How can Europe get out of such a heavy reliance on one country (and an unpredictable one) for its energy needs?

There is no single solution to this problem, it would be a series of steps executed over a short, mid and long-term period of time that can get Europe out of this fix. Irrespective of the alternatives chosen, the European consumer will have to pay more for their electricity and heating.

Germany’s troubles with Energy

Germany finds itself in a fix –Germany is on the way to decommissioning all its remaining Nuclear Power plants by end of 2022 and aims to decommission all its coal power plants by 2030. With renewable generation or newer energy sources such as hydrogen yet to rise to fill the gap, natural gas was Germany’s answer to its energy needs – and the biggest supplier was Russia. With renewables not yet being able to replace such volumes, Germany will now need alternatives.

Diversifying Europe’s gas supply

Underground gas storage facilities in EU

Underground gas storage facilities in the EU

Domestic gas production across Europe is on the decline. However, the last quarter of 2021 saw Europe’s LNG imports increase by over 40% in response to reduced supply from Russia. Algeria’s Sonatrach is working on increasing the capacity of the Medgaz gas pipeline from Algeria to Spain.

Interconnectors will be key to solving the problem. The Poland-Denmark interconnection, interconnector connecting the Bulgarian gas network to Romania and Serbia, the Greece- Bulgaria interconnector, Midcat- the interconnector between Catalonia and France are also on the way and would alleviate some of the pressure.

The TAP or Trans-Adriatic Pipeline bringing gas to European Union from Azerbaijan through Turkey plans on expanding capacity and could make up for some of the missing gas.

Can Europe replace Russian gas with LNG imports?

The vast network of gas pipelines across Europe does make it possible for LNG imported in one part of the continent to be moved to where there is demand. Europe will indeed have to build more LNG import terminals- such projects take years and cannot solve the problem in the short term. LNG from the US and Qatar could replace part of the missing gas in Europe – however, the missing volume is so big that Europe will be forced to diversify.

Also securing supply in a market where most global supplies are tied into long-term contracts will be costly. Most of the world’s LNG imports goes to the Asian region- China and Japan being the leading importers.

Ramping up Biomethane production

2021 was a record-breaking year for biomethane production in Europe. The biomethane production in Europe has been quietly increasing 15% year on year from 2015. In Denmark, biomethane has already been able to satisfy close to 20% of the gas demand. According to EBA, sustainable biomethane can cover up to 30-40% of the EU gas consumption expected for 2050 with an estimated production of at least 1,000 TWh3. The advantage of biomethane is that it uses mostly organic waste, can offer additional income for farmers and the agricultural industry and can connect directly to the existing gas infrastructure.

We at Prospero Events are bringing together Biomethane and Biogas experts in Europe for discussions on the latest developments and challenges.
See: Future of Biomethane and Biogas in Europe 2022

The reemergence of Nuclear Power?

France announced the construction of up to 14 nuclear reactors by 2050. Nuclear power accounts for 70% of France’s electricity produced. With Nuclear Power being classified as ‘Green’ in the new EU taxonomy, more countries are following suit to ramp up their nuclear power production.

On this front as well, Russia’s war with Ukraine could become a point of concern. Russia is the second biggest exporter of Uranium to Europe. Just last week, Swedish Utility Vattenfall announced a suspension of nuclear fuel imports from Russia as a sign of solidarity with Ukraine. If more companies and countries follow suit, they would have to also find alternatives.

Europe clearly has been complacent and had been putting all its eggs in the same basket. The over-reliance on Russian gas imports has now put Europe in a fix. The tragedy had to be so very close to home for Europe to finally say no to Russian gas.

Upon cancelling Nord Stream 2, Germany’s foreign minister is reported to have said “Peace and freedom in Europe don’t have a price tag.

 If it is a sign of things to come, Europe must diversify, and now.

PS: Underground storage of natural gas is one of the ways Europe can ensure a steady supply of gas throughout the year. We are bringing together top experts in Underground gas storage to discuss the latest developments, challenges and best practices. Joining us on the panel at Underground Gas Storage & Hydrogen Integration 2022 will be the CEO of Storengy, SVP of Energinet, Head of Gas Department of E-Control, and more.

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