Can Europe wean itself off its dependence on Russian fossil fuels?

Rehden, a sleepy village in northwest Germany that is home to Western Europe’s largest natural gas storage facility, offers the key to understanding just how difficult it will be for Europe to wean itself off Russian energy.

The underground site, which spans the equivalent of 910 football pitches and represents a fifth of Germany’s gas storage capacity, is owned and operated by Gazprom, Russia’s state-owned energy group.

Gazprom, which controls a third of all German, Austrian and Dutch gas storage, emptied tanks at Rehden and other EU sites to unusually low levels last year in an apparent attempt to squeeze the European energy supply prior to Russia’s invasion of Ukraine.

The conflict exposed the heavy bet on Russian energy by Germany, Italy and much of Europe as a strategic mistake, economists say. Russia supplies more than 40% of the EU’s gas and coal imports and a quarter of its crude oil.

“In Germany, it is a bit problematic that we always focus on a solution and rely almost entirely on it,” said Veronika Grimm, an economics professor at the University of Erlangen-Nuremberg who advises the government. . “Maybe we woke up now.”

With growing calls for Europe to block Russian energy imports, governments are now looking for alternatives, part of an EU-wide campaign to cut gas imports from Russia by two-thirds. block from Russia over the next year.

“That’s the first order issue: building terminals and getting independent contracts from Russia,” said Jörg Kukies, the top economic adviser to German Chancellor Olaf Scholz.

As policymakers prepare for possible gas shortages and seek to build the infrastructure to diversify away from Russia, Europe faces tough questions about energy security.

Could Russian supplies to Europe be interrupted?

Such an energy shock cannot be ruled out. Poland has urged the EU to ban all Russian energy imports, while Moscow has threatened to cut gas supplies to Europe in retaliation for sanctions.

But while Germany has suspended the Nord Stream 2 pipeline that would have doubled direct deliveries of Russian gas to Germany, it has resisted calls for a total embargo on Russian energy, with Scholz calling the continued supply of “essential”.

Leonhard Birnbaum, chief executive of Eon, Germany’s largest energy company, endorsed Scholz’s position last week, saying: “In the short term, this is not possible without Russian gas – at least not without serious consequences for the European economy”.

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Europe’s daily energy bill in Moscow is around 800 million euros. Ukrainian President Volodymyr Zelensky has urged Berlin to sever its economic ties with Russia, which he says is “just using you and other countries to finance its war”. A YouGov poll this month found that 54% of Germans support a Russian energy boycott.

Gerhard Mangott, a professor of international studies at the University of Innsbruck, said Russia gets 23% of state revenue from oil export taxes, while gas taxes make up just 8%. .

“I think Europe will cut off the oil supply to Russia, but I doubt they will cut the gas,” he said. “Moscow can retaliate by cutting the gas anyway.”

Most European countries have contingency plans to deal with gas shortages by prioritizing household supply and reducing production in energy-intensive sectors. Bruegel, the think tank, estimates that suspending Russian imports would prevent Europe from filling storage tanks until next winter and force a 10-15% reduction in energy consumption via rationing.

The European Central Bank estimates that a suspension of Russian energy imports would likely reduce eurozone growth by 1.4 percentage points this year, to 2.3%.

But a study by Germany’s National Academy of Sciences Leopoldina concluded that “a short-term suspension of Russian gas supplies would be manageable for the German economy” and that rationing may not be necessary.

Can Germany wean itself off Russian energy?

Not easily. Germany imports around 60% of its total energy consumption, according to the World Bank. Half of Germany’s gas and coal imports come from Russia, which also supplies a third of the country’s oil imports.

While Germany could find alternatives to Russian oil and coal, it would struggle to quickly replace Russian gas, according to a recent study by Ecotribute, a research group set up by the universities of Bonn and Cologne. .

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Germany burns gas for about a quarter of its electricity generation and it is also used for household heating, industrial heating and cooling and chemical manufacturing.

Liquefied natural gas could help, but it would be expensive: Germany has no LNG terminals and would have to rely on other countries to handle imports.

While the EU currently imports gas capable of generating 1,768 TWh from Russia, the Leopoldina study estimates that the bloc only has the capacity to increase LNG imports to the tune of 1,100 TWh with its infrastructure. current.

Robert Habeck, Germany’s economy minister, said on Sunday that he had reached a long-term LNG supply deal with Qatar.

Is Italy in the same boat as Germany?

Yes. Italians voted overwhelmingly in a national post-Chernobyl referendum in 1987 to impose a moratorium on the development of nuclear energy. Renewables provide only 11-12% of Italy’s energy needs, well below the European average of 22%.

With gas covering 40% of its energy needs – and 40% of that gas coming from Russia – reducing Italy’s dependence will take time.

“We don’t have a good energy mix,” said Roberto Cingolani, Minister for the Ecological Transition. “The mistakes the country has made for decades cannot be fixed in a year.”

Domestic gas production in Italy has fallen sharply from around 20 billion cubic meters per year – about a third of national needs – to just 3.7 billion cubic meters per year, mainly due to environmental concerns.

“We have reduced our domestic gas production, but we have increased imports,” Cingolani said. “The environmental impact was constant and we self-damaged the economy.”

How will Europe escape its energy ties with Russia?

Germany is pushing through legislation requiring all gas storage facilities to be at least 90% full by December, up from just 25% currently. If necessary, this will be done through public procurement, as part of a wider European campaign to boost gas storage.

Berlin also hopes to speed up the construction of three LNG terminals. “Conventional wisdom was five years [to build a terminal]”, Kukies said. “We have reduced them to three, and we think we can do it in two, maybe even faster.

Increasing investment in renewable sources, such as wind and solar, which already produce more than 19% of Germany’s energy needs, is part of the longer-term plan.

Berlin has ruled out extending the life of its three remaining nuclear power plants. Instead, it aims to increase the output of coal-fired power plants using German lignite coal.

Ferdi Schüth, vice-president of the Max Planck Institute, said that the increase in CO2 emissions from burning coal would be compensated by the EU emissions trading system, which was preferable to “reopening Pandora’s box” on nuclear energy.

Cingolani said Rome had secured preliminary deals from major gas exporters for 16 to 18 billion cubic meters a year, equivalent to about half of its Russian imports. But exploiting these supplies will also require the rental of two floating regasification plants at a cost of 36 to 54 million euros per year.

Italy is also accelerating the approval of large-scale renewable projects, but commissioning new energy will take time. “It’s unfortunately nothing you can fix in a day,” Cingolani said.

Additional reporting by Alexander Vladkov in Frankfurt and Neil Hume in London

Mary I. Bruner