Europe has had no shortage of problems in recent months: an uneven economic recovery from COVID-19, countries strained by the omicron outbreak and now Russian warships massing at the Ukrainian border . And these overlapping crises have driven up energy prices.
Last July, as the economy recovered from the COVID-19-induced recession, gas prices hit a record high of 35 euros per megawatt hour. By December, they had soared to 135 euros per megawatt hour, sending electricity prices skyrocketing across the continent. Many countries, including the UK, France and Spain, have introduced tax breaks and subsidies to help people pay for electricity and heating.
With Russian forces surrounding Ukraine, the situation is about to get even more dire. Policymakers face the possibility that Russia, which supplies around 40% of the continent’s natural gas, could cut off the flow altogether. If that happened, the European Union would be forced to import even more liquefied natural gas from the United States and abroad – and even that might not be enough to fill the void.
How did we get here ? Why are the United Kingdom and the European Union, which have pledged to reduce all carbon emissions from their economies by 2050, so dependent on a fossil fuel imported from Russia?
Paradoxically, part of this dependence results from the continent’s fossil fuel exit strategy. In 1990, Europe produced more than 40% of its electricity with coal; in 2019, the dirtiest fossil fuel produced only around 19%, with natural gas and renewables taking over. “Coal is on its way out,” said Raphael Hanoteaux, senior policy adviser on gas policy at European energy think tank E3G in Brussels, Belgium. “And some countries are looking at relying more and more on gas.”
Natural gas produces fewer carbon dioxide emissions than coal and can also be counted on to provide reliable power during the winter months when the demand for electricity and heating increases. But Europe does not get much out of it, compared to the world’s largest producers: the United States, Russia and Iran. And the European Union’s domestic natural gas production has fallen sharply, as countries like the Netherlands shut down operations due to concerns about earthquakes caused by gas extraction.
So Europe turned to imports for its natural gas fix – but also ran into problems there. Natural gas can be imported in two main ways: via pipelines or via cargo ships if the gas is cooled and transformed into liquefied natural gas, or LNG. (LNG is less than 1/600th the volume of normal natural gas, allowing ships to transport it overseas.)
During the so-called “gas wars” of the mid to late 2000s, Russia repeatedly cut off natural gas supplies through Ukraine, rocking European markets and forcing policymakers and utilities governments to seek more stable supplies for both types of imports. . The continent builds import terminals to convert LNG back to its gaseous form, and has also begun to diversify its natural gas supply, drawing fuel from North Africa, the Middle East, Asia and the United States
According to Nikos Tsafos, holder of the chair of energy and geopolitics at the Center for Strategic and International Studies in Washington DC, Europe has succeeded in diversifying its supply of natural gas to protect itself from shocks. But that just wasn’t enough. The combination of a resurgent economy driving up natural gas prices, sub-par renewable energy production in Europe, and Russia not filling Western Europe’s gas storage hubs meant that the natural gas system was under strain upon strain. “I hate the term, but it was a perfect storm,” he said.
Part of the problem, Tsafos says, is that natural gas plays a critical – and difficult – role in Europe’s energy mix. “I like to say gas gets a failing grade in my book, but gas has the toughest job,” he explained. In winter in the UK, for example, gas demand double compared to summer. This means that the continent must either store a lot of natural gas or try to buy it from abroad during the time of year when demand is highest.
Some say European policymakers succeeded in diversifying supply, but failed to reduce demand. Over the past decade, “new LNG terminals have been built to reduce dependence on piped gas, and there have been new interconnections to move LNG across the continent,” said Elisabetta Cornago, senior researcher at the Center. for European Reform in Brussels, Belgium. “But when it comes to helping households and businesses invest in energy efficiency, that’s where the pace has been very slow.”
Anne-Sophie Corbeau, a global fellow at Columbia University’s Center for Global Energy Policy, said Europe’s poorest citizens are also those who live in poorly insulated and drafty homes. They have the biggest energy bills and suffer the most when natural gas prices rise. (Buildings and houses in Europe have the the greatest demand for natural gas, followed by the electricity sector and heavy industry.) But these residents also have the least amount of money available to spend on home renovations. “Some people will never be able to afford a few thousand euros,” Corbeau said. “It’s that simple.”
Some countries are already trying to accelerate efforts to use less natural gas. Georg Zachmann, senior researcher at Brussels think tank Bruegel, said the new German government plans to install 6 million heat pumps – which can heat buildings with electricity rather than gas – and push the sector to electricity more towards renewables by 2030. The UK government has also launched a grant program to encourage households to install heat pumps.
Over the next 10 years, Europe will be faced with a delicate balancing act: how to guarantee sufficient supplies of natural gas, while promising to reduce the use of this fuel almost entirely. The European Commission has said that the EU should reduce its gas consumption by 30% by 2030, compared to 2015 levels, and by 96% by 2050.
“The bottom line is that the conversion from the short and medium term to the long term is going to be bumpy, and no one knows what that looks like yet,” Tsafos said. European utilities and energy companies, he says, face a series of complicated questions: Should they get more stable contracts for natural gas in the short term, which could jeopardize long-term climate goals? ? Should they invest in gas to ensure a regular supply or turn away from it in favor of renewable energies?
“If I am a European utility and I supply gas to Germany, Italy, Greece or France, well, on the one hand, I want to supply my customers,” Tsafos said. . “On the other hand, I know that at some point I won’t be able to sell what I’m selling today. It’s difficult.”
And underlying the whole natural gas crisis is the fear that if energy prices get too high – even if those high prices are entirely due to the volatility of fossil fuels – it will trigger a violent reaction, turning Europeans against efforts to get rid of fossil fuels. fuels. In 2020, the average European paid around €1,200 for energy; last year, this figure rose to 1,850 euros. The Yellow Vest protests in France only took place a few years ago, and the chanting crowds, fires and street blockades are still etched in the memory of many Europeans. Natural gas, meanwhile, is not the only product likely to cause such upheaval. Today it can be natural gas or oil; tomorrow it could be lithium for batteries or copper for wind turbines.
“How to build a carbon-free, stable and affordable energy system in Europe?” Raven asked. “That’s the big question.”