Russian gas: The energy crisis we did not prepare for

Mikhail Metzel/Pool Sputnik Kremlin via AP

As Moscow and the West saber rattle over threats of cutting Russian pipeline gas supplies to Europe over the Ukraine crisis, it has become clear that the continent has made little progress in reducing its dependency on Russian gas. This comes 13 years after Russia shut down gas supplies through Ukraine, and now Europe is facing an even worse energy crisis. Gas prices currently at around $30 per metric million British thermal units (mmBtu) are already unsustainably high for European gas users, driving inflation, shutting down factories and spilling over to other regions. European policy-makers who have focused mostly on sustainability must urgently put security of supply and equity back on the energy policy agenda.

The International Energy Agency defines energy security as “the uninterrupted availability of energy sources at an affordable price.” This includes the ability of an energy system to react promptly to sudden changes in the supply-demand balance in the short term. Longer-term, it requires timely investments to supply sufficient energy and calls for diversification in terms of fuels, suppliers and supply routes.

Even before any potential total loss of Russian gas, Europe was already facing a bleak winter of tight supply and record natural gas prices. And while many disruption scenarios simulate a sudden supply route disruption combined with extreme climatic conditions, nobody has prepared for a situation where the European energy system would already be stretched to the limit even before a major gas disruption occurs. Gas prices are already unaffordable and most levers available to deal with a short-term disruption are already used.

These levers include demand declines as consumers curb use due to high prices as well as switching to other fuels, measures that have already caused European industrial gas consumption to fall. Residential users exposed to increasing heating bills would have already looked at lowering their thermostat, and coal-fired plants have come back to replace gas-fired plants.

On the supply side, Europe can either draw down already low gas inventories or look for alternate gas supplies in the form of LNG, for which the region finds itself in fierce competition with Asia. But there is very little spare capacity in the global LNG system and certainly not enough to replace all of Russia’s gas. Other possibilities, such as increasing pipeline supplies from Africa and Azerbaijan or ramping up domestic production, will also fall short.

Europe did create an internal market and increased its ability to move gas across the continent to help countries more dependent on Russia. It also built new liquefied natural gas (LNG) terminals and storage facilities. But as its import requirements increased, Europe did not quite manage to significantly diversify its gas supply sources away from Russia: it imported more LNG, but also more Russian pipeline gas in 2021 than it did in 2009. Europe counted on all the traditional levers but in particular on flexible, transparent and liquid LNG markets to come to the rescue. They did, but at a very high price.

What is needed now are policies to reduce natural gas demand; otherwise, this decade is likely to see Europe increasing its gas import requirements and become more exposed to the whims of its main supplier. This is easier said than done as the Eastern part of the continent is counting on natural gas to move away from coal. European policy-makers need to focus more on energy efficiency to reduce demand in the residential sector, which accounts for around 40 percent of Europe’s gas demand. Poorly insulated homes tend to be occupied by lower-income households, they will be particularly impacted by high energy prices. They need to put in place regulatory tools that ensure storage facilities are full ahead of winter. Accelerated investments in clean energy technologies are required, including in biomethane that can replace natural gas as a domestic supply source. This approach also includes investing in technologies that enable the power system to cope with increased intermittency, a role that has been usually taken by gas-fired plants. Finally, European policy-makers need to consider whether they want to foster domestic production or support overseas supplies to effectively diversify away from Russia, or whether this comes too much in contradiction with the Green Deal agenda.

Anne-Sophie Corbeau is a global research scholar at the Center on Global Energy Policy at Columbia University’s School of International and Public Affairs.

Tags Anne-Sophie Corbeau Energy Europe gas International Russia Ukraine

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