How Europe is trying to wean itself off its billion a day Russia energy habit
Russia’s invasion of Ukraine has brought about an energy transition to Europe. Europe’s decades-long timeline for overhauling energy supply system is now being accelerated under extraordinary duress. Political leaders in capitals across Europe are adopting new positions by the day, and missiles land on Kyivan streets.
Russia threatens to cut off gas supplies to Europe. Europe moves quickly to reduce dependence on Russian gas. Germany commits 200 billion euros to switch to renewables.
Russia’s oil production could be cut off within months if Putin follows through on threats to shut down pipelines supplying Europe. This would cause a major economic crisis in Europe.
The war in Ukraine has already shown how the financial system can be weaponised in ways never before seen, but this could also apply to the energy transition. Europe will test what can be achieved in a rush, as the WWII generation nears retirement age. This may lead to an abrupt change in energy supply.
Phasing Out Russian Fossil Fuels
Europe spends billions of dollars a day importing energy from Russia. This money goes directly into the Russian military budget. Coal, gas and oil imports are used to fund the Russian military. European countries spend billions of dollars a year to import energy from Russia. This helps fund the Russian military.
Coal is the easiest problem to fix. With prices going up, the US and Australia can easily replace 70% of Russia’s coal imports. This will reduce the amount of Russian gas imports by 15%. However, buying coal from other countries will cost more than buying Russian coal.
Oil is politically tricky. There is spare capacity in Saudi Arabia, UAE and Iraq. These three countries can potentially make up for Russian oil exports to Europe within months. However, these countries have indicated they aren’t interested in increasing production. This means that there won’t be any decrease in supply. As a result, the price of oil continues to rise. By the end of the month, the price of oil reaches $200 per barrel. Based on Bloomberg estimates, the European Union will need to spend an additional €80 billion to purchase the crude it was getting from Russia this year.
Shale oil production could ramp up faster than expected. Oil from sanctioned countries could be brought back to international markets.
Coal and oil are both very important sources of energy. However, burning coal instead of gas would lead to more carbon dioxide being released into the atmosphere. This would cause global warming which could become a serious problem for our future generations. Therefore, we should use less coal and more gas.
Natural gas is a clean-burning fossil fuel that emits less carbon dioxide than other energy sources. Plans to increase domestic production of natural gas rely on building infrastructure that locks in consumption for decades. Some countries may try to extract even more gas at home.
Europe could cut Russian gas imports by up to 50% next winter if it fixes leaky pipelines. This would be done by buying more LNG and using more piped gas.
Bruegel, a Brussels based think tank, suggested that the EU could survive next year if all Russian pipeline imports are halted. Gasoline prices would rise, but the EU would be able to fill up its gas storage from other sources. This would cost between 60 billion Euros to 100 billion Euros.
Natural Gas is an important energy source for our future. We need to use natural gas more often.
Cutting off or drastically reducing Russian oil would cost the EU about $200 billion dollars per year. This amount is less than what the EU plans to spend annually on energy projects for its Green Deal plan.
