Amid the human toll and rubble left behind by Russia’s invasion of Ukraine, Europe’s energy relationship with Moscow also lies in tatters.
A continent that for decades has been reliant on fossil fuels from Russia is undergoing a seismic shift in its thinking, with long-standing oil-and-gas import policies that withstood even the Cold War being called into question. Now, Europe is grappling with how to secure an energy future beyond Kremlin control.
If Moscow refuses to let up, the public pressure on Western governments will grow, setting the stage for what only last month seemed an unlikely proposition: European sanctions against Russian oil and gas.
Such sanctions would have a profound impact on Russia’s balance sheet. The country produces around 17 per cent of the world’s oil and 13 per cent of its natural gas, which together comprise more than 60 per cent of Russia’s export revenue. But the measures could also cause dramatic energy price spikes in Europe, which uses Russian fuel for heat and electricity.
Russia has been steadily strengthening its grip on EU energy markets for decades, and imposing sanctions on Russian fuel would mean loosening those ties. Industry experts point to a possible two-pronged plan for doing so. First, switch to buying gas from the likes of Azerbaijan, Qatar, the United States and Algeria. Then, request that Asian fuel markets divert some of their cargo to Europe.
As Russia invades Ukraine, energy security has suddenly become as important as defense policy
Last year alone, the EU imported about 140 billion cubic metres of gas by pipeline from Russia, and about 15 billion cubic metres of liquefied natural gas. That accounted for 45 per cent of the bloc’s gas imports and almost 40 per cent of its total consumption.
Each new contract for Russian gas shipments has made Europe more reliant on Moscow. Before the Ukraine invasion, the EU had been becoming increasingly hesitant to jeopardize energy supplies by opposing the Kremlin.
Joerg Forbrig at the German Marshall Fund, a think tank in Berlin, pointed to past Russian provocations that he said met with muted responses from the West, largely because of the energy implications. Those included Russia’s 2008 invasion of Georgia, its 2014 annexation of Crimea and the 2019 assassination of Zelimkhan Khangoshvili, a Georgian-Chechen man, in a Berlin park – which a German court ruled last year was orchestrated by the Kremlin.
The political calculus changed after the invasion. “There is absolutely no taboo in reconsidering reshaping relationships with Russia,” he said, “including the energy relationship.”
Simone Tagliapietra, an expert in international energy issues at Bruegel, a European think tank, pegs Europe’s purchases of natural gas from Russia at around €800-million ($1.1-billion) each day. And he thinks oil and gas sanctions are a distinct possibility.
“Just look at what happened over the last week. We have managed to put in place – in a week – sanctions that are of unprecedented strength,” he said, referring to Western restrictions on Russian banks and individuals.
While there’s some disagreement about how much gas Europe has in storage, the overarching sentiment among experts here is that even if the EU shuns Russian fuel, the bloc will get through the rest of the winter and the summer just fine.
Barbara Pompili, France’s Minister for Ecological Transition, told reporters Thursday that the EU’s energy system is robust for the time being, and that there are “no risks for the security of gas and oil.” (France currently holds the presidency of the council of the EU.)
Russia and Europe risk mutually assured destruction in a natural gas war
Europe’s rethink of its energy reliance on Moscow may be made easier by the fact that the EU was trying to reduce its use of fossil fuels even before the current crisis. The bloc is targeting overall net-zero greenhouse gas emissions by 2050, and this week the German government said it wants all of its electricity to come from renewable sources by 2035.
Dr. Tagliapietra said that while renewables and energy efficiency will play a large part in solving Europe’s reliance on Russia, the transition will require time. It’s probable that the EU will continue importing large volumes of gas in the short-to-medium term, he said, simply because Europe “cannot realistically think of going fully green in a matter of five years.”
It’s not just about money. The EU will also need to tackle practical problems, such as increasing solar panel manufacturing capacity and finding qualified installation workers.
Across the continent, there is a sense that Ukraine deserves support and Russia deserves punishment, even if it comes with very real consequences for consumers.
“Yes, there is an element of fear of Russian retaliation, but the support by the public also includes an acknowledgement that this will come at a cost to us all,” Dr. Forbrig said.
The war hits close to home for EU residents – literally and figuratively.
“This is about us. This is about our values. This is about the right of people to be self-determined. This is about sovereignty. This is about the core values of the UN Charter, the core values of the European Union,” Dr. Tagliapietra said.
Dr. Forbrig believes the Kremlin miscalculated just how strong, swift and unified the West’s response would be to an invasion of Ukraine. Even among the business community, where balance sheets reign supreme, willingness to work with Russia has taken a nosedive.
BP was the first oil major to wash its hands of Russian assets. It announced on Sunday plans to drop its 20-per-cent stake in oil company Rosneft, and in the process kicked off something of a domino effect. Shell PLC said it would jettison billions of dollars worth of Russian energy interests, including a joint venture with Gazprom that it values at US$3-billion. Exxon Mobil and Norway’s Equinor said they, too, would exit their Russian oil and gas operations, worth billions.
And should Western contractors leave the country, “it will undoubtedly cause delays and disruptions to ongoing operations,” said Jarand Rystad, the chief executive of data provider Rystad Energy. He added that progress on oil development projects – such as the gigantic Vostok oil field development in Russia’s north, which is expected to produce two million barrels a day – is also likely to slow significantly.
If that happens, experts say it’s likely Europe will put pressure on countries such as the United States, Canada and Saudi Arabia to scale up oil production and help make up the shortfall.
With no immediate end to the conflict in sight, international cooperation on the energy front will be crucial.
“If there is a major shock, as we are seeing now in the European market – both on gas and oil – this will spill over quickly around the world,” Dr. Tagliapietra said.
“We should be very, very clear here: What happens in Europe doesn’t stay in Europe.”
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