Europe Hopes to Reap Political Dividends from Costly Winter | Energy news

European leaders have endorsed an unprecedented combination of energy subsidies and financial measures aimed at making the continent less dependent on Russian coal, oil and gas, and increasingly, political will appears to be tightening to make that independence permanent. .

On Friday, EU heads of government voted to subsidize the electricity and gas consumed by households and businesses this winter due to the surge in prices.

They asked the European Commission, the EU executive, to propose price limits above which the subsidy would come into effect.

Governments would pay for it by recovering the excess profits of electricity producers and gas importers.

Over the past year, gas prices have increased eightfold to reach 340 euros ($ 345) per megawatt hour last month, while electricity prices have tripled this year mainly due to rising gas prices. hydrocarbons, leaders said.

Some EU members had already started subsidizing bills.

Greece tops the chart, pledging to spend 6.5% of GDP on splitting electricity bills with 50-50 consumers, more than any other EU member.

Germany’s spending is expected to be around 2.6% of GDP.

Russian blackmail

The EU banned Russian coal imports last April in response to the Russian invasion of Ukraine and followed up with a ban on Russian oil in June.

But it has not banned gas, which is difficult to replace with shipments to European ports.

This is because the global supply of liquefied natural gas (LNG) had already been oversubscribed after the global post-pandemic rebound and the transition to cleaner fuels, but it is also because some EU countries do not have LNG import facilities.

Germany and landlocked Central and Eastern Europe, in particular, depend on gas introduced through Russian pipelines, which supplied about a third of the EU’s gas last year.

Russia has threatened to cut off this vital supply unless the EU lifts sanctions and halts arms deliveries to Ukraine.

“We are ready to supply gas in volumes that had already been contracted. However, this will certainly depend on the position of European countries, “Russian Security Council Vice President Dmitry Medvedev said on August 28.” If our arms are twisted, if payments are banned, or the delivery of repaired turbines, or the launch of Nordstream 2 is rejected, so supplies of this type will probably not be in the volumes that Western countries expect ”.

Germany halted the certification process of the newly built Nordstream 2 pipeline on February 22, after Russian President Vladimir Putin ordered his first troops to enter eastern Ukraine. The pipeline was supposed to start supplying 55 billion cubic meters of gas to Germany this year.

And the sanctions prevented German industrial giant Siemens from delivering gas compressor turbines to Russia after maintenance. Without them, Russia says it cannot pressurize the Nordstream 1 pipeline.

It halved flows through Nordstream 1 twice, on June 15 and July 27, before announcing it would shut it down completely on September 3. On each occasion, Russia’s stocks have pushed gas prices up in Europe.

European leaders rejected the Russian explanation that technical difficulties led to closure.

“Putin’s gas war against Europe is a direct continuation of his war on Ukraine,” Ukrainian Foreign Minister Dmytro Kuleba said in July.

“Wherever it does harm, it will. He will use every dependence Europe has on Russia to ruin the normal life of every European family. The only way is to respond harshly and get rid of any addiction. ”

Energy security

Europe’s energy decoupling from Russia could paralyze it this winter, and many economists believe it will experience a recession, mainly due to high energy costs.

“Europe does not have enough gas as a whole, despite having deposits 85% full, because the question is whether you can get the gas from where it is stored to where it is needed,” said Jonathan Stern, who leads the Oxford Institute for Energy Studies.

“For example, France [which has LNG terminals] they cannot supply Germany with gas because there is not enough capacity between them. ”

Germany has furiously purchased gas tankers to serve as offshore storage and is building onshore regasification plants.

“Germany is expected to bring an LNG terminal online later this year in Wilhelmshaven and another early next year in Brunsbuttel. So it may have some LNG imports in the second half of winter, but only if all goes to plan, “Stern said.

INTERACTIVE - Where Europe draws its energy from

Russia’s cutoff was not complete.

Russian gas still flows through the Yamal pipeline which runs through Ukraine and the TurkStream pipeline which runs under the Black Sea.

Losing them would make things worse for Europe, which still leaves Russia leverage, said Michalis Mathioulakis, head of the Greek Energy Forum think tank.

“About 10 billion cubic meters a year [bcma] they are still flowing [through TurkStream]. The system through Ukraine runs at around 50-60 [percent] capacity… [through which] we get about 25 bcma. Total 35bcma … If this is turned off, we cannot replace it, “said Mathioulakis.

The US has promised an increase in LNG exports to Europe, but these depend on the capacity of the private sector.

Even Scholz isn’t entirely sure he can keep Germany fed.

“We are prepared and will probably be able to get through this winter,” he said on 7 September.

A European Commission proposal to cut 15 percent of consumption has divided member states between those that have import structures and those that don’t.

“Spain, France and the UK will probably do well. South Eastern Europe will probably do well. Germany, Central Europe and Italy will not do well, ”Stern predicted.

Political will rediscovered

Despite the unknowns, the effects of energy decoupling on European politics seem clear and the shutdown of Nordstream 1 seems to have been a turning point.

In Germany, arguably the most Russophile member of the EU after Hungary, there appears to be a tidal shift.

“Russia is no longer a reliable energy partner,” German Chancellor Olaf Scholz said at a press conference on 4 September.

Three days later, he told Frankfurter Allegemeine Zeitung: “Such a dependency on one supplier doesn’t have to exist again. We need to be able to switch to other suppliers at any time.”

Scholz followed the zeitgeist of public opinion.

In response to the question: “Should we continue to support Ukraine despite high energy prices?” 70 percent of Germans said yes in a Polit Barometer poll this month, which represents the vast majority of all Bundestag parties except the AfD.

Scholz recently acknowledged that “Germany has undergone a fundamental change” in its support for Ukraine.

This is important because, by supporting the construction of Nordstream 2 over the past 12 years, Germany has been accused of not ignoring Ukraine’s concerns.

The operation of the new pipeline would have allowed Russia to reduce gas deliveries to Europe via Ukraine, hitherto its main route, depriving that country of transit taxes and financial leverage.

“It has been a very steep learning curve for the Germans because they have not had any problems with Russia so far,” said Minna Ålander, a researcher at the Finnish Institute for International Affairs.

“They had this very lucrative energy relationship with Russia, which allowed Germany to have the kind of industry it has without any of its own natural resources and it wouldn’t have developed otherwise.”

Other cuts were also turning points.

In May, Russia cut gas flows to Finland and Bulgaria, ostensibly because they refused to pay in rubles.

“The speaker of the Finnish parliament said ‘Once it is interrupted, there is no interest in reopening it … it is a loss for Russia,'” Ålander said. Bulgaria, once considered the most Russophile Balkan nation, turned to Greece.

The two have just finished building an interconnector that will allow LNG imported via Greece to flow into Bulgaria.

The war in Ukraine is clearly driving European integration.

The EU invited Ukraine and Moldova to open accession talks in June, weeks after their request.

Albania and North Macedonia, whose EU candidacies have been stalled for years, should be invited to start talks in December.

The EU’s largest members, France, Germany and Italy, are now behind qualified majority voting to increase the effectiveness of foreign policy decision-making.

The EU in March approved a strategic compass to build a NATO-independent rapid reaction force and command and control capabilities by 2030.

“Russia’s war against Ukraine, which was largely motivated by Ukraine’s desire to integrate with the EU, and how far the Ukrainians are ready to go and the high price they are paying for a future as part of the European Union, it highlighted that there is really no good alternative for European integration, “Ålander said.

“Seeing Ukraine literally fighting for its European choice has somehow triggered a ‘rebirth’ of European identity”.

This winter will likely be very expensive for the European Union, but its leaders seem to be expecting good political dividends next year.

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