EU without Russian gas

Russia’s invasion of Ukraine has changed European energy markets for good. Regardless of how the war ends, there is no way back to the days of relying on Russian energy. The cut-off of Russian gas supply to Poland and Bulgaria on April 27 makes this clear.

When the war broke out, the EU relied on Russia for about one third of its gas and Russia relied on income from oil and gas exports for more than a third of its budget. The annual trade was approximately 155 bcm (billion cubic metres).

Most of this is through the many pipelines that run from Russia to Europe. Some of it is in the form of so-called LNG (Liquefied Natural Gas). LNG is transported on ships, so Russian LNG can more easily be replaced by gas from other countries. LNG is however considerably more expensive than pipeline gas.

Cutting Russian gas now is difficult

The short-term impact of a complete stop in gas trade due to EU sanctions or a Russian supply-cut would be severe. The EU cannot simply replace Russian pipelined gas with more expensive LNG, and Russia cannot find alternative export markets.

For the EU a total and immediate cut-off would also mean drawing down gas in storage, some rationing, and putting in place measures to reduce the impact of high prices on businesses and consumers. Due to the enormous consequences, a complete cut-off in the short term is unlikely, unless Russian escalation in the war changes the context dramatically.

Why the future looks brighter

In the medium term, Russia has a big problem. China could increase its import from the 10 bcm it imports though the Power of Siberia pipeline today to 48 bcm in a few years, and take more Russian LNG. For Chinese imports to match those that have recently gone to Europe would take a decade. This means Russia would lose a lot of money.

The EU, on the other hand, is set to cope better with a gradual reduction of Russian gas. It is developing a strategy for gradually reducing its vulnerability and dependence on Russian gas. The aim is to cut imports by 100 bcm by the end of 2022. This involves four different initiatives.

1. New plans will require gas storage across the EU to be filled up to 90% of capacity by October each year. This makes the EU more robust when it comes to short-term interruptions in supply. As the Polish calm reaction to the Russian cut-off shows, full storage (76% in the Polish case) reduces the immediate effect of threats to cut supply.
2. Efforts are underway to replace some Russian gas with LNG. The UK and EU have the capacity to import almost 200 bcm of LNG but have only used about half of this capacity in recent years. New LNG import capacity is being added, notably in Germany. The IEA (International Energy Agency) estimates that LNG trade, combined with piped gas from Norway and Azerbaijan, could replace some 30 bcm of Russian gas at moderate costs. Taking more LNG from the global market is possible but would drive global gas prices much higher because of production constraints. Even so, the EU aims to increase its import of LNG from global markets by about 50 bcm over the next year.
3. Some European states are revising their plans to reduce the role of nuclear energy and coal. IEA estimates that nuclear energy could replace around 4 bcm of Russian gas, bioenergy 8 bcm, and coal another 22 bcm.
4. The war has brought the security dimension of energy to the forefront. The EU has long seen itself as a frontrunner in combating climate change, and the European Commission is expected to accelerate the green transition now that this is also driven by a strategic imperative. The IEA reports that simply accelerating existing plans for solar and wind energy could replace 6 bcm of Russian gas.

For Europe, the green transition to a low-carbon economy is getting a big boost. Security and climate change combined now trumps cheap energy.