Europe hopes to reap political dividends from an expensive winter | Energy News

European leaders have approved an unprecedented combination of energy subsidies and financial measures aimed at making the continent less reliant on Russian coal, oil and gas and, increasingly, it looks as though political will is stiffening to make that independence permanent.

On Friday, European Union heads of government voted to subsidise electricity and gas consumed by households and businesses this winter amid soaring prices.

They have asked the European Commission, the EU executive, to propose price caps above which the subsidy would kick in.

Governments would pay for it by clawing back electricity producers’ and gas importers’ excess profits.

Over the past year, gas prices have risen eightfold to stand at 340 euros ($345) per megawatt hour last month, while electricity prices have tripled this year mainly due to the rise in prices of hydrocarbons, leaders said.

Some EU members had already started subsidising bills.

Greece tops the league, committing to spend 6.5 percent of GDP to split electricity bills with consumers 50-50 – more than any other EU member.

Germany spend is forecast to be around 2.6 percent of GDP.

Russian blackmail

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

But it did not ban gas, which is difficult to replace with shipments to European ports.

This is because the global supply of Liquefied Natural Gas (LNG) was already oversubscribed after the post-pandemic global rebound and transition to cleaner fuels, but it’s also because some EU countries have no LNG import facilities.

Germany and landlocked Central and Eastern Europe, in particular, are dependent on gas brought in through Russian pipelines, which supplied about a third of EU gas last year.

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

INTERACTIVE - How much of Europes energy comes from gas - poster

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

Germany halted the process of certifying the newly built Nordstream 2 pipeline on February 22, after Russian President Vladimir Putin ordered his first troops into eastern Ukraine. The pipeline was to begin delivering 55 billion cubic metres of gas to Germany this year.

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

It halved flows through Nordstream 1 twice, on June 15 and July 27, before announcing it was shutting it off completely on September 3. On each occasion, Russia’s actions sent gas prices in Europe higher.

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

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

“Wherever he can bring harm, he will. He will use every dependence Europe has on Russia to ruin the normal life of every European family. The only way is to hit back hard and get rid of any dependence.”

Energy security

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

“Europe doesn’t have enough gas as a whole, despite having storages 85 percent full, because it’s a question of whether you can get gas from where it’s stored to where it’s needed,” said Jonathan Stern, who leads the Oxford Institute for Energy Studies.

“For example, France [which has LNG terminals] cannot supply Germany with gas because there’s insufficient capacity between them.”

Germany has been furiously buying up gas tankers to act as offshore storage and is building regasification plants onshore.

“Germany is supposed to bring one LNG terminal online at the end of this year at Wilhelmshaven, and another early next year at Brunsbuttel. So it might have some LNG imports in the second half of the winter, but only if everything goes according to plan,” said Stern.

INTERACTIVE - Where Europe gets its energy from

Russia’s cutoff hasn’t been complete.

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

Losing those would make matters much worse for Europe, which still leaves Russia with leverage, said Michalis Mathioulakis, head of the Greek Energy Forum think-tank.

“About 10 billion cubic metres per annum [bcma] are still flowing [through TurkStream]. The system through Ukraine is working at about 50-60 [percent] capacity… [through which] we get about 25bcma. Total 35bcma… If that is shut down, we can’t replace it,” Mathioulakis said.

The US has promised increased LNG exports to Europe, but those are dependent on private sector capacity.

Even Scholz is not entirely sure he can keep Germany powered.

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

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

“Spain, France and the UK will probably be OK. Southeast Europe will probably be OK. Germany, central Europe and Italy will not be OK,” predicted Stern.

Newfound political will

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

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

“Russia is no longer a reliable energy partner,” German chancellor Olaf Scholz told a news conference on September 4.

Three days later, he told Frankfurter Allegemeine Zeitung, “Such a dependence on one supplier must not exist again. We must be able to switch to other suppliers at any time.”

Scholz has followed the zeitgeist of public opinion.

In answer to the question, “Should we continue to support Ukraine despite high energy prices?” 70 percent of Germans answered yes in a Polit Barometer poll this month, representing overwhelming majorities from every Bundestag party except 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 for the past 12 years, Germany was accused of lacking ignoring Ukraine’s concerns.

The new pipeline’s operation would have allowed Russia to wind down gas deliveries to Europe through Ukraine, until now its main route, depriving that country of transit fees and leverage.

“It has been a very very steep learning curve for the Germans because they didn’t have any problems with Russia so far,” said Minna Ålander, research fellow at the Finnish Institute of International Affairs.

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

Other cutoffs were also turning points.

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

“The speaker of the Finnish parliament said ‘Once it’s cut off, there’s no interest to reopen it… it’s Russia’s loss’,” said Ålander. Bulgaria, once considered the most Russophilic Balkan nation, turned to Greece.

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

The war in Ukraine is clearly propelling European integration.

The EU invited Ukraine and Moldova to open membership talks in June, weeks after they applied.

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

The largest EU members, France, Germany and Italy, are now swinging behind qualified majority voting to increase effective decision-making on foreign policy.

The EU in March approved a Strategic Compass to build a rapid reaction force and command and control capabilities independent of NATO by 2030.

“Russia’s war against Ukraine, which has been for a great part motivated by Ukraine’s wish to integrate with the EU, and the lengths to which Ukrainians are ready to go and the high price they are paying for a future as part of the European Union, has highlighted that there really is no good alternative for European integration,” said Ålander.

“Seeing Ukraine literally fight for their European choice has in a way triggered a ‘renaissance’ of the European identity.”

This winter will likely be very expensive for the European Union, but its leaders appear to expect handsome political dividends next year.

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