4 ways the EU can wean itself off Russian gas in the next 6 months

March 8, 2022, 6:37 AM UTC

On Monday, Russia threatened to cut off gas supplies to the European Union to retaliate against the bloc’s sanctions over Russia’s invasion of Ukraine. Russia supplies roughly 40% of the EU’s gas—equivalent to 140 billion cubic meters (bcm) per year—and pumps much of it through the Nord Stream 1 pipeline, which funnels gas into European markets via Ukraine.

European energy prices have skyrocketed since Russian President Vladimir Putin ordered an invasion of Ukraine in February, over fears the war could disrupt supply. Facing scorching costs at home—with energy prices soaring 54% before the war began—EU leaders have mostly avoided sanctioning Russian energy exports.

But as Russia threatens to pull the plug anyway, the bloc is recognizing the need to wean itself off Russian gas. Last week, the International Energy Agency (IEA) set out how the EU can do just that in a 10-point plan for reducing Russian gas imports by half within a year.

Here are four of the top recommendations:

1. Let contracts expire

According to the IEA, contracts covering 12% of the EU’s gas imports from Gazprom—the Russian company that operates the Nord Stream pipeline—will expire this year. By the end of the decade, contracts worth 40 bcm of Russian gas imports will have lapsed too.

“This provides the EU with a clear near-term window of opportunity to significantly diversify its gas supplies and contracts toward other sources,” the IEA says.

Germany, one of Russia’s largest gas customers, already took steps toward curtailing future imports when Chancellor Olaf Scholz halted the approval process for a second gas pipeline, Nord Stream 2, last month. But Germany and many other European countries aren’t ready to go without Russian gas yet.

On Monday, Scholz said Russian oil and gas remain of “essential importance” to the European economy. If the EU cuts Russian gas, it will need to find replacements.

2. Increase LNG imports

Liquid natural gas (LNG) offers a formidable but imperfect replacement for Russian pipeline gas. It will take time for the EU to ramp up shipments of LNG imports and, once delivered, the liquefied gas needs to be “regasified” for use. Those extra steps can make LNG a costlier and less predictable option than pipeline supplies. LNG prices, which trade globally, tend to fluctuate more than pipeline gas contracts, which are negotiated on a fixed-term basis between supplier and buyer. The EU switching to LNG will cause another price shock, as demand surges against supply.

But the EU has been locked in an energy crisis since late last year, as gas prices soared due to an unexpected dip in renewable energy production. With continental pipeline supplies strained by an influx of demand, LNG shipments from the U.S.—where supplies weren’t suffering the same constraints—became a cheap substitute for the EU. According to the Wall Street Journal, EU imports of U.S.-produced LNG surpassed imports of Russian pipeline gas for the first time ever in January.

Bolstering LNG imports could cut up to 60 bcm of the EU’s reliance on Russian gas this year.

3. Go nuclear, go green

According to the IEA, output from wind and solar energy in the EU is already set to expand 15% this year, compared to 2021. A “concerted policy effort to fast-track further renewable capacity additions” could increase capacity a further 3%, the IEA says. In total, the IEA expects an increase in renewable energy to shave off 3 bcm of Russian gas imports.

Nuclear energy will need to make a comeback, too, although not every EU member embraces the idea. Germany, for instance, has set a target of phasing out nuclear power generation, arguing that the permanence of toxic nuclear waste means the radioactive energy source can never be considered sustainable. Several nuclear reactors are due to come back online this year after shutting down for regular safety checks in 2021. Meanwhile, five European nuclear power plants are slated for closure by the end of 2023.

Keeping the nuclear sites open would offset 12 bcm of gas imports annually.

4. Protect consumers

No matter how the EU decides to alleviate its reliance on Russian gas, consumer energy costs are bound to increase in the interim. The IEA says the EU is already on track to spend $60 billion in subsidies to cushion consumers from the impact of high gas prices. But, the IEA says, the bloc should earmark $200 billion in total.

Some of that extra funding could be raised by increasing taxes on utility providers, which will experience profit windfalls due to higher costs, the IEA says. The IEA notes that “measures to tax windfall profits have already been adopted in Italy and Romania.”

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