"Winter is coming"
Energy concerns during the winter in the context of Russia–Ukraine conflict
Looking ahead to the upcoming winter, Europe is faced with a serious challenge that is intricate in nature. It will be a third consecutive winter of energy crisis for the continent and the Russia–Ukraine conflict has further exacerbated the situation. In the words of Alex Munton, a Rapidan Energy Group consultant and expert on global gas markets, “this is the most extreme energy crisis that has ever occurred in Europe”. The aim of this article is to explore how and why we got ourselves into this predicament and what can be done to get out of it.
“The nuts and bolts of it”: background, and what it all means for Europe
Energy security is of key significance to the European Union’s economy, and Europe is approaching the winter season with growing concern over the deepening energy crisis. Given there were spikes in the price of electricity and natural gas during the last two winters, it would almost feel like a “déjà-vu”, but this year Russia’s invasion of Ukraine has complicated matters further.
According to the International Energy Agency’s (IEA) latest quarterly Gas Market Report, “Russia’s continued curtailment of natural gas flows to Europe has pushed international prices to painful new highs, disrupted trade flows, and led to acute fuel shortages in some emerging and developing economies, with the market tightness expected to continue well into 2023”. While Russia used to supply roughly 40% of the European Union’s gas consumption by pipeline, since the beginning of the conflict, its exports have been reduced by 75%. The leaks discovered in the Nord Stream 1 gas pipe in September limited the supply of gas even further, and these reductions have had negative implications for consumers, businesses, and economies.
To describe the ongoing turbulence in the energy market, figures speak louder than words. For one, annual inflation in the European Union reached almost 9% in June. Subsequently, the European Central Bank raised interest rates by half a percentage point to mitigate price increases. Nevertheless, food prices have reportedly surged. In the year up to August, cheese was up by 43%, beef by 27% percent, and milk powder was up by more than 50%. Experts are increasingly concerned about “fuel poverty”.
“Acta, non verba": taking measures
On 18 October, the European Commission published its 2022 State of the Energy Union report. The report emphasises the challenges the Union has faced in the last year and the efforts it has made in tackling them. The document details the Union’s policy response, highlighting the REPowerEU plan, along with the adoption of new minimum gas storage obligations, the gas demand reduction targets and additional measures to reduce electricity demand. As part of the plan, EU nations have been asked to cut their gas consumption by 15% between 1 August 2022 and 31 March 2023.
According to the Commission’s report, the EU has already managed to fill its gas storage to around 91% ahead of the upcoming winter. Still, the above-mentioned International Energy Agency’s report suggests that behavioural change will be necessary to avoid worsening the gas crisis in Europe. It states that a 13% reduction in demand would be required to keep storage levels above 33% into 2023, given that flows are lower.
Notably, the share of Russian pipeline gas in EU gas imports has dropped from 41% in 2021 to 9% in September 2022. Liquefied natural gas (LNG) has been identified as an alternative energy source, and now accounts for 32% of the EU's total net gas imports. As a result, the International Energy Agency is forecasting an increase in Europe’s LNG imports by over 60 billion cubic metres this year.
“Treat the cause, not the symptom”: so what’s next?
In pursuit of affordable, secure, and sustainable energy, Europe is looking toward a green transition, and it is moving in the right direction. For instance, the Commission’s report finds that, from May to August 2022, the EU generated a record 12% of its electricity from solar, and 13% from wind. Moreover, it forecasts that the share of renewables in the electricity mix is expected to grow from 37% in 2021 to 69% in 2030.
Even though there are well-founded energy-related concerns for the upcoming winter, it is likely that Europe will have enough resources. However, the future holds a new challenge that has yet to be faced, i.e. the year that is to come, and the ones that will follow. In spite of the fact that Europe has imposed sanctions on Russia and reduced gas imports, over 40% of Europe’s gas storage this winter is Russian. This means Europe will have to find a way to secure resources.
Therefore, we should seek to treat the cause, not the symptom of the issue. That means focusing on policy responses that can provide energy security. According to the World Energy Outlook 2022 (WEO) by the International Energy Agency, “investments in clean electricity and electrification, along with expanded and modernised grids”, are one cost-effective way to cut emissions quickly. Diversification of sources of fuel and new renewable energy projects also contribute to the European Union’s aim to guarantee sustainable and affordable energy for its citizens.
In conclusion, Europe is facing challenging times ahead that require an effective and timely response. And as the International Energy Agency report states, “solidarity, unity and responsible household behaviour will be crucial to ensure supply security”.