The Big Picture

Europe's Energy Trauma

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  • The Ukraine crisis has shattered a fundamental tenet of EU security policy: economic interdependence fosters peace.
  • The group is now looking to restructure its energy system — creating independence from Russia while avoiding becoming too dependent on other external sources.
  • Managing acceleration of this clean energy transition, while providing affordable energy for the next few winters, is the key challenge.

Russia’s invasion of Ukraine has been traumatic for the EU. The war's impact has been amplified by a flurry of other “black swan” events, notes Josep Borrell, the EU’s foreign and security policy chief. But Europeans are also suffering as a result of longer-term strategic misalignments that “decoupled the sources of our prosperity from the sources of our security," Borrell told EU ambassadors in Brussels this week.

“You — the United States — take care of our security. You — China and Russia — provided the basis of our prosperity. This is a world that is no longer there,” Borrell said. Radical responses are now needed to adapt to the rapidly evolving threat situation and the EU needs to up its game, he said.

So far, the EU has been united on the need to confront Moscow. But recent electoral victories of hard-right parties in Europe should be a wake-up call that consensus should not be taken for granted, especially in the likely event of increased economic hardship.

There is already significant disagreement on how to confront Moscow, specifically on energy. Tensions have understandably emerged as members are impacted in different ways by sanctions on Russia. Berlin’s recently announced €200 billion ($194 billion) economic support package for Germans hit by natural gas price rises has raised fears among poorer EU members that they might be left to fend for themselves.

"The richest country, the most powerful EU country is trying to use this crisis to gain a competitive advantage for their businesses on the single market. This is not fair, this is not how the single market should work," complained Polish Prime Minister Mateusz Morawiecki.

Within the EU, the immediate energy policy priority is to decide on whether to implement a gas price cap. Some 15 states led by France and Spain are pushing to cap gas import prices, while Germany, which is concerned over the signal to markets such a move would send, is advocating for restraining prices to consumers, in effect a subsidy.

Funding too is a challenge — although Vaclav Bartuska, Czech ambassador-at-large for energy security, says that “as with Covid, the money issue is not the most important thing, because when states need to get something done, they get it done.”

High Stakes

As with the Covid-19 pandemic, the EU could initially stumble in coming up with an effective unified stance, but the stakes are too high for long-term failure, argues analyst Philipp Lausberg of the European Policy Centre. “Some sort of a common measure will come through. Of that I am pretty certain, because there is no way the EU will not agree on anything.” Some iteration of the German consumer-based price cap proposals will likely win the day, he believes.

The oil and gas industry, producing countries and majors alike, have argued strongly against any cap on the price of internationally traded gas.

At the same time, Europe is slowly waking up to the full implications of a Russia-less energy system. As an immediate priority, the EU has been supercharging its energy diplomacy in a bid to secure short-term gas supplies to tide itself over the coming winter. Longer term, it is trying to accelerate renewables cooperation with North Africa and establish hydrogen projects both there and farther afield. This week alone, EU Energy Commissioner Kadri Simson was in Algiers for talks on both gas and renewables, in Prague for a meeting of EU energy ministers, and due in Nicosia for a meeting of East Mediterranean energy ministers.

The ramp-up in threat and scale of the challenge ahead could see Brussels assume more power, with some citing a recently approved EU gas purchasing platform as a harbinger of more centralization to come. But this will likely provoke strong resistance.

New Vulnerabilities?

Some in Europe are already warning of the risk of substituting one form of energy dependence for another. Borrell in Brussels flagged the potential vulnerability of LNG imports from the US. If a new US president “decided not to be so friendly with the Europeans,” he said, the new “critical dependency” on LNG imports “could also be in crisis.”

Renewables in theory offer an answer, by fostering a homegrown form of energy supply. And there is little doubt that Russia’s invasion of Ukraine has given momentum to Europe’s energy transition. But even here, there are risks through the EU’s dependency on China for renewables supplies.

In addition to producing 90% of the rare earth metals vital for battery production and wind technology, China dominates supply chains for processing lithium, cobalt and, more broadly, cheap clean tech such as solar panels. Rare earths are in fact not that rare, but any move to rebuild supply chains for these or other critical materials will come with a hefty price tag, involving additional social and environmental costs.

“With oil you are only looking at one product, with supply chains to do with renewables, you are looking at over a 100 types of supply chains,” explains Olivia Lazard of the Carnegie Foundation for International Peace. “The reliability, safety, and predictability of supply chains is gone in the current era of geopolitical fragmentation,” she argues.

Others claim the dependency on China is overstated: Renewable power facilities, once installed, are good for decades, they say, and lack the vulnerability created by daily supplies of fossil fuels. Put simply, a shutoff of Chinese supplies would hinder new renewables capacity, but not turn off the lights.

Regardless, the EU is starting to act, with a Critical Raw Materials Act due hopefully by year's end, says Lazard. The EU is starting to reach out to prospective partners in the developing world, but often the best extractive projects are already being implemented “by the Chinese, by the Russians, by the Indians. So the EU is coming late to the game,” she says.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact >

Low-Carbon Policy, Renewable Electricity , LNG Supply, Policy and Regulation, Sanctions, Macroeconomics , Ukraine Crisis
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