Why Some In Europe Still Clamor For Russian Gas

Authored by Alex Kimani via OilPrice.com,

• Since the adoption of the REPowerEU Plan, the EU has diversified its supplies and drastically phased down Russian fossil fuel imports.

• Last year, renewable energy contributed 48% of the EU power generation mix, followed by nuclear at 24% and fossil fuels at 28%–the lowest share ever.

• Some European leaders are clamoring for a return of Russian gas to European markets.

Three years ago, Europe suffered one of its biggest energy crises in modern history following Russia’s invasion of Ukraine. Throughout 2022, the weaponization of natural gas supplies by Russia greatly aggravated the continent’s energy security, leading to a massive spike in gas prices. Consequently, the European Commission implemented its REPowerEU Plan to phase out Russian fossil fuel imports, diversify energy supplies and produce more clean energy. 

Europe stepped up LNG imports from the United States, which had been running at 10-50 billion cubic feet per month but soared by about 100 billion cubic feet per month after the invasion. 

In contrast, Europe quickly cut out Russian gas from 45% of total imports to just 15% currently. EU member states agreed to fill underground gas storage to 80% of capacity by 1 November 2022; however, by working together, EU countries surpassed this, instead reaching 95% of gas storage capacity. 

Since the adoption of the REPowerEU Plan, the EU has diversified its supplies and drastically phased down Russian fossil fuel imports. EU sanctions have banned seaborne imports of Russian crude oil and refined petroleum products as well as Russian coal. Imports of Russian gas have plunged, setting the EU on track to phase them out completely in the coming years. 

But here’s the kicker: Fossil fuels, including natural gas, are gradually losing their grip on EU energy. Renewables remain, by far, Europe’s key energy source. Last year, renewable energy contributed 48% of the EU power generation mix, followed by nuclear at 24% and fossil fuels at 28%–the lowest share ever. Indeed, 2024 marked the lowest emissions from the EU power sector with a 13% drop compared to 2023. While nuclear remains the continent’s single leading power source, wind power leads over natural gas. Meanwhile, last year, Europe’s solar generation overtook coal for the first time ever.

Source: Ember

This trend predates Russia’s war in Ukraine: since the enactment of the European Green Deal in 2019, wind and solar have been gradually pushing coal to the margins and forcing natural gas into structural decline. Europe’s green energy transition has gathered extra momentum over the past three years due to Russia’s war. 

The European Union has implemented measures to significantly shorten the permit granting process for renewable energy projects, including designating specific “Renewable Energy Acceleration Areas” where projects undergo simplified and faster permitting procedures, aiming to expedite the development of renewable energy sources like solar and wind power across the bloc. 

The revised Renewable Energy Directive (RED III) includes provisions to significantly reduce the time required to obtain permits for renewable energy projects, especially in designated acceleration areas. Last year, the European updated its Recommendation on speeding up permit-granting procedures for renewable energy projects and the accompanying Guidance on good practices to speed up permit-granting procedures for renewable energy projects and on facilitating power purchase agreements.

Europe Still Needs Natural Gas

That said, it’s unlikely that Europe will be able to kick natural gas from its energy mix any time soon. Europe gas prices recently spiked to multi-year highs driven by colder-than-average weather coupled with lower wind power generation. Unlike fossil fuels, renewable energy systems largely lack surge capacity to meet sharp spikes in demand or unforeseen energy crises. These crises are typically short-lived and transient, mostly due to short-term disruptions in supply, and not lack of long-term access to foreign energy. 

It’s a big reason why some European leaders are clamoring for a return of Russian gas to European markets. European leaders are set to urge EU authorities and Ukraine to intensify talks over a possible resumption of Russian gas transit through Ukraine. Slovakia’s Prime Minister Robert Fico has revealed that he’s not ruling out the resumption of gas through Ukraine following the expiration of a 5-year transit deal between Moscow and Kyiv. Fico has been pushing President Volodymyr Zelenskiy to restart the transit, citing higher energy costs for Slovakia and the whole region. European Union leaders met on Thursday for an extraordinary summit to discuss Ukraine and European defence.

‘‘The pipeline that runs through Slovakia has a capacity of 100 billion cubic meters,” Fico told reporters in Brussels. “I want to do everything to ensure it is used in the future,’’ he added.

Last year, Moscow said it’s open to another gas deal with Ukraine. Back in November, Russia said it’s willing to continue supplying gas to Europe via Ukraine if Kyiv and the involved European countries can come to an agreement.

“Of course, in my opinion, the European countries that currently receive gas through this corridor are interested in continuing such cooperation,“  Russian Deputy Prime Minister Alexander Novak, who is in charge of Russia’s energy policy, told reporters “We are ready to supply (gas), but not much depends on us, so probably this should be negotiated directly between the users and the country through which the transit is provided.”

Ukraine is set to lose up to $1 billion a year in transit fees from Russia– which it hopes to offset by quadrupling its domestic gas transmission tariffs for consumers–while Gazprom will lose close to $5 billion in gas sales. Ukraine gas amounted to 5% of total EU gas imports.

European natural gas futures rebounded to €41.5/MWh on Thursday, reversing two sessions of losses, driven by forecasts for colder-than-normal weather. This increase in heating demand is likely to further reduce gas storage levels before the end of the heating season. EU gas storage is currently 37.3% full, having depleted at a faster-than-expected clip this winter due to colder weather and less wind power generation.