The Case for a New European Energy Union – European Council on Foreign Relations
Western sanctions against Russia may soon extend to restrictions on the country’s gas exports. As the Kremlin’s war against Ukraine continues, many European countries – especially those most dependent on Russian hydrocarbons – are trying to diversify their energy supplies.
Germany, for example, has postponed the shutdown of some of its coal-fired power plants, deciding to put them on standby “until further notice”. The Czech Republic and Romania will keep their coal-fired power plants running, with the former reconsidering its plans to phase out coal mining. Italian Prime Minister Mario Draghi said his country would reactivate some of its recently decommissioned coal-fired power plants.
As a result, the West’s increasingly severe sanctions against Russia could make it more difficult for the European Union to meet its climate targets. Worse still, the sanctions could trigger a frenzy of competition between European countries to secure alternative gas supplies. Germany and Italy are already particularly active in this area.
Germany is negotiating a long-term partnership with Qatar to increase its imports of liquefied natural gas (LNG). While Germany does not have regasification facilities (which are needed to convert LNG back into natural gas used as fuel), it has announced the construction of two terminals that will allow it to receive LNG transported by sea, introducing thus greater flexibility in its energy strategy. However, according to some analysts, it could take up to three years for the terminals to become fully operational. According to Economy Minister Robert Habeck, Germany will not be able to end its Russian gas imports until mid-2024.
Italy seems to have adopted a similar strategy to diversify its energy supplies, since nearly 40% of its methane imports currently come from Russia. But, unlike Berlin, Rome has mainly focused on negotiations with the countries of North Africa. Last week, Italy and Egypt signed an agreement for the supply of 3 billion cubic meters of LNG per year. This agreement follows the agreement concluded between Italy and Algeria to buy 9 billion cubic meters of gas per year from the public company Sonatrach. These new contracts in North Africa will allow Italy to replace half of its Russian energy imports next winter.
However, Rome’s deal with Algiers has raised concerns in Madrid, as Spain currently sources 47% of Algerian gas. Negotiations between Spain and Algeria to boost the former’s energy supplies have stalled for months – and appear to be suffering from the deterioration in their relationship following Spain’s recent swing towards Morocco in the dispute over Western Sahara. Spain is reportedly concerned that its energy security could be compromised by Algeria’s deal with Italy (especially given the North African country’s limited generation capacity). Last week, Spanish and Italian officials met to discuss the gas deal. And there will likely be further discussions between the parties.
In Spain, Russian gas represents only 8% of the energy supply. The country seems heavily dependent on LNG and has more regasifiers than any other European state (representing 35% of total EU capacity). However, these regasifiers are currently underutilized. Meanwhile, the Spanish gas network is poorly connected to the wider European network, preventing Spain from becoming a gateway for LNG shipments to other European states. However, if it improved its network, Spain would be the ideal landing point for such expeditions.
Europe suffers not only from competition to ensure an adequate energy supply, but also from serious shortcomings in its energy infrastructure, in particular gas storage facilities. Private companies have generally managed storage, but in recent months high gas prices have made it less attractive, limiting storage capacity. For this reason, Italy was forced to encourage private operators to store gas. According to some analysts, if Russian gas flows stopped today, Italy would only have eight weeks before its reserves would run out. Germany would have about ten weeks. A total embargo on Russian gas could lead to rationing, which would have serious repercussions on European industry. That, in turn, could trigger further price increases and delay Europe’s economic recovery from the pandemic.
The threat to the European Green Deal is particularly worrying because, beyond its industrial and environmental implications, the agreement aims to strengthen the sovereignty of the EU by freeing it from dependence on energy imports. Most of the major gas producers – from Qatar to Azerbaijan to North African countries – are autocracies prone to instability and with poor human rights records. Therefore, turning to these countries to gain independence from Russian energy seems rather short-sighted.
Each EU Member State has a different energy mix, with varying strengths and weaknesses. However, almost all are exposed to the potential fallout from sanctions against Russia – and share an interest in embarking on the green transition as soon as possible.
For these reasons, the EU must create a new energy union. And it must do so urgently, both to protect its energy security and to accelerate the green transition. In this, Europeans could learn the lessons of the first stage of the European project: the creation in 1951 of the European Coal and Steel Community.
In the 1990s, European institutions began the gradual liberalization of energy markets, which involved the separation of energy production and supply from the control of transmission networks. All state monopolies have become private companies competing for market share. This model was based on the belief that the integration of the gas market at European level created an opportunity to stimulate competition on a larger scale, which would benefit consumers. However, in the current era of militarized energy supplies, the limitations of this approach have become clear. In other words, the model did not take into account energy security – which, at a time when countries had abundant access to energy, was mainly left to national governments.
A renewed and effective Energy Union could allow Member States to combine their strengths, mitigate their weaknesses, reduce intra-EU competition, establish energy price caps, build adequate infrastructure , to agree on energy security priorities, to establish a compensation fund and to share the management of existing infrastructures. energy projects (from gas pipelines to storage, including investments in renewable energies). Only in this way can the EU act with courage and determination on Russian energy, respond to future geopolitical threats in a more robust and coherent way and avoid backtracking on its commitment to the green transition.
The European Council on Foreign Relations does not take a collective position. ECFR publications represent the views of its individual authors only.