Conflict Alerts # 532, 21 July 2022
In the news
On 21 July, the Nord Stream I gas pipeline resumed its gas supplies early morning after being closed for maintenance work for ten days, reported the Deutsche Welle. On 20 July, the European Commission published its emergency plans to reduce gas dependency on Russia to avoid a shortage during the winter months. The EU Commission chief Ursula von der Leyen said that Russia was “using energy as a weapon” and that all members should voluntarily seek to reduce demand by 15 per cent between August 2022 and April 2023.
On 19 July, Russian President Vladimir Putin said: “the flow of Russian natural gas to European customers has dwindled due to the West’s own fault and warned that it could continue ebbing.” The EU has been working under the assumption that Russia’s Nord Stream pipeline would not resume operation after 21 July. Eric Mamer, chief spokesman for the European Commission, the EU’s executive arm said: “What is the worst possible scenario—and this therefore has to be the assumption for our planning—that there will be a full disruption by Gazprom.”
Issues at large
First, energy dependency dilemmas of the EU. The EU currently imports 38 per cent of natural gas from Russia within its 50 per cent hydrocarbon energy requirements. The shift to natural gas and with it the Nord Stream pipelines were set to meet domestic, economic, and climate-friendly energy goals for the EU. Domestically, the EU consumers rely on gas more than other renewables to reduce their carbon footprint and fit the carbon taxation system. Economically, Germany imported 59.2bn cubic meters of gas through Nord Stream I in 2021 and had hoped to double it with Nord Stream II to meet the energy demands in its automobile, farming, and aerospace industries. Lastly, to achieve net zero emissions by 2030, pledged in the European Green Deal, the countries have replaced their fossil fuel plants with gas imports. The slow investments and taxing permits for renewable energy grid systems have only taken the green energy transition for the long haul.
Second, Russia’s gas market monopoly and geopolitics. With 47.55 trillion cubic meters of natural gas, Russia possesses 27.5 per cent of the world’s reserves and has remained the dominant actor supplying 40 per cent of Europe’s natural gas. Apart from the Nord Stream 1 pipeline which supplied 55 billion cubic meters of gas per year to Western Europe through the Baltic Sea, the Gazprom-owned Yamal-Europe pipeline supplied 37 million cubic metres per day of gas across Belarus to Western Europe. Post Ukraine invasion and the EU sanctions, Russia has maintained strategic pressure with gas reductions. After Poland, Bulgaria, Finland, Denmark, and the Netherlands suspended their Russian gas deliveries in March when they demanded to pay in Roubles. Putin tightened its grip by reducing gas supplies through the Nord Stream I by 40 per cent, citing maintenance issues.
Third, lack of a contingency plan and expansion of the EU’s green energy basket. As fears mount of sudden gas halt from Russia, the EU is simultaneously witnessing heat waves and forest fires triggered by climate change. While countries aim to reduce gas exports from Russia, the EU is facing one of their highest domestic energy demands and increased gas prices with transport and individual households switching to air conditioning at the high temperatures. The EU recognized natural gas and nuclear energy as green, but with plans of Germany, Poland, Austria, and Denmark to phase out the life of nuclear power plants after the Fukushima disaster, the EU’s green energy basket remains heavily dependent on hydrocarbons.
First, a geo-economic shift to the Middle East. To meet the immediate emergency, the EU countries have sought to replace Russia with Middle eastern gas reserves. The MOU on gas exports between Egypt, Israel, and the EU at the East Mediterranean Gas Forum or Germany’s finance minister’s visit to Saudi Arabia and Qatar to deal with hydrogen reserves is all to contain the shortage. But the return to the Middle East, this time trading with gas, keeps the fear of cartels intact with an adverse impact on currency rates.
Second, the devil in the details on green energy taxonomy. With only emergency plans and stop-gap plans like the EU green tags on nuclear and gas, questions remain on radioactive waste and whether plants can make do with low carbon emissions.