Energy Crisis in Europe and its Prospects

Published April 12th, 2022 - 09:20 GMT
Energy Crisis in Europe and its Prospects
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By Farzad Ramezani Bonesh


Eighty percent of the world's energy comes from fossil fuels. In Europe, too, it is fossil fuels that provide the bulk of energy needs. The United States, on the other hand, relies less heavily on Russian crude oil and gas than Europe (only 3%). The European Union imports 90 percent of its needed gas, and Russia supplies about 45 percent of that. Russia also accounts for about 25 percent of oil imports and 45 percent of coal imports to Europe.

Although in the past many, like the Ukraine, wanted real diversity in Europe's energy sources, this did not happen. Also, when one did not expect war in Europe, the Ukraine crisis was practically a new turning point in the history of European energy. That is a situation which, in addition to the widespread increase of challenges, could also create opportunities for the energy sector in Europe.

 European options and opportunities ahead

 

The emphasis on the need for energy independence from Russia is now under consideration by many European officials and countries. In fact, the crisis in Ukraine has led to more attention being paid to this issue. In fact, the United States has previously banned Russian oil and gas imports, and if Europe's energy became independent from Russia, they could have put a better embargo on Russian oil and gas after the war in Ukraine. Although the degree of dependence of countries on Russia's energy resources is different, Germany (40%) and Austria are very dependent on Russian gas imports, while this is not the case in France.

But fears about Russia's energy leverage and card have now spread the idea of ​​energy independence and wider diversification of resources in Europe. Therefore, Europe has announced plans to reduce its dependence on Russian gas.

Although inflation in Europe has risen sharply and economic growth has been affected, this could also be the best energy opportunity for Europe to become independent.

The European Union intends to cut its dependence on Russian gas as soon as possible and completely eliminate it by 2030.

Some countries, such as Greece, are considering some options such as separating natural gas prices from electricity prices, using loans to deal with the energy crisis, and emphasizing on the need for a single EU decision. The three Baltic States have also announced that they will stop buying Russian gas.

The European Union is also seeking to replace the annual consumption of Russian gas with LNG from other sources and another 10 billion cubic meters of gas pipeline from other sources. During the visit of US President Joe Biden, he announced a new joint agreement with Europe to send 15 billion cubic meters of liquefied natural gas (LNG) to the Europe this year.

More LNG imports come from Qatar, Azerbaijan and even Iran, while Spain is trying to become a hub for gas to the rest of Europe, given its proximity to Algeria and its resources. Also in 2019, the EU imported 16% of its needed natural gas from Norway. Therefore, Norway can be more helpful.

In another dimension, Europe, which planned to shut down all its coal-fired power plants before 2030, will now have no choice but to use short-term coal from countries such as the United States and Australia to replace Russia.

From another dimension, buildings in the EU are responsible for 40% of energy consumption. Therefore, using approaches such as intelligent platforms and artificial intelligence, energy efficiency systems and new technology, installation of heat pumps, savings through renovation and electrification of buildings, etc. can increase control and efficiency. More gas storage in the EU Reducing annual fossil gas consumption and canceling the € 9.9 billion Rolling Stream 2 pipeline from Russia are other ways to achieve greater energy independence.

In addition, the most important part is the tendency to use renewable energy production such as offshore wind farms, sea tides, wind power, more use of nuclear energy and extending the life of reactors, more biogas and hydrogen.

In another area, European officials hope to increase their political ties with other oil players to increase their oil supply. Excess oil capacity in the Middle East could theoretically offset Russian oil imports to Europe. Hopes for a reduction in oil sanctions on Iran and Venezuela could also help Europe.

Current Challenges

In fact, the current state of energy in Europe is comparable to the 1973 oil shock. Many believe that almost all of Europe's gas needs can be met by using Techniques such as looking at energy efficiency and considering clean energy options. But this requires EU members to make a concerted effort to reduce energy consumption. Also, while cutting off or drastically reducing Russia's fossil fuels, costs the EU about 200 billion euros a year. The heavy cost of replacing Russia's energy has its opponents.

Although it is easier to stop importing oil from Russia and other sources can be substituted, replacing Russian gas with liquefied natural gas is more expensive and time consuming. In fact, cutting or reducing dependence on Moscow and finding new ways and countries to replace energy is facing serious economic and political obstacles due to the post-Corona economic conditions and problems.

On the other hand, some, like most of the Western Balkan countries, are heavily dependent on coal. But the reactivation of old and outdated coal-fired power plants is raising global average temperatures, contrary to European green promises. Buying coal from other sources is also likely to increase European costs.

The risk of a Russian oil and gas embargo (because of the threat to cut off the natural gas flow of the Stream 1 rolling pipeline) to Europeans in the next winter and the Russian side's demand for paying rubles to buy energy energy is part of Europe's current energy challenges. Apart from this, it is important how the heavy industries and jobs can adapt themselves with the new conditions and how the economy of the countries could improve.

The EU, on the other hand, has to spend tens of billions of extra euros to buy expensive crude oil. Rising energy prices are driving inflation and the rise of living costs; and economic, social and political consequences such as the threat of populism could put widespread pressure on some countries.

Vision

Next winter is the initial test of whether Europe can survive without Russian energy. So far, however, US exporters have shipped an unprecedented amount of LNG to Europe. In fact, a two-thirds reduction in dependence on Russian gas is available by the end of the year, and Russia's invasion of Ukraine could mark one of the fastest energy replacements in history. But a complete and quick replacement will not be available until next winter. In the current situation, however, Moscow does not seem willing to cut off its energy exports to Europe.  However, if the range of tensions between Russia and Europe widens, in practice the effects and risks on Europe's energy security and the challenges will be much greater.

 


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