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Haley Zaremba

Haley Zaremba

Haley Zaremba is a writer and journalist based in Mexico City. She has extensive experience writing and editing environmental features, travel pieces, local news in the…

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Energy Independence Will Not Solve The Global Gas Crunch

  • Europe is facing a potential “Lehman Brothers” event as energy companies face $1.5 trillion in margin calls.
  • Some countries in the EU have already decided to set up funds to avoid a collapse of their energy derivatives markets.
  • The crisis deepened after Russia said on Friday that the Nord Stream gas pipeline to Germany would remain closed indefinitely.

The Russian war in Ukraine has sent a devastating domino effect rippling through the global economy that has left nations across the world wirth devastating energy shortages right as the hard-hit northern hemisphere prepares for the cold winter months. While Europe has been trying to wean itself off of Russian energy so it can slap sanctions on the imports without pyrrhic consequences, Moscow has responded by indefinitely cutting off the flow of natural gas to the continent far before Europe was ready. The result is an energy crisis that threatens to become a global economic crisis if mismanaged. For years, world leaders have been warning of the dangers of depending too much on Russian energy because of the country’s political volatility and mercurial relationship with the European Union. In fact, the Nord Stream 2 pipeline delivering natural gas straight from Russia to Germany by way of the Baltic Sea has been stalled for years due to condemnation from the United States, who felt that the move would “strengthen Russia’s hand in Europe and isolate Ukraine.” We now know that these concerns were far from unfounded. But despite the warning signs, Germany couldn’t seem to resist the cheap and abundant flow of Russian oil and gas, especially as it tried to shut down its own coal and nuclear sectors to appease environmentalists and meet climate pledges. As of 2020, more than half of natural gas and a third of oil consumed in Germany came from Russia. Now, the chickens have come home to roost. 

For many, the knee-jerk response to this major geopolitical misstep has been to highlight the importance of domestic energy autonomy. After the pandemic laid the vulnerabilities of globalized supply chains bare and Russian aggression bit back against those who tried to make nice with the Kremlin in the interest of trade, a retreat to nationalism and self-sufficiency seems to be the natural solution. But a new op-ed from the Financial Times warns that this is an extremely dangerous and reactionary approach that only serves to further global economic woes. 

Related: Belgian Energy Minister: Europe Faces Tough Winter Without Gas Price Cuts

The real lesson should be that the mistake is to rely too much on any one country or any one energy source to keep the lights on. Just look at France – the French did not share Germany’s reliance on Russian energy, but issues in their own nuclear sector have left  the country in a similarly energy-strapped state heading into the winter. The only real recipe for resilience against energy shocks is diversification. However, this kind of preemptive and preventive investment can be a hard sell for governments. “Given the financial and political cost of drilling wells, laying pipelines, creating nuclear power stations, building gas terminals, covering the countryside in wind turbines and so on, governments are reluctant to incur the costs of diversifying against as yet unrealised risks,” the Financial Times reports. 

What’s more, in many places the re-prioritization of energy autonomy stands in direct opposition to national and global climate commitments. In China, a coal renaissance and a focus on energy independence is making the Paris accord drift further out of reach for all of us. In Mexico, President Andrés Manuel López Obrador’s desire to keep foreign interests out of the Mexican energy market has pushed for a resurgence of fossil fuels, dangerous coal mining practices, and outright derision of global cooperation to fight climate change.

In short, while globalist approaches to energy security have their shortcomings, retreating to domestic silos often makes systems less innovative, less climate-friendly, and less diverse and therefore even more vulnerable to shocks. “The reality is that governments have to manage rather than avoid international relationships in energy supply,” FT opines. “Given the interdependencies involved, the answer is to undertake a realistic assessment of risks and continue to widen the range of energy sources, not to embark on a widespread reshoring campaign.” 

By Haley Zaremba for Oilprice.com

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