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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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The European Energy Crisis Was Inevitable

Europe is in the midst of an energy crisis that is about to get much, much worse if war breaks out between Russia and Ukraine. Russia is the continent’s single-biggest provider of liquefied natural gas, while Ukraine is a critical part of the shipping route to transport all that fuel from Russia to the European Union. A conflict between these two essential parts of the European energy supply chain would pose a serious threat to Europe’s already floundering energy security. 

As Europe’s energy deficit has become increasingly desperate, so too has the continent’s dependence on the Kremlin to keep supply lines open and ramp up natural gas shipments. In just the last year, supply chain snags and fuel shortages led to a stunning 330% surge in gas prices across Europe, pummeling consumers at the same time that the global economy is attempting to recover from and adapt to the ongoing Covid-19 pandemic. European governments have had to impose pricey stop-gap measures to mitigate economic fallout from the energy supply crunch, and have so far “spent tens of billions of euros trying to shield consumers from record-high energy prices, and themselves from voters' wrath” according to recent reporting and analysis by Reuters.

Furthermore, despite the European Union’s best efforts, the Kremlin has not only declined to open its taps enough to quell Europe’s energy crisis, but it has actually decreased exports to Europe just when the continent needs them most. The EU’s freshly exposed dependence on Russia has given Putin newfound leverage to try to push through some of his own interests, most notably the Nord Stream 2 pipeline, which would allow Russia to pump liquefied natural gas directly to Germany (which gets 50% of its natural gas from Russia) by way of the Baltic Sea, bypassing Ukraine entirely. This pipeline, while already constructed, has been unable to get the final green light to come online due to stark opposition in the West, with leaders including Joe Biden arguing that the move would give far too much bargaining power to the Kremlin, thereby further reducing the continent’s energy security and geopolitical stability. 

While untold numbers of think pieces have been quick to point the finger at Putin for exacerbating Europe’s energy crunch, scapegoating Russia distracts from the European energy policies that put the continent in such a precarious position in the first place. Over the past 20 years, Europe has steadily deregulated its gas sector and invested heavily in the expansion of pipelines and LNG facilities with the intention of allowing for a more free-market approach. In doing so, they abandoned the previous system of tying long-term gas prices to oil prices and let the price of gas be ruled by supply and demand. It became clear back in 2021 that while this system allowed for lower gas prices in the short term, Europe was in for major sticker shock as gas stockpiles began to dwindle during the pandemic.

Related: Exxon, Chevron Eye Major Boost In Permian Oil Production

Don’t Blame Putin for Europe’s Energy Crisis,” proclaims a recent analysis from Foreign Policy. “No matter what happens in Ukraine, this winter is not an aberration,” writes Columbia Climate School co-founder Jason Bordoff. “Even if Russian gas continues to flow, Europe will be increasingly exposed to the volatile price of imported gas in the years to come unless its leaders take steps to reduce the risk of energy price spikes and prepare for inevitable and unpredictable swings in energy supply and use.” 

These price swings have led to significant political unrest in Europe and have sent leaders scrambling to slap a bandaid on the issue by way of removing VAT taxes on home energy bills and sending relief directly to impoverished households, among other emergency measures. Those efforts are going to fall far short of what is needed to protect European consumers, however, and the problem is only going to get worse. “BofA analysts estimate the average western European households spent around 1,200 euros ($1,370) a year on gas and electricity in 2020,” Reuters wrote last month. “Based on current wholesale prices, they estimate this will rise by 54% to 1,850 euros.”

To be certain, Putin’s recent actions have done nothing to assuage Europe’s energy crisis, and the conflict brewing on the Ukrainian border stands to make matters much, much worse. It is not the Kremlin’s fault, however, that Europe’s energy landscape is as vulnerable as it is to these final few straws on the camel’s back. To resolve the energy crisis, European leaders will need to stop deflecting the blame and take a serious assessment of their own energy policies. Creating price stability and energy security will only grow more essential in the coming decades as the world begins to decarbonize in earnest, a sweeping energy reform and economic experiment which is sure to have plenty more ups and downs in store for energy markets. 

By Haley Zaremba for Oilprice.com

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  • Mamdouh Salameh on February 12 2022 said:
    Let me first correct the Author’s mistake. Russia is the biggest supplier of piped natural gas to the European Union (EU) and not liquefied natural gas (LNG). Still, Russia does export some 15-16 million tonnes annually (mt/y) of LNG to the EU.

    Europe’s full blown energy crisis is one of its own making. It is the result of the EU’s hasty policies to accelerate energy transition at the expense of fossil fuels abetted by the hapless IEA, misjudgement of the global gas market, deregulating its gas market and putting its faith in the spot gas market instead of long-term fixed contracts and failure to fill its gas storage ahead of winter. And to compound its mistakes, the EU has tried under pressure from the United States to play gas geopolitics with Russia by delaying the certification of Nord Stream 2 gas pipeline.

    Nord Stream 2 is a reality and sooner or later will be getting certification from the German and EU energy regulators. It is first and foremost a viable economic project. Had it been certified last September, it would have helped alleviate Europe’s ongoing energy crisis and also fill its gas storage which has currently 14.9 billion cubic metres (bcm) or 26% of capacity and declining fast.

    The EU has known all through how dependent it is on Russia for its energy supplies and still continued to play politics with Russian gas supplies and Nord Stream 2. How could it be otherwise when Russia has almost 40% of Europe’s gas market and Germany, the EU’s largest economy gets 65% of its gas and oil from Russia.

    Both the EU Secretariat and IEA tried to blame Russia for the crisis but it is acknowledged that Russia fulfilled all its gas contractual obligations to the EU. They even claimed wrongly that energy transition and renewables have had nothing to do with the energy crisis.

    The truth of the matter is that the entire LNG exports from the United States, Qatar and Australia could hardly replace the almost 200 billion cubic metres per annum (bcm/y) piped by Russia to the EU in addition to an estimated 15-16 mt/y of LNG. Only Russia can satisfy the EU’s gas demand. However, Russia isn’t going to ship additional gas supplies to the EU until Nord Stream gas pipeline is certified.

    Moreover, Europe has a limited LNG import capacity. This makes ramp-ups of LNG imports quite useless particularly if they are needed to replace Russia’s almost 40% share of the European gas market.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Brett Unsworth on February 13 2022 said:
    Russia is the continent’s single-biggest provider of liquefied natural gas.

    Really? Why would Russia liquify natural gas to send Europe if they can just send it in a pipeline (compressed)? I'm no energy analyst but this makes no sense.

    A comment on Zero Hedge a couple weeks ago showed calculations that concluded that Europe requiring the equivalent of 3000 LNG tankers per day. Biden is diverting up to 60 tankers to Europe. If these tankers required 30 days to do a round trip they would provide 2 tankers per day or 1/1500th of Europe's requirements. The Wall Street Journal was banging on about how Biden was solving Europe's energy crisis by sending these tankers. I emailed them a question and haven't heard back of course. The article was likely dictated by the State Department. Doesn't anybody have any idea what the hell they are talking about even when it comes to their own "Expertise?"
    Did you misspeak?

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