Europe's Energy Security – How is the Strategic Goal Progressing?
Davit Shatakishvili, Contributing Analyst, American University, Washington D.C
Europe's Energy Independence Results in 2022
European Union countries imported a total of 155 billion cubic meters of Russian natural gas in 2021, prior to Russia's invasion of Ukraine, which was about 45% of the EU's total gas imports. Russia was also an important partner for Europe in supplying various other energy resources. In 2021, Europe bought 108 million tons of crude oil, 91 million tons of oil products and 51 million tons of coal from Russia. Dependence on Russian energy resources is particularly high in Central and Eastern Europe, where 18 nuclear power plants are operating, of which six are located in the Czech Republic, four each in Hungary and Slovakia, and two each in Finland and Bulgaria. They depend on Russian services and fuel elements supplied by the Russian state nuclear energy corporation “Rosatom”.
In 2022, Europe significantly reduced its energy dependence on Russia, although this process was also promoted by the Kremlin's own decisions, such as the obligation for gas buyers to pay in Rubles and the suspension of gas supplies through the Nord Stream 1 gas pipeline, which ultimately reduced Russian natural gas exports to Europe by 80 billion cubic meters. The EU sanctions also played an important role in Europe's energy independence, for example, the embargo on Russian coal and crude oil imposed by the fifth and sixth packages of sanctions, as well as the decision of the G7 states and the European Union to set an upper limit on the selling price of Russian crude oil, which was determined at 60 USD. Thus, as a result of Western decisions, the share of Russian energy products in the European market is at the lowest level in recent decades.
Europe's strategic goal during 2022 was to diversify its natural gas suppliers, and the bloc achieved tangible results in doing so. Last year, Europe increased its gas supply from Azerbaijan to 11.4 billion cubic meters, while in 2021 this figure was 8.1 billion cubic meters. Along with this, in July of last year, the President of Azerbaijan Ilham Aliyev and the President of the European Commission, Ursula von der Leyen, signed an agreement which envisages the doubling of Azerbaijani gas exports to Europe by 2027. On November 15, 2022, the Russian state company "Gazprom" signed a contract with Azerbaijan's Socar for the supply of 1 billion cubic meters of gas until March 2023. It is likely that Azerbaijan needed Russian gas to meet its domestic consumption, in order to release its gas reserves and fulfill its agreement with Brussels to increase natural gas supplies by the end of the year. In terms of the long-term strategy, Azerbaijan still has a lot of work to do, both in improving natural gas infrastructure and in increasing domestic production, as well as partnering with countries in the Caspian region to meet the goals of doubling gas supplies to Europe. At present, there is no talk of long-term cooperation with Russia, and with the sanctions in place, Azerbaijan is less likely to agree to such a condition.
Natural gas supplies also increased from Norway, from 82 to 90 bcm. Certain countries signed individual contracts with Algeria, Qatar, Egypt and Central Asian states. It is worth mentioning the example of Germany, which was the most dependent in Europe on Russian gas: Now the country has gained full energy independence from Moscow. It is also an important mark of success that in 2022, the EU member states reduced natural gas consumption by about 12%. As such, Russia’s plans and decades of methodology, often seeing the Kremlin using energy resources as a tool for political-economic blackmail, have simply collapsed.
Current Challenges and Future Projections
In terms of energy independence, despite the important steps taken in 2022, there are still some risks and challenges ahead for Europe. According to the International Energy Agency (IEA), the current energy threats have not yet subsided, as prices are still volatile and sensitive, and certain countries still have serious problems in their gas-dependent industrial sectors. According to the IEA, in 2023, the already small amount of natural gas flows from Russia to Europe (about 20 billion bcm per year) may be further reduced, and even completely stopped, which will make circumstances even more difficult to handle. Additionally, as reported by the IEA, the EU gas deficit is projected to be 57 bcm in 2023, which is about 14.5% of the total consumption. According to their calculations, the total demand for natural gas in the European Union will be 392 billion cubic meters. Therefore, experts see the necessity to reduce EU gas consumption by 13-20%.
Along with the sharp decrease in Russian gas supplies, liquefied natural gas is one of the alternatives for Europe, and it is trying to find suppliers. Its main competitors are Asian states, with the largest consumers of liquefied gas the Chinese and other countries of the Indo-Pacific Ocean. Asian countries are more dependent on liquefied natural gas than Europe, which has continuously received relatively cheap natural gas from Russia. In order to replace Russian gas, the demand for liquefied gas in Europe has increased dramatically. Thus, Europe competes with Asian states in the purchase of liquefied gas, which means paying a competitive price for it. In 2022, while reducing dependence on Russian gas, Europe also reduced the purchase of Chinese liquefied natural gas and, last year, compared to 2021, it bought 22 billion cubic meters of liquefied gas less from China. However, it has increased purchases from the United States, and, last year, American producers of liquefied gas in Europe increased their sales by 137% compared to 2021.
Gas consumption in Europe in 2023 will depend on many factors, including the weather and the management of gas reserves. As far as it is known, currently, approximately 63% of the European Union gas reserves are filled, which is 30% more than in the same period last year. In the winter of 2022, the European Union member states saved more natural gas than was envisaged by the gas saving plan. This was mostly due to high temperatures. However, if the temperature falls sharply during the coming winter and the cold spell lasts a long time, it is possible to exhaust the gas reserves faster than foreseen. Even if Europe fully replenishes its own gas reserves, it will only meet about a quarter of the total demand. Thus, Europe will still have to deal with energy security issues this year, and is likely to remain vulnerable to natural gas supply disruptions or changes in overall demand.
The European Union still has a lot of work to do in order to tackle current and future energy challenges. Although individual countries have found potential suppliers of natural gas, it is crucial that these steps are more coordinated among the member states. In this regard, the European Commission has already presented the EU Energy Platform initiative, which will unify the EU's gas demand, carry out joint procurement, and make more efficient use of energy infrastructure, including LNG terminals. It is also possible to form groups of European countries and various forms of regional cooperation in order to collaborate with gas purchasing companies.
A relative reduction of the expected gas deficit in 2023 is clearly possible. According to the International Energy Agency, achieving this is perfectly logical, through the development of energy efficiency and renewable energy sources. Moreover, the power generation of nuclear and hydroelectric plants, which was at an extremely low level in 2022, will have an important role and can actually promote reduction of the current energy deficit. The agency’s recommendations also include the acceleration of heat electrification and encouraging changes in consumer behavior.
Along with the difficulties, it is clear that this is an opportunity for the European Union to accelerate the energy transformation process through green transition. In recent years, the importance of renewable energy sources in electricity production has increased so much that in 2022 the European Union even limited the use of coal. This may be a good incentive to continue investing in this sector. Thus, by drastically reducing energy dependence on Russia, diversifying supply markets and making more green energy investments, Europe will be able not only to overcome expected energy difficulties, but also to achieve long-term and sustainable energy sovereignty.
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