Russian Gas Supplies Through Ukraine Turned Off

Last Tuesday, G7 energy ministers wrapped up a special meeting in Rome discussing how Europe, which relies on Russia for about one third of its natural gas supplies, could replace Russian natural gas. DW (Deutsche Welle) reports that the meeting of ministers from the US, UK, Germany, Canada, Italy, France, and Japan is “part of the preparations for a major G7 summit to be held in early June in Brussels”.

Noticeably, Russia, the eighth member, was not present given its suspension from the group in light of the ongoing Ukraine crisis. Following the meeting, UK Energy and Climate Change Secretary Edward Davey referred to this long-term plan as “a process of disarmament to prevent energy being used as a weapon in the future.” He added, “we need a more energy secure future, meaning that no single state or supplier can use such tactics. We have agreed to do what’s needed to achieve a systematic, enduring step change to improve energy security – not just for the nations in the G7, but for our friends and allies, with a particular focus on Ukraine and its Eastern European neighbours who are most at risk from the use of these tactics by Russia. The principles that will guide our work over the months and years ahead are diversified energy supplies, more homegrown energy, better infrastructure to link our markets, reducing our energy needs through energy efficiency, and the powerful role clean energy technologies have to play.”

Prima facie, the enumeration of these agreed-upon principles includes nothing new and is pretty straightforward. However, the devil is often in the details. One of these details –timeline – regarding Europe’s energy security solution was addressed by German Economics and Energy Minister, Sigmar Gabriel, who told reporters: “Everyone agreed with me that, given the current conflict, there will be no quick solution. I don’t know anyone in the world who could tell us how Europe’s dependency on importing Russian gas can be changed in the short term. My American colleague told us that [the US] won’t be in a position to export (…) shale gas until the end of the decade.”

The draft 13-point plan postulates “a broader energy security strategy (…) to address the larger dimensions of today’s globalized energy markets shared among energy consumers, producers and transit countries. Energy security is a collective responsibility, a core component of our economic and national security that is inherently linked to the energy security of our allies, partners and neighbors.” It then outlines “the path to energy security” built on the following core principles:

1. Development of flexible, transparent and competitive energy markets, including gas markets.

2. Diversification of energy fuels, sources and routes, and encouragement of indigenous sources of energy supply.

3. Reducing our greenhouse gas emissions, and accelerating the transition to a low carbon economy, as a key contribution to enduring energy security.

4. Enhancing energy efficiency in demand and supply, and demand response management.

5. Promoting deployment of clean and sustainable energy technologies and continued investment in research and innovation.

6. Improving energy systems resilience by promoting infrastructure modernization and supply and demand policies that help withstand systemic shocks.

7. Putting in place emergency response systems, including reserves and fuel substitution for importing countries, in case of major energy disruptions.

In sum, this draft plan envisions greater connectivity within the European natural gas pipeline network, increase of natural gas storage capacity as well as the “use of low carbon technologies (renewable energies, nuclear in the countries which opt to use it, and carbon capture and storage)” and general improvements in energy efficiency. It also recognizes that “it is for individual countries to choose which sources they wish to develop,” what, conversely, means that the details of appropriating necessary funding will be left to the respective countries due to differing energy policies. Here, the ‘little’ detail to consider is cost. The German weekly news magazine ‘Der Spiegel’ uses the example of Germany potentially establishing a strategic natural gas reserve in order to illustrate that the “price of a little more independence” could indeed be steep.

Der Spiegel writes: “The country has plenty of gas storage facilities, and the German Economics Ministry also has plans ready which would enable it to order the operators to maintain minimum reserves of gas. The question is who would pay for this storage. Would the costs be picked up by the natural gas companies or passed on to consumers or taxpayers?” Breaking Energy has covered this topic extensively before.

Here, it is noteworthy as well as surprising, that Gazprom is attempting to revamp its natural gas export strategy in Europe by the accumulation of gas storage capacity in Germany. Moreover, Europeans are well advised to recall the European Nabucco pipeline project – first discussed in 2002 – that would have bypassed Russia and was named after an opera that tells the biblical story of how the Israelites had been liberated from Babylonian captivity. This expensive project was also abandoned over questions regarding long-term energy infrastructure funding. This time, in ‘the second act’ of attempting to become more energy independent from Russia, the prospects appear to be the same – grim, just like Richard Wagner’s opera “Goetterdaemmerung” – unless the financial costs of German Chancellor Merkel’s “energy union” are properly addressed.

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