The Russian invasion of Ukraine has significantly affected energy markets and accelerated the EU's ambition to reduce its dependence on Russian fossil fuels.
The Russian invasion of Ukraine has significantly affected energy markets and accelerated the EU's ambition to reduce its dependence on Russian fossil fuels. Undoubtedly, there are several factors that led to the decision to initiate this geopolitical conflict. One of them may have been the calculation that Europe's dependence on Russian fossil fuels - especially gas - would limit the severity of sanctions that the West could impose on Russia. This criterion would have taken into account Europe's low gas inventories, high inflationary pressures and the fact that Europe's Fit for 55 climate action plan envisages a gradual reduction in gas imports over the next decade in an attempt for reducing greenhouse gas (GHG) emissions by 55% of 1990 levels by 2030. This analysis would have suggested some enhancement of Russian gas supply today, which would likely fade over time.
In this context, and as a much broader response to the Russian invasion, the European Commission published REPowerEU, a joint European action plan for more affordable, secure and sustainable energy. A strategy document was published in March, followed by a more comprehensive implementation document in May. The document describes the feasibility of ending Europe's dependence on Russian gas "well before the end of the decade." The strategy consists of a joint approach that includes the diversification of gas supply, greater energy efficiency -which reduces demand-, greater generation with renewable energies and tackling infrastructure bottlenecks. To put the task in perspective, around 40% of Europe's gas network is supplied by Russia. In 2021, this total rose to 155 billion cubic meters (bcm)1. The Commission assumes that this year it will be able to secure 60 bcm of gas supply from alternative sources: 10 bcm from pipeline diversification and 50 bcm from liquefied natural gas (LNG) diversification, to which the US has already committed to supply a minimum of 15 bcm this year.
On the other hand, it should be borne in mind that, for Europe to achieve its ambitious transformations, it will have to require greater coordination between states. The EU Green Deal is a step in the right direction, but more needs to be done to harmonize rules and practices. The Russian invasion of Ukraine is serving as a stimulus to better coordinate actions and the recent update 16 of the REPowerEU plan shows a clearly stronger intention to change the regulation. In particular, we welcome the priority given to accelerating permits for wind and solar power, and the push to declare renewables as "overriding public interest." Common rules are a starting point, but action by individual countries will be needed to move from rhetoric to reality, and clashes between the overall EU strategy and local politics are likely. 2030 is only eight years away and the pace needs to be picked up,
Russia, for its part, has also made a number of moves, trying to connect fields on the Yamal Peninsula, which currently supply Europe, to China via a gas pipeline through Mongolia, estimated at around 50 bcm8 7. However, no formal agreement has been reached in this regard. Initially, it would have given Russia a stronger negotiating position with both Europe and China, since supplies from this gas-rich province could have gone to either. Thus, if Europe speeds up its cut on Russian gas, China could now get a more favorable deal. But with China's ambitious emissions reduction targets, its demand for gas is likely to grow rapidly, although global supply and prices will be less attractive.
In general, the price crisis, together with the political turmoil caused by the war in Ukraine, is likely to create opportunities and new conditions in which innovation can flourish. There are other technologies and solutions that have been around for a long time that could finally find their place, for example green hydrogen and carbon capture and storage technologies. Other technologies, which are in their early stages of development, may also be driven by recent events and become competitors. In any case, the current crisis in Ukraine can still feed the animal instinct of decarbonisation and the EU should try to boost it.
* Head of Macroeconomic Analysis at AXA Investment Managers, and Head of Climate Analysis, respectively