If Europe cuts back on imports, Russia will have trouble coming up with alternative buyers
IEA chief talks to Kathimerini about how the continent can reduce its energy dependence on Moscow, says ‘yes, but’ on EastMed
Europe could adopt a three-point plan to reduce dependence on Russian natural gas by a third by the end of 2022, International Energy Agency Executive Director Fatih Birol says in an interview with Kathimerini, stressing that Europe has “a few tough weeks or months ahead” in the area of energy security.
Should the continent end its reliance on Russian energy, the Turkish economist and energy expert says, Moscow will find it hard to come up with alternative buyers because its export structure depends on binding pipeline infrastructure. Asked if the repercussions of the Ukraine crisis are creating the momentum for investment propositions such as the EastMed pipeline, Birol says that the involvement in the project of countries which are unlikely to use natural gas as a political instrument is an advantage. However, he adds, any decision must be taken while also taking the green transition into consideration.
Birol has bad news on the worldwide climate crisis campaign, saying that there are signs that the issue is “falling off the agenda of governments.”
Turning to the factors that would enable a return to lower international energy prices, the IEA chief points to the United States, Qatar and Australia as states that should raise their production levels. Birol says that the European Union should have ensured a basic level of policy harmonization on energy storage, adding that Europe should this time learn from its mistakes. After all, he says, “everyone should know that energy and geopolitics are closely tied together.”
You have proposed a package of measures that would reduce European dependence on Russian natural gas by half by the end of the year. How realistic is that target within such a short period of time?
First of all, it must be stressed that we are not experiencing normal conditions, but rather a state of emergency. The reason for this is that the country that invaded Ukraine, Russia, is the world’s biggest exporter of oil and natural gas. Europe is meanwhile mostly exposed to this crisis as it imports considerable amounts of natural gas and oil from Russia. Europe uses natural gas for heating and electricity generation. We are now entering spring. Demand for natural gas in Europe in March was already 20 percent lower compared to January. The question is what will the situation be for Europe next winter given the fact that its reserves are already very low. Europe will have to take emergency measures by next winter so as to reduce its dependence on Russian energy as much as possible.
In this context, we propose action on three levels: First, Europe must not renew gas supply contracts with Russia. There are several contracts which expire in the end of 2022 and early 2023. They must not be renewed; rather Europe must use the maximum number of alternative sources. That could mean importing liquefied natural gas (LNG) or the reserves of Qatar, even Algeria and Norway. Europe must make use of all the support it can get from other sources. Second, it must improve energy efficiency, particularly in private homes. It must provide incentives for renovations, for people to replacing gas furnaces with heat pumps. Third, it must do away with the red tape and ramp up renewable sources. By taking these steps, Europe could soon reduce imports from Russia by more than a third. Otherwise, it will be indirectly sponsoring Russia’s military campaign in Ukraine.
Would such a reduction in imports from Russia hold back European plans for the green transition?
This is a crucial question. Speaking with different governments during this period, I realize that climate change and the green transition, which used to be high on the agenda, are now losing their salience in the agenda of governments both in Europe and outside. This is not good news. We should keep in mind the oil crisis of the 1970s. On one hand, it led to recession and high inflation. On the other, it accelerated innovation in the energy sector, drastically improving the energy efficiency of car engines and contributing to the development of nuclear energy. I hope that this crisis will eventually bring about a real leap in the field of clean energy in areas such as electric vehicles, hydrogen and other renewable sources. However, I want to be realistic. Europe has a few tough weeks or months ahead in the area of energy security. Everyone should know that energy and geopolitics are closely tied together.
Should Europe manage to significantly cut imports, will Russia be able to find alternative markets? Or will its economy suffer even more?
That’s an interesting question. With natural gas, it would have a huge problem. Because its export potential is mainly based on pipelines, and it is difficult to build alternative pipeline routes overnight. With oil, it would be relatively easier to find new clients. But Russia is currently facing great difficulties in selling its oil products due to the financial sanctions imposed by the US and the EU.
Were there any mistakes in Europe’s strategy before the Ukraine crisis? Should Europe perhaps have secured bigger reserves, even with Russian gas, so as to be able to regulate prices during times of uncertainty?
It is true, Europe could have done better. For example, EU countries should have reached some basic level of harmonization in their energy storage systems. I should note that Germany’s energy reserves are at a historic low. It is important however to learn from one’s mistakes and this is what Europe is doing now.
The need to diversify energy sources is greater than ever before in Europe. Do you think that projects like the EastMed pipeline should be back on the table?
The first thing that needs to be done is to put into immediate operation all the energy projects that have already been launched. Procedures need to be sped up. Besides that, it is very important to import gas and oil from regions and countries that are less likely to use energy as a political weapon. So I believe that having energy which comes from the Eastern Mediterranean, or the Caspian or the North Sea is something that will help markets. However, we should keep in mind that three parallel crises are currently under way: the humanitarian crisis in Ukraine, an energy crisis in the global economy, and the climate crisis. So the steps we now take must certainly prioritize energy security in Europe, in the most cost-effective way possible, but they must also be in line with our clean energy strategy, anywhere in the world. My biggest concern is that growing energy security concerns may boost lignite, especially in Asia, holding back the green transition process.
What are the factors that will determine the return of gas prices to normal levels?
Prices are unlikely to make a quick return to 2019 levels. Two things must precede: first, a substantial increase in energy production by the US, Qatar, Australia, perhaps a little by Norway and Algeria; second, a reduction in demand as a response to high prices. Some of the measures we have put forward can also help, such as turning down our thermostats just 1 degree. Sure, a peaceful resolution to the Ukrainian crisis would help a lot, but – although I am not an expert – I do not see this happening soon. Meanwhile, Russia’s reputation as an energy partner has been compromised, which I think will take a toll on its partners and customers in many years to come.
