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EU will slash imports of Russian gas by two thirds by 2023

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By Jorge Liboreiro  & Christopher Pitchers
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The European Commission wants to cut Russian gas supplies by two thirds before the end of the year.
The European Commission wants to cut Russian gas supplies by two thirds before the end of the year.   -   Copyright  Pavlo Palamarchuk/Copyright 2022 The Associated Press. All rights reserved.

Brussels will slash by two-thirds the European Union's reliance on Russian gas in response to the war in Ukraine, the European Commission announced on Tuesday.

Europe will reduce its imports of Russian gas from 155 billion-cubic-metres (bcm) to 100 bcm per year and aims to make up the shortfall with supply from providers of liquified natural gas (LNG), like the United States and Qatar, as well as sustainable energy sources such as biomethane, clean hydrogen and renewable energy.

"This will end our over-dependence and give us much-needed room to manoeuvre," said Frans Timmermans, the vice-president in charge of the EU Green Deal.

"It’s hard, bloody hard, but it’s possible if we’re willing to go further and faster than we’ve done before."

According to figures released by Bruegel, an economic think tank, Russia's share in gas imports fell from 47% in January 2021 to 28% in January 2022, amid tensions along the Ukraine border.

The question of energy dependence, already high on the agenda before the invasion began, has risen to a new level over fears that European demand for gas may be bankrolling Russia's war in Ukraine. More than 40% of the country's revenue come from the gas and oil sectors.

The plans from Brussels follow an aggressive set of sanctions aimed at crippling President Vladimir Putin's military apparatus, but fall short of a total energy ban, as the US government announced the same day. 

"We will not be part of subsidising Putin's war," President Joe Biden said on Tuesday. 

Brussels is instead stepping up efforts to quickly diversify its basket of energy providers and diminish Russia's presence to the greatest possible extent.

"It is not a free market if there’s an actor willing to manipulate it," said Timmermans, referring to lingering suspicions that Gazprom, Russia's largest energy company, is deliberately under-delivering.

Over the past week, EU officials have reached out to gas exporters such as the US, Norway, Qatar, Azerbaijan, Algeria, Egypt, Turkey, Japan and South Korea to secure alternatives to the Russian pipelines, which today spread over the bloc's eastern front and connect several member states.

As a result, January 2022 saw the highest ever levels of LNG imports into the EU, reaching 10 billion cubic meters, a figure that is set to remain high in February and the month to come.

The bloc has today a reception capacity to process 150 bcm of LNG and aims to buy 50 bcm this year alone.

Redistribution of profits

The diversification campaign, however, has so far failed to cushion the impact of skyrocketing gas prices: at the Dutch Title Transfer Facility, Europe's leading benchmark, uncertainty around the Ukraine war has pushed prices to an all-time high of €227 megawatt per hour.

The current structure of the EU's wholesale market sets electricity prices by ranking energy sources from the cheapest – the renewables – to the most expensive ones – usually gas. If gas becomes pricier, electricity bills inevitably go up, even if clean sources also contribute to the total energy supply.

Although the Commission had previously rejected calls from Paris and Madrid, who demanded immediate market reforms, the new circumstances are prompting a change of heart.

Besides traditional, market-friendly solutions such as tax cuts and subsidies, which most member states have already rolled out, the executive is now opening the door to regulated price limits for vulnerable households and struggling companies.

Brussels says governments can "exceptionally decide to capture" some of the windfall profits that energy companies are ripping from the soaring bills. Using tax measures, the money could be re-distributed among consumers to alleviate monthly expenses.

All measures should be temporary and proportionate, the commission underlined.

"I think we need a new European instrument because different countries here will be affected differently. There are countries that are more exposed to Russian gas, that will suffer more than countries that are not dependent on Russian gas, or not dependent on gas at all," said Simone Tagliapietra, a senior fellow at Bruegel.

Additionally, Brussels wants to make gas storage more consistent and predictable to avoid a repetition of the present power crunch, which was partly caused by the low levels achieved in 2021.

Current storage levels are under 30%, a dangerous threshold that indicates tight supplies.

"Thanks to mild weather and LGN supplies, we expect to be on the safe side for this winter, but we need to ensure gas storage for next winter," said Kadri Simson, EU commissioner for energy, noting her team has prepared for a partial or total cut-off of Russian gas in retaliation for Western sanctions.

The commission will propose in April a proposal to enshrine in law a 90% storage target that should be met by 1 October every year, right before temperatures start to drop and heating consumption increases.

'Not ready yet to give up gas'

Even if LGN has become the EU's fastest way out of Russian energy dependence, Brussels is urging member states not to lose sight of the green transition.

The bloc is supposed to slash greenhouse gas emissions by at least 55% before the end of the decade, a target set before the Ukraine war upended Europe's post-WWII security arrangement.

The commission insists renewables, such as solar, wind and heat pumps, are the "most-cost effective solution" to move away from fossil fuels and strengthen the bloc's energy self-reliance.

For Greenpeace, the assurances were not enough. In a statement, the organisation called on the executive to "phase out gas, not shop around for more," arguing a diversification of gas supplies will ignore the core problem and still make Europe "vulnerable to energy shocks."

Simson struck a more sombre note, saying the bloc is not ready yet to "give up gas entirely" and has no other choice but to focus on diversifying suppliers and wean itself from Russia's market dominance.

Last month, Germany suspended the certification of Nord Stream 2, a gas pipeline that connects the country with Russia, and announced plans to build two LNG terminals in the near future.

Brussels has repeatedly described gas as a "transitional energy" that can act as a bridge to climate neutrality. Earlier this year, the executive included gas in its taxonomy of sustainable activities, a controversial move that was widely lambasted by civil society as blatant greenwashing.