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    Europe prepares for a total shutdown of Russian energy supplies

    May 20, 2022 - CE Noticias Financieras


      Madrid 20 MAY 2022 - 10:41CEST

      Europe is preparing for the worst energy scenario: the possibility of a total interruption of the supply of Russian gas, the fossil fuel on which it is most dependent and which generates the greatest vulnerability - 38% of the 400 billion cubic meters imported in 2020 came from Moscow, according to Eurostat. The risk has risen after the suspension in April of the flow to Poland and Bulgaria, which refused to pay in rubles, and last week, to the EU through the Yamal pipeline, which passes through Warsaw, after the Kremlin sanctioned the Polish operator of that section, EuRoPol Gaz. Although everything will depend on how the geopolitical tension evolves, Brussels is rearming itself for the winter in view of the fear that the war in Ukraine - if the conflict continues - could leave the 27 without supplies, as Repsol's CEO, Josu Jon Imaz, warned last Thursday, setting off all the alarms.

      To deal with a crisis that began last summer, with the escalation of gas and CO2 prices, and which worsened with the war, the European Commission has outlined a macro-plan, REPowerEU, which marks the current energy strategy, to reduce imports of Russian fossil fuels by two thirds by 2022 and achieve independence by 2030, and to which it is expected to allocate some 300,000 million euros (10,000 million to gas pipelines; 2,000 million to oil, and the rest to renewables).

      The great novelty proposed is the temporary increase (maximum 15 years) of the participation of coal-fired plants (100 terawatt hours), one of the most polluting sources, and nuclear (44 terawatts) in the energy mix in order to reduce gas-fired plants. However, it confirms the speeding up of the transition to clean energies.

      Thus, it envisages raising the renewable target to 45% (1,236 gigawatts) in 2030 from the current 40% (1,067 gigawatts).067 gigawatts), in addition to the diversification of supply (through joint gas purchases at Community level, as was done during the pandemic for the acquisition of vaccines against Covid), the increase of reserves (to be at 90% of their capacity in October) and the capping of gas prices, not only in Spain and Portugal, as was approved last Friday, but also throughout the continent, as is already contemplated in the event of an emergency, something unthinkable not long ago.

      Brussels does not even rule out cross-border rationing, occasional cuts and the establishment of solidarity mechanisms in favor of the most affected States, among others, if the feared total rupture occurs, since the measures in place, it admits, are insufficient. That is why he also appeals to the conscience of citizens to get involved and consume 5% less gas and oil. How? By reducing the heating temperature, using less air conditioning and more public transport and more efficient household appliances. The goal is to save 13 billion cubic meters of gas and 16 million tons of crude oil.

      It is one thing for the Russian disengagement to be done gradually (first, with coal, in process; then, with oil, still without agreement, and finally, with gas) and another, all at once if the Kremlin's threats of retaliation are met. "Everyone now realizes the strategic error of overdependence on Russia," laments Gonzalo Escribano, director of the energy and climate change program at the Elcano Royal Institute. And of the interdependence, in general, of undemocratic regimes. "The EU is looking for alternatives to [Vladimir] Putin's gas and oil by shopping in Algeria, Azerbaijan, Saudi Arabia or Qatar," ironizes Francisco del Pozo, energy spokesman for Greenpeace.

      The consequence is that now we have to face the short and the long term at the same time and against the clock. "The second mistake is that we don't have an integrated market. Even if we want to be in solidarity with Bulgaria and Poland, as Mrs. [Ursula] von der Leyen asks, we can't because we only have one 7 bcm capacity pipe [the Irun-Larrau] and, evidently, there is not going to be another one in winter. The challenge is formidable and we are 17 years behind schedule, since the first time Russia cut off gas in Ukraine," criticizes Escribano.

      One of the pending tasks is precisely to increase Spain's interconnections (gas and electricity) with the rest of Europe, whose development has historically been truncated by France. The Midcat project, of 7 bcm and buried in 2019 by the French and Spanish regulators arguing that it was an onerous and immature infrastructure, was the last attempt to reverse the Iberian Peninsula's energy island status. However, thanks to these warlike times, it seems that the work is being resurrected.

      "Europe will have to decide whether to rescue it, propose another similar one or with some variation. Spain can reinforce the security of European supply by having the largest storage and regasification capacity (with six plants and six international connection points) in Europe," argue sources in the gas sector.

      The European executive has shown itself to be in favor of financing this type of project as long as it transports hydrogen in the future and other alternatives besides the Pyrenees are evaluated. In fact, last week, Italy's Snam announced the signing of a memorandum of understanding with Enagás to study the feasibility of an offshore pipeline between Spain and Italy. Another of the routes raised by the Italian Prime Minister, Mario Draghi, and which he transferred in March to the Government of Pedro Sanchez, is between Genoa and Barcelona.

      "Given the possibility of turning Spain and Portugal into a renewable hydrogen hub that can also be used in Europe, the debate makes even more sense," says Carlos Solé, partner in charge of energy and natural resources at KPMG. Sedigas also believes that projects such as Midcat and others that enable the deployment of renewable gases should be supported. But when, under what conditions, will France give us access to other European markets, is there adequate regulation and demand," are the questions that, according to Escribano, should be on the table.

      A return to polluting sources?

      Contrary to what it may seem, the war and the energy crisis have accelerated decarbonization, despite the rise in coal-fired power generation in the EU - in March it was up 11 terawatt hours from a year earlier, but in April it was just 2.7 as wind and solar replaced it - says Sara Brown, senior energy and climate analyst at Ember. "There is greater urgency because of the enormous geopolitical, socioeconomic and climate risks associated with fossil," she stresses.

      Brown asserts that coal burning is a temporary situation, as it is not only due to the Russian invasion in Ukraine and high gas prices, but also to nuclear outages in France, its decommissioning in Germany and the low contribution of hydro. "Only Greece has delayed its phase-out from 2023 to 2028. Gas is no longer credible as a transition fuel," he insists. However, the impact of the change in European policy regarding the increased use of more polluting sources such as coal will have to be assessed - if the proposal has any traction.

      A recent study published by this think tank estimates that renewables, energy efficiency and electrification, if deployed quickly, could replace 66% of gas imported from Russia by 2025. "If the EU does not seize this opportunity, it will simply be substituting one dependency for another," he warns. In contrast, Mike Coffin, analyst at Carbon Tracker, is more cautious. "We are cautiously optimistic about the ability of renewables to displace a significant proportion of fossil fuels in the European energy system. Combined with batteries, they can help smooth supply and meet peak demand."

      Still, he believes that fossil thirst could reduce in the medium-to-long term faster than expected, "as accelerated renewable expansion and possible reversal of nuclear [the EU now considers it green] take place." Reuters analysts also warn of another dependence in sight: on raw materials from China (such as silicon) for the manufacture of solar panels.

      However, Del Pozo, of Greenpeace, recalls that compliance with the Paris Agreement was already at risk before the war: "The current plans of all governments, if complied with, would lead to a rise in temperature closer to 3ºC than 2ºC".


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