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How national security is going to run the energy transition

How national security is going to run the energy transition

The first victim of war might be the truth, but this one has also dispelled a delusion – namely that Europe’s increasing reliance on Russian gas up to and after 2014 was ever a sound basis for energy security.

European imports of Russian gas, arriving by fixed pipelines and under long term contracts, now hold the continent’s economy to ransom. That Russian gas imports to Europe grew since the annexation of Crimea in 2014, from 37 per cent to 47 per cent of the total, shows how economics took priority over security in European energy policy.

Ending this dependency will mean serious short-term disruption. Europe has embarked on an emergency program to replace Russian gas now constituting 25 per cent of its total consumption. The result is an energy crisis so severe it is second only to the risk of direct Nato-Russian conflict as a priority for western politicians.

Replacing Russian gas is not just a tall order. Our analysis shows it is impossible without reduced demand through economic damage; alternative supplies of energy from all sources; and a willingness to meet any cost from the public purse.

The main alternatives to Russian gas are gas piped from Norway and North Africa, liquified natural gas (LNG) sourced on the open market, a reversion to coal, delayed closure of nuclear plants and new renewable capacity. 

  • In the short term, replacing cleaner gas with dirtier fuel oil in thermal generation is inevitable, and the reversal in the long-term decline in coal generation seen in 2021 will be repeated. Both will add emissions intensity to the energy mix, although net emissions could fall along with demand. 
  • Europe pivots away from Russia and buys up LNG supplies wherever it can find them quickly. The likeliest beneficiary will be shale gas exporters in the US. Shale deposits represent the most quickly accessible fossil fuel deposits in the world and the shipping of LNG from the Gulf of Mexico to European ports will become the most important artery of global trade.
  • Renewable energy sources are the optimal solution. Climate may take a back seat as the motivation, and yet be the ultimate beneficiary of this new order. Renewables are what Germany’s foreign minister, the Greens’ Annalena Baerbock, calls “freedom energy”.
  • New nuclear plants may feature in long-term plans but they offer no help at all in addressing the acute shortage of the 2020s. Nuclear has a short-term role in the delayed decommissioning of existing plants. But this will play only a small part in replacing Russian gas.
  • The EU’s Fit for 55 package, the boldest framework ever conceived for a major economy to align with Paris, may be scrapped and rewritten. The package aims for a 55 per cent carbon emissions reduction by 2030, but some of its central pillars are likely to be delayed or jettisoned.
  • The European fiscal compact will be set aside. New budget rules that were due to come into force next year will be shelved to allow national budgets to swell. Governments will step in to mitigate the worst effects for households but not industry, which could face windfall taxes to fund the extra spending.
  • Energy will be rationed for commercial users. With record high gas prices, businesses have already closed some plants by choice, and they may soon be compelled to close more. Politicians and planners have drawn up the lists of the haves and have-nots come the potential embargo.

The invasion of Ukraine is upending our international order. Nato expansion is being discussed, ancient neutralities are being rethought and once-taboo sanctions are the new reality. Yet of all the historical judgments that will be made about this crisis, the most critical may be that Europe went into it with record high reliance on Russian energy.

Ashur Nissan is a partner with Kaya, an advisory firm focused on the politics and policies of energy transition.