By Johanna Fernandes, Staff Writer
European gas soared this week as sanctions were implemented against Russia for their invasion of Ukraine elevated fears over further energy shortages. While the sanctions have excluded energy so far, the sector remains vulnerable as buyers, financiers and shippers cautiously move away from Russian flows. Pressures on Russian energy escalated on Friday, as major oil companies pulled Russian operations and the White House announced a considered ban on Russian crude imports. While the US imports only ~3% of their oil from Russia, the EU is much closer tied with Russia accounting for 40% of gas imports. As energy has rallied since the Ukraine invasion, some analysts predict restrictions on Russian oil production could lead to prices as high as $150 a barrel, threatening the wellbeing of nations across the globe.
Russia has been accused of squeezing gas supplies to Europe this winter, as households struggled to heat homes amid the energy crisis. While Europe’s inventories look to be enough to sustain them for the next few months, concerns are growing over the reliability of flows from Russia next winter. Europe too has heightened their energy dependence by setting widespread policies to curb carbon emissions and quickly invest in renewable infrastructures that are not ready yet to meet the region’s demands. Now they are stuck between a rock and a hard place – and cannot afford to punish Russia with a lack of business.
The events of the last few weeks have awakened governments across Europe as they now look to move away from Russian gas. “The events of the past few days have shown us that responsible, forward-looking energy policy is decisive not only for our economy and environment. It is decisive for our security,” said Olaf Scholz, the Chancellor of Germany, in response to the Ukraine crisis.
While Europe’s Green Deal was initially criticized as they hit record ags prices this winter, many EU governments believe accelerating investments in renewable energies is the best way to divest from Russia. The International Energy Agency, the IEA, released a new report to guide the EU to reduce Russian gas imports by a third, while also transitioning to clean energy. The key steps included not signing further gas contracts with Russia, diversifying gas imports, accelerating renewable energy production and extending the life of existing nuclear power infrastructure.
Germany announced a plan to bring forward its goal of 100% renewable power to 2035 from 2050, with the pace of wind and solar expansion set to triple. They also halted the $11 billion Nord Stream 2 Baltic Sea pipeline in Russia, are considering a reintroduction of nuclear power and are extending the life of coal production. These are bold moves for Germany, as the country has a strong culture against nuclear power and also has more than 30% of the country’s gas reservoirs controlled by Russia’s Gazprom PJSC.
Energy independence is a complicated goal for Europe that requires significant investments and policies to bring security and stability to global energy markets as a whole. Next week, the EU is set to announce an official strategy moving forward, as the Ukraine war continues to escalate.
As of Friday March 4th:
- Dutch front-month gas futures closed 103.92% higher on the week at 192.50 Euros (CME)
- German electricity for the next year, a European benchmark, closed the week 14.5% higher (BBG)
- Brent crude oil contract rose 27.6% on the week (WSJ)