The European Union’s Cause for Concern
The invasion of the Ukraine shocked several Russian analysts. Russian President, Vladimir Putin, is characterized as stern, severe, and merciless, and yet, cunning and careful. Putin has a history of holding grudges and striking at the most opportune time. The present escalation is the first step in the completion of a decades-long grudge against the European Union, intended to precipitate a catastrophic energy crisis.
At an economic conference, Putin recently declared, "We will not supply gas, oil, coal, or heating oil - we will not supply anything," resolutely leaving Europe's energy infrastructure vulnerable to collapse. Europe's dependency on Russian oil and gas was predestined, and Putin weaponized Europe's need at a precise moment to incite a protracted energy crisis. In addition to giving hundreds of billions of euros in financial help to households and companies, European governments have been scurrying to cut consumption, replenish reserves, and seek alternatives. The German government is even considering adding hundreds of thousands of individuals to its housing assistance program. However, it is unclear if these measures will entirely balance the higher expenses, prompting analysts to warn of a rise in poverty, a decline in the middle class, a rise in government debt, and an increase in environmental damage.
Europe created industries reliant on affordable oil and gas throughout the decades, while Russia constructed infrastructure. Europe's gas and oil distribution changed from government to commercial control in the 1990s. Diversification, which is essential to stabilization, is not necessarily backed by the market's perspective of what is rational in terms of consumer price reductions. Additionally, the infrastructure is now privately held. Due to the need for maintenance and reinvestment, the United Kingdom closed its Strategic Petroleum Reserves (SPR) storage facility in the North Sea. British Gas was unsuccessful in persuading the government to pay for repairs.
Using various pipelines, including the Yamal, the Turkstream, and most notably the Nord Stream1, Russia has built an infrastructure to facilitate the sale of gas and oil throughout Europe. Gazprom, a Kremlin-owned energy company, acquired storage facilities across Europe, granting Russia a huge degree of energy control throughout the region. When Putin chose to escalate actions, Russia's assets were so diversified that nothing could stop him. Russia is using energy as a weapon against the Ukraine and Europe in order to weaken both regions.
The invasion of Crimea ought to have sounded the warning, but Europe once more chose not to diversify. They have observed the dominance of the Ukraine and Crimea by the Kremlin, but they have taken no attempts to diversify their energy economy and strengthen their position. The most likely explanation for their lack of resistance is that they were unable to do so as they were under the jurisdiction of the Kremlin. The current practice of weaponizing electricity is not novel. Putin realized decades ago he could use energy to advance his political objectives, his dominance, and his global influence.
In 2021, gas supplies from Russia through Germany were much lower than previously. Prior to last winter, the storage levels at Gazprom were exceptionally low. European leaders were slow to notice and respond to this reality. The levels were kept low to further strengthen Putin's control over the European economy and politics.
Russia's oil and gas export income topped 100 billion euros in the first 100 days following the commencement of the Ukraine conflict, establishing a new record. The catch-22 is that the tighter Russia is squeezed, the higher global oil prices rise, allowing Russia to sell less while preserving the same revenue. EU and U.S. sanctions against Russia will have limited effect if they continue to finance their adversary through necessary energy payments.
Germany is the largest economy in Europe; thus, having to shut down sectors of its industry during the winter to conserve gas would be disastrous for its economy. Germany began shutting down its nuclear power reactors in 2011 in response to the Fukushima tragedy in Japan. Germany is scheduled to shut down the final nuclear power reactor by this winter, however, due to the current circumstances, discussions to reopen them have commenced. France is also in talks to revive its nuclear power reactors, even though almost half of them are now offline for maintenance. Most facilities were constructed in the 1980s, and their cooling towers are in dire need of repair owing to fractures.
Germany and the United Kingdom have reversed the closure of many coal-fired power plants. Rebuilding coal plants is a short-term solution that provides much-needed electricity at a time when energy prices are rising, but in the long run, it exacerbates the problem of climate change. Less than a year ago, COP26 met in Glasgow to discuss phasing out coal; now, the opposite must take place. They are no longer able to engage in future negotiations with countries like India over their need to depart from coal. This lack of discussion and Europe's unexpected need to build coal plants is a major defeat in the battle against global warming. Putin has ensured that the EU seem hypocritical, hence enhancing their worldwide hypocrisy.
This requirement enhances the urgency of obtaining new, green, and more sustainable energy sources. Previously, Europe's renewable energy objective for 2030 was 40%; however, the European Commission has recommended for an increase to 45%. President of the European Commission Ursula von der Leyen campaigned for massive investments in renewables, quicker deployment of renewables across the EU, and greater solar and wind output. There will soon be several laws governing the installation of solar panels on newly constructed buildings. The typical installation of wind power takes seven years from conception to grid connection. These will not fix the existing problem. This is not a monetary matter, but rather one of planning procedures, grid infrastructure, and approvals. The problem cannot be addressed quickly, but the Nord Stream1 pipeline has shown that Russia's gas supply can be cut overnight, so it is imperative that the issue is addressed post-haste.
In the case of a gas crisis, governments must seek alternatives immediately. Europe may seek more supplies from Norway, Algeria, Nigeria, Venezuela, the United States, Israel, and Australia, as well as any other nation with a pipeline or ship link to Europe. Numerous ideas call for the importation of liquefied natural gas (LNG), a super-chilled gas that can be transported by sea to virtually any location in the globe with the capacity to convert LNG back into gas. Relatively few of these European countries have re-gasification facilities. Germany has not previously built an LNG terminal and they are not the only country with lagging infrastructure. There is no assurance that the new construction of LNG terminals and FSRUs off the coast of Germany will be finished by this winter. In addition, the Spanish-French Midcat pipeline project has been on hold for years. Regulators in Spain and France found the project to be too costly and worried that it would increase the cost of living for citizens, therefore it was not constructed. Lack of forethought to develop when viable will boost costs greatly regardless.
European nations are seeking to collaborate but there is great competition for LNG. LNG-filled tankers dock wherever the market and higher prices direct them, which frequently bypasses Europe in favor of China, South Korea, and Japan. Europe will likely lack sufficient natural gas to satisfy demand. If Putin escalates conflict by disconnecting the pipelines, Europe will be forced to rely on its stocks which have three months supply levels.
Russia appears unaffected by the current energy situation in Europe. By the third consecutive month of oil recovery, their production reached pre-war levels. The Kremlin has regained pricing power and exploited a tight market by identifying new Middle Eastern and Asian commodities merchants ready to buy Russian crude oil and ship it to hungry markets. Russia's ability to provide lower terms guarantees purchases and a continual flow of revenue to the Kremlin. This is in sharp contrast to Europe, where electricity costs are soaring.