Conscious uncoupling: Europeans’ Russian gas challenge in 2023
Europeans made remarkable progress in removing Russian gas from their energy mix in 2022. But 2023 brings with it a whole host of new challenges
Before Russia invaded Ukraine, the European Union was highly dependent on Russian energy resources. In 2021, EU countries imported 155 billion cubic metres (bcm) of Russian gas, which accounted for about 45 per cent of total gas imports. Prior to the war, Russia was one of the largest suppliers of crude oil to the European Union (about 108.1 million tonnes) and the largest supplier of petroleum products – 91 million tonnes. In 2021, member states also imported 51.4 million tonnes of coal from Russia, which represented nearly half of total EU coal imports. Russian fuel powers the operation of 18 nuclear blocks in the EU: six in the Czech Republic, four each in Hungary and Slovakia, and two each in Finland and Bulgaria.
In 2022, the EU made great strides in reducing its dependence on energy supplies from Russia– but this was less a consequence of EU actions than of decisions taken by the Kremlin. These decisions included changes imposed by Moscow to rules around gas supplies for European customers (the “gas-for-roubles decree”) and the suspension of gas transport via the Nord Stream 1 pipeline. They led to a drop overall in Russian gas exports to the EU of around 80 bcm. In response, the EU increased its imports of liquefied natural gas (LNG) – including, in fact, Russian LNG – by 60 per cent on the previous year. This delivered on European Commission plans to import more LNG announced in March 2022.
The EU last year also increased gas imports via pipelines: from Azerbaijan, these rose from 8.1 bcm in 2021 to 11.4 bcm in 2022; from Norway, they rose from 82 bcm in 2021 to almost 90 bcm in 2022. One of the most spectacular successes of the past year is the complete independence from imported Russian gas achieved by Germany, which had been the product’s main importer. A key additional factor in the EU’s relative success was the decline in consumption of natural gas, estimated at 10-12 per cent in 2022. This decrease was possible partly due to the relatively high temperatures during the 2022-23 autumn and early winter, partly due to more ‘green behaviour’ in response to the energy crisis (such as turning down the indoor temperature or switching to heat pumps), and partly due to reduced industrial production.
In short, Moscow failed in its effort to blackmail EU member states through withholding gas.
As far as EU action to decouple from Russia is concerned, the fifth and sixth sanctions packages were of central importance. The EU also introduced an embargo on the import of Russian coal, which came into force in August 2022, and brought in a similar measure on Russian seaborne crude oil exports to the EU. And in late 2022 Germany completely banned the purchase of Russian oil. Together, these measures mean the supply of oil from Russia could fall by up to 90 per cent in 2023 compared to 2022 levels. Furthermore, the EU’s February 2023 embargo on Russian petroleum products could see their share of the European market fall to the lowest level in history.
Yet the EU is still set to face considerable challenges in its pursuit of independence from Russian gas supplies. The biggest of these will be to secure a stable gas supply from places other than Russia. According to the International Energy Agency, the EU’s gas shortfall in 2023 could be as high as 57 bcm. Such a shortage equates to about 14.5 per cent of total gas consumption. (The IEA suggests that total demand for gas in the EU is expected to be 392 bcm in 2023). Alongside this, gas consumption in the EU will need to shrink by 13-20 per cent, depending on the extent to which Russia further reduces its gas exports.
The EU faces several problems in particular. To begin with, competition among LNG importers is expected to intensify in 2023, and the main difficulty for Europe could be a revival of demand for gas in China as well as American exporters’ growing interest in increasing supplies to this market. At the same time, no significant growth in LNG supply is expected on the world market this year. All this is likely to make it harder for the EU to purchase LNG.
Next, despite a sharp drop in the export of Russian gas sent by pipeline to the EU, as noted, Russian LNG deliveries to the EU rose last year (by 12 per cent compared to 2021). The largest importers of Russian LNG in 2022 were France, Spain, Belgium, and the Netherlands. This made Russia the EU’s second biggest LNG supplier after the US.
And finally, prospects are not rosy for any increase in pipeline-supplied gas to the EU. Azerbaijan has announced only a slight rise in deliveries this year. It is also unclear whether Algeria and Norway will be able to increase their exports; in 2022, supplies of Algerian gas to the EU actually fell to 44 bcm from 50 bcm in 2021. Although Algeria has announced a doubling of exports for 2023, its ambitions may prove difficult to achieve, taking into account the projected output growth and other political and technical obstacles.
To address these problems, EU member states should aim to strengthen security of supply of fossil fuels in the short term and promote the energy transition in the long term.
Firstly, although EU member states have concluded many new agreements in the past year to ensure the supply of energy resources (especially gas) from locations other than Russia, they should now go further by coordinating their activities in this regard. The European Commission has already proposed an initiative for an EU Energy Platform, which would aggregate EU gas demand, undertake joint purchasing, and make more efficient use of infrastructure, including of LNG terminals in the EU. To go further, groups of member states could club together to create regional partnerships in the form of cooperation between gas purchasing companies. These could help aggregate demand and improve the security of supply of raw materials in for next winter.
Secondly, EU member states need to continue the process of developing infrastructure that allows the procurement of energy resources (especially gas) from other sources. Examples already under way include the start of the construction of a gas interconnector between Bulgaria and Serbia, and a Bulgarian-Turkish agreement on access to regasification capacities in LNG terminals in Turkey. Member states should go further by strengthening the coordination of measures to develop such infrastructure in Europe within the EU but also within the framework of the Energy Community or the European Political Community. This will enable them to maximise the benefits of implementation, avoid the risk of overcapacity of energy infrastructure in some parts of Europe, and resist getting tangled in dangerous projects implemented solely in the interest of individual countries (as in the case of Nord Stream 2).
Thirdly, this challenge should be an opportunity for the bloc to accelerate the process of energy transformation, especially regarding the implementation of so-called green investments (in particular in renewable energy, energy efficiency improvements, and hydrogen projects). In recent years, the importance of renewable energy sources in electricity generation had already grown so much that Europeans were able to avoid resorting to using more coal in 2022. This experience should incentivise member states to implement cross-border green energy projects, such as the green energy bridge from Azerbaijan to Europe. In addition, EU member states such as Poland should use this moment to introduce regulatory changes that boost the potential of renewable energy sources in the coming years.
By coordinating efforts to obtain energy resources (mainly gas) from outside Russia and rapidly implementing planned infrastructure projects, EU states will be able to continue with their strategy of energy decoupling from Russia. At the same time, investments aimed at reducing the dependence of member states’ economies on fossil fuels will allow them to truly strengthen their energy sovereignty in the long term.
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