EU’s Energy Crisis amid Conflict

The European Union is facing a severe energy challenge unseen in decades. The EU， out of consideration for sanctions against Russia and for fear of geopolitical competition’s implications on the energy market， has set a timetable to end its dependency on Russian energy. It is speeding up energy transition， and scaling up investment in renewable energy and the green industry in a bid to be energy independent. To make this a reality， the EU has taken multiple measures， and engaged in energy diplomacy in search of alternative oil， gas and coal suppliers. However， achieving energy independence remains an arduous journey. The EU may face a cut-off in gas supplies following Russia’s strategic countermeasures. Spiraling natural gas prices have pushed up electricity rates， and soaring energy cost is holding back economic recovery in Europe.

ACCELERATED EFFORTS TO END DEPENDENCE ON RUSSIAN ENERGY

Ending heavy dependence on Russian energy is an important target for the EU regarding energy security， albeit its energy diversification strategy has been rather unsuccessful. In the wake of the outbreak of the Russia-Ukraine conflict in February 2022， the West has escalated economic sanctions against Russia. The U.S.， Canada and the UK which are less dependent on Russian energy issued statements on banning Russian energy imports one after another. On March 11th， it was decided at the Versailles Summit to wean off Russian energy. Ursula von der Leyen， president of the European Commission， presented proposals to reduce the EU’s dependence on Russian gas by two thirds before the end of 2022， and to phase out Russian fossil fuels by 2027. EU Member States agreed in principle to phase out dependence on Russian fossil fuels as soon as possible， but did not see eye to eye with her shock therapy. Poland and Baltic states voiced their support out of anxiety over geopolitical security， while countries with close energy links with Russia like Germany， Hungary and Italy opposed a hasty approach.

After several rounds of negotiations， the EU decided to target coal and oil first in its sanctions. On April 7th， the European Commission issued a coal ban， suspending any new coal supply contract with Russia from that very day and banning coal imports from Russia from the second week of August. On May 18th， the Commission presented the REPowerEU plan to phase out Russian fossil fuels， and to strengthen the EU’s energy security through energy savings， diversification of energy supplies， accelerated roll-out of renewables and investment in trans-European gas infrastructure. On June 2nd， the EU adopted the sixth package of sanctions against Russia， targeting Russian crude oil and petroleum products. According to the Commission’s statement， the EU will end purchases of Russian seaborne crude oil within 6 months， and ban 75% of Russian oil imports immediately， 90% by the end of the year and all within 8 months. On top of that， the EU took measures to restrain export of Russian oil to third countries. Specifically， European companies are prohibited from insuring and reinsuring the transport. Existing insurance contracts would be terminated in six months.

On natural gas infrastructure， a mandatory certification scheme for gas storage operators was tabled by the Commission， warning that companies posing risks to Europe’s energy supply security will be required to relinquish ownership or control of storage facilities. This new scheme， in effect， targets Gazprom which has gas storage facilities in Germany， the Netherlands and Austria.

The EU’s unprecedented sanctions have hit the global economy. The EU’s tough oil ban restraining Russian oil exports have pushed up international oil prices and undermined global economic stability. It was discussed at the G7 summit on June 26th 2022 to have a price-capping mechanism on Russian oil exports， which sets a price ceiling on Russian oil exports rather than restrain exportation itself， in an effort to ensure the international flow of oil while curbing Russia’s oil revenue. This rather unfeasible scheme shows how damaging the EU’s oil embargo is to the world.

Meanwhile， the EU’s energy sanctions against Russia can also backfire. On July 11th 2022， Gazprom shut down the Nord Stream 1 pipeline， which pumps gas from Russia to Germany， on the ground of annual maintenance. Even before that， the pipeline had been running at 40% of its capacity. Amid fears of a cut-off of natural gas by Russia， the European Commission released the Save Gas for a Safe Winter plan.

A MULTI-PRONGED APPROACH TO ENERGY SUPPLY CRISIS

The sanctions and counter-sanctions have further driven up energy prices in the EU， which takes a toll on various economic and social sectors across the continent. The European economy is trending downward. The European Commission has trimmed down its forecast for 2023 economic growth. To cope with the energy crisis and realize energy independence， the EU has laid out emergency， short-term and medium-to-long-term measures from both the supply and demand sides.

On emergency measures， the EU adopts energy storage rules to cope with the potential severe energy shortage. On July 1st 2022， the regulation on gas storage came into effect， requiring member states to fill their gas storage sites to at least 80% of capacity by November 1st 2022， and to 90% in the winter. The strategic oil reserve will be released， and member states have the obligation to cut demands in case of emergency. On July 20th， the Commission proposed an emergency plan for a potential gas supply cut-off by Russia， setting out measures， principles and criteria for gas demand reduction. According to the plan， all member states shall reduce gas demand by 15% on a voluntary basis between August 1st 2022 and March 31st 2023. If things get worse， the Commission may impose a mandatory gas demand reduction on all member states. It aims to safeguard supply to households and essential users like hospitals， but also industries that are decisive for the provision of essential products and services to the economy， and for EU supply chains and competitiveness. Households and businesses are encouraged to save gas. Auction or tender systems could be launched to incentivize energy reduction. In addition， member states must have in place a solidarity mechanism to help neighboring countries in a severe emergency.