Can the EU sustain itself without Russian energy imports?
May 4th, 2022
Over one-fifth of the Russian budget came from exports of energy commodities to the EU last year. The proceeds directly funded Putin's war machine. So it is not surprising that the attack by Russian and Belarusian forces on Ukraine has renewed discussion on the EU's independence from Russian energy. Russia halts gas supplies to Poland and Bulgaria after they declined to pay for imports in roubles. This time, Moscow has delivered on its promise to halt gas supplies to Bulgaria and Poland for not paying in roubles, the Russian currency. With a chance of securing a breakthrough in EU energy policy, we find ourselves in a historic period.
Russia accounts for 25% of the EU's oil imports, 45% of its natural gas imports, and 44% of its hard coal imports. EU imports of Russian fossil fuels were worth around 150 billion US dollars in 2021. The EU can move away from fossil fuel imports from Russia, but this will require energy solidarity amongst EU countries.
Between countries, the structure of dependence on Russian fossil fuels differs. Among the countries in CEE, Central and Eastern Europe are the most dependent on oil, from a consumption perspective (see Figure 1). Even so, supplies to Naftoport Polish Oil Terminal in Gdansk offer some security.
Figure 1. Central and Eastern Europe is more dependent on Russian oil
For Germany and the Netherlands, banning Russia's oil imports will be more challenging since they didn't manage to build up enough diversification potential in the past. A possible Russian gas shortage also poses a significant threat to countries in Europe, including Germany and France (as seen in Figure 2).
Figure 2: Medium-term risk for winter 2022/23 if countries were to move away completely from Russian gas supplies
A year's supply of oil from OECD countries can replace Russian oil exports. The industrial sector owns 3 billion barrels more. 90-100 days of demand can be met by the EU's emergency oil stocks. The International Energy Agency (IEA) has agreed to release 60 million barrels of oil from its emergency reserves. Despite certain supply issues in global coal markets, Russian coal can be replaced because there is a large and flexible supply.
It is more difficult to replace Russian gas. The EU’s strategic reserves are not yet ready. Even according to a very optimistic scenario, in which existing storage facilities are filled to 90% of capacity at the peak of the winter season, as many as 14 of the 27 EU countries have reserves for fewer than 30 days of average imports (over the course of a year).
U.S. and British officials banned the purchase of oil and refining products from Russia beginning on 8 March. Based on revenue beginning in 2021, this will lower Russia's annual budget by more than 10 billion US dollars. The European Commission announced the next day that it plans to reduce Russian gas deliveries by two-thirds by the end of this year. This will cost Russia another 30 billion dollars. Poland announced the first plan in the EU to wean itself off fossil fuels from Russia later this year, which could deprive the Russian budget of over 12 billion US dollars per year. On 7 April, the European Parliament adopted a resolution calling for an immediate embargo on Russian energy resources. This puts pressure on countries for further action at the EU level.
Russia's oil is not included in the sanctions, yet nobody wants to touch it. The IEA predicts that 3 million barrels per day of oil and petroleum products from Russia may not find an outlet for sale as of April 2022. This creates the risk that Russian oil will be re-registered to avoid sanctions. During the first days of April, according to statistics from the Marinetraffic platform, no data from the Automatic Identification System (AIS) had been recorded for 431 of the 710 registered Russian tankers with a total carrying capacity of more than 26.4 million barrels.
The price differential between Urals crude and European Brent crude has increased more than fivefold, since the start of the war. Unfortunately, there are still several buyers of Russian oil in the EU. 1.23 million barrels per day are consumed by the Russian refineries in the EU. Hungary has also stated that it opposes an embargo. Hungary’s state-owned MOL refineries process more than 0.21 million barrels per day of Russian crude. In addition, refineries in the Netherlands, Germany, and Greece have declined to comment on the EU directive.
Figure 3: The price difference between Russian Urals crude oil and Brent, Dubai, and WTI crude oil in US dollars
The EU has a chance to move away from Russian fossil fuels through diversification, substitution, and reduction. There are several sources of oil, gas, and coal imports. The EU imports around 3 million barrels of oil per day from Russia. This could be replaced by fuel from the US (0.8-1 million barrels per day) or Iran, after successful negotiations (1.3 million barrels per day), and by reshaping supply chains from Canada, Norway, the UK, and Denmark (0.8 million barrels per day).
Our calculations show that Russian gas imports to the EU could even be reduced by more than 90% this year. Increasing liquefied natural gas (LNG) imports could provide around 50 billion cubic meters. Importing more gas from Azerbaijan, Algeria, and Norway could generate an additional 10 billion cubic meters. Around 13.5 billion cubic meters of Russian gas might not be replaced this year. Coal alternative suppliers are mainly Australia and Colombia. As a consequence of Pakistan and India's policy of coal supply independence, almost 50 million tonnes of coal will be freed up from South Africa.
As consumers, we can impose our own sanctions on Russian fossil fuels in heating and transportation. Lowering the temperature in buildings by one degree Celsius during the heating season and reducing air conditioning in the summer by two degrees Celsius could reduce gas usage by almost 20 billion cubic meters. Government support is needed for the replacement of heating sources and thermal modernization of residential and commercial buildings, which could reduce the demand for Russian gas and coal.
In addition, reducing oil use in travel-related activities could save almost 2.1 million barrels of oil per day, according to the IEA. Public transport and encouraging people to use them, eco-driving, ensuring vehicles have appropriate tire pressure, removing unnecessary heavy objects from cars, vehicle sharing, and lowering the speed limit on motorways can also help lower the demand for fuel.
It is imperative that Europe become independent of Russian fossil fuels, which is a daunting task. It's a choice between short-term gains and long-term security. Looking at alternative suppliers, we see that independence can be achieved.
- Can Europeans live without Russian gas? | Russia-Ukraine war News | Al Jazeera
- Could the EU survive without Russian energy imports? | British Politics and Policy at LSE
- IEA – International Energy Agency
- Reliance on Russian Fossil Fuels Data Explorer – Analysis - IEA
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