Europe’s Hypocritical Gas Policy Isn’t Sustainable
Europeans enduring an unseasonal April cold snap may be forgiven for thinking winter is back. But for the natural gas market, summer has arrived. April 1 marked the start of a new year in the energy calendar, moving the focus to injecting enough gas into storage during the coming low-demand months in preparation for next winter. It’s a race Europe cannot afford to lose, but one it will struggle to win following Russia’s invasion of Ukraine.
For the 2022-23 winter, the European Union has set itself a target of filling its underground gas storage to 80% of capacity by October. That may be possible, but only at a huge political – and moral – cost: The EU will have to continue buying as much Russian gas as it does now, paying Vladimir Putin about $200 million per day, or about $36 billion for the next six months.
Doing so would cement the hypocrisy at the center of current European energy policy and diplomacy. While EU politicians vow to punish the Kremlin for Russian war crimes in Ukraine, they refuse to impose a gas embargo that would hurt Putin financially.
For the first time, Josep Borrell, the EU’s top diplomat, spoke candidly about the problem of buying Russian coal, oil and gas. "Each day, roughly, we are paying €1 billion to import Russian energy, and that's, obviously, a source of income that's used to finance the war,” he said on Tuesday.
For weeks, European diplomats have privately pushed back on the accuracy of that figure, and the role of the €1 billion energy bill in the war. The taboo is now broken. Brussels is rolling out an embargo of coal – the first time it has targeted Russian energy. Whether it follows with oil and gas is yet to be seen. The European Commission has said it’s contemplating what to do about oil, but in a silence that speaks volumes, it has said nothing about gas. For now, Europe still buys Russian gas – with shipments via Ukraine hitting a four-month high on Tuesday.
Those flows have kept a lid on prices: European gas reached an all-time high of 345 euros ($380) per megawatt hour in early March, but has since fallen back to 110 euros per MWh.
Europe’s biggest ally in the current energy crisis has been the weather. Between early October and late March, mean temperatures in northwest Europe were about 1.3 degrees Celsius above their 30-year average, reducing heating demand. February was about 3 degrees Celsius warmer than normal. According to Gas Infrastructure Europe, an industry association, regional gas stockpiles hit a season low of 25.51% on March 19, significantly better than the worst-case scenarios many in the energy industry feared before Christmas of reserves dropping below 20%, and perhaps to as low as 15%.