Prof. ST Hsieh
Director, US-China Energy Industry Forum
March 11, 2022
Ukraine war has caused skyrocket global energy prices and fear of global inflations would ravage the global economy for an extended period. The root cause of the Ukraine war is Europe’s overdependence Russian oil and gas. A cliché is “Russia weaponized energy.” The very interesting observation is that Russian energy flow to Europe has not stopped, not during the cold war, not during the current hot war. So why is the EU developing an energy independence plan now?
The crucial and contrasting issues need to be examined are:
- EU needs five years to wean itself off Russian energy. It is clear that the Ukraine war could be stopped in weeks at most. Once the war is stopped, global energy supply and demand still face the challenge of post-COVID-19 economic recovery. The EU hopes to have a five-year plan by May 2022, but what is the role of Russian energy?
- It also critical that how the US led sanctions against Russia will be shaped and implemented after the war is over. The currently implemented sanctions against Russia have the flavor of a permeant rupture with Russia, now how Europe will deal with Russia from 2022 to 2027 in terms of energy supply?
- EU has been honest about the need of a five-year plan, but a plan is just a plan, it is not a contract. The world is not stable, and many unknown risks exist for the next five years, the success of the five-year plan is not guaranteed at all. What is the plan B?
- A major unknown is the future interaction between Russia and the world. Specifically, Russia is a major oil and gas exporter, if Russia decided not to play ball with Europe, then how European energy security will be secured in the next five years?
- Global climate change is a real issue of concern to every major nation, collective and coordinated actions are needed right now! But Europe has to focus on short term energy security, transition to carbon free economy will take a back seat now.
EU says it needs five years to wean itself off Russian energy
Matt Oliver Thu, March 10, 2022, 2:02 PM
Ursula von der Leyen, the president of the European Commission, has admitted it will take the EU five years to wean itself off Russian oil and gas as the Kremlin continues to ravage war on Ukraine.
In a blow to Ukraine, which has called for an immediate embargo, Ms von der Leyen said the agreement to phase out dependence on Kremlin hydrocarbons by 2027 was needed to secure “reliable, secure and affordable” energy supplies to the continent.
The timescale is three years earlier than originally proposed but still well short of what was demanded by Kyiv, which has argued that Russia is financing its invasion of Ukraine with money from energy exports.
Ms von der Leyen said the proposals will be outlined by the end of May with measures for reducing the impact of higher energy bills for consumers by the end of the month. The US has put in place an embargo on Russian oil and the UK has vowed to phase out all purchases by the end of this year.
But in Europe, where more than a quarter of oil imports and two fifths of gas imports come from Russia, leaders have backed away from such a ban.
For its part, the Kremlin has also reassured the Continent that it is happy to carry on doing business and has no plans to renege on gas contracts, with pipeline flows through Ukraine continuing despite the raging conflict.
Critics say this leaves a gaping hole in what are otherwise tough sanctions on Russia, which has been blocked from international payment systems, excluded from debt markets and denied access to its foreign currency reserves.
The reluctance among EU leaders to push ahead with an all-out embargo helped to calm oil and gas prices on Friday as fears that it would trigger a rush for alternative supplies petered out.
Moscow also excluded energy from export bans it announced in retaliation for the crushing sanctions imposed on the Russian economy, which have been imposed by the West as punishment for the invasion of Ukraine.
Viktor Orban, Hungary’s prime minister, said the EU proposals had been “settled in a favourable way” for his country in a message to his followers on social network Facebook.
Hungary, which gets the majority of its oil and gas from Russia, had openly lobbied against an embargo.
Other nations including Germany and the Netherlands had also raised doubts about an all-out ban ahead of the EU summit in Versailles.
Olaf Scholz, the German Chancellor, said energy supplies “cannot be secured in any other way at the moment”, while Dutch premier Mark Rutte admitted Europe’s dependence on Russian oil and gas was for now an “uncomfortable truth”.
In a video posted on Facebook, Hungary’s Mr Orban said on Friday: “The most important issue for us has been settled in a favourable way: there won’t be sanctions that would apply to gas or oil, so Hungary’s energy supply is secure in the upcoming period.”
As the threat of an imminent European embargo receded, Brent crude traded at around $110 a barrel, marginally up from Thursday but far below the high of $130.50 on Tuesday.
It put the oil price on course for its biggest weekly drop since November.
Meanwhile, the EU natural gas price was hovering at about €127 per megawatt-hour after hitting a record of €345 at the start of the week when discussions of a possible embargo were first emerging.
In the UK, the gas price was about 300 pence per therm, down from the high of 800 pence just days earlier.
The EU decision to phase out Russian oil and gas over five years represents a setback for US diplomatic efforts to isolate Russia further, after Secretary of State Anthony Blinken first raised the prospect of an embargo last weekend.
“We are now in very active discussions with our European partners about banning the import of Russian oil to our countries, while of course, at the same time, maintaining a steady global supply of oil,” he told NBC on Sunday.
However, Boris Johnson has echoed the concerns of some European leaders, saying that the Continent cannot give up Russian oil and gas “overnight”.
Von Der Leyen Eyes Ending EU’s Russian Energy Reliance by 2027
Ewa Krukowska and Michael Nienaber
Thu, March 10, 2022, 11:53 AM
(Bloomberg) — European Commission President Ursula von der Leyen is seeking the political green light from European Union leaders to propose in May measures to phase out dependencies on Russian fossil fuels by 2027.
Von der Leyen outlined her plan to heads of government at their informal summit in Versailles on Thursday, according to a post on Twitter. The commission earlier this week published an overhauled energy strategy aiming to cut reliance on Moscow following President Vladimir Putin’s invasion of Ukraine.
Russia is the EU’s biggest natural gas supplier, accounting for more than 40% of imports. The EU also relies on the country for the biggest share of its coal and oil import needs.
Under the commission’s energy strategy, named RePowerEU, the bloc could replace nearly two-thirds of gas imports from Moscow already this year through actions such as tapping new supply sources, boosting renewables and accelerating energy savings. For the vision to become reality, in the first step the commission seeks to get the political blessing from national governments to propose detailed regulation to enact the plan.
In mid-May, the EU executive arm also wants to lay out options to improve the electricity market design “in view of structural change towards decarbonisation of the energy mix.” Some countries, including France, have been calling on the EU to rethink the way its power market is constructed to better reflect the share of clean energy sources in their electricity generation.
According to von der Leyen’s plan, at the end of March the commission will present options for emergency measures to limit the contagion effect of gas costs in electricity prices, including temporary price limits. It will also design a plan to refill Europe’s depleted gas reserves for next winter and propose new measures for EU gas storage policy.