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How will EU free itself from Russian gas and why gas will be as expensive as champagne

EU Russian gas expensive champagne interview Predrag Grujicic

Predrag Grujičić

Published

April 13, 2022

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Published:

April 13, 2022

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Comments:

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Before the conflict in Ukraine, the role of natural gas, a fuel necessary for the energy transition in the European Union and the Energy Community members states, was secured with the adoption of the European green taxonomy. “Even though now no one claims otherwise, the cards were shuffled again, and a lot could be changing,” the Energy Community Secretariat’s Head of Gas Unit Predrag Grujičić says.

In an interview with Balkan Green Energy News, Predrag Grujičić asserted that the EU has set a very ambitious goal for itself – to stop importing Russian gas by 2030 entirely, and added that decarbonization is its best bet to succeed. Grujičić opined that cutting natural gas from the energy mix would accelerate, but he doesn’t think gas has no future in the energy transition.

Did the energy crisis and the war in Ukraine make the security of supply the number one issue?

Yes, of course, alongside the market and decarbonization. When it comes to the security of supply, and Europe knows it, the dependence on Russian gas is very high, from 35% to 40% at the EU level. Some states are even up to 100% dependent. As for the region, Serbia, Bosnia and Herzegovina, and North Macedonia are very dependent. There are serious risks concerning the security of gas supply, but also power supply – indirectly and because of high prices.

Looking to overcome its dependency, the EU is determined to stop importing Russian fossil fuels in eight quick years. Gas and oil above all, as coal has a marginal role. Moreover, the latest EU sanctions ban coal imports from Russia or Russia’s territory.

How can Russian gas be replaced?

First and foremost, there are three issues at hand. Assessments of the technical capacities are being conducted in Europe to determine the bottlenecks in infrastructure for securing gas in case the delivery from Russia stops or if another emergency occurs. The second point is to find new suppliers that would deliver the missing quantities. The third issue is how demand would react in the new situation as a drop in consumption is expected due to using other fuels to produce power.

In spite of the war, the transit through Ukraine has been increased and traders and firms are pulling maximum amounts to fill the storage

Actually, the security of supply emerged as a problem even before the events in Ukraine, and it became a political topic. As we know, the economy has gone hot, and demand grew at an unbelievable pace, but gas production wasn’t at a desirable level.

It is good that Russian gas is flowing normally through all the pipelines. The transit through Ukraine has increased, and traders and firms are pulling maximum amounts to fill the storage.

What are the alternatives to Russian gas?

Europe doesn’t have many options. It can increase imports from Northern Africa but at a neglectable level. In the amount of two or three billion cubic meters, a similar boost is possible to be secured from Azerbaijan, too. Still, it is necessary to replace around 155 billion cubic meters annually, which is the quantity of the EU’s total imports from Russia.

The Norwegians promised they could increase deliveries by 10% or so, which is some 10 to 12 billion cubic meters, or even as much as 16 billion. Europe’s domestic production could be lifted a little, for instance, in the Netherlands, again by several billion cubic meters.

The biggest expectations, around 50 billion cubic meters, are from liquefied natural gas (LNG), which is available, but the problem is that the price is high. Technically, it is possible to import the additional 50 billion cubic meters of LNG according to plan.

Is there anyone to sell this gas to Europe, and at what price?

The price is an awkward issue. No one knows that. Concerning securing the quantities, Europe’s main competitor will be Southeastern Asia. China, not so much, though it does have a role, but Japan, South Korea, Taiwan. Exporters must increase output. Qatar and the United States are working on that, but the results will only be seen in the years to come.

It will be difficult for the EU to stop importing Russian gas by 2030

Finally, I think it is difficult for the EU to get 50 billion cubic meters from LNG so fast, but it is not impossible. It is impossible to replace all the imports at once, and it won’t be easy to do it by 2030. New sources are necessary, whether from Turkmenistan or Azerbaijan; maybe the Romanian deposits can be activated, or Turkey’s role can be changed. Of course, because of the expected change in gas flows, there are also possibilities for investments in pipelines and LNG terminals.

All this is being considered, but the EU’s best bet is decarbonization, namely a reduction in gas consumption and its replacement by other types of gas. The main goal is to decarbonize the electric power system and the systems that are impossible to electrify. Demand will surely decrease as gas will be expensive, if I may say, expensive as champagne – I am exaggerating a little, but not much.

Will price growth effectively kick gas out of the energy mix?

We don’t know. There are too many unknowns, but it won’t happen right away or tomorrow. If someone planned to do away with it in 20 years, now such a plan will be pushed forward – we don’t know by how much. The cards are being shuffled again. We thought the cards were dealt when gas was included in the EU taxonomy early this year.

The European Commission was realistic. It understood that gas is required. But after this, it is clear that gas is losing the reputation of being a fuel that can be obtained in the free market at an acceptable, affordable price.

Is the region, the Balkans, in a better or worse position regarding gas?

It can hardly be in a better position for a million reasons in the long run. The markets are small; the governments don’t know what to do with gas and how much they need. Infrastructure is poor. For instance, BiH has only one supply route, and Serbia succeeded in establishing an interconnection with Bulgaria. Still, it is questionable how the link will be used, as Gazprom controls it.

There are not many options for a region that follows Europe’s energy policy

The jury is also out on how to use the Trans-Balkan Pipeline, which takes gas from Russia through Ukraine, Moldova, Romania, and Bulgaria to Turkey, as it has been empty since Russia stopped supplying those countries through it. It could be used to deliver 15 to 20 billion cubic meters, and it is good that the countries mentioned above, not Russia, own it.

Perhaps, if the Turkish Stream flow is stable, there won’t be any problems in the short run. But by pushing out Russian gas, a region that follows Europe’s energy policy doesn’t have many options left.

Did the region count on gas for the energy transition? What now?

It seems that the region counted on everything: the gas, not to abandon coal quickly, and on renewables, and there is also talk of nuclear power plants. Not so many sources are necessary, and I haven’t seen a single consistent point in the policies of BiH, Montenegro, Kosovo*, and Serbia for the gas sector. North Macedonia may have done the most if we are looking at switching thermal power plants from coal to gas. There is a lot of talk and little work.

Is it obviously a missed opportunity to use gas as a transitional solution from coal to renewable energy sources?

If we look at the EU, the Hungarians, Croats, Greeks, and Poles all counted on gas. The Poles have planned to boost consumption from 20 billion cubic meters to 30 billion. It is questionable whether it is an option for the region, as it is questionable whether you will be able to get Russian gas, which will be much cheaper than the one that other countries are offering.

Is gas out of the energy transition equation then?

Not necessarily. You can find it in other places. And the quantities that are necessary for the region are small, comparable to Hungary, which is not a big consumer in European terms.

You can find it in other places, but it will be expensive.

We don’t know how the price will move. It will be expensive this year and perhaps next year. What if Russia starts to offer it to other markets and the price drops there?

How much can the region’s countries benefit from the EU’s invitation to buy gas together?

The secretariat will support that. It can’t be bad. We are in constant dialogue with the European Commission about devising such a mechanism and we hope it will be beneficial for our Contracting Parties if they show interest, and some already did.

Comments (1)
Bogdan / April 13, 2022

Of course, even more expensive than champagne.
That assertion comes direct from Moscow.
Thank you.

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