European countries face economic turmoil if Russia cuts gas supply

  • The EU is working to wean Russian energy amid criticism that it is funding the war in Ukraine.
  • EU GDP could be reduced by 2.5% to 4.2% if energy imports from Russia were to be stopped.
  • But not all European countries are as dependent as Germany, which has activated an emergency plan.

The European Union is racing against time to stem its reliance on Russian natural gas as the bloc’s massive fuel purchases spark accusations of funding Ukraine’s war.

This comes on top of Russian President Vladimir Putin’s weaponization of the country’s energy, which puts the EU in a weak position as it demands that Moscow end the war.

But it will not be easy for the EU to wean off Russian gas.

According to an analysis of Central Bank of Spain published on May 31. Although dependence on Russian natural gas is not evenly distributed across EU countries, some major economies such as Germany and Italy are dependent on fuel – so any fallout from an immediate reduction could have an impact on the region and beyond.

European countries are now scrambling to find substitutes for Russian energy, but it could take years. Of all the fossil fuels that Russia ships to Europe, natural gas is the most difficult to replace, as it is harder and more expensive to ship than oil or coal.

Germany has already activated an energy emergency plan

Germany – Europe’s largest economy – is feeling the pressure acutely. On March 30, he triggered a plan that could see the country ration gas if Russian gas were to be cut off.

In April, Deutsche Bank CEO Christian Sewing, speaking as chairman of the German banking lobby BDB, said a “significant recession” would be “virtually inevitable” if Russian oil and natural gas had to be stopped.

But it is difficult for Germany to break this habit. Russia has been Germany’s natural gas supplier for about 50 years — and it’s always been reliable, even during the Cold War and throughout the collapse of the Soviet Union, Davide Oneglia told Insider. Senior Economist at London consultancy TS Lombard. in April. Russia accounts for around 35% of German natural gas supplies.

Germany has announced its intention to weaning off Russian natural gas by 2025, but in the meantime, he must give in to Russian demands to pay for fuel in rubles using a special payment plan or risk having his gas cut off.

Austria is forced to face ‘uncomfortable truths’

Another big customer of Russian natural gas is Austria, which buys around four-fifths of its natural gas from the Eastern European country, according to the government. Like Germany, Austria has also triggered an energy emergency plan that will lead to gas rationing as a final step.

Austrian Energy Minister Leonore Gewessler said on May 6 that the country was facing “uncomfortable truths” about its energy security and that it was working to eliminate Russian gas from the country’s energy mix, by Bloomberg.

Franz Angerer, director general of the Austrian Energy Agency, said in a Declaration of April 26 the country is trying to wean itself off Russian gas by importing from other European countries and using biogas and green hydrogen, but that it will only be able to do so by 2027.

Austria would enter a


recession

whether state-controlled energy company OMV should immediately cut off the flow of Russian natural gas, CEO Alfred Stern says Bloomberg in March.

“While we condemn Russia’s actions, on the other hand, we have no immediate alternative to keep our businesses and households supplied with energy,” Stern said, according to the outlet.

Italy looks to Africa

Italy, the EU’s third largest economy, is also heavily exposed to Russian gas. The country generates 40% of its electricity from natural gas and gets about half of its fuel from Russia, according to Reuters and data service Statistical.

Rome is racing to find alternatives to Russian gas and recently signed deals with several African countries, including Egypt and Algeria, for supplies. Until Russian gas can be completely replaced, Italy is not in a favorable position to deal with Russia.

Italian Prime Minister Mario Draghi had a phone call with Putin on May 26 “to find a common solution to both the ongoing food crisis”, Rome said.

Putin told Draghi he would open grain and fertilizer exports if sanctions against Russia were lifted, according to an official statement from the Kremlin.

The country’s GDP could fall by up to two percentage points if Italy halts Russian natural gas imports in June, industry association says Confindustry wrote in a report on May 28.

But not all European countries are panicking about potential Russian energy cuts.

Nuclear power continues to supply France

France – the EU’s second-largest economy – was the third-largest importer of Russian gas in 2020, accounting for around 8% of the country’s exports, according to the US Energy Information Administration. However, France does not seem so troubled by the prospect of a disruption in Russian supplies.

This is because Russian natural gas was only 17% of the country’s imports, and the lion’s share of energy consumption in France is of nuclear origin. Nuclear energy accounted for about 70% of the country’s electricity needs in 2020, according to the International Atomic Energy Agency.

“If you look at France, they are very well protected among the best places in Europe to deal with this,” Oneglia told Insider.

By contrast, Germany has said it will shut down the last of its nuclear power plants by the end of 2022, as the country prepares to phase out the power source after Fukushima nuclear disaster in Japan in 2011. Italy has shut down its power plants decades after the Chernobyl nuclear disaster in 1986.

EU turns to renewables and alternative energy sources

Like the rest of Europe, France is also moving towards renewable energy, although the country has announced six new nuclear reactors in the coming decades for its energy needs.

Russia has already cut gas supplies to Poland, Bulgaria and the Netherlands due to their refusal to pay for natural gas imports in roubles. But these countries do not seem to panic.

In Bulgaria, two nuclear reactors generate a third of the country’s capacity, according to the World Nuclear Association. Sofia has also been working to diversify its energy sources, including building a gas pipeline with Greece which is expected to start commercial operations in September, Reuters reported, citing Bulgarian Prime Minister Kiril Petkov.

The Greece-Bulgaria gas interconnection will connect to an existing gas pipeline in Europe, allowing gas to be transported from Azerbaijan via Greece to Italy and beyond. It is expected to begin operations on July 1, according to Euroactiv.

“We have provided alternative quantities for a sufficiently predictable period,” Bulgarian Energy Minister Alexander Nikolov said on April 26, according to local media. Novinity.

Poland also began preparing for a Russian natural gas cut “many years ago”, Polish Deputy Foreign Minister Marcin Przydacz said. BBC after the Kremlin cut off its supply on April 26. Przydacz added to the BBC that there are “options to get the gas from other partners”, including the United States and the Middle East.

In the Netherlands, the government plans to import more liquefied natural gas from countries other than Russia, Dutch government writes on its website. It has diversified into renewable energy by shutting down its largest gas field due to concerns about earthquakes.

In 2020, renewable energy accounted for 11% of total energy consumption in the Netherlands, up from 8.8% in 2019, according to the country’s statistics department. The increase is largely due to increased solar and wind power capacity, as well as biomass.