GT Voice: EU economy heading for tough winter with Russian gas cut

An oil pump is seen in Almetyevsky District, Republic of Tatarstan, Russia. File photo: PCP

Last June saw the EU, for the first time in its history, import more liquefied natural gas (LNG) from the United States than pipeline from Russia, according to the International Energy Agency (IEA). , Bloomberg reported on Friday.

This development, mainly attributed to the sharp drop in Russian gas imports to Europe, came at a time when the EU is facing a looming energy crisis and runaway inflation following the West’s sweeping sanctions against the Russia. The fact that US gas exports are the big winners from Western sanctions is, to some extent, an indication of the EU’s determination to wean itself off Russian energy supplies, which could be a struggle long-term requiring both a strong will and great endurance. And the crucial question now is whether the EU economy can sustain its political will.

It is no secret that the EU has been heavily dependent on Russian gas imports for electricity generation and domestic heating, among other uses. In recent years, Russia has typically exported about 150 billion cubic meters of natural gas through pipelines to Europe on an annual basis, with an additional 14 to 18 billion cubic meters of LNG exports. In 2021, Russia’s gas exports to the EU accounted for around 40% of the bloc’s total gas imports.

After the Russian-Ukrainian conflict broke out, the EU agreed in March to buy an additional 15 billion cubic meters of US LNG this year to replace Russian gas and planned to replace a third of Russian gas with LNG from from various sources this year, according to the Bloomberg report. While the United States is expected to become the world’s largest LNG exporter in 2022, it is impossible for American LNG to fill the gas pipeline supply gap from Russia in the short term. One of the main reasons is that Europe does not have the scale of infrastructure required to import such an amount of LNG and it takes time to build these facilities.

In addition, over the past decades, European countries have sought alternative energy sources by developing renewable energies, but oil and gas remain the most important energy sources to this day. It is obviously unrealistic for Europe to hope to replace fossil fuels with renewable energies in several years.

Worse still, to counter Western sanctions, Russia is unlikely to give EU countries enough time to complete their energy transition. For example, Gazprom, Russia’s state-backed energy provider, has cut its gas flows to Europe by around 60% in recent weeks, according to a CNBC report.

Typically, European countries accumulate gas stocks during the summer in anticipation of winter heating demand. But geopolitical changes have disrupted this cycle, which means that Europe’s energy supplies will be seriously strained during the winter, posing serious challenges to Europe’s already struggling economy.

The key question is whether the economy can sustain itself in this new landscape, especially in some weaker economies. When the cold front hits, factories and shops may have to close again due to lack of gas and oil and many people will lose their jobs. What will households, traders and industrialists think of the energy crisis, which will necessarily last? Europeans are simply not prepared for this situation. Surveys in several countries have already revealed that their main concerns are rising prices, falling incomes and unemployment.

EU sanctions against Russia will eventually become its own economic problem, undermining coordination within the bloc and the EU integration process. The longer the energy struggle between Russia and the EU lasts, the worse it is for both sides.