Nicholas WatsonViennaBIRNMay 17, 202311:31Europe avoided the worst effects of the energy crisis, but future challenges such as a complete cessation of piped gas from Russia, a continued strong recovery in China and higher demand for LNG imports mean dangers still lie ahead.
Mary B. Warlick (M), Deputy Executive Director International Energy Agency, and Ivan Krastev (R), Permanent Fellow at the IWM, at a panel discussion at the “Time to Decide Europe Summit”, in Vienna, Austria, on 16 May 2023. Photo: ERSTE Foundation
A combination of enabling energy markets to continue operating, supply adjustments and EU integration allowed the continent to survive the winter without serious harm, though it is too early to say whether the energy crisis is over, according to speakers at the “Time to Decide Europe Summit”, a one-day conference co-organised by ERSTE Foundation and the Institute for Human Sciences.
“Let me close on a cautionary note: we’re not necessarily out of the woods in Europe or globally [in terms of the energy crisis],” Mary Warlick, deputy executive director of the International Energy Agency (IEA), said on Tuesday.
Prior to the invasion of Ukraine in February 2022, the EU was buying around 50 per cent of Russia’s oil exports and over 60 per cent of its gas exports. The invasion sent energy markets into turmoil as Russia weaponised its energy exports, causing oil and gas prices to spike. But measures to mitigate the crisis, such as buying more liquefied natural gas (LNG), have reduced Russia’s pipeline flows to Europe by 80 per cent from pre-invasion levels and lowered prices to pre-invasion levels.
Yet speakers on a panel looking at the economy, energy and environment listed several uncertainties that it is important to keep an eye on, including the prospect of a complete cessation of piped gas from Russia to the EU, the continued strong economic recovery in China and higher demand for LNG imports.
“We’re anticipating as we look ahead to this winter that global gas supplies will likely remain tight, global LNG supply growth which Europe benefited from won’t be enough to offset the expected drop in pipeline gas deliveries, and global gas demand elsewhere in the world is also growing in places like Asia,” Warlick said.
To overcome prospective challenges that could lie ahead, speakers said the solution is to continue to accelerate investments into renewables and the clean energy economy. According to the IEA, the amount of renewable power capacity added worldwide rose by about a quarter in 2022; global electric car sales leapt by close to 60 per cent; investments in energy efficiency jumped; installations of heat pumps surged, especially in Europe; and nuclear power is making a strong comeback.
Guntram Wolff, CEO of the German Council on Foreign Relations (DGAP), told delegates that Russia still managed to make huge profits from its hydrocarbon exports last year, a result of “failed sanctions policy”.
While the plunge in piped gas exports to Europe should hit Gazprom hard this year as it cannot be easily sold elsewhere – experts estimate lost European sales could halve the export revenues of Russian energy giant Gazprom in 2023 – oil is a different matter.
Although the EU’s dual price cap for Russian oil products introduced in February is starting to have an effect, with Russia’s revenues in the first quarter of this year falling by a third, Russia is still earning significant amounts of money from these exports and there is the danger that the effect of the cap will be watered down.
“Russia sells the oil to India and China, which is what the price cap was designed to do… but we need to start using financial sanctions to tighten the effectiveness of the price cap to make sure that profits are minimised,” said Wolff.
The Financial Times on Tuesday quoted Josep Borrell, the EU’s high representative for foreign policy, as saying that the European Commission is aware of Indian refiners buying large volumes of Russian crude oil before processing it into fuels for sale in Europe, and the EU should move to stop this happening.
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