Explained: Why is Europe banning Russian energy?

Shocking photos from the Ukrainian city of Bucha and allegations of Russian war crimes are raising pressure for further sanctions against Moscow. A major potential target: Russian oil and natural gas, and the $850 million that European importers pay every day for those supplies. But given Europe’s dependence on Russia’s energy, it is not so easy.

Western sanctions have so far targeted Russian banks and companies, but have spared oil and gas payments – a US concession to keep European allies on board and present a united front. Here are key facts about Europe’s energy imports from Russia and whether a boycott is possible:

Are supplies at stake?

The European Union derives about 40% of its natural gas from Russia, which is used to heat homes, generate electricity, and supply industry with a key raw material for products such as energy and fertilizer.

For oil, it is around 25%, with most of that going towards gasoline and diesel for vehicles. Russia supplies about 14% of diesel, analysts at S&P Global said, and a cutoff could send already high prices for truck and tractor fuels through the roof.

Why can’t Europe harvest Russia’s energy like America does?

The United States imported little oil and no natural gas from Russia as it became a major producer and exporter of oil and gas due to fracking. Europe had some oil and gas deposits, but production is declining, making the European Union of 27 countries dependent on imports.

Europe imports 155 billion cubic meters of gas from Russia every year, of which 140 billion comes through pipelines crossing Ukraine, Poland and the Baltic Sea. Europe is scrambling to get additional supplies by ship in the form of liquefied natural gas, or LNG, but it cannot make up for the gas lost by pipeline.

LNG is also much more expensive, and suppliers are maxed out. While some European countries are well connected with LNG terminals, such as Spain, and new projects are underway in places such as Greece and Poland, the rest of Europe does not have the infrastructure to receive supplies. It could take years to build LNG import terminals and pipelines to connect the gas to where it is needed.

Since dependence on Russia varies, it is difficult to obtain consensus on an EU boycott. Lithuania said on Saturday it has stopped importing Russian gas and will rely only on the LNG terminal it launched in 2014. Poland, which has spent years looking for alternatives, says it will not renew the Russian gas contract at the end of the year, on top of taking steps to impose sanctions on Russian coal and oil.

Germany, the continent’s largest economy, even after cutting its dependence, still receives 40% of its gas from Russia. It aims to end Russian coal imports this summer, import oil by the end of the year and be largely independent on gas by 2024, Economy Minister Robert Habeck said.

Where else can Europe get energy?

It is working to extract Russian gas as quickly as possible by finding new sources, conserving and accelerating wind and solar energy. The EU plans to cut Russian gas use by two-thirds by the end of the year and exit well before 2030.

In addition to obtaining LNG from places such as the United States and Qatar, Europe is pushing for more gas from non-Russian pipelines from Norway and Algeria.

Oil is different in that it mostly comes by ship. Nevertheless, replacing Russian supplies with global markets will not be easy. Russia’s move of more than 2 million barrels per day from the market to Europe would push oil prices higher around the world. And Russia could try to sell oil to India and China, although it could earn less.

What if Europe banned Russian energy?

Estimates vary, but the cutoff means a huge impact on the European economy. The ban could mean that governments would have to ration gas between companies to protect homes and hospitals.

Manufacturers of metals, fertilisers, chemicals and glass will suffer huge losses. Even a partial shutdown of gas to industry could cost “hundreds of thousands” of jobs, said Michael Vasiliadis, head of Germany’s BCE union, which represents workers in the chemicals and mining industries. Huh.

“We will continue to see resistance from Germany and some others as they rely more heavily on Russian imports of oil, gas and coal,” said Craig Erlam, senior market analyst for Britain, Europe, the Middle East and the Middle East. Currency broker onda in africa. “Forecasts vary as to the impact of a ban, but it will certainly propel the country into recession.”

A group of nine US, UK and German economists said a ban would mean substantial economic costs for Germany, but would be “clearly manageable.” The country “suffered a deep decline in recent years and recovered quickly,” including the 2009 global financial crisis. And the pandemic slowdown, he said.

“Public fears about the disastrous consequences of an energy ban from lobby groups and affiliated think tanks do not meet academic standards,” he said in an analysis on the Center for Economic Policy Research’s policy portal voxeu.org.

What else could Europe do?

Energy policy expert Simone Taglipietra and economist Guntram Wolff at the Bruegel think tank in Brussels proposed EU import tariffs on Russian oil and gas. With the legal benefit of keeping the contracts intact, this would reduce Russia’s revenues while avoiding a major hit to Europe’s growth. European leaders insisted last week that those same contracts protected them from Russia’s demand for gas payments in rubles. Tariff money can be used to protect vulnerable homes from high energy prices.

While the forces invading Ukraine have already been paid, the tariffs would put the Kremlin “in a more difficult economic situation, in which they may have difficulty buying goods from the outside world, possibly including weapons, and paying public salaries.” sector,” said Tagliapietra.

How did Europe get to this point?

Germany relied on natural gas as it moved away from coal and former Chancellor Angela Merkel shut down remaining nuclear plants after the 2011 Fukushima disaster in Japan. Merkel emphasized diplomatic talks with Russian President Vladimir Putin during her 16-year term and stressed that Russia’s energy supply continued even during the Cold War.

He supported the Nord Stream 2 pipeline from Russia, despite criticism it would increase Germany’s dependence on Russia. Chancellor Olaf Scholz, who served as Merkel’s finance minister, halted the project after the invasion.

Italy, another major EU economy, has increased its reliance on Russian gas over the years as it moved away from coal. Italian officials say Russia supplies 38% of the natural gas used for electricity and heavy industry, which includes steel and paper mills.

Foreign Minister Luigi Di Maio, who is traveling to energy-producing countries to look for alternatives, told ANSA news agency on Monday that “Italy cannot veto sanctions regarding Russian gas.” But Premier Mario Draghi, who said last week that gas payments were funding Russia’s war, did not address the energy when he condemned images of bodies on Ukrainian streets.

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