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War changes profoundly energy sector in Europe By Ali AbdulHaq Albaloushi  CEO of EcoX

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A strongly worded American statement by President Joe Biden, reflecting the magnitude of the European crisis in the energy sector, which brought profound changes and disagreements that affected European principles and commitments on climate on the one hand, and international relations on the other.

President Joe Biden stated that the United States will not allow Russia to engage in “gas blackmail” to pressure European allies and that Moscow will face sanctions for its invasion of Ukraine.

What prompted Biden to make this statement?

On April 27, Gazprom said it had completely cut off gas supplies to Bulgaria and Poland for nonpayment in rubles, a new Russian decision aimed at circumventing U.S.-European sanctions against Russia, prompting the European Commission to warn European companies not to give in to Moscow’s condition by following Russia’s new payment mechanism, which is in two stages: First, the transfer is made in euros or dollars, as agreed in the purchase contract, to an account at Gazprom Bank, and in the second stage, that amount is transferred in rubles to another account at the same bank, overseen by the Russian Central Bank.

MINIMUM OPTIONS

The European Union covers 80% of its gas needs through imports, with Russia being the main source of gas in Europe, as it has supplied about 45% of gas imports to Europe in 2021, according to the European Commission, with Germany and Italy topping the list of European gas importing countries from Russia, while Austria purchases 80% of its needs from it.

Gas represents 21.5% of EU energy consumption, the residential sector accounts 40% of gas imports followed by industry and gas use for power generation.

This means that the expansion of the crisis will directly affect the nerves of economic life and even the needs of European citizens for heating and other uses, which has led the countries of the European Union to look for alternatives, on more than one level, firstly in the sources of gas and secondly in the sources of energy itself.

Although the United States has doubled its LNG production, it has stated that it will work with other suppliers to provide the European Union with an additional 15 billion cubic meters of LNG in 2022, which is very little compared to Russia’s 155 billion cubic meters.

With the emergence of the African continent, particularly Algeria, Egypt and Libya as alternatives to Russian gas, other problems arise, such as the Algerian-Moroccan crisis, which hinders the increase of Algerian gas exports to Spain via Morocco, and the fact that Egypt prefers long-term contracts with China to short-term contracts imposed by European financial policies.

What does raise hopes of more gas imports for Europeans, however, is the agreement by Algeria, Niger and Nigeria to build a more than 4,000-kilometer gas pipeline across the Sahara Desert that will run through the three countries to Europe, carrying 30 billion cubic meters of gas annually. After its completion.

So there is no “quick fix” for the gas problem. Nigeria’s infrastructure hardly allows for more subsidies and the necessary efficiency, so long-term investments and strategic partnerships are needed.

Here, Qatar sees itself in a strong negotiating position, with low production costs qualifying it to become one of the main suppliers to European countries in the current decade and perhaps in the next, leading it to expand liquefaction capacity from 77 million tons per year to 110 million tons per year by 2025, and then to 126 million tons per year by 2027.

Coal again!

While Europe is on track to replenish 90% of its strategic gas reserves to deal with the consequences of the war that keeps driving up the price of gas and to be ready for the upcoming winter, some European countries are on track to support the expansion of fossil fuels and ignore climate targets, such as working with Poland, which controls 96% of coal production on the European continent, and investing in the production of large amounts of coal to replace it with natural gas, but this path also clashes with the fact that Europe imports about 47% of its solid fuels-particularly coal-from Russia.

Controversy over nuclear power and broader investment in renewables

Despite the European Union’s tendency to diversify energy sources in recent years, which has led to a 20% reduction in industrial fuel demand, this has not been enough to prevent the gas crisis from occurring, and attempts are now being made to increase additional storage capacity for energy from renewable sources and to encourage investment in nuclear energy, which is a low-emission source with excellent reliability and one of the safest per megawatt-hour.

This is opposed by Germany, which does not see nuclear energy as “clean,” unlike France and Central and Eastern European countries, which believe it can reduce the impact of shocks due to high fossil fuel prices.

By Ali AbdulHaq Albaloushi the CEO of EcoX

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