Russian Gas Supplies Research Articles

Decarbonization under geoeconomic distress? Energy shocks, carbon lock‐ins, and Germany's pathway toward net zero

AbstractHow can decarbonization governance endure under increasing geoeconomic distress? Global tensions threaten to divert financial and political resources from the green transition toward national security issues. However, we lack the analytical tools to assess decarbonization governance in this age of global rivalries. To address this gap, we develop an analytical framework to study the effects of geoeconomic shocks through investment, operational, and political channels. Using macro‐ and company‐level data and document analysis, we empirically test our framework using Germany's decarbonization governance following the cutoff of its Russian gas supply in 2022 as a case study. We find that this shock had negative short‐term effects on decarbonization via the operational channel, mixed effects via the political channel, and positive long‐term effects via the investment channel. Our framework and findings contribute to establishing climate change and energy politics as core issues for future political economy research.

An Emissions Offset Strategy to Accomplish 2 °C Long-Term Mitigation Goals in the European Union

Regional carbon budgeting in policymaking is underutilized despite its importance for achieving global climate goals, particularly the Paris Agreement’s target of limiting global warming to 2 °C by 2050. In this work, we present the model PLEDGES, a novel system dynamic-based simulation tool that focuses on the European Union region to equitably distribute carbon budgets among the Member States and activate emissions offset strategies to manage unexpected deviations from the EU27 carbon budget. The emissions trading dynamic is based on the “Gains from Trade” approach. The tool also calculates the cost of the offset strategies based on the use of the abatement cost curves for the Member States. Using a case study of the recent increase in carbon emissions in Germany in response to reduced Russian gas supplies, different emissions scenarios for Germany’s quota redistribution among the Member States are explored. The study reveals varied cost implications of between 30–60 Eur/ton CO2eq to offset the emissions increase across other Member States. Final recommendations include promoting cross-border collaboration at the EU27 level.

Destabilization of Russian-Moldavian relations during Special Military Operation

This study is devoted to the analysis of the current state of Russian-Moldavian relations. The key events of recent years that influenced bilateral relations are examined: the coming to power in Moldova of a pro-Western establishment led by Maia Sandu, the adoption of a law on changing the state language, the gas crisis and the dispute over the debt for Russian gas supplies. It is noted that the new Moldovan leadership is pursuing an openly anti-Russian course aimed at rapprochement with the EU and Romania. This leads to cutting back on economic and humanitarian cooperation between countries. Tensions in the energy sector are rising. The author comes to the conclusion that Kishinev’s actions cause serious damage to bilateral relations. Restoring a constructive dialogue requires adequate steps on the part of the Moldovan leadership, which they are not yet ready for.

Wind of change: the impact of REPowerEU policy reforms on gas security

ABSTRACT The Russian invasion of Ukraine was a shock to the EU gas market, as Russian gas supply dwindled and prices spiked. Previous exogenous shocks to the gas market resulted in policy reforms aimed at diversification and reducing dependency on Russian gas. However, their effectiveness was reduced. This study seeks to examine the policy changes under REPowerEU in light of gas security post-invasion. To examine this, three indicators – import dependency, diversification, and gas intensity – are used and examined the REPowerEU policy elements – reduced Russian gas, increased renewables and energy efficiency targets, gas storage requirements, demand reduction and a joint purchasing mechanism. This preliminary analysis highlights similarities in approaches, but also find that the severity of the crisis contributed to more support. The early effectiveness of the policy reforms is questioned, as change appear driven by other factors, such as decisions made by Russia and high gas prices.

Energy justice in times of crisis: protection of consumers and market-based renewable energy investments

ABSTRACT In response to the 2022 energy crisis, caused by the disruption of Russian gas supplies to Europe, the European Union (EU) emphasized the importance of accelerating the deployment of renewable energy to ensure supply security and lower energy prices. Paradoxically, renewable energy investments were also one of the main targets of the EU efforts to contain the hardship of the crisis. Based on the reasoning that investors in wind and solar energy received profits that by far exceeded pre-crisis levels, the EU capped their ‘surplus revenues’ and initially proposed to decouple electricity from gas prices. These initiatives were justified based on considerations of distributive energy justice. Yet, by interfering with revenues and the electricity market structure, the EU signalled to renewable energy investors the risk of regulatory intervention with the market basis governing their investments. Building on the arbitral practice on renewable energy and electricity regulation, this article examines the international protection of market-based renewable energy investments and critically reflects on how investment protection affects states’ right to ensure energy justice in times of crisis.

Energy transition risk for Australia’s LNG: how to build up resilience for a low-carbon future

Global gas demand is expected to surge 12.5% in the next 8 years, from about 4 trillion cubic meters (Tcm) this year to around 4.5 Tcm in 2030. Demand in the Asia Pacific region is expected to soar about 30% by 2030. Many countries, particularly in the European Union (EU), will look to diversify away from Russian gas supplies in the wake of Russia’s invasion of Ukraine. Liquified natural gas (LNG) is set to play a major role in plugging some of this supply gap – compared to 2021 levels, Europe’s LNG demand increased 60% to 123 million tonnes in 2022. There is no doubt that LNG suppliers with the lowest costs and emissions will stay in demand for longer, as buyers everywhere are not only looking for the cheapest volumes but also for supply with the lowest carbon footprint. In this paper, Rystad Energy benchmarks the carbon intensity of LNG exports from Australia to major Asian markets against other exporters to see how carbon-competitive Australia’s LNG is across the entire value chain: from upstream to regasification. We also take a closer look at specific LNG projects and estimate how much of the value might be at risk due to lower commodity prices and CO2 cost adoption. This type of analysis breaks down the complexity of energy transition risk for the Australian LNG market, allowing companies to implement risk mitigation plans at the earlier stages of the market’s evolution towards a low-carbon future.

The Impact of Natural Gas Prices on Electricity Tariffs in the UK

The study was conducted to know the impact of natural gas prices on electricity tariffs in the UK. Although the United Kingdom doesn’t rely directly on Russian gas supplies, still, we are acutely vulnerable to the energy catastrophe that has resulted from the invasion of Ukraine. The UK is part of the European Union and that is a reason the UK energy tariff and natural gas prices are closely connected to the EU. The literature review will elaborate more on the impact of the natural gas price on electricity tariffs in the UK by using an unrestricted vector autoregressive (VAR) model. The historical data on natural gas prices have been collected from the official government website of the UK and from the ofgem website. The sample size was taken annually from January 2010 to August 2020. Our empirical study is close to (Mohammadi, 2009) who investigate the nexus between electricity prices and fossil fuel prices in the U.S economy.

The necessary reorientation of Italian energy policy

ABSTRACT The 2022 Russian invasion of Ukraine triggered profound changes in European energy policy. This was particularly the case for a country like Italy, highly dependent on Russian gas supplies and traditionally an energy partner of Moscow. In this article, we trace the major policy measures enacted by the Draghi government to address security-of-supply risks and foster the development of renewable energy. Moreover, we highlight a number of continuities and differences that emerged in these areas with the appointment of the new government led by Giorgia Meloni. Finally, we discuss some possible longer-term implications and risks for Italian energy policy in the wake of the innovations introduced after the invasion. These include a return of the state in energy governance, the shift of Italian foreign energy policy towards the Mediterranean and Africa as well as unsolved problems in the management of centre-periphery relations for accelerating the country’s energy transition.

What opportunities opens up for industrial enterprises the purchase of natural gas on the commodity exchange

Over the past 15 years, the fuel and energy complex of the Russian Federation has undergone significant systemic and structural changes. The need to implement changes is dictated by external challenges from the global energy markets, in the functioning of which the Russian economy plays a key role, as well as internal challenges, emerging in the form of requests from all sectors of the economy for the need to reduce the cost of consumed energy resources, and the need to increase the efficiency of the economy. Since 2006, a wholesale electricity (capacity) market has been operating in Russia, the mechanisms of which are based on the principle of competitive pricing for electricity supplied to consumers. Participation in the wholesale market for industrial enterprises opens up the possibility of reducing the cost of purchasing electricity, in the form of excluding the payment for the services of regional guaranteeing suppliers, whose share can range from 3% to 8% of the final electricity tariffs. Positive experience in creating competitive relations in the electric power industry determined the possibility for introducing energy market mechanisms into the Russian gas supply industry. In 2014, competitive natural gas trading was launched in Russia as part of the Commodity Exchange, in which large consumers and independent suppliers can participate.

Optimizing investment and transportation decisions for the European natural gas supply chain

We address the European natural gas supply chain with several tiers, including producers, mid-streamers, and consumers, where natural gas and Liquefied Natural Gas (LNG) could be traded via long-term contracts or spot markets. This network problem is formulated as a non-linear mixed-integer programming model which provides the optimal production and export decisions of producers, import and storage decisions of mid-streamers, and infrastructure investment decisions of European Union (EU) countries with respect to new pipelines and LNG regasification terminals that maximize the total social welfare in the EU natural gas market over a five-year horizon. We conduct several case studies to examine this network under different conditions. We first compare the actual and optimal decisions to provide insights. Then, we examine the effect of infrastructure decisions on social welfare. Our results reveal that new infrastructure investments increase the total social welfare by nearly three billion. In addition, we examine its sensitivity to the exclusion of Russian gas supply from the market with and without the infrastructure decisions. Results suggest that if Russian gas supply is excluded from the market, then the social welfare and cumulative natural gas consumption of 26 EU countries decrease by 10% and 15%, respectively and that considering infrastructure investments on LNG terminals and pipelines would reduce supply risk of consumer countries.

Navigating through an energy crisis: Challenges and progress towards electricity decarbonisation, reliability, and affordability in Italy

Following Russia's invasion of Ukraine and amidst COVID-19 recovery efforts, the energy crisis has put enormous pressure to policymakers to balance climate action, sustainable development, and management of the impacts of fuel supply disruptions and price shocks. Policy and market responses, such as liquefied natural gas infrastructure investments and use of every available fossil-fuel lever to make up for Russian gas supply cuts, are feared to trigger new lock-ins, jeopardising decarbonisation. This is also the case in Italy, which is highly dependent on Russia-imported gas. Energy models typically used to support such decisions take time to produce meaningful scenarios and, in times of crisis, are largely driven by highly uncertain parameters. This study uses fuzzy cognitive maps to engage with experts in a workshop and elicit their knowledge and perceptions with the aid of a questionnaire, towards simulating the impact of selected strategies and important uncertainties on the three pillars of Italy's progress to electricity-sector sustainability: decarbonisation, affordability, and reliability. In a framework of deliberation and simulation, experts displayed strong preference for renewable energy, compared to new gas infrastructure. Renewables were notably deemed to have positive impacts across all three sustainabiltiy dimensions and were found more robust against uncertainties, such as regulatory and political instability, which was highlighted as the biggest risk. Critically, despite their expectedly positive impact, demand-side transformations including demand reductions and broader behavioural shifts—a core component of the EU's current approach—may prove inadequate, should large system pressures from negative socio- and techno-economic developments persist.

Энергобезопасность Испании в контексте алжиро-марокканского конфликта

The energy crisis experienced by the European Union and representing a serious non-military threat to its security has not bypassed Spain. This is a country with a high degree of dependence on hydrocarbon imports. However, the energy crisis there has a number of specific features. It began in autumn 2021, when Algeria – the main supplier of gas to Spain – severed diplomatic relations with Morocco and closed the gas pipeline GME passing through its territory. In March 2022, yielding to the pressure of Rabat, Madrid changed its position on Western Sahara, de facto recognizing its belonging to Morocco. Since the start of the special military operation in Ukraine and before the acceptance of the Moroccan autonomy plan, everything indicated that Spain could play a key role in meeting the EU new energy security needs through its privileged relationship with Algeria. Having temporarily normalized its relations with Morocco, Spain missed the opportunity to become a European gas hub, ceding this role to Italy. Currently, the very structure of the Spanish energy sector is changing, and the country is going to close all operating nuclear power plants. Madrid is betting on diversifying energy supplies, the Algerian gas is being replaced by the American LNG. Russian gas supplies to Spain, previously not so significant, continue to decrease. The country is set to make a serious contribution to the energy transition since it has numerous renewable energy sources, technologies, production capacities and developed infrastructure. Events in Ukraine have accelerated the already existing energy crisis. As energy prices increased, Spain put forward the initiative for the European Union to approve emergency measures to deal with it. The solution, according to Madrid, is the acceleration of the energy transition. Brussels has actually allowed Spain to set top prices for gas that is used to generate electricity, thus lowering the bills for customers. Within the EU framework Madrid has achieved recognition of the special energy status of the Iberian Peninsula, and together with France and Portugal intends to build a new gas pipeline that will supply Europe with green hydrogen and, in the transition period, with natural gas. In general, Spain, although not without difficulties, is rather successfully coping with the current energy crisis.

Die niedersächsische Landtagswahl vom 9. Oktober 2022: Eine Wahl im Zeichen der Energiekrise und des Konflikts um die Atomkraft

The state election in Lower Saxony on October 9, 2022, was the first election in Germany following the termination of Russian gas supplies to Western Europe . The election campaign was therefore dominated by the energy crisis and the associated conflict over the continued use of German nuclear power plants . Issues of Lower Saxony’s state politics, on the other hand, hardly played a role . The election was won by the SPD, which maintained its position as the strongest party in the Lower Saxony state parliament with slight losses . This was due not least to the high popularity of incumbent Minister President Stephan Weil, whom voters trusted to lead the state through the crisis . The CDU lost a massive number of votes and achieved its worst election result in Lower Saxony since 1955 . The Greens, on the other hand, made significant gains and achieved their best result in Lower Saxony since the party was founded . The AfD also improved significantly, while the FDP dropped out of the state parliament . After the two parties that had previously governed in a grand coalition, the SPD and CDU, had announced already before the election that they did not intend to continue their cooperation, a red-green state government was formed after the election .

Mitigating Climate Change and the Development of Green Energy versus a Return to Fossil Fuels Due to the Energy Crisis in 2022

The energy crisis that emerged as a result of the reduction in gas supplies from Russia is very topical and very important. This crisis affects not only Europe but also other world economies. As a result of Russia’s attack on Ukraine and the sanctions imposed on Russia, there was a drastic drop in Russian gas supplies, which triggered an increase in fuel prices and an energy crisis. In order to reduce the risk of insufficient gas supplies, European countries have decided to reuse coal and fossil fuels. This is the opposite direction to decarbonization and a zero-carbon economy. The undertaken research is unique, because the issue of slowing down the direction of decarbonization and returning to fossil fuels has not yet been extensively studied. Therefore, the analysis and research results are new in this area. The European project of green energy production from renewable energy sources that has been implemented so far, which aims to accelerate the implementation of a zero-emission economy, may be slowed down. Moreover, the return to fossil fuels will have a negative impact on climate change. The sharp increase in energy prices and the unexpected growth in the profits of energy companies meant that the European Commission introduced a limit on the revenues of enterprises in the energy sector. Surplus income is to be transferred to other entities to offset the drastic increase in energy prices. The conducted analysis showed how the European Union will try to ensure energy security and what the current actions related to climate protection and moving toward an environmentally friendly economy will be.

The Energy Crisis in Europe and Russian Gas Supplies

The increasing tensions within global gas markets, especially in Europe where gas makes up a considerable share of the energy balance, are considered. The nature and reasons behind supply and demand imbalances in the European gas market are analyzed. The risk factors that have caused the unsatisfactory situation in the field of energy, including strong volatility, stock levels, imbalances in supply, and political unpredictability, are examined. The analysis of factors impacting the energy crisis has revealed that the situation is largely dependent on the supranational policy of the EU, which is stimulating a surge in energy demand.

The Potential of Ukrainian Agriculture’s Biomass to Generate Renewable Energy in the Context of Climate and Political Challenges—The Case of the Kyiv Region

Increasing the share of renewable energy in the final energy consumption is a way to ensure independence from external supplies of fossil fuels, which is a fundamental political and economic challenge for many countries nowadays. One such country is Ukraine, which depended on Russian gas supplies and energy (electricity) from nuclear power plants. Russian gas is not delivered anymore to Ukraine, and Russians have recently taken over some of the nuclear power plants. The changes in the political situation force Ukraine to search for alternative energy sources. In countries with high agricultural production potential, one of the basic options seems to be popularization of modern methods of obtaining energy from biomass (bioenergy), which so far has played a minor role in the country’s energy mix (less than 2% in the case of Ukraine). The analysis carried out on the case of the Kyiv Region indicates that the annual economic potential of biomass in the region is equivalent to 1743 thousand toe (tonnes of oil), and its use allows them to save about 43% of fossil fuel annually.

ANTI-CRISIS MEASURES OF THE FEDERAL GOVERNMENT IN THE ENERGY SECTOR

The article analyzes the deterioration in the situation in the German energy sector that began in 2021 and continued in 2022. It was complemented by a significant intensification of the crisis surrounding Ukraine. Its consequence was the introduction of a harsh sanction’s regime against Russia by the collective West, primarily by the United States and the European Union. As part of multiple sanctions packages in March-June, restrictions on a number of domestic primary energy sources were imposed, which were major contributors to rising global oil and gas prices and curbed Russian gas supplies to Europe. This has become one of the most important factors driving inflation growth in Germany and raising expectations of gas shortages on the eve of the next autumnwinter season. Since the beginning of the year, the government has taken a number of measures in the energy sector, which, however, at the beginning of the second half of the year were only able to partially alleviate the looming crisis. The author assesses the effectiveness of German anti-crisis instruments and the prospects of maintaining a consensus in the coalition government on further steps to resolve the situation. Particular attention is paid to the conflict over the Nord Stream 1 gas pipeline.

Gasknappheit und Wirtschaftspolitik in Deutschland

Abstract The article discusses the German government’s reaction to the perception of an excessive dependence on Russian gas that was caused by the Ukraine war and to the reductions in Russian gas supplies that have taken place. First, the article lists various policy deficits: Naivité of the expectation that Russia would watch German attempts to reduce its dependence without interfering, restricting thinking about gas scarcity to the mobilization of additional supplies, without paying much attention to demand, complete neglect of the allocative role of prices, finally an inability or unwillingness to communication the bad news to the population that we have become poorer. Thereafter, the article addresses some of the difficulties that stand in the way of flexible price adjustments, existing contracts as well as social concerns. Finally the article discusses the concept of supply security, indicating the difference between private and social concerns, and pleading for an assumption of government responsibility for those concerns that cannot be expected to be met by private suppliers.

Mangelverwaltung bei Gasknappheit

Abstract In view of an impending termination of Russian gas supplies, it is necessary to take a closer look at the existing regulations in the event of a shortage in German gas supply. In this context, the legal framework provides that in the event of an acute shortage, the gas supply of individual consumers will be restricted or even stopped by the competent authority, thereby rendering the effect of the market for the distribution of scarce goods ineffective. This situation must be prevented. In principle, priority is given to private households and social services, so that primarily the industry would have to reduce their consumption of gas. However, given the threat of widespread disruption to German industrial production, saving potentials should be leveraged in all sectors. This is because an extensive supply disruption to German industrial operations would result in extensive and incalculable societal costs due to cascading effects. It is therefore also in the best interests of the population to avert such an undersupply through joint efforts. First of all, the usage of natural gas in power generation should be reduced significantly to enable or increase the filling of storage facilities. Additionally, current studies also point to possible reduction potential in the household sector, for example through moderate adjustments of room temperature. Such measures can help to get through the next winter without endangering Germany too much as an industrial and business location.

Comments: The Stark Realities of Energy Supply

Natural gas is considered the transition fossil fuel to move the world toward a meaningful reduction in global greenhouse-gas emissions. But the clampdown of Russia’s natural gas supplies shifted the market’s dynamics, and the repercussions are being experienced around the world. Europe is one of the hardest hit by this disruption in natural gas supplies. In a commentary posted on 18 July, Fatih Birol, executive director of the International Energy Agency, called for coordinated actions across Europe to prepare for the coming winter months and for worst-case scenarios of a complete shutoff of Russian gas and limited availability from other sources. Although Russia resumed a reduced flow of gas to Germany via the Nord Stream pipeline on 21 July, there is no certainty about the fluctuations or duration of the flow. Birol wrote, “Europe is now forced to operate in a constant state of uncertainty over Russian gas supplies, and we can’t rule out a complete cutoff.” The start of Europe’s winter heating season is 1 October. Birol called for action to fill European gas storage to adequate levels by reducing current gas consumption and to put that conserved gas into storage. High natural gas prices have led to gas conservation to some extent, but more efforts are required. He wrote that the gas required to be saved over the next 3 months “is in the order of 12 billion cubic metres—enough to fill about 130 LNG tankers,” equivalent to 424 Bcf. To lend some perspective to this, consider that US LNG exports averaged 10.1 Bcf/D in June. This reflects a 1.5 Bcf/D decrease from May because of a fire on 8 June that shut down Freeport LNG in Texas, according to the US Energy Information Administration (EIA). The agency expects US LNG exports to remain below average at 10.5 Bcf/D in the second half of this year. The Freeport LNG shutdown, and the resulting lower demand for LNG export gas, decreased the US benchmark Henry Hub natural gas spot price. It fell by $1.27/MMBtu to $8.16/MMBtu on 9 June and averaged $7.70/MMBtu in June. EIA expects the spot price to continue to decline to an average of $5.97/MMBtu in the second half of this year. European imports of LNG rose by more than 50% in the first 5 months of 2022 compared with the period a year earlier, according to Bernstein, a Wall Street research firm. Although a wide range of shippers have sent fuel to Europe, the major increases in its LNG imports have come from gas produced from US shale. The increased European demand also increased the price of its imported LNG to nearly nine times what it was about 2 years ago, and those higher prices enticed LNG shippers away from Asia. European futures prices have been around $40/MMBtu. The Wall Street Journal compared that to more than $200/bbl for oil, about twice the price for Brent crude, the international benchmark, as of 22 July. In most years, China, Japan, and South Korea have been the major markets for LNG. During the first 5 months of 2022, Asian imports fell by 8%—in part because of slowing demand from China caused by COVID-19 lockdowns. Birol’s commentary began with this sentence: “The world is experiencing the first truly global energy crisis in history.” For Europe, the Russian invasion of Ukraine also sparked a cost-of-living crisis when oil and gas prices soared. Crises, by definition, require immediate and effective actions.