How EU plans to reduce gas use by 15% amid threat of Russia cutting off supply

The energy ministers approved the legislation a day after Russian energy corporation Gazprom said it would cut gas flows through the Nord Stream 1 pipeline to Germany to 20 per cent of capacity starting Wednesday

FP Explainers July 27, 2022 21:55:38 IST
How EU plans to reduce gas use by 15% amid threat of Russia cutting off supply

EU flags in front of EU headquarters in Brussels. AP

 European Union governments agreed Tuesday to reduce consumption of natural gas this winter to protect themselves against any further supply cuts by Russia amid its invasion of Ukraine, although the measure contains exemptions for some countries.

EU energy ministers approved a draft European law designed to lower demand for gas by 15 per cent from August 2022 through March 2023.

The energy ministers approved the compromise legislation a day after Russian energy corporation Gazprom said it would cut gas flows through the Nord Stream 1 pipeline to Germany to 20 per cent of capacity starting Wednesday.

Natural gas prices jumped Tuesday to their highest level since early March, according to Europe’s TTF benchmark, and more than five times what they were a year ago.

Let’s take a closer look at how it will work:

How will it work?

Under the ministerial agreement that was sealed in less than a week, the EU’s member nations are free to decide how best to meet the target of cutting 15 per cent of their average annual gas use over the last five years.

France, for example, wants to save energy by turning down office thermostats in winter and ensuring that air conditioners in public buildings and shops are used more efficiently.

EuroNews quoted EU president Von der Leyen as saying a 15 per cent reduction in would save 45 billion cubic metres (bcm) of gas — Russia delivered about 150 bcm of gas to the EU in 2021 — and that it would enable the bloc to "make it safely through the winter" in case of a complete cut-off from Russia.

It would also avoid the need to impose forced curtailment measures that could see some industries compelled to slow down production to save energy, Leyen added.

The energy ministers scrapped a provision in the draft law that would have given the European Commission the power to decide on any move from voluntary to mandatory actions. Instead, the ministers ensured any decision on mandatory steps would remain in the hands of national governments.

The legislation entails voluntary national steps to reduce gas consumption.

However, if that does not yield enough savings, mandatory actions in the 27-member bloc would be triggered.

The European Commission, the EU’s executive arm, can ask members to consider triggering a mandatory system of cuts if it still fears a supply shortage in the next eight months. Any five member countries could also trigger a vote if they declare a gas supply alert at the national level.

Although the EU has agreed to embargo oil and coal from Russia starting later this year, the bloc has refrained from sanctioning Russian natural gas because Germany, Italy and some other member states rely heavily on imported gas.

“Germany made a strategic error in the past with its great dependency on Russian gas and faith that it would always flow constantly and cheaply,” said German Economy Minister Robert Habeck, who is also responsible for energy and serves as the country’s vice chancellor. “But it is not just a German problem.”

Why is this happening?

This comes amid worries that the EU will struggle to meet gas storage capacities ahead of winter as well as fall short of securing additional supplies to fill in the gaps during the colder months, as per EuroNews.

As per EuroNews, the commission said the aim is to safeguard supply to households and essential users like hospitals and key industries with all economic actors, including citizens, also urged to think about their own behaviour.

As per Bloomberg, the commission has estimated that the EU’s GDP could take a hit by as much as 1.5 per cent in the event of a cold winter and if preventatives energy saving measures are not taken.

Who will be affected?

As per The Guardian, industry is expected to be impacted first with factories being told to reduce heating and cooling. However, manufacturers of critical goods or plants difficult to restart after turning off energy could be spared.

Consumers are expected to share the pain.

EU authorities asking governments to encourage people to turn off lights and adjust thermostats and air conditioning accordingly.

Which countries are exempt?

As per The Guardian, three island nations not connected to the EU gas network – Cyprus, Ireland and Malta – are exempt from the compulsory energy savings.

As per Bloomberg, only Hungary, a close ally of Russia, came out against the EU’s decision with its foreign minister saying the decision was against its interests.

How EU plans to reduce gas use by 15 amid threat of Russia cutting off supply

File image of Prime Minister Viktor Orban. AP

Prime Minister Viktor Orban took to his Facebook page to call the EU move “alarming” and “another step toward a war economy”.

Since Russia invaded Ukraine in late February and the West moved to punish Moscow by imposing economic sanctions, 12 EU countries have faced halts to, or reductions in, their Russian gas deliveries.

Russia supplied about 40 per cent of Europe’s natural gas before the war, but that has dropped to about 15 per cent, sending prices through the roof and straining energy-intensive industries. Companies warn that they often can’t switch overnight to other energy sources.

How EU plans to reduce gas use by 15 amid threat of Russia cutting off supply

The sun rises behind the landfall facility of the Nord Stream 1 Baltic Sea pipeline and the transfer station of the OPAL gas pipeline, the Baltic Sea Pipeline Link, in Lubmin, Germany, Thursday, 21 July, 2022. AP

The disruptions in Russian energy trade with the EU already are stoking inflation to record levels in Europe and threatening to trigger a recession just as the bloc was recovering from a pandemic-induced slump.

The energy squeeze also is reviving decades-old political challenges over policy coordination. While the EU has gained centralized authority over monetary, trade, antitrust and farm policies, national sovereignty over energy issues still largely prevails.

The legislation was based on a 20 July proposal from the commission, which is eager to maintain a common EU front over a war that shows no sign of ending. It said coordinated rationing would enable the bloc as a whole to get through the winter should Russia stop all gas deliveries.

'EU taken decisive step'

Tuesday’s deal still marked another milestone in EU policy integration and crisis management. Past EU legislative initiatives in the area of energy often involved months or years of negotiations among national governments.

“I know that the decision was not easy, but I think, at the end, everybody understands that this sacrifice is necessary. We have to, and we will, share the pain,” Czech Industry Minister Jozef Sikela said after chairing the meeting in Brussels.

European Commission president Ursula von der Leyen welcomed the move, saying in a statement that “the EU has taken a decisive step to face down the threat of a full gas disruption” by Russian president Vladimir Putin.

“We have a blueprint to act together in a coordinated way,” EU Energy Commissioner Kadri Simson said after the agreement was sealed.

“This was a test for the unity and resolve of the union.”

Russia’s Gazprom has said the Nord Stream 1 cutbacks were necessitated by delays in receiving a repaired turbine for the pipeline. The turbine, which was repaired in Canada, has not been reinstalled yet, and another is expected to go offline because it needs repairs, Kremlin spokesman Dmitry Peskov said Tuesday.

“The situation has been critically complicated by the restrictions and sanctions imposed on our country,” Peskov added. “If not for those restrictions, all maintenance, warranty, and service operations would have been carried out in a usual, routine, and prompt manner, without causing situations like the one we’re seeing now.”

With inputs from agencies

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