The Light at the end of the Pipeline

Michele Fossi in conversation with an anonymous EU official

Russia’s invasion of Ukraine has reshaped the energy world, leading to energy price volatility, supply shortages, security issues and economic uncertainty on a global scale. This is “the first truly global energy crisis, with impacts that will be felt for years to come”, the International Energy Agency (IEA) warned, adding: “Many of the contours of this new world are not yet fully defined, but there is no going back to the way things were”. The energy crisis has particularly affected Europe because of its geographic proximity to Russia and traditional dependence on Russian imports. On the other hand, Spain is a country that is self-sufficient in gas—thanks to liquified gas imported within its harbours—and is a fortunate exception to the trend, demonstrating greater resilience due to historical and geographical factors.

An EU official, whose identity we will keep confidential, spoke with us off the record about the current energy crisis, offering insights into short-term and long-term implications for the EU. Our discussion focused on how Europe’s current energy crisis threatens not only its economy but also its good environmental principles and how it could ultimately spur the transition to a greener economy.

Michele Fossi – We’ve agreed not to reveal your identity during this interview. It will suffice for our readers to know that you are an EU official and among the most qualified to give an off-the-record interview on the current energy crisis. As someone who works closely with EU energy policies, I can imagine how many questions must have crowded your mind on February 24th, the day Russia invaded Ukraine.

—Countless question marks, indeed. It’s hard to describe the feeling of that day. A long-anticipated, dire scenario suddenly materialised. We’ve known for years, decades, that we were excessively dependent on Russia for the import of energy. This has become particularly evident in the past years, as we have seen Russia becoming more and more of an autocratic country.

M.F. – The annexation of Crimea in 2014 must have raised alarm bells within the EU.

—It did, of course. Even so, the recent Ukraine invasion was a big shock for all of us. But in a certain way, we had seen it coming.

M.F. – Since it had already feared instability on the Russian front, had Europe already begun reducing its energy dependence on Russia before this war broke out?

—The European Commission had already been pointing towards a strong import dependency of the EU in terms of energy, not just from Russia but more generally. Yet the EU’s import dependency on fossil fuels—that is, oil, gas and coal—had only increased over the last few years. For a long time, the Commission’s energy experts had warned about the double-fold risks associated with this dependency, both geopolitical and social. Despite the warnings, however, no formal obligation for EU member states to reduce that dependency followed for a long time.

M.F. – These risks suddenly materialised in February, pretty brutally and much more seriously than we had anticipated. Following Russia’s invasion of Ukraine, what were the first measures taken by the EU in terms of the energy sector?

—When the war started, we realised we already had a system in place to address the problem of energy overdependence on Russia: the Green Deal. Approved in 2020, it is a set of policy initiatives introduced by the European Commission with the overarching aim of making the European Union climate-neutral by 2050. With its ambitious long-term growth strategy based on clean energy technologies, the Green Deal also offered a method for reducing foreign energy imports. Obviously, there was much else to think about, but the main strategy for tackling the problem was already in place. We just needed to accelerate it.

M.F. – On May 19th, only a few weeks after the war had broken out, the EU launched the program RePowerEU. Can you explain what this is?

—Russia’s invasion of Ukraine was met with a very strong pushback from Europe. Europe’s response to this emergency was truly impressive to me, both in terms of unity of intent amongst member states and boldness. The Commission proposed—and this was quickly agreed with by all the member states—that we would reduce our dependence on Russia’s energy imports down to zero within the next three years. This is what the program RePowerEu is about.

M.F. – RePowerEu proposes a drastic acceleration of the Green transition, reducing the EU’s need for all sorts of fossil fuels altogether. Do you honestly think that’s realistic? Russia’s natural gas accounted for 45% of imports and almost 40% of European Union gas demand in 2021, equivalent to approximately 100 billion Euros per year. How will that work from a practical point of view?

—The idea is to accelerate the renewable energy sector’s expansion while finding alternative sources of gas, oil and coal imports. This translated into a vast array of measures, ranging from accelerating renewables’ deployment, speeding up the granting of permits for renewables, which is often a bottleneck, and their deployment; accelerating the financing for energy—efficiency building renovations and other subsidies to help people reduce their consumption. Watching all this happen in less than a year, at record speed, was really impressive.

M.F. – Do you think Spain can play a unique role in this context?

—Spain and Portugal are less dependent on Russian gas than Central and Northern European countries, which makes them more resilient during this crisis. Spain has built an incredibly high LNG (liquefied natural gas) import capacity through its harbours over the years, which allows it today to have enough gas even without Russian supplies. As a result, Spain and Portugal have responded differently to the current energy crisis than the rest of the EU. During gas shortages, both countries artificially capped the gas price for generating electricity, which paradoxically led to increased gas consumption.

M.F. – Let’s remember that Liquefied natural gas (LNG) is natural gas that has been cooled down to about -162°C so that it can be shipped and stored. Natural gas in its liquid state has a volume about 600 times smaller than in its gaseous state. As a result of this process, natural gas can be transported to places where pipelines cannot reach. Being a leader in the field, could Spain contribute to solving the crisis by exporting its gas surplus to other EU states?

—Energy market integration is still far from perfect in the EU. The interconnections between the Iberian Peninsula and the rest of Europe through the French border are limited. This bottleneck prevents Spain from passing onto the rest of Europe the large amounts of gas it imports via its LNG terminals.

M.F. – According to Gonzalo Escribano from Elcano Royal Institute, France has actively hindered the Iberic peninsula integration into the European energy market in the past. In a text called “Ten ways Spain can contribute to increasing European energy autonomy from Russia”, he writes: “The credibility of the urgent calls made recently by France for gas (but not electricity) interconnections is undermined by the fact that the country has spent 30 years opposing them. French obstructions to the energy integration of Portugal and Spain into Europe have been a source of much frustration. However, the country is now urgently pushing to resurrect the same projects—the Midi-Catalonia (Midcat) gas pipeline being one of the most significant examples—that it has systematically paralysed in the past. Resistance from Spain’s northern neighbour has kept Spain far below the EU target for electricity interconnection (under 5%, compared with the targets of 10% for 2020 and 15% for 2030). None of the interconnection summits held by successive French presidents with Spain has led to tangible results.” Do you think these accusations are well-founded?

—I think, more simply, it has to do with the inherent difficulties of building new pipelines across densely populated areas and the Pyrenees mountains. One could argue that sending LNG ships to France is more convenient than paying for expensive pipelines across all these countries.

M.F. – Is LNG suddenly taking on more significance as a means of reducing the EU’s reliance on Russian gas in the short term? An LNG terminal was recently built on the German coast in less than 200 days, a record speed.

—Acquiring more liquified gas through the EU harbours is part of the strategy. But we have several other European pipelines that we can use to diversify our gas imports, from Algeria, Turkey, and Greece, as well as from Libya, through Italy. We also have pipelines we can rely upon reaching the EU via Norway and the UK. The advantage of LNG gas is that it is traded globally, allowing us to acquire it from farther countries, such as Qatar or the USA. For this very reason, LNG is expensive. Being a global commodity, there is a lot of speculation around LNG. LNG tankers travel the globe, and their gas cargo may well be traded 20 times before it reaches its destination.

M.F. – So, while LNG is, on the one hand, an option to tackle the current crisis, on the other, it is also a complex one because it’s expensive.

—All sorts of gases, including the gas transported through pipelines, are expensive at the moment. The whole world is currently thirsty for this commodity. After the Corona pandemic, before the Russian invasion of Ukraine, the world’s economy started growing again. As a consequence, the gas demand went up much faster than expected, which led to a shortage of gas supply and caused gas prices to go up globally. The Russian invasion worsened things, adding more stress to an already stressed gas market. In the past months, gas prices skyrocketed. For the first time in history, the cost of pipeline gas surpassed that of LNG. In fact, the price for pipeline gas even broke the historical record of LNG, something that could never have been predicted a few years ago.

M.F. – Are we going to have enough gas this year?

—European politicians and industry experts are urgently looking to buy from other parts of the world the extra gas we need. With the Green Deal, we had said no more investments and fossil fuels. Then Russia invaded Ukraine, leaving us with this huge problem of substituting fossil fuel that we had already intended to get rid of in any case. The initial plan, though, was to get rid of it gradually over the next 5-10 years, by 2050 at the latest. We had no idea we would be forced to substitute Russian gas with foreign gas so quickly. As a result of this sense of urgency, there have been quite a few alterations in the EU’s usual way of making policies.

M.F. – What do you mean by that?

—I see the EU now pressing developing countries to also buy into those types of gases, such as sand or shale gas, which are more polluting, hence why we wouldn’t have bought them a few years ago due to the EU’s environmental and social principles it stands for. For years, we have been telling certain African countries with a condescending tone: “Don’t you dare go and dig oil or gas in that area unless you want to jeopardise the development funds sent by the EU.” Now we are going back to them saying: “We absolutely need all sorts of oils and gases that can be found anywhere in your soil; give it to us, and we will pay you a good price for it.”

M.F. – You are saying that, as a result of this energy crisis, Europe is temporarily disavowing all its good ethical principles about the environment.

—That is what’s currently happening. And that is, of course, a source of extreme concern for those who believe that, despite the crisis, we should uphold our moral and ethical standards.

M.F. – How do you personally feel about this schizophrenic behaviour?

—In part, I understand why this is happening. Politicians are genuinely scared. What happens if every factory in Europe has to shut down because we run out of gas? Are we really ready to risk having a two-day blackout, leading to social unrest? Nevertheless, I see a lot of privilege here as well. What is the price we are willing to pay as a society to maintain our luxurious living? I think people are ready to do just about anything to ensure they can continue with their comfortable way of life. In a way, that’s shocking, but on the other hand, I didn’t expect this to be any different. It’s pretty decadent, isn’t it?

M.F. – Playing with the risk of recurring blackouts would be reckless, I agree. The social outcome would be unpredictable.

—The hard reality is that many industries—from the big steel producers to aluminium, from small restaurants to bakeries—are already shutting down because energy has become so expensive. This is crazy, and it’s happening already! Our supermarket shelves are increasingly stocked with frozen bread imported from China. Is this the future that is waiting for us? Are we going to start relying on Chinese bread? Are we just going to buy Turkish steel? It might well be the case. And these are just two of many possible examples. The fertiliser industry is also shutting down. In this situation, the EU risks losing many of its industries and trades, making it even more reliant on imports from third countries. I understand the fear that my colleagues have and share it myself. We must make sure that these grim scenarios don’t become a reality.

M.F. – Besides increasing our bills, the energy crisis is also reshaping the EU’s import patterns and schemes.

—It is already happening. Usually, factories buy electricity and gas one, two or three months ahead of time. If you plan to produce one million tons of steel in January, you would have already signed contracts to secure the electricity and gas for that month. What we are observing right now is that many of those contracts are not being signed. The risk of a significant economic backlash is very real.

M.F. – Besides buying gas from other countries apart from Russia, consuming less of it in our homes is another crucial part of the solution to the current crisis. How much should we reduce our consumption this year to be on the safe side?

—To ensure that everyone has enough gas this winter, we must reduce gas demand by 15%. Member states must implement these measures; otherwise, we’ll have a blackout in Europe. Therefore, it is sometimes better to force some sectors to take economic hardship or not use gas at all to ensure that everyone else has enough, thus avoiding the horror-like scenarios I described earlier.

M.F. – Has such a reduction in gas consumption already been enacted?

—Each member state has that objective. It’s not an obligation but a goal that the EU gave following the disruption of gas imports from Russia. And according to our calculations, to ensure that we don’t have blackouts, we ought to follow through with this plan. We’re not left with much of a choice. As a form of retaliation towards the EU’s economic sanctions, Russians stopped delivering gas to the EU, going as far as making the pipelines in the Baltic Sea explode. As grim as this scene looks now, I am convinced that the current crisis could represent a positive turning point in Europe’s history in the long term. I see the Green Deal as a way for Europe to ensure a better future. We responded to the crisis by doubling down on renewables, efficiency, and all of the other clean-technology targets, thereby creating on the one hand a fertile environment for green industries and technologies in the decades to come and, on the other, reducing our problematic overdependence on oil and gas.

M.F. – In other words, the Ukraine crisis could become the catalyst for the green transition in Europe towards renewables, just as the COVID crisis accelerated the adoption of digital technologies by several years.

—Yes, indeed. Let’s add here that renewable photovoltaic and wind energy are currently the cheapest sources of electricity. For EU citizens, renewable energy represents the low-cost ticket out of this crisis.

M.F. – Compared to other EU states, how is Spain doing regarding renewable energy?

—Spain was an early investor in wind and industrial-sized solar, and today it hosts some of Europe’s earliest and most significant solar parks. They were pretty late with rooftop solar, though, although they have been catching up on that recently. Solar power plays an important role in Spain’s economy, a sector that has great potential thanks to the country’s geography. The current crisis is likely to create the premises for further growth.

M.F. – How will the Ukraine crisis impact the solar sector in Spain and throughout Europe?

—As part of one of the measures to tackle the current energy crisis, the EU Parliament deliberated that the Union will double the solar photovoltaic capacity by 2025 and install panels for the equivalent of 600 gigawatts by 2030. To give you an idea, one gigawatt is more or less one nuclear power station. Contrary to the common belief, solar and wind are the cheapest energy sources at our disposal today. This was the case even before the crisis. With today’s electricity prices at an all-time high, they represent an even more affordable option. At the EU Commission, democratising access to renewable energy production is one of our goals. Solar panels should also be accessible to low-income people so that they can benefit from this affordable energy source.

M.F. – What are your thoughts on these ambitious goals? How realistic do you think they are?

—Over the past ten years, both the Commission and the International Energy Agency, the IAEA, and the OECD have consistently forecasted and modelled the future energy cost. It has turned out that solar and wind prices have always been overestimated, sometimes even by 70%. Over the last ten years, the cost reduction of solar energy especially has been tremendous, around 85%, and it keeps dropping. Solar energy becomes more affordable each year, just as computers become faster.

M.F. – I am particularly fascinated by the promises of decentralised networks for the micro-production of solar (and wind) energy. According to Mariano Sanz, Profesor emérito de la Universidad de Zaragoza: “It is evident and fully demonstrated that the generation of decentralised electrical energy with renewable sources structured based on local micro-grids adapted to the optimum availability and needs of the immediate environment leads us to an energy system that would cover its needs with approximately one-third of the energy that we are currently using”. He also writes: “Are we aware that, in Spain, by integrating wind and photovoltaic energy captured in an area of one hectare, we can obtain a minimum of 4.5 GWh of electrical energy per year? To get an idea of this immense amount of energy, it is the energy contained in approx. 438,600 litres of Diesel, or 487,541 litres of petrol, 384,615 m3 of natural gas, or 135,135 kg of hydrogen.” Looking at these numbers is simply beautiful. Let’s conclude with your personal vision of the future. How do you envision the EU’s energy market developing in the next few years?

—Five years from now, I am convinced we will have accelerated the energy transition and significantly reduced our dependency on imports from autocratic third parties. By consolidating our status as world leaders in clean technologies, we will not only reduce our emissions and benefit from clean air but also foster economic growth and enhance social well-being.