Europe must be prepared for total Russian gas cut-off this winter

Source: Financial Times

The International Energy Agency has warned that Europe must prepare immediately for the complete severance of Russian gas exports this winter, urging governments to take measures to cut demand and keep aging nuclear power stations open.

Fatih Birol, the head of the IEA, said Russia’s decision to reduce gas supplies to European countries in the past week may be a precursor to further cuts as Moscow looks to gain “leverage” during its war with Ukraine.

“Europe should be ready in case Russian gas is completely cut off,” Birol told the Financial Times in an interview.

“The nearer we are coming to winter, the more we understand Russia’s intentions,” he said. “I believe the cuts are geared towards avoiding Europe filling storage, and increasing Russia’s leverage in the winter months.”

The IEA, which is primarily funded by members of the OECD, was last year one of the first official bodies to accuse Russia publicly of manipulating gas supplies to Europe in the build-up to Moscow’s invasion of Ukraine.

Birol said emergency measures taken by European countries this week to reduce gas demand, such as firing up old coal-fired power stations, were justified by the scale of the crisis despite concerns about rising carbon emissions.

He said the increase in coal-fired generation was “temporary” and would help preserve gas supplies for heating in winter. Any additional CO₂ emissions from burning highly polluting coal would be offset by an acceleration in Europe’s plans to cut its reliance on imported fossil fuels and to build up renewable generation capacity, he added.

But Birol warned that the steps taken by European governments so far probably did not go far enough if Russian exports were completely severed, and said countries should do everything possible to preserve supplies now to ensure storage could be filled ahead of the winter months.

“I believe there will be more and deeper demand measures [taken by governments in Europe] as winter approaches,” Birol said, adding that rationing of gas supplies remained a real possibility should Russia cut exports further.

Sweden and Denmark on Tuesday followed Germany, Austria and the Netherlands in announcing the first stage of emergency plans to preserve gas supplies, but none of those national plans yet include rationing.

Europe has reduced its reliance on Russian gas to about 20 percent of total supplies since the Ukraine invasion, from about 40 percent before, according to consultancy ICIS, but has already tapped most options to diversify supplies, such as seaborne cargoes of liquefied natural gas.

The IEA chief said countries should try to delay shutting down any nuclear power facilities earmarked for closure to help limit the amount of gas burned in electricity generation.

Germany has faced sustained criticism for its decision to continue decommissioning the last of its nuclear plants during the energy crisis.

While Birol did not single out any country he said all “should consider postponing closures [of nuclear power plants] as long as the safety conditions are there”.

Berlin has indicated it believes the technical and safety hurdles to keeping the plants open are too high.

Birol was speaking ahead of the publication of a new IEA investment report on Wednesday, which warns governments are not yet doing enough to encourage investment in renewable energy to curb fossil fuel demand. Total energy investments are expected to grow this year by 8 percent to $2.4tn, with the growth coming from renewables and higher costs.

Last year the IEA said the world did not need to invest in new oil and gas fields if governments were to hit their net-zero targets by 2050.

Birol said that without enacting policies to significantly cut fossil fuel consumption, the world would continue to face dangerous swings in oil and gas prices. “Unless governments sit in the driving seat and mobilize major funds to create a clean energy transition, we will have to deal with extreme volatility in energy,” he said.

While there were some positive signs of growing investment in cleaner forms of energy, partly stemming from Europe’s desire to break its addiction to Russian energy, he said globally the picture was at best mixed.

In the developing world, excluding China, renewable energy investment has not grown in real terms since 2015. Birol also said developing countries reliant on fossil fuel production needed to use the windfall from higher prices to diversify their economies.

“The relative weakness of clean energy investment across much of the developing world is one of the most worrying trends,” the IEA report said.