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Energy Transformation after the Second Russo-Ukrainian War

By Alexander Thomas, student at The Fletcher School of Law and Diplomacy at Tufts University

On Wednesday, June 22, 2022, the Foreign Policy Research Institute organized a panel discussion with leading experts to discuss the transformation of international energy relations during and after the second Russo-Ukraine War. Co-hosted by Rice University’s Baker Institute for Public Policy and Penn State’s Department of Russian and East European Studies, the event explored several fundamental questions surrounding sanctions, the Russian energy industry, and the energy relationship between Russia and Europe. The event was broken into two sections, each with a different set of four panelists. The first series of panelists explored the notion of energy transformation in Russia after the war in Ukraine, while the second sought to explore the same in Europe. Both reached a similar conclusion: Russia’s current energy strategy with Europe is predicated on testing Europe’s resolve and its ability to withstand an energy crisis this winter. Conversely, if Europe is able to maintain solidarity and effectively coordinate this winter, it will be in a stronger long-term position with respect to Russia.

The event was held under Chatham House Rules, meaning participants remained anonymous in this piece with the hope of being able to share opinions, facts, and findings more freely. What follows in this report is a summary of these main ideas, as well as broader implications for the war in Ukraine.

Panel 1: Energy Transformation in Russia

Key Takeaways

  • The interaction between Russia’s energy sector and Russian foreign policy has changed markedly in the last 20 years;
  • Nearly half of Russia’s tax revenue in the last several months has come from the energy sector;
  • Russia is increasingly using energy policy to further its political aims rather than economic ones;
  • The Russian government has been sanction-proofing the Russian economy since 2014, which has softened the blows from recent Western sanctions;
  • Russia’s strategy is predicated on testing European resolve.

The trajectory for energy politics between the European Union and Russia has changed significantly as a result of the war between Ukraine and Russia. On one hand, questions are arising regarding who will emerge as the new supplier of energy to Europe in light of the significant disruptions caused by Russia, and further, what kind of energy will be supplied. The answers to both of these remain unclear as Europe hopes to transform its energy market and lean off its dependence on Russia in favor of renewable and sustainable energy sources.

Currently, Europe has been struggling with collectively adjusting its import profile, the consequences of which are being felt throughout the region as Russia curtails light natural gas (LNG) and oil exports while simultaneously raising prices. As Russia’s number one customer of both oil and gas, if the European Union is able to effectively adjust its import profile and maintain it over the long run, Russia would lose significant political leverage which it hopes to use to force concessions in Ukraine.

Panelist 1: Russian Energy Policy as an Instrument of Foreign Policy

Panelist One provided an in-depth historical overview regarding a variety of different domestic factors at play regarding Russian energy policy, including political, business, and bureaucratic interests. When analyzing energy policy within Russia and taking into account the other macroeconomic factors at play, Panelist One emphasized that it’s crucial to ask not only about Putin’s goals, but also about the broader Russian foreign policy agenda and how energy policy can maximize those goals. With most key foreign policy decisions in Russia, a vast majority of them have been made by a small group. Yet historically, energy policy has proven to be different. Private groups, public groups, and state-owned enterprises with different goals all have played differing roles in energy policy since Putin took power in 2000.

One of the key challenges the government faced in the early 2000s revolved around extracting a higher quantity of taxes from the energy sector and how to extract them more efficiently. One of the key turning points in Russian energy policy early on in Putin’s presidency involved the imprisonment of Mikhail Khodorkovsky and the nationalization of Yukos, both of which were driven heavily by this tax policy. In the 1990s, Boris Yeltsin and his cabinet faced extreme difficulties with extracting more revenue from the oil and gas sector, and after this question was solved by Putin, they were able to ask other questions from the oil and gas industry, such as “who controls it?” and “how can energy policy be harnessed to maximize foreign policy?”

Further, Panelist One outlined how, over the last twenty years, there has been a growing politicization of the oil and gas industry in Russia as the role of the state in the energy sector has increased significantly. This has occurred both in terms of the government’s ownership in different sectors like oil and gas, and also in terms of Moscow’s ability to shape who’s in charge of the different oil and gas assets. This has been demonstrated by the war in Ukraine, where energy policy in the current conflict is being driven almost exclusively by Russia’s foreign policy goals.

In terms of oil, Panelist One explained that there has already been significant disruption as a result of the war. With its largest customer, the European Union, shutting off oil imports, one of the key questions for Russian policymakers have now become: To what extent can Russia export oil to new countries, and through what mechanisms? These questions are partly logistical, relating to finding the ships and taking out insurance, but also extremely political for potential new trading partners. From the perspective of China and India, two likely buyers of Russian energy, Panelist One believes that the political baggage of importing Russian oil will surely impact their international reputation, but considerations of Russia’s reliability will also be factored in. Broadly, across the oil and gas sector, Panelist One emphasizes how questions of foreign policy outcomes are now firmly at the center of Russian decisions. This marks a historic departure for Russia—in the past, the country prioritized technocratic and economic considerations regarding effective oil and gas markets.

Panelist 2: The Soviet Energy Sector

Panelist Two focused their presentation on the historical evolution of the Soviet Union’s energy sector and the privatization that occurred in the wake of its dissolution. When discussing the current politics surrounding energy policy within Russia, Panelist Two emphasized that it is key to remember how modern energy corporations in Russia such as Yukos, Gazprom, and Rosneft are all relics of various Soviet ministries. Prior to 1993 and the rapid privatization that was initiated by Yeltsin, no private enterprises existed in Russia. In 1993, the new vertically integrated oil companies were created from the state system where ministries ran the industry, but all the management and policies were coordinated in Moscow.

Further, after the collapse of the Soviet Union, the prevailing notion was to have newly vertically integrated energy companies which were controlled by the state. Instead, there began the standard privatization which put pieces of the shares of newly created oil and gas companies in the hands of the workers as well as through the loans for shares program. This led to many of the oligarchs in Russia regaining control of some, if not all, of the shares of the major gas and oil companies. When Putin ascended to the presidency in 2000, he did not wait long to begin the renationalization process of the energy sector in Russia—he started it in 2001. Now, the fully state-owned Rosneft is responsible for a majority of the extraction throughout the country.

Panelist 3: Modern Oil and Gas Industries in Russia

Panelist Three’s presentation was dedicated heavily to the impact of sanctions on the modern oil and gas industry in Russia. From the time that Russia first annexed Crimea in February 2014 until just before its full-scale invasion in February 2022, roughly 2,500 sanctions were placed on Russia. Since then, nearly 7,000 new sanctions have been put in place. Back in March, many analysts believed that the weight of these sanctions was going to cripple the Russian economy and deter further Russian aggression into Ukraine. Panelist Three held the view that, while the 5 percent recession that Russia’s economy is predicted to experience this year is not insignificant, it is far less substantial than the 20 percent crater that Western analysts were expecting.

Further, while this scale-up of sanctions has been significant, Russia has been effectively sanction-proofing its economy since 2014. Panelist Three provided various examples of this, such as how in 2013, Russia was importing roughly 45 percent of all food consumption, but has now become food self-sufficient. Additionally, the central bank conducted extensive stress tests of the country’s banking system since 2014 in preparation for tougher conditions, thus helping the system remain stable since being targeted by sanctions in March 2022. Further, after 2014, there was a major conversation throughout Europe regarding their heavy reliance on Russian oil and gas imports, but little was done to directly address it. Conversely, Panelist Three holds that Russia has taken significantly more steps to diversify its oil and gas exports than Europe.

One of these steps pertains to the new east Siberian pacific pipeline, which created more diversification in Russia’s customer base and trade by expanding oil and gas exports to China. As a result, China has now assumed the role of Russia’s largest trading partner; a spot that was historically reserved by Germany. Another of these steps involved a significant investment of the Russian government in the petrochemical sector with the goal of using Russian hydrocarbons to create products within Russia that can be sold globally. This has naturally led to a debate regarding adopting more sources of renewable energy in Russia, which Panelist Three believes has not led to any meaningful changes or reduction of reliance on hydrocarbons.

Further, because reliance on Europe and the West is effectively dead in the long run, Panelist Three finds it increasingly likely that there will be a large refocus towards Africa and China for Russian energy exports, since Europe has made clear it will not reverse its position of buying more Russian oil and gas in the short or long term. This line of reasoning, that the West is no longer a reliable hydrocarbon trading partner, is one that Panelist Three believes Moscow firmly buys into.

Lastly, Panelist Three predicts that any decision that Russia makes next in the energy sector will be predicated on the outcome in Ukraine, which will have to include some form of sanctions relief. When there is a ceasefire, and eventually a peace deal, that peace deal will inevitably have to contain some form of sanctions relief. The type of sanctions relief will directly affect the outcome of the Russian economy, as well as the energy sector. However, even with sanctions relief in place, Panelist Three believes that Russia will still largely rely on hydrocarbons and likely invest further in their hydrocarbon industry over the long term until some climate-related crisis ensues.

Panelist 4: The Anti-Western Energy Policy Bloc

Panelist Four provided the perspective of how, in Russia, the war with Ukraine has been increasingly framed as a conflict of civilizations, not just a regional conflict. Russian officials frequently refer to this as a global hybrid war with the collective West, thus reinvigorating the mentality and traditions of the Soviet Union which are ubiquitous in Putin’s public rhetoric. As a result, in order to cement this West-East divide, Putin has been searching for ways to create an anti-Western bloc, and the mess in doing so is only expanding. With a difficult situation on its own borders and relations with Moldova and Kazakhstan deteriorating, Panelist Four believes that Russia will use energy policy and tools to build an alliance with India, Pakistan, Southeast Asia, Africa, and Latin America, with China as Russia’s key strategic partner.

In the eyes of Putin and the leadership in the Kremlin, Panelist Four argues that the next steps in building this alliance will involve cementing an anti-Western economic and political bloc with energy policy and especially hydrocarbons at its core. In constructing this bloc, Panelist Four finds Russia’s messaging surrounding climate change and renewable energy is very strange. They argue that there is a clear lack of investments and expertise in Russia to achieve any realistic climate action plan; Western renewable companies have been leaving the Russian market since the war began and renewable technology firms refuse to sell products in Russia or provide their expertise. Further, Panelist Four finds the prevailing sentiment within the Russian hydrocarbon industry to be one of “we just need to survive sanctions, so please reduce the environmental regulations”, yet at the same time, Russia remains publicly committed to the promises of net zero by 2060 that it made in Glasgow at COP26. It remains unclear to them how it will happen, but the rhetoric is still in place.

Further, Panelist Four held the view that Russia has not suffered significantly because of the energy sanctions put in place by Western countries. As of the panel workshop, oil production in Russia had returned to February levels, LNG production has only reduced by 5 percent, and revenues from oil and gas exports are higher than ever. They held the view that, while the sanctions on the Russian economy didn’t lead to its immediate collapse, evaluating the full impact of sanctions is a slow process and their full force may not be felt for some time.

Panelist Four then spoke about the redirection of energy exports away from Europe and how Russia has expanded its exports to Asian customers at a heavily discounted rate. While $70-80 per barrel of oil is still high, this price level is more than sufficient to sustain the Russian economy. It remains unclear how this redirection of exports will influence the smaller independent gas and oil companies in Russia, but this panelist held the view that an expanded role of the state in the energy sector in the near term is almost all but guaranteed.

Lastly, this panelist spoke about the sentiments felt by the Russian people regarding the economy in light of the sanctions. According to them, the Russian people feel a tremendous amount of inspiration and enthusiasm for the economic and social side future within Russia. Because many expatriates and Russian citizens have left the country, there are vast opportunities for career-building within Russia due to the lack of international competition in the domestic market. Local companies within Russia are now seeking to take over these markets previously dominated by multinational corporations. Further, Putin’s vision at the St. Petersburg economic forum supports a new vision of the economy where limited competition and limited economic freedom should remain, namely because it will help increase productivity and efficiency over the whole economy.

Question and Answer Session 1:

Is Russia going to stabilize or destabilize the European market? What can we expect going into the next winter?

Panelist 1: We should expect lots of credible gas cutoff threats going into winter. We’ve already seen significant moves in that direction in the last month or so which many energy experts six months ago would have said was unthinkable. It’s common to cite how the Soviet Union supplied gas to Europe in the Cold War for over half a century and not a single contracted delivery had ever been missed, which is now completely gone. Russia has already cut off at least five countries in Europe from gas and there have been significant disruptions in several key pipelines. For the last nine months, we’ve seen gas supplies to Europe being used as a tool of political leverage and I don’t see any reason why we should expect this to stop. The Russian political strategy, which has been quite open, is “Let’s cause as much disruption to energy and food prices as possible, raise the cost to the West so the populaces won’t be willing to pay the price, and induce Western leaders to place pressure on Zelenskyy to be willing to offer concessions.”

There’s nothing illogical about this strategy—it could very well work—but a key part of it is increasing gas prices. Even if you don’t intend to cut off gas supplies, your strategy only works if you have the credible threat to do so. You know your strategy has a chance of working if gas prices are sky-high, and so we should expect Russia to drive up prices as high as they can, going into the fall and the winter because either they end up cutting off gas exports and impose a potential cost on Europe, or they don’t end up cutting them off, but they’ve already imposed a cost on Europe because prices are sky-high. So, it’s a win-win from Russia’s perspective. Finally, I don’t know the extent to which Russia’s leaders actually believe that Europe will actually lean itself off Russian gas by 2024; I suspect that a lot of people in the Kremlin and perhaps Putin personally don’t buy the 2024 timeline that Germany has set out or the 2027 timeline that the EU is talking about, but if it’s the case, then gas exports to Europe are a wasting asset. If the Germans and the EU follow through, you might as well not waste the leverage that you’ve got. 

Panelist 3: Part of the reason we’re seeing these actions by Moscow is because Russia 100 percent doesn’t believe that Europe will be able to achieve the timeline that it has set out to do. There’s going to be a crisis—they’re reducing gas exports to France, Italy, and Germany in particular this summer because they do not want them to build up their reservoirs. They want them to come into winter needing gas, so if there is enough demand, Russia will be in the driving seat which could lead to Western governments pressuring Zelenskyy to accept concessions. In Moscow, they’re plenty aware of what is being said by places like Qatar and the US and elsewhere, otherwise countries where the EU has said they can get LNG from other sources.

But of course, Qatar and US investors are saying “look, we want a long-term contract. We’re not going to invest a couple billion of dollars so you can have gas for the next few years while you say that you’re accelerating your move away from hydrocarbons and more towards clean energy.”  The Russians are very well aware of this; you can see very clearly that they’re playing a game of brinksmanship, they’re being arrogant, but there is a fairly clear thought here which is to leave Europe in a position where there will be a clear LNG crisis in Europe this winter and they will be forced to come back to Moscow. Where will Europe get 2.4 million barrels of oil product? There is a refinery capacity shortage everywhere. There will be shortages in gas stations coming into next winter if Europe does finally cut off Russia and plays the short-term game.

Panelist 4: There is also a component of Russian energy blackmailing here. It’s not an official cut-off—look at the rhetoric surrounding Nordstream 1. But at the same time, there is this strong component of divide and rule. Russian authorities regard European authorities as being weak and divided, not having this solidarity. Five or six countries refused to pay for gas in rubles, but after enough discussion and negotiation, all of the others accepted. My guess is that there will be no complete cut-off of gas to Europe, but rather it will be done on a country-by-country basis depending on their behavior. Stick and carrot mechanism—demand for gas is not that high because it’s summer and it’s time to fill their storages. Europe understands that the clock is ticking and Russia realizes it is time to start manipulating the game.

We’ve been talking about how Russia is resilient, especially in the energy sector. If Europe really does end up weaning itself off Russian gas completely, what are the prospects for an Asian pivot?

Panelist 2: We’ve discussed a lot of the Western story, but jumping back into Russia, there will be a decrease in production when there’s not enough market to sell. We’ve already seen the decommissioning of some oil wells in Russia and they will continue to do it because the current oil and gas infrastructure has been built for European countries. Either Russia itself cuts off the supply, or European countries stop purchasing, but the same problem remains in Russia: they need to decrease production. The Chinese or Indian markets, even if they’ve now taken a larger share, they cannot compensate for all of what was sold to Europe.

Panelist 3: It’s quite clear that there’s enough money to fund the military as well as provide state subsidies and social support. They can keep the lights on and remain stable, but any suggestion that they can move forward in isolation and achieve some of its previous goals is simply unrealistic. On the question of Europe dropping Russia and the alternative, we’ve now moved into complete political control over the energy industry. The decisions currently being made are for political ends and are not based on commercial purposes.

These companies are no longer being run for the benefit of shareholders or commercial considerations; they are an extension of the political machine with instructions from the Kremlin. Additionally, if we were to assume Europe could completely cut off imports of Russian energy, this assumes that Europe has accelerated its efforts towards renewable and clean energy which assumes an accelerated case of technological advancements. Asia will simultaneously see the technology that Europe is using and the benefits they are seeing and there will be a slow decline in the hydrocarbon industry from Russia. The pace has been accelerated, but there is a decline and there is no stopping it. There’s no way that Russia can just pivot out of Europe and into Asia; the technologies that will be adopted by Europe will be adopted by everybody eventually, and hydrocarbons will die. Asia absolutely cannot save Russia in this case.

Turkey has been playing an interesting role in both the conflict and the energy sector with regard to Russia. How about the role of Turkey in all of this? Is there a role for Turkey to play?

Panelist 3: I would say that Turkey is actually one of the few winners in this whole conflict. Their position in Central Asia has been strengthened significantly. Central Asian states are openly talking about engaging more with Turkey as part of the diversification of their trade. Turkey is managing to play both sides incredibly well; it’s part of NATO, and is maintaining close ties with Russia. It has a pivotal role and you can absolutely say that Turkey is in the best seat in the house with everything to gain, and nothing obvious to lose. Politically, Russia’s influence and role in the politics of Central Asia and the Caucasus is significantly weakened and the door is open for Turkey to increase its role.

Panelist 2: Politically, the position of Turkey is much clearer; Turkey is on the side of Ukraine. It’s trying to play a balanced game because they like to trade with Russia; there’s a lot of trade connection. Still, because politics has gained primacy, any change of situation in the black sea will be watched closely by Turkey. In Kazakhstan, Russia expected to have a much more reliable market and ally there, but this has proven not to be the case. What we’re seeing now is Kazakhstan saying across the board, “we’re not on your side.”

Panel 2: Energy Transformation in Europe

Key Takeaways:

  • Russia is a central player in global energy markets and is a major energy bridge between Europe and Asia;
  • Europe is in a stronger long-term position for leaning off hydrocarbons; however, it will likely face serious short-term issues with energy this winter as Russia drives up energy prices as much as possible;
  • US and Qatari natural gas and oil companies are unlikely to increase investments in refineries to solve this short-term energy crisis because the EU has long-term plans to wane off hydrocarbons and switch to renewables;
  • EU initiatives so far have failed to curtail European energy dependence on Russia and coal-fired plants are being brought back online in several EU countries.

Based on the findings from the first round of panelists, it sounds like in the short term, Russia is enduring this crisis remarkably well, but it has significant longer-term problems in terms of market share and whether its products will still be able to be sold. For Europe, the problems are quite the opposite: it faces significant short-term problems in terms of getting through this winter without succumbing to Russian energy blackmail. However, over the long term, it’s in a potentially much stronger position as a result of broad changes and investments in renewable energy. What follows are the four panelists’ views on Europe’s ability to withstand this crisis, as well as actions being taken in both the short and long term.

Panelist 5: Russia’s Export Strength and Embeddedness in the Energy Trade

Panelist Five offered several different key points regarding the primacy of Russia as a central player in terms of global energy markets. Different estimates show that Russia exports roughly 15 percent of all oil and oil products, 20 percent of all natural gas, and 17 percent of all coal. When we structure the conversation about energy policy between Europe and Russia, the conversation tends to focus primarily on natural gas, but Russia has a significant foothold in other energy sectors as well.

Further, Panelist Five offered the perspective that Russia is not only the key energy supplier to the EU, but also to countries throughout the former Soviet Union. Russia has expanded its export of oil and natural gas to developing countries significantly over the last decade or so, especially to Eastern European countries and the Central Asian Republics. In 2019, Russia’s normed total fossil fuel rating was 0.99 out of 1, with only Uzbekistan having a higher rating. Recently, there has been a reduction in the importance of Russian coal exports on the global coal market, but this panelist argues it is because so many countries around the world are transitioning away from coal with Europe in particular making some of the largest shifts. Moreover, electricity demands in Europe are increasingly being met with natural gas and renewables instead of coal, which explains why Russia’s primacy in LNG exports has remained central in global and regional markets, even as coal use declines across the board.

The next key point Panelist Five made regarding the energy relationship between Russia and Europe centered around Russia’s geographical position and how the associated transportation costs and pathways should not be disregarded. Specifically, Russia has remained the main supplier to Europe in terms of pipeline gas because of both its proximity to Europe and the existing infrastructure to build these routes as a legacy from the Soviet Union. However, Russia has also been incredibly smart in recent years by expanding its pipeline infrastructure to Asia, as evident by the Siberia 1 and Siberia 2 pipelines being built to connect Russia with Chinese buyers, and using the same fields that were originally supplying Europe.

Moreover, Panelist Five believes that Russia has taken significant steps in improving its supply position: changes in the import and export countries’ demands and capabilities will ultimately be what shape the future transition and determine whether it is driven by economics or geopolitics. When analyzing the in-strength and out-strength data over the last decade, it’s clear that Europe has remained a key factor in Russian pipeline trade, but Russia has been working very hard on ensuring that Asian markets have more concrete access to the Russian energy market.

Lastly, Panelist Five laid out the fact that many of the existing assessments show that even with widespread renewable energy adoption throughout Europe in the long term, Europe and other large economies would still be dependent on importing clean energy from abroad. This directly undermines some of the notions felt by other panelists that Europe is in a much stronger long-term position in its strategic energy standoff with Russia. With this in mind, Russia has the potential to be a key player with a huge potential for renewable energy and clean hydrogen production and exporting.

Panelist Six: Energy Transformation in Europe

According to Panelist Six, Despite the Western sanctions and daily volume of Russian LNG flows being three-quarters of what they were a year ago, Gazprom is still making a tremendous amount of money from exports to Europe and Asia. In January of 2021, Russian exports of LNG were fluctuating between 400 and 450 million cubic meters per day, and profits were roughly 100 million euros (roughly $100 million) per day. In February of 2022, exports of LNG dropped to just around 100 million cubic meters per day, yet profits hovered at just around 100 million euros per day. This means that the Russian government has a significant stockpile of cash saved from savings in the run-up to the war, and arguably has the ability to withstand the economic repercussions from the invasion of Ukraine not only for the coming weeks and months, but potentially years or decades.

Panelist Six then spoke about the REPowerEU proposal set forth by the European Commission which seeks to accomplish two broad goals. First, it plans to reduce Russian gas imports in 2022 by two-thirds of what they were in 2021, and second, it seeks to accelerate renewable energy development throughout the continent. Last year, the EU imported roughly 150 billion cubic meters of natural gas from Russia, and it hopes to cut this down to 50 billion cubic meters for the entirety of 2022. From January to May 2022 alone, the EU has already imported 50 billion cubic meters of gas, which is up 64 percent from the 2021 year-over-year comparison. While the EU seeks to continue leaning off reliance on Russian gas through expanding renewable energy sources, Panelist Six posits that the likelihood of accomplishing this objective remains bleak, since overall energy demand in Europe has increased significantly over the last year. This is further compounded by both the issue of many nuclear plants throughout Europe being turned off, as well as how storage capacity targets for LNG have also become unachievable in light of Russia shutting off or significantly slowing down exports to a majority of Europe.

To conclude, Panelist Six laid out the argument that domestic coal-fired electricity generation is the only feasible path for the EU to avoid a region-wide energy crisis this winter, and follow the steps taken by Germany, the Netherlands, and Austria in reversing their stances on coal-fired electricity generation. They argued that it’s no longer feasible to focus on using renewable energy as a way out of the impending energy crisis especially considering that the EU cannot conceivably hit the storage target for LNG and renewable energy cannot fill in these increasing gaps.

Panelist 7: The Immediate Threat of a Gas Shortage this Winter

Panelist Seven’s presentation focused heavily on paths to avoid the scenario in which the European Union faces a significant gas shortage this winter. While the fears of this energy crisis began in February, they have accelerated markedly in the last few weeks with the drastic cuts in Russian gas exports to Europe. This, coupled with the ramping down of Nordstream flows, will particularly affect Germany, Italy, France, and Austria, and represents a clear turning point in the way that Europeans will consider their responses to the war.

On the other hand, Panelist Seven laid out the foundation that Europeans across the board have been proactive in adjusting their regulatory frameworks with regard to gas storage to avoid an energy shortage crisis this winter. Currently, the EU has a 1,100 terawatt hour storage capacity and these facilities have the flexibility to play a major role in the security of energy supply in the coming months. After the 2021 winter left storage capacities across the EU at 75 percent empty, the EU was quick to recognize that this failure was rooted in too loose of market regulations and passed legislation accordingly. Now, EU member states are mandated to have at least 80 percent of their storage capacities full by November 2022 and expanded measures for burden sharing are going to be in place. These are especially important for EU member states like Greece which have minimal storage capacities and will be heavily reliant on their neighboring states once winter sets in and energy demands increase across the board.

Currently, EU member states are averaging at 50 percent of their storage capacities, but questions remain regarding how they will be able to hit the 80 percent mark as outlined in the REPowerEU policy. Some member states have introduced incentives for their energy sectors to hit this target, but this has not been the case for all of them. In countries like Hungary, Bulgaria, and Romania, the level of storage is relatively low when compared to that of Germany and France.

It’s clear now that member states realize they need to do more to get ready for this coming winter, but the question is how effectively they will be able to coordinate their responses since the recent cuts from Russia have been incredibly disruptive in satisfying the storage plans. In terms of coordinating Panelist Seven believes that the principle of European solidarity will prevail, but the opportunity to coordinate an effective EU-wide response is closing. So far, the EU has been unable to pass an EU-wide planform regarding the curtailment of gas demand, especially in industry. Some proactive measures are being taken by Germany, but national plans for energy curtailment have been the path for many of the member states to date, rather than an EU-wide policy.

Panelist Seven concluded by talking about how the EU’s emissions are clearly on the rise and Europe is using more coal for its power production. Many countries throughout the EU are more open to this because coal is no longer the number-one public enemy like it used to be; Russian gas has assumed that role. However, with a global recession becoming increasingly likely, industrial demand for energy will inevitably decrease, meaning the overall amount of coal burned should not be as drastically high as expected.  

Panelist Eight: Energy Solidarity for Ukraine

Panelist Eight focused their presentation heavily on how the Ukrainian energy infrastructure has been systematically targeted by Russian forces as a means of warfare. In the nuclear sector during the beginning of the war, two nuclear power plants in Ukraine were captured by Russian forces and Russian missiles frequently flew over both plants. In the electrical sector, 5 percent of electrical generators in Ukraine have been completely destroyed, 35 percent were occupied by Russian forces, and electricity consumption has dropped throughout Ukraine as a result. Further, Russia has systematically targeted electrical transformers, transmission lines, substations, and high-voltage lines throughout the country. Cyberattacks and other cybersecurity threats have also been rampant in the war; estimates show that roughly 200,000 cyberattacks occurred during the first 40 days of the war, and a majority of them were targeted at the Ukrainian energy sector.

The panelist concluded their presentation by outlining several tangible actions that can be taken to take to help Ukraine in the war and effectively manage the energy crisis. First and foremost, maintaining solidarity with Ukraine should be paramount. Europe must come up with joint energy-saving procurements, coordinate on tactics against Russian energy blackmail, and create a comprehensive and coordinated plan for dealing with the energy crisis this winter. Second, much harsher economic and political tools should be employed to counter Russia’s Aggression. This would involve placing a full trade embargo on Russia and all Russian goods including gas and oil, sanctioning Rosatom, and monitoring the effectiveness of national energy curtailment policies. Lastly, the EU should strengthen their joint regional strategies to manage the Russian energy crisis, such as the REPowerEU initiative, or a similar plan to the United States’ Green New Deal.

Question and Answer Session Two:

Moderator 2: During the previous panel, there was a consensus that Russia was surviving the war and that the war might be over relatively soon because Russia would effectively be able to blackmail European countries into forcing Ukraine to make concessions. How long do you expect the war to take? Will Europe basically give in, or do you expect this to be longer?

Panelist Five: I personally think that the war will go into an active phase which we see right now for the next few months, but it may go into a lower-activity kind of action. In that regard, how long do we think Europe would consider Russia from the perspective that they’re sitting on now? They see Russia as a potential partner with whom they would like to have some kind of relations with, but on the other hand, they want to send a strong signal that their behavior in Ukraine is not tolerated. There should be some lessons learned by other countries on the European side, but the Europeans should first and foremost signal that they’re willing to suffer through the costs of energy rationing to send this signal to Russia.

Panelist Six: I think we’re in a situation where the war has the backing of the man on the ground in Europe. Right now, gas flows are already so low that we’ve probably had a majority of the pain that we’re going to have in terms of the price of that gas. Therefore, we’ve essentially priced in a cutoff and so if there is a total cutoff of Russian energy exports in the near term or in 2024, Europe will be able to hold out until then.

Panelist Seven: I tend to agree—the European member states are accepting the idea that a total gas supply cut can happen and as it was said, we’re already paying a very hard price. So the next question is do we go for gas curtailment? The industry is likely aware of what will happen. National emergency plans are ready in many member states, and there are very precise discussions occurring about how we can save gas demand. It was inconceivable a few months ago, but it has now shifted to a very likely scenario. I don’t see the European Union simply giving in to Russia’s energy blackmail to pressure for concessions over Ukraine; we’ve gone too far right now for that. The next question is, how do we coordinate?

Panelist Eight: Russia has demonstrated its willingness to cross redlines time and time again, and Europe cannot depend on it to keep its word. This shows us that if we do not effectively coordinate our response to dealing with Russia, we will collectively lose.

Moderator 2: To summarize, the first panel generally found that Russia was effectively blackmailing Europe and earning enough money to double down on its strategy with the expectation that Europe would buckle eventually. Conversely, there was a general concurrence in the second panel that Europe was not going to buckle. There is effective political leadership and coordination needed, but Europe has already priced in a total cutoff of Russian gas and things aren’t going to get a whole lot worse. It’s very conceivable that Europe will be able to survive this winter and conduct its own energy transition quite effectively, meaning the European powers aren’t going to pressure Ukraine to accept concessions, at least over energy issues. With that being said, what is the group’s consensus on whether Europe has an effective plan to manage the energy crisis this winter?

Panelist Six: I think that we need to accept that we’re at the point of no return from the European perspective. We need to accept that the quicker Europe stops using Russian energy in all its different forms, the quicker Russia will lose all of its leverage. We’re absolutely going to see some major industrial closures or suspensions. People across Europe will have to live with the reality of lowering their thermostat a few degrees this winter and extending some kind of solidarity to Ukraine. 

Panelist Seven: Whether we’re ready or not for this winter, I think we can all say that we have emergency plans as part of the requirements under the security supply regulations. I’m not saying that all emergency plans are as detailed in every country, but I think we are getting ready for this. It’s also going to mean accepting the very high costs of gas this winter and eventual gas curtailment in the industry. In all the different plans, if you want to protect your customers, it means the effort will need to be carried out by the power and industrial sector, so it’s a huge sacrifice. What still remains unclear to me is European fragmentation, because clearly, we are not fully coordinating. I am afraid it’s not enough, and if we are not prepared for EU-wide coordination, then it means we will need to show solidarity and I don’t know if it’s going to happen. It’s clear that there’s a lot going on at the national level though.

Moderator 1: From the perspective where I’m at, it’s going to be so difficult to keep the European unity versus what Vladimir Putin can do in Russia, partially because of electoral issues. Further, the fact that the prices are going to go up in Europe is going to create an issue for the wealthy, but particularly for the less wealthy members of European society; it will almost certainly cause destabilization to some extent. We’ve already seen the yellow-jacket protests in France over rising gas prices, so can we expect similar issues to rise throughout Europe? From the perspective of Russia, this destabilization might be the winning card or one of their significant wins.

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