The EU plan to reduce Russian gas imports by two-thirds by the end of 2022: Practical realities and implications
On 8 March 2022, the European Commission published the outline of a plan to make Europe independent from Russian fossil fuels well before 2030, starting with gas, in light of Russia’s invasion of Ukraine. The Commission noted that EU gas imports from Russia in 2021 (pipeline and LNG combined) totalled 155 billion cubic metres (bcm), and stated that this could be reduced by two-thirds (101.5 bcm) before the end of 2022. At the same time, Commission stated its intention to present by April a legislative proposal requiring underground gas storage across the EU to be filled up to at least 90 per cent of its capacity by 1 October each year.
This OIES Insight analyses the component parts of this plan, and their implications. Specifically, the plan envisages increased non-Russian gas supply by 63.5 bcm through a combination of additional non-Russian LNG and pipeline imports and an increase in biomethane production. This supply increase is to be complemented by a 38 bcm reduction in EU gas demand, to be achieved through a combination of large-scale wind and solar power generation, rooftop solar power generation, heat pumps, and “EU-wide energy saving”. Between the reduction in gas demand and increase in non-Russian supply, the Commission hopes to reduce EU imports of Russian gas by two-thirds by the end of 2022.
We conclude that while some parts of the proposal are eminently achievable, others are more ambitious. On the supply side, an extra 50 bcm per year of LNG imports would not only absorb the forecast growth in global LNG supply in 2022, but also require a redirection of cargoes from Asia to Europe, which implies that European prices need to remain high to attract such cargoes. The increase in non-Russian pipeline imports seems realistic, subject to current import levels being sustained throughout the summer. On the demand side, the proposed reduction in gas demand appears to be feasible on paper, but reaching the target will be challenging. A combination of market drivers, specific measures, favourable external conditions (such as good availability of wind and hydro in the power sector and a warm winter) as well as more coal/nuclear in the generation mix will be needed for any target to be met.
The broader implications of the Commission proposals are their impacts on the global gas market (with prices likely higher than previously forecast for the remainder of the 2020s) and additional impetus provided to the energy transition, given the increased urgency of decreasing European fossil gas demand.