There’s a lot of big talk about Europe slashing its addition to Russian oil and gas. But it’s not so easy. Turns out that Russia is the major supplier of fossil fuels to Europe, period. Russia accounts for 49% of coal imported by Europe, 38% of natural and liquified gas, and 26% of oil. Many of the alternative sources are problematic in themselves. Coal, for example, can be sourced from China, while LNG can come from Qatar, or oil from Nigeria. “Obviously, these are countries that Europe might also not want to become too dependent on,” ING Economics notes.
Add to that the simple fact that only a handful of gas-saving techniques can significantly reduce gas demand this year. More coal-fired power production, cutting production in manufacturing, and lowering thermostats in buildings show highest potential to lower gas use. ING Economics estimates corporate decision-makers and households can save 10-15% of gas in 2022. That can reach 20-30% by 2025 as they have more time to invest in gas-saving technologies.
In the power sector, gas to coal switching has the biggest potential to lower gas demand. According to the International Energy Agency, record-high gas prices caused coal-fired power plants in northwest Europe to increase their output by 20% year-on-year in the fourth quarter of last year. Gas-fired generation fell by more than 7% in the same period. The subsequent price hikes since the start of the Ukraine conflict have only added to this trend. But France and the Netherlands have capped coal use below capacity out of concern about climate change, and Germany and the Netherlands have closed down coal-fired power plants that can be brought back to life.
Lowering thermostats and not heating offices overnight has the best potential in buildings. “It is a common-sense solution that offers rapid and efficient levers to reduce gas demand and to limit the impact of soaring energy bills. Plus, it makes sense as a way to reduce Russian gas but also to tackle climate change,” ING Economics says. A YouGov survey found that 1.9 million German homeowners are planning to purchase a solar system for central heating or hot water generation. Heat pumps are also likely to see a surge in development. Solar thermal energy can also make a difference, as can heat pumps.
But supply chain challenges from Covid haven’t been resolved yet, which makes any switch harder to handle, as is a lack of skilled labor to installed solar panels.
But there are trade-offs: lowering gas dependency could raise emissions; lower production levels in manufacturing carries an economic cost; politcally, many governments are committed to gas as a way to meet climate goals; turning down thermostats, a quick way to be less dependent on Russian gas, comes at the cost of reduced comfort, and, as noted above, switching from being dependent on Russian gas to being dependent on coal from China, LNG from Qatar or oil from Nigeria is problematic too: Does Europe really want to exchange one dependency for another?