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Escalation of Russian tensions redefines European energy landscape
In July, the European Union (EU) rolled out plans to counter Russian interference of natural gas supplies. Coined “Save Gas for a Safe Winter”, the plan aims to reduce gas use in EU member states by 15%. The initiative seeks to lower gas demand and consumption used by the public sector, businesses, and households. Currently, the targets are voluntary, but the European Commission may enforce binding demand reduction targets to member states if necessary.
Currently, the EU protects certain customers from these restrictions; hospitals, essential social services, schools, and households are not affected by gas rationing. The measure largely impacts those who utilize gas in industrial or commercial applications such as power plants, water suppliers, refrigeration, restaurants, etc.
Natural gas provides the heat source for millions of homes during the winter. Along with sudden restrictions, this means industrial shutdowns could become a reality in order to keep people warm. US officials have serious doubts that the EU will have enough gas to make it through the winter; so, Amos Hochstein, Senior Advisor for Energy Security in the Biden Administration, was recently sent to Europe to discuss contingencies for the US-EU energy task force.
Shades of Green
It all comes off the heels of the EU parliament labelling gas and nuclear as green energy. It’s a step back from legislation passed in February restricting their use in the EU’s goal of becoming carbon-neutral by 2050. This is important because green means tax breaks. The EU’s harsh regulatory stance against fossil fuels has softened. For now, there’s less of an eyeglass on gas and nuclear, and more of a focus on deterring current market tensions.
It’s worth noting that millions of tons of coal being exported each month from Russia to the EU have been cut off. Because of this, natural gas and nuclear are being relied upon even more to pick up the slack. Steam turbine manufacturers such as Siemens Energy, General Electric, or Mitsubishi should be seeing increased activity in the nuclear sector.
Moscow recently decided to reduce natural gas flow through the Nord Stream 1 pipeline into Germany. Overall, it had been cut to merely 20% of capacity, or 1.28 million m3/h of gas as of July 27th. Nord Stream 2 was wiped out earlier this year. Russian gas company Gazprom, who supplies the pipeline, claimed turbine issues for the reduction. Only one of the five necessary turbines are functioning. Therefore, it’s not a surprise that gas prices are the highest they’ve been in decades. In the EU, the price has increased by 14% since this time last year.
Overall, the anticipated short-term fallout for industrial users is tighter budgets due to higher gas prices, and an upward trend for interest in turbines – especially in nuclear power plant applications. It’s yet to be seen whether this is a temporary or permanent change for fossil fuels in the EU. For now, a new shade of green is providing stability to the EU in a world with a growing lack of Russian imports.