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I have been speaking for some time about the energy crisis in Europe and its implications for national security. It’s a message that has largely fallen on deaf ears in Australia – as well as most other countries – so far.
If not for Europe’s reliance on Russian gas and, to a lesser extent, oil, it’s hard to believe that Vladimir Putin would have taken the drastic step of invading Ukraine and inviting the aftermath predictable penalties. After manipulating the gas market through Kremlin control of the state-owned gas company Gazprom, he was able to build up a substantial war chest while weakening the economies of Europe and the United Kingdom.
It should be noted here that Russia is not a rich country. Its GDP per capita is just over $11,000, compared to around $46,000 in Germany and $38,000 in France. But Russia is well managed fiscally, has little public debt and even has its own sovereign wealth fund. About 50% of its exports are oil and gas; it is also a major producer of wheat and maize for export.
In contrast, Europe and the UK have been obsessed with the green target of reducing carbon dioxide emissions. These countries have made substantial investments in intermittent renewables, shut down reliable coal-fired power plants and, for those with nuclear power, let that industry wallow. In the most extreme case, Germany decided to completely shut down its nuclear power plants.
In the meantime, all European countries, as well as the UK, have made it more difficult to extract natural gas, whether onshore or offshore. Despite the presence of potentially sustainable gas deposits beneath many European countries as well as in the UK, political leaders showed cowardice as the anti-fracking crowd raised their voices of protest, including a dubious fear campaign based on the possibility of earthquakes and water contamination .
Country after country, regulations were imposed that effectively banned the exploitation of unconventional gas – just like Dan Andrews in Victoria. As a result, EU natural gas production has fallen sharply over the past decade, while its dependence on Russian gas has risen alongside it. The UK has also effectively given up on North Sea gas, with no new drilling licenses granted between 2016 and this year.
As the the wall street journal note, “As little as 15 years ago, the countries of the European Union produced more gas than Russia exported. Yet European production has more than halved over the past decade. Mr. Putin has fortunately filled the supply gap. In 2020, Russia exported nearly three times as much gas as Europe produced.
Germany is the most egregious example of a country allowing ill-considered climate policies to obscure security implications. Let’s not forget that Angela Merkel, the German Chancellor, was strongly in favor of Nord Stream 2, the second gas pipeline that would directly link Russia and Germany (and the rest of the EU). Commissioning Nord Stream 2 would have meant that 80% of Russian gas would have flowed directly to Germany, largely bypassing Ukraine.
When Merkel signed the Nord Stream 2 deal (which involved a number of listed companies as investors) in 2016, the Kremlin commented: “The Russian President hailed the unwavering loyalty of the German side regarding the completion of this purely commercial project to enhance Germany’s energy security.” Merkel went even further, saying that this trade deal would actually promote peace between the two countries. After all, she had obtained assurances from Russia that the pipeline would never be used as a geopolitical weapon, but if that were the case, Berlin would impose sanctions.
Is it any wonder that the Americans understood the inherent problem of Germany’s growing dependence on Russian gas and fiercely opposed Nord Stream 2? In fact, it was President Trump who reaffirmed this opposition and urged the German government to build liquefied natural gas receiving terminals in order to diversify its sources of supply. Let’s also not forget here that the former German chancellor, Gerhard Schrröder, has been chairman of Nord Stream 2 and the Russian energy company Rosneft since 2017. He was appointed this year to the board of directors of the gas monopoly belonging to the Russian government, Gazprom. .
It has been evident for some time that Russia is using energy – particularly gas routed to Europe – both as a geopolitical weapon and as a means to augment Russia’s coffers. For a year, Putin has been turning the screw to ensure that Europe runs out of gas, leading to very substantial price increases (up to five times more than in 2020). The Europeans, for their part, preferred channeled gas because there are no costs associated with the liquefaction/degasification processes and the obligation of receiving terminals. Mind you, there would have been an outcry from German environmentalists if an LNG receiving terminal had been seriously proposed. What they forgot in their green mist is that you reap what you sow.
The situation is now leading to an in-depth rethinking of energy issues in many European countries. One of the problems, of course, is that there are no easy short-term solutions. It is no surprise that energy payments have been exempted from sanctions imposed on Russia regarding Swift, the international payment agreement.
Germany has now announced its intention to allow the continuation of three nuclear power plants which were due to close at the end of this year. Coal-fired power plants are also used to fill the gaps and will continue to do so, notwithstanding Germany’s stated intention to run out of coal by 2030. Two LNG receiving terminals are planned.
The UK has granted a number of drilling licenses in the North Sea and announced its intention to build a number of small nuclear power stations. Macron announced the “nuclear renaissance” in France.
The thing is, singing Kumbaya is OK for teenagers in a school camp. But that’s no way to conduct foreign policy when some of the actors are dictators who simply refuse to buy into the green dream and are well positioned to manipulate energy markets. It’s time for the West to get real. Maybe, just maybe, the Europeans and the UK are waking up to this need.
