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Between a rock and a hard place: European energy policy and complexity in the wake of the Ukraine war

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Abstract

Despite increasing political tensions, the major European economies have done little to strengthen their energy security prior to Russia’s invasion of Ukraine, in February 2022. Shocked by Russian atrocities, Western nations condemned the war and decided to support Ukraine’s effort to defend its territory. Beyond quantifying EU’s dependence on Russian energy imports and explaining how this dependence came to be, this paper analyses the multifaceted implications of Europe’s efforts to regain its energy sovereignty. A comparative vulnerability study between Germany and Lithuania complements this analysis, highlighting two fundamentally different ways to approach energy security issues and tackle the looming energy crisis. What will become apparent in this article is that: trade cannot be a panacea for bridging political divides; the war and the policy announcements that accompany it place unprecedented burdens on Western economies; a country’s historical background plays – as the German-Lithuanian case demonstrates – an essential role in crafting its energy security strategy and in its readiness to act in crisis situations; and the accelerated deployment of renewable energies and other measures aimed at steering European economies away from Russian fuels encounter barriers that cannot be solved with political will alone, they also require breakthroughs in power storage technologies and extensive investments in critical infrastructure projects.

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Notes

  1. Nord Stream 2 is a second offshore gas pipeline that has been built under the Baltic Sea to connect Russia to Germany. In contrast to the onshore pipeline connections between Russia and Western Europe, the offshore pipelines Nord Stream 1 and 2 bypass all Eastern European countries. Fearing that Russia might weaponize energy by disrupting the gas supply along the offshore connection, these countries called to stop the Nord Stream 2 project (Sziklai et al., 2020, p.11). The USA also tried to stop the construction of the Nord Stream 2 pipeline, arguing that a second offshore connection would double the gas transport capacity and increase Europe’s dependence on Russia even more. However, the motivation behind USA’s engagement was also driven by the country’s desire to find a market for own exports of shale gas and to replace a portion of the EU’s imports from Russia.

  2. Gazprom is a vertically integrated natural gas corporation controlled by the Russian state. Though a complex asset swap with BASF, Gazprom became the sole owner of major gas storage facilities in Germany and Austria and 7,000 km of critical gas-transport infrastructure in Germany. In addition, Gazprom acquired through this transaction significant shares in the gas markets of Germany, Belgium, France, the Netherlands, Denmark, Czechia, and Austria (Wingas, 2017).

  3. The MidCat pipeline is listed in EU’s Energy Security Strategy as relevant infrastructure project for reducing EU’s vulnerability to Russian gas imports (EU, 2014). Yet despite this fact, France and Spain stopped the project in 2019, due to high costs and lack of utility.

  4. Rosneft is an oil corporation controlled by the Russian state. By acquiring Shell’s shares in the PCK refinery, Rosneft increased its stake in the refinery from 54.17–91.67%. The remaining 8.33% are hold by the Italian utility ENI (Spiegel, 2022a; RBB, 2022).

  5. Since January 2021 (Brexit) the EU encompasses 27 Member States. If not otherwise specified, all EU figures in this paper refer to aggregated quantitative data for these 27 Member States (i.e., for the purpose of this paper the terms EU and EU-27 are equivalent).

  6. The information about EU’s demand of uranium and nuclear fuel services was extracted from the Annual Report 2020 of the Euratom Supply Agency (ESA, 2021). It refers to the EU-28 nations and includes UK’s imports of uranium and the conversion and enrichment services commissioned by UK utilities. Since the ESA report contains only aggregated data (i.e., no breakdown by Member States), it is impossible to subtract UK’s demand from the EU-28 data set to make it compatible with the Eurostat (2022e) information.

  7. Uniper is the former fossil fuel arm of Eon (the largest German Utility) (WSJ, 2022). After the EON-RWE merger in 2018, the fossil fuel assets of RWE were also integrated in Uniper (Sturm, 2020). Currently Fortum – a Finnish utility - holds 56% of Uniper.

  8. Germany’s storage facilities have a total capacity that corresponds to about 30% of Germany’s annal gas consumption. However, at the beginning of the war they were only filled at 27% - an unusual low level for the winter season (Leopoldina, 2022).

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Sturm, C. Between a rock and a hard place: European energy policy and complexity in the wake of the Ukraine war. J. Ind. Bus. Econ. 49, 835–878 (2022). https://doi.org/10.1007/s40812-022-00233-1

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