Saving energy is now a matter of course for the EU

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Reuters
Reuters

MILAN (Reuters Breakingviews) – The European Union gas puzzle has not gone away. Despite solid progress in ramping up liquefied natural gas (LNG) purchases, the bloc is far from its self-imposed end-of-year target of cutting Russian gas imports by two-thirds, or about 100 billion cubic meters (bcm). That leaves key member states like Germany vulnerable to an economic shock if Russian President Vladimir Putin turns off the taps. They shouldn’t wait for the weather to get colder to implement robust energy-saving measures.

Brussels’ “REPowerEU” plan requires 50 bcm of additional LNG imports this year. In the first five months of 2022, the 27-nation bloc imported 54 billion m3 of LNG, estimates Rystad Energy. This is an increase of 18 billion cubic meters, or 50%, compared to the same period last year. The EU, which can import up to around 13 billion m3 of LNG per month, could in theory add another 20 billion m3 by the end of September and reach its overall target by the end of the year.

It feels like a stretch. Spain imports a lot of LNG, but pipeline bottlenecks make it difficult to get to EU neighbors. Meanwhile, around 11 billion cubic meters of EU imports this year are Russian LNG, making the real replacement target even bigger. Germany and Italy, the biggest consumers of Russian gas in the EU, have filled https://agsi.gie.eu/# storage facilities to 60% capacity, but may struggle to reach the critical EU target of 90% by October.

That leaves the bloc at the mercy of brutal gas blackouts caused by Putin this winter. Hence the need to implement energy conservation measures now to reduce demand and bring down the prices of fossil fuels. Relying on information campaigns to use less energy, as the EU has done so far, is unlikely to work. Discounts on gasoline or reductions in energy bills avoid social unrest, but do not encourage savings.

A better approach has been set by Italy, which in May ordered a reduction in the use of air conditioning in public buildings. This alone should save Rome 4 billion cubic meters or 13% of its annual Russian gas imports. Milder Germany, where 50% of office buildings have yet installed air conditioning, should follow the example.

REPowerEU is already calling on households to lower their thermostats by 1 degree Celsius, saving 10 billion cubic meters a year, and European politicians may prefer to wait for colder weather before pressing such intrusive measures. But tensions with Russia are not easing and prices could rise this winter. It’s time to act.

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BACKGROUND NEWS

The European Union imported 54 billion cubic meters (bcm) of liquefied natural gas (LNG) between January and the end of May, up 18 bcm or a 50% increase from the same period last year, according to data from Rystad Energy.

As part of its REPowerEU plan, the European Commission has committed to importing an additional 50 bcm of LNG this year to reduce its dependence on Russian gas.

The block has a maximum LNG import capacity of around 13 billion cubic meters per month.

(Editing by George Hay and Oliver Taslic)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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