How fast can Europe wean itself off Russian gas?

Russia’s invasion of Ukraine is bolstered by its fossil fuel might. Now Europe, which relies on Russia for about 40 percent of its fossil gas and a quarter of its crude oil, is scrambling to find new sources to make up for the potential loss of that supply — and weighing a dramatic expansion of its clean energy transformation.

As the world’s second-largest gas producer and third-largest oil producer, Russia earns about 40 percent of its federal budget from fossil fuel exports. It has also leveraged Europe’s reliance on its gas as a weapon of foreign policy, throttling supplies over the past year and driving gas prices to historic highs.

So far, international sanctions against Russia have excluded energy transactions, but U.S. and European leaders have warned that such sanctions remain on the table — as does the threat of Russian President Vladimir Putin curtailing fossil fuel supplies in retaliation.

This fast-escalating conflict has forced Europe and its allies to prepare for the possibility of major shortages of Russian gas in the months to come. Experts agree that reducing or entirely cutting off that supply would leave Europe at risk of skyrocketing energy prices and shortfalls of the fuel needed to heat homes, generate electricity and supply industries such as metal smelters and fertilizer and chemicals producers.

“The pipelines are still flowing from Russia, but they may not flow forever,” said James West, senior managing director and head of sustainable technologies and clean energy research at Evercore ISI, in a Monday interview. The future status of those flows is ​“not really our call,” he said of Europe and the U.S. ​“It’s Putin’s call.”

But even as European countries race to secure oil supplies and accelerate construction of port facilities that can handle liquefied natural gas (LNG) to cushion the potential impacts, they’re also looking to lower-carbon alternatives.

Monday’s release of the latest report from the United Nations Intergovernmental Panel on Climate Change, which warns of dire and in some cases irreversible harms from global warming unless greenhouse gas emissions can be reduced far faster than they are now, underscores the danger of continued investment in fossil fuel infrastructure.

The European Union, which last year increased its targets for cutting greenhouse gas emissions to 55 percent by 2030 relative to 1990 levels, is expected to release a plan this week to dramatically reduce its dependence on Russian fossil fuels. The plan is expected to include short-term steps to shore up gas supplies for next winter and subsidize consumers and industries facing higher energy prices.

It’s also expected to include steps to accelerate deployment of renewable energy, which made up 22.1 percent of its 2020 energy consumption, according to Eurostat, the EU’s statistics office.

Germany, which relies on Russia for more than half of its natural gas, is in the midst of revamping its clean energy programs to catch up on emissions-reduction targets it has missed over the past two years. News reports early this week cited a draft policy that would accelerate the country’s target for reaching 100 percent carbon-free energy from 2040 to 2035.

Germany is also considering slowing the pace of closure of its remaining nuclear power plants, although it’s unclear how the schedule would shift and what impact it would have. After Japan’s Fukushima nuclear reactor disaster in 2011, Germany accelerated its plans to phase out nuclear power; its last three nuclear plants are scheduled to shut down by the end of this year.

Jesse Jenkins, an assistant professor at Princeton University’s Andlinger Center for Energy and Environment, said in a Monday webinar that he supports these and other steps to rebuff Russia and expand alternatives to fossil fuels. ​“Energy is a critical front in the geopolitical conflict with Russia. Anything to help Europe reduce its reliance on Russian gas imports by next winter will be critical.”

Tough choices on replacing Russian gas

But Europe’s short-term options for scaling up alternative sources of fossil fuels or clean energy alternatives are severely limited in relation to the scale of the potential shortfall.

Brussels-based think tank Bruegel released a report this week that modeled scenarios for Europe to withstand a ​“first winter without Russian gas,” weighing the potential for a number of interventions to reduce the shortage. Those include delaying nuclear plant shutdowns, instituting conservation measures for households and industries, and rapidly switching from gas-fired to electric heating.

But the most effective step Europe could take under Bruegel’s analysis — switching from gas-fired to coal-fired power — would worsen climate impacts. Others would require reducing the amount of electricity used by industry, implying a forced ramp-down of industrial output. The think tank also noted that its scenarios ​“assume that the EU can procure unprecedented amounts of LNG, that market players have sufficient incentives to purchase and store gas at high prices and that gas is then distributed seamlessly across countries.”

Kateryna Filippenko, principal analyst for Europe gas research at Wood Mackenzie, told CNBC that if Russian gas exports to Europe were disrupted, Europe ​“would have to pull every lever in the energy system to keep the lights on,” from firing up mothballed nuclear and coal plants to persuading Asian countries to switch from LNG to coal to free up LNG shipments for Europe. Extended disruptions could lead to ​“sky-high” prices, industries shutting down and a global recession, she warned.

The International Energy Agency (IEA) reported last week that Russian gas flows to Europe dwindled to roughly half their contractually available capacity in the fourth quarter of 2021, driving prices to all-time highs. Europe has already increased its imports of non-Russian LNG by 63 percent since October, according to IEA data. But reduced flows from Russia, cold weather and reduced storage capacity have outweighed that increase, IEA reported, leaving Europe with a serious shortfall.

The U.S. has been increasing its LNG exports headed for European markets over the past four months, providing about 37 percent of total supply to the EU and the U.K. and over half the amount of increased supply, EIA reported.

In his Thursday announcement of sanctions against the Russian-owned Nord Stream 2 gas pipeline connecting Russia and Germany, President Joe Biden said that Putin’s actions have ​“provided the world with an overwhelming incentive to move away from Russian gas and to other forms of energy.”

Neal Dikeman, a partner at venture capital firm Energy Transition Ventures who formerly led Shell’s venture fund in North America, challenged the idea that scaling up Europe’s LNG import capacity will set back efforts to combat climate change. ​“When you compare gas to coal, it’s a huge climate win,” he contended.

But other analysts emphasized the importance of quickly moving away from gas. Diversifying the sources of Europe’s gas supplies does little to alter the continent’s reliance on a fossil fuel that’s contributing to catastrophic climate change, the U.S.-based Institute for Energy Economic and Financial Analysis warned in a report last week.

Europe’s growing reliance on Russian fossil gas over the past two decades has ​“encouraged over-reliance on gas itself, slowing investments in energy alternatives while making Europe’s energy system vulnerable to stranded assets as the global renewable energy transition advances,” the nonprofit group states in the report.

“Looking to the future, the EU needs to redefine energy security not as diversity of gas infrastructure, but as a true diversity of energy sources that are immune to political influence and can lessen the risk of future energy crises,” it continues.

Ryan Fitzpatrick, climate and energy program director for energy analysis at U.S. nonprofit Third Way, said in a Monday webinar that Europe’s efforts to increase its LNG import capacity are a necessary step to insulate it from the risk of energy shortfalls next winter.

At the same time, Europe is ​“not backing down on [its] other goals of reducing energy use and switching over to cleaner fuels and electrification,” he said. ​“We’re seeing these things happen at the same time.”

Ramping up efficiency and electric heating 

Ramping up enough clean energy to replace gas in Europe would require a simultaneous massive increase in both the sources of electricity and the infrastructure to use it. One of the first targets could be making buildings more heat-efficient and replacing gas-fired heating with electric heat pumps, which use energy more efficiently and can be increasingly low-carbon as their electricity supply becomes cleaner.

Renewable energy supplied 23.1 percent of total EU heating and cooling energy use in 2020, largely driven by increased use of district heating and cooling systems, heat pumps and more efficient energy-recapture designs within buildings.

The EU’s Renovation Wave Initiative, launched in 2020, lays out plans for a rapid ramp-up in building efficiency and electrification work over the coming decade and beyond, along with a proposal to launch a 100-billion-euro ($112 billion) annual fund to hit its target of renovating 3 percent of Europe’s building stock per year.

Anand R. Gopal, executive director of strategy and policy at San Francisco–based think tank Energy Innovation, said that about 40 percent of Europe’s gas goes to heating buildings, compared to about one-third to generate electricity and roughly one-quarter for industry.

That means ​“rapid electrification of space heating is going to be key” to dealing with gas shortfalls in the shorter term, he said, while in the long term, it will be important to electrify industrial processes that now use fossil fuels.

Nikos Tsafos, Schlesinger chair at the Washington, D.C.–based Center for Security and International Studies, said on Twitter that Europe ​“needs bold ideas” to move quickly to secure its energy systems against the threat of Russian gas supplies being disrupted. One idea he floated: ​“How about a European Defense Production Act to make and install 100 million heat pumps?”

Noted environmental journalist Bill McKibben proposed a similar role for the U.S. in a Sunday post, saying that President Biden could invoke the Cold War–era Defense Production Act to encourage U.S. manufacturers to expand heat-pump production for export to Europe.

“The most recent estimate from Europe I’ve seen is that the current electric grid could handle 50 million heat pumps,” enough to serve two-thirds of the roughly 75 million households in the EU and U.K., McKibben wrote.

That’s many more than the 2 million heat pumps that the European Heat Pump Association trade group estimated were installed across the EU in 2021, and it’s unlikely that manufacturers and installers could ramp up that quickly — ​“but any large number hacks away at Putin’s power,” wrote McKibben.

Ari Matusiak, CEO of Rewiring America, a nonprofit advocating for home electrification, highlighted the potential for a major push in heat pumps to strengthen Europe’s resilience to gas shortages and price spikes.

Every time a household’s heating system is converted from gas to electricity, ​“you’re relieving political pressure in terms of the ability of leaders and decision-makers in these countries to not be driven by a politics of scarcity and dependence when it comes to energy, but to be driven from a politics of abundance,” he said. ​“That’s a very different baseline to be working from.”

Renewable energy for the long haul 

Electric heating will require increasingly low-carbon electricity to capture its full potential as a tool to fight climate change, Matusiak said. Europe is already adding clean energy at a rapid clip, with renewable energy sources making up 37.5 percent of gross electricity consumption in the EU in 2020, up from 34.1 percent in 2019, according to Eurostat.

Speeding that pace of deployment to counter the potential of shortages in fossil gas would require a rapid and comprehensive increase in investment and regulatory action, said Peter Sobotka, founder and CEO of Corinex, a company that provides power grid communications technology.

“European government[s] would have to increase funding and streamline procedures to permit renewable installations,” Sobotka said in a Monday email. Wind power giants including Siemens Gamesa, Vestas and GE Renewable Energy wrote to European Commission President Ursula von der Leyen last week to request such changes, noting that the EU’s 2021 wind power installation figures were less than half of what needs to be built annually to reach its carbon-reduction goals.

Europe will also need to make the ​“huge investments into grid infrastructure [that] are necessary to integrate renewable energy sources and ensure the stability of the grid,” Sobotka wrote.

But these investments, though hefty, could lead to significantly reduced demand for fossil gas. Dave Jones, global program lead at London-based think tank Ember, noted in a tweet that between 2019 and 2021, the Netherlands and Spain were able to cut gas demand in their electricity sectors by 22 percent and 17 percent, respectively, by building more renewables.

Lauri Myllyvirta, lead analyst at the Helsinki, Finland–based Centre for Research on Energy and Clean Air, posted a Twitter thread with back-of-the-envelope calculations of how much renewable energy would be needed to replace Europe’s current gas imports from Russia. He concluded that a 40 percent increase from current levels could meet the need — although he added that this would not be a quick or easy path.

“On top of investments in power generation, we would need to invest in electrification in buildings and industry and in transmission and storage to absorb the power generated,” he wrote. ​“But these are investments needed in any case to meet Europe’s net-zero emission goals.”