Europe’s energy crisis could shift its balance of power

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For months, European Union member states have struggled to diversify their energy supplies amid dwindling Russian gas flows and the very real danger of a complete cutoff by Moscow as long as the war in Ukraine continues. . But with winter fast approaching, energy prices soaring and the EU struggling to develop a coordinated strategy, the gas rush could end up leaving a significant mark on the balance of powers within the bloc.

For at least the past 15 years – as the EU dealt with the financial crisis of 2007-2009, multiple public debt crises and the COVID-19 pandemic – Germany and other members of the self-proclaimed “frugal” EU negotiated from a position of strength with the most financially fragile Mediterranean countries. But the Russian gas shortage now exposes Germany and other northern European countries, while Italy and Spain find themselves, for once, in the role of sensible partners called to the rescue. Italy has reduced its dependence on Russian gas and increased its imports from North Africa; Spain has always been more dependent on African gas and imports, a liability that could now turn into leverage.

“Usually it’s the south [of Europe] it asks for solidarity from the North, but this time it is the opposite situation, and it certainly has political implications,” said Simone Tagliapietra, senior researcher at the Bruegel think tank in Brussels.

For months, European Union member states have struggled to diversify their energy supplies amid dwindling Russian gas flows and the very real danger of a complete cutoff by Moscow as long as the war in Ukraine continues. . But with winter fast approaching, energy prices soaring and the EU struggling to develop a coordinated strategy, the gas rush could end up leaving a significant mark on the balance of powers within the bloc.

More at least over the past 15 years – as the EU dealt with the financial crisis of 2007-2009, multiple public debt crises and the COVID-19 pandemic – Germany and other members of the Self-proclaimed ‘frugal’ EUs negotiated from a position of strength with the most financially fragile Mediterranean countries. But the Russian gas shortage now exposes Germany and other northern European countries, while Italy and Spain find themselves, for once, in the role of sensible partners called to the rescue. Italy has reduced its dependence on Russian gas and increased its imports from North Africa; Spain has always been more dependent on African gas and imports, a liability that could now turn into leverage.

“Usually it’s the south [of Europe] it asks for solidarity from the North, but this time it is the opposite situation, and it certainly has political implications,” said Simone Tagliapietra, senior researcher at the Bruegel think tank in Brussels.

Last month, Spain’s Minister for Ecological Transition, Teresa Ribera Rodríguez, made it clear that the classic EU playbook had been turned upside down: “Unlike other countries, we Spaniards have not lived beyond our means from an energy point of view,” she said in a not-so-veiled jibe in Berlin. (Gas and electricity prices in Spain, while on the rise, are still well below record highs seen in Germany and other northern markets.)

Germany has always been Europe’s largest importer of Russian gas, which once accounted for well over half of his total contribution. Today, German gas imports are tank, and households are faced with additional energy costs of several hundred euros per year. Many German factories are already slowing production, but if Russia were to completely cut gas supplies, Germany would have to cut domestic gas consumption by 29%, according to a study by Bruegel. On Friday, Russian energy giant Gazprom announced that gas deliveries through the original Nord Stream pipeline would be completely halted for a few days from August 31 for “maintenance”, sending gas prices soaring. in Europe.

High officials in Berlin have openly admitted that Moscow’s overreliance for energy was a mistake, and they seek to wean the country off Russian gas – and fast. Germany has commissioned mothballed coal-fired power plants and built its first infrastructure to process liquefied natural gas (LNG) imported by sea. But Germany also needs to diversify its trading partners, and Southern Europe is high on the list.

With six LNG terminals in operation in Spain and one in Portugal, representing approximately a third of Europe’s processing capacity, the Iberian Peninsula has always had little dependence on Moscow – just over 10% of Spain’s total gas imports came from Russia in 2020, according to Eurostat. When Russian gas provided a cheap and plentiful alternative to LNG, this was a problem. Now, as Spanish officials note, this is a plus.

Berlin is now demanding a new pipeline to strengthen weak ties between the Iberian Peninsula and the rest of Europe, reviving a project abandoned in 2019 due to environmental concerns, funding issues and lack of support from France; the plan has long been backed by Spain and Portugal. But in a sign that solidarity will come at a price, Madrid is calling on the EU to foot the bill, arguing the new infrastructure would improve “security supply across the rest of Europe”.

German officials have also hinted recently that they hope for a stronger energy partnership with Italy, which, although historically the second largest European importer of Russian gas, has quickly turned to to diversify its supplies since the beginning of the war in Ukraine. In recent months, while its consumption of Russian gas has fallen by around 50%, Italy has increased its imports of LNG from various North African countries and the United States, expanding an already strong capacity to regasify the liquefied gas. He also moved to boost pipeline imports from Azerbaijan and Algeria, the latter of which has now overtaken Russia as Italy’s top gas supplier.

“Italy was starting from a favorable position because it already had the infrastructure in place: regasification plants, smaller regasification vessels and the pipelines connecting it to Algeria, Libya and Azerbaijan,” said said Tagliapietra. Italian energy company Eni’s close ties to North Africa also helped, he said.

Southern Europe has already benefited greatly from the good hand it has assembled. In the first six months of the year, Spanish natural gas exports via existing links with France overcome those of 2020 and 2021 combined while Italy’s gas exports exploded between January and May by a huge 578 percent compared to the same period last year.

The big question is to what extent this relative advantage in the energy game will translate into leverage on the many issues that continue to divide the bloc, from tax flexibility to immigration.

“The countries of the South have an additional element to play also on other negotiating tables; in the big European market, it’s something that matters,” said Tagliapietra.

That could be particularly tempting for Italy, where a coalition of mostly Eurosceptic far-right parties are set to win big in general elections slated for late September. The alliance has pledged to get looser public spending rules from Brussels and renegotiate parts of Italy’s EU-funded COVID-19 stimulus package.

On immigration, the tough stance taken by parties like Giorgia Meloni’s Brothers of Italy and Matteo Salvini’s League also risks putting them on a collision course with EU leaders. Salvini clashed frequently with Paris and Berlin during his tenure as interior minister in 2018 and 2019, when he demanded more burden-sharing – a demand also regularly voiced by Madrid – and refused to let go. Migrant ships dock at Italian ports.

For Claus Vistesen, an economist at Pantheon Macroeconomics, Spain and Italy are more likely to use their newfound influence to push for greater EU cooperation on migrants than to seek a solution. increased budget flexibility, an issue on which they hardly need significant changes from the status quo.

Fiscal rules were put on hold during COVID, and they’re not coming back anytime soon,” Vistesen said. In this regard, “if politicians in Italy or Spain use [energy] as a means of reclaiming power within the EU, I think they are going to overplay their cards because they are already getting a very, very good deal.

But with the energy crisis threatening to trigger another recession and the rising cost of public debt after the European Central Bank decided to raise interest rates to combat runaway inflation, heated debates over the Fiscal consolidation and the appropriate scope of EU bond-buying programs may well make a comeback. And in southern Europe there is worries that the so-called frugals of northern Europe will again give in to their pro-austerity instincts, while the German government seesaw between warmongering and more nuanced positions on EU budget reform.

Germany may not be as threatened as it seems, and Southern Europe may not be so golden. German industry is not heavily dependent on natural gas and uses it more efficiently than other major EU economies, said Daniel Gros, a senior researcher at the Center for European Policy Studies, a think tank. Reduced household consumption due to higher prices associated with new LNG infrastructure being built in the country could see Germany through the crisis, Gros added.

If Russian gas exports continue to decline and global competition intensifies, Spain and Italy may also struggle to get their hands on enough fuel for their own consumption, let alone resell it in quantities. important to other EU members. Italy saw its overall gas imports decline in June for the first time, as suppliers like Azerbaijan, Algeria and Libya struggled to fill the vacuum left by Russia.

The ability of southern EU countries to receive and resell gas will also depend on how quickly existing infrastructure can be expanded. The new Pyrenees pipeline would take at least eight or nine months to build, according to the Spanish government, and that is if all the political and financial hurdles are cleared. A project currently being assessed to double the capacity of the gas pipeline that carries Azerbaijani gas to Italy would likely take at least four years to complete.

But despite everything, a profound transformation of energy markets triggered by the Russian invasion of Ukraine is underway and may well be irreversible. “We are really considering redrawing the energy map of Europe, with the center of gravity moving from east to south,” Tagliapietra said. “And that’s going to be structural.”

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