Climate: goodbye Russian gas, hello coal

In the short term, this inevitably means replac­ing Russ­ian gas with coal for part of the ener­gy mix and replac­ing anoth­er part of the mix with liq­ue­fied nat­ur­al gas (LNG) import­ed by sea. The imme­di­ate con­se­quence of the war in Ukraine is that poli­cies to reduce green­house gas emis­sions are put on hold, as coal-fired pow­er gen­er­a­tion emits about four times more CO2 than gas-fired gen­er­a­tion. In the long term, this means build­ing infra­struc­ture to increase LNG imports and devel­op renew­able energy.

In 2021, about 45% of the gas import­ed into Europe was of Russ­ian ori­gin. This depen­dence does not have the same weight in dif­fer­ent coun­tries. France imports 17% of its gas, Ger­many 50%, while Fin­land and Latvia, for exam­ple, import over 90%. Break­ing this depen­dence in the short term will there­fore require very dif­fer­ent efforts from one coun­try to another.

The demand for Russ­ian gas in Europe can be reduced by 18–20% by using coal or dual-fuel pow­er plants. Russ­ian nat­ur­al gas accounts for 11% of total pri­ma­ry ener­gy con­sump­tion in Europe. So, we are talk­ing about replac­ing around 2% of the ener­gy con­sumed in Europe today in the form of gas with coal. That’s about the annu­al ener­gy con­sump­tion of a coun­try like Aus­tria, or 10% of Ger­many’s ener­gy. An impor­tant detail: we could go fur­ther and start up old coal-fired pow­er sta­tions again. This is prob­a­bly what will hap­pen if we do not reduce the demand for heat­ing and elec­tric­i­ty sufficiently.

An exit from Russ­ian gas can be estab­lished through a three-pronged strat­e­gy. The first is the replace­ment of gas by LNG. The Unit­ed States and Qatar account for 26% and 24% of EU imports and are mas­sive exporters. How­ev­er, there are tech­ni­cal con­straints. Europe, espe­cial­ly Ger­many, lacks gas port ter­mi­nals and LNG regasi­fi­ca­tion plants. The world tanker fleet is 600 ships. This will not be enough to meet the rapid­ly grow­ing demand. Final­ly, once the gas is deliv­ered, it must be trans­port­ed across Europe. The sec­ond is the use of coal (import­ed from South Africa). Final­ly, it will be nec­es­sary to reduce the con­sump­tion of indus­tries and house­holds. It is through the com­ple­men­tar­i­ty of these three axes that Europe can reduce its depen­dence in 2022, even if the two-thirds sce­nario seems rather unre­al­is­tic. A reduc­tion of 50 to 60% is more like­ly. A com­plete halt to Russ­ian gas imports in 2027 will require mas­sive invest­ments, par­tic­u­lar­ly in renew­ables and LNG infra­struc­ture. Nuclear pow­er requires longer devel­op­ment times.

The Inter­na­tion­al Ener­gy Agency esti­mates that if every­one in Europe reduced their heat­ing by one degree, this would rep­re­sent a sav­ing of 6% in the vol­ume of gas import­ed from Rus­sia. In order to reduce French con­sump­tion as a whole, it would there­fore be nec­es­sary to reduce the tem­per­a­ture to heat build­ings in Europe by more than 3 degrees. This remains the­o­ret­i­cal, as some of this gas is con­sumed by industry. 

Ger­many uses 25% coal, 22% wind pow­er and 17% nat­ur­al gas to pro­duce its elec­tric­i­ty. France, on the oth­er hand, has invest­ed less in nat­ur­al gas, as 70% of its elec­tric­i­ty comes from nuclear pow­er. Gas is used in par­tic­u­lar for heat­ing, for indus­try and for pow­er sta­tions used dur­ing peak peri­ods. In addi­tion, a large pro­por­tion of the gas import­ed into France comes from Alge­ria and Nor­way, trans­port­ed by pipeline. This sit­u­a­tion should rein­force France’s nuclear strategy.

An obser­va­tion of futures mar­kets indi­cates that we will not go back to nor­mal before the third quar­ter of 2023. This seems a long way away, but does not mean a con­stant increase in gas prices until then. It is impos­si­ble to pre­dict the price of gas, but sta­ble and high prices are like­ly. In this increase, the effect of anx­i­ety and self-sanc­tion­ing, caused by the announce­ment of the Amer­i­can and British embar­go on Russ­ian gas and oil, are unde­ni­able. Banks and com­pa­nies are refus­ing to con­clude con­tracts with Rus­sians for fear of reprisals. The mini scan­dal sur­round­ing the com­pa­ny Shell, which has not put an end to its activ­i­ties in Rus­sia, illus­trates this well. To avoid attract­ing atten­tion, and thus dam­ag­ing their rep­u­ta­tion, traders apply sanc­tions them­selves, which leads to high­er prices.

The way we store this resource is there­fore strate­gic. Espe­cial­ly as we are just com­ing out of a dif­fi­cult year for this sec­tor, due in par­tic­u­lar to the health cri­sis. Nor­mal­ly, Euro­pean coun­tries start the spring with about 40% of their stor­age capac­i­ty, where­as this year, this 40% had already been reached in mid-Jan­u­ary. It is there­fore impor­tant to restock gas, but doing so at high prices is a risk for buy­ers. Espe­cial­ly since, if this is the strat­e­gy cho­sen, it pro­vides Rus­sia with an addi­tion­al weapon that it could exploit to push prices down.

Interview by Pablo Andres