By Eric Vandenbroeck and co-workers

Europe's Energy Crisis Could Last for Years

The Ukrainian Energy Ministry has announced that it'll pause Ukraine's energy exports to the European Union starting on October 11. This is due to the Russian shelling of Ukraine's energy infrastructure and many of its power plants.

The Ukrainian Energy Minister German Galushchenko explained that this is a necessary decision:

Today's missile strikes, which hit thermal generation and electrical substations, forced Ukraine to halt the export of electricity beginning on October 11, 2022, to stabilize its energy system.

Ukraine has been exporting electricity to the EU and has dedicated lines for energy supply to Poland and Moldova. The Energy Ministry attributes the missile strikes to Russia's aim of disrupting these exports to Europe.

 

Europe's Generational Energy Crisis

At the end of July, Russia reduced gas flows to Europe via the Nord Stream 1 pipeline to 20% capacity. Further restrictions in supply are likely, injecting great uncertainty into the outlook for the region. The weaponization of gas deliveries has already resulted in energy shortages and high prices and will cause an economic downturn in Europe this winter.

Europe is facing a generational energy crisis as it heads into winter. A shortfall of 150 billion cubic meters of gas—gas that Russia won't deliver to Europe this year because of its war in Ukraine—has left Europe scrambling to find alternatives and contain the fallout. Gas prices in Europe are now about eight times the average of the past ten years—and about eight times more expensive than prices in the United States. Governments are appealing to the public to reduce their gas usage while also trying to ensure consumers and businesses can afford to pay their gas and electricity bills at all—all the while preparing for the worst-case scenarios, ranging from periodic blackouts to cascades of industrial bankruptcies.

Can Europe afford to keep its businesses and citizens warm and safe through this winter? Does the energy crisis mean an end to Europe's climate policy goals? 

But it would be not very smart to assume that it will be short and that it will be over next year. Barring something unforeseen, like a Russian collapse or some extraordinary deal with OPEC, there's no reason to think the situation will not get progressively more difficult. Because the crucial thing is that this year because Europe was slow to move aggressively against Russia, they were able to fill up the gas storage tanks. I mean, if Europe were to experience a severe winter this year, and there is some meteorological evidence suggesting that we might be headed into that, there will likely be major shortages already this winter. But indeed, next year, all bets are off, really—it's not obvious where the replenishment of the stocks will come from next year. Over a time horizon of two to three to four years, with some of the investment in floating LNG [liquefied natural gas] terminals, major economies will begin to feed through and make the balance easier to strike. There's a sense that this year is nerve-wracking. Next year looks like it will be the most challenging period. And then, beyond that, the situation eases again.

But suppose Europe is at once to reduce its import deficit of gas substantially. In that case, all it needs to do is turn the thermostats down from an average of 22 degrees centigrade [71.6 degrees Fahrenheit] to 19 degrees centigrade [66.2 degrees], which would hugely slice and cut back on its import dependence. 

 

Ukraine Proposes A New Security Pact With NATO

The Ukrainian government has teamed up with a former NATO chief to propose a new security pact between Western governments and Ukraine modeled after the U.S. government's relationship with Israel. Former NATO Secretary-General Anders Fogh Rasmussen traveled to Washington last week to lay the groundwork for pitching the plan to the United States and other prominent Western allies.

Rasmussen characterized the pact as essentially a formal codification of Western support already extended to Ukraine since the invasion began in February. Rasmussen has worked with Andriy Yermak, Zelensky's chief of staff, on the proposal since May and this month began formally pitching the plan to NATO governments, starting in Washington.

Rasmussen drew comparisons between the proposed security compact and U.S. security cooperation with Israel—countries that consider themselves close military and political allies with layers of bilateral defense cooperation and mutual defense agreements that do not have a formal defense treaty. "We studied different models of security guarantees, including Taiwan, Israel, historical security guarantees, etc.," Rasmussen said. "This one is close to what you have seen between the U.S. and Israel."

Former U.S. officials and European diplomats who have reviewed the compact acknowledged the need to address the thorny question of sustaining Western support for Ukraine for the long haul but were divided as to whether the document would successfully be able to fill that gap.

"I appreciate what they're trying to do," said Jim Townsend, who served as U.S. deputy assistant secretary of defense for Europe and NATO during the Obama administration. He cautioned that being too ambitious with the pact could undermine efforts to get it off the ground altogether. "It's the perfect being the enemy of the good."

With U.S. military aid to Ukraine dwarfing that provided by other countries, Rasmussen acknowledged that the plan hinged on U.S. support. "Without active support from the U.S., this is just theory," he said. Between January and early August, according to the Kiel Institute for the World Economy's Ukraine Support Tracker, Washington pledged more than $24 billion in military aid—more than six times that of the second-biggest donor, the United Kingdom.

Rasmussen characterized the proposed security pact as part of a long-term answer to the West's long-standing challenge with Russia rather than as an act of charity to Ukraine as Washington tries to pivot more resources to geopolitical competition with China. "If we get this right, the security guarantees to Ukraine could fix the Russia problem because it is in the interest of the U.S. to have a strong and stable Eastern European partner as a bulwark against Russian attacks."

 

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