US, EU and UK set out Russia energy policies

It's been a pivotal day in energy markets with the US, UK and EU all making new commitments as the world steps up measures against Russia following its invasion of Ukraine.

President Joe Biden announced the US will prohibit imports of Russian crude oil, petroleum, petroleum fuels, oils, and products of their distillation, LNG, coal and coal products. Last year, the US imported nearly 700,000 barrels per day of crude oil and refined petroleum products from Russia.

"The United States made this decision in close consultation with our Allies and partners around the world, as well as Members of Congress of both parties," read a statement.

Two other executive orders ban new US investment in Russia’s energy sector, which will ensure that American companies and American investors are not underwriting Vladimir Putin’s efforts to expand energy production inside Russia; and Americans will also be prohibited from financing or enabling foreign companies that are making investment to produce energy in Russia.

But he had a stark warning for oil and gas firms, and finance companies that back them, that they should not use the war as an excuse for excess price increases or padding profits. "As major energy company leaders have themselves said, they have the resources and incentives they need to further increase production in the United States," he said.

The UK will phase out the import of Russian oil and oil products by the end of 2022, according to Business Secretary Kwasi Kwarteng. This transition will give the market, businesses and supply chains "more than enough time" to replace Russian imports – which make up 8% of UK demand, he said.

The European Commission unveiled the most detailed plans as it aims to make Europe independent from Russian fossil fuels "well before 2030", starting with gas. 

Europe has been facing increased energy prices for several months, but now uncertainty on supply is exacerbating the problem. REPowerEU will seek to diversify gas supplies, speed up the roll-out of renewable gases and replace gas in heating and power generation. This can reduce EU demand for Russian gas by two thirds before the end of the year.

Commission President Ursula von der Leyen said we must become independent from Russian oil, coal and gas, and simply cannot rely on a supplier who explicitly threatens us.

"We need to act now to mitigate the impact of rising energy prices, diversify our gas supply for next winter and accelerate the clean energy transition," she said.

"The quicker we switch to renewables and hydrogen, combined with more energy efficiency, the quicker we will be truly independent and master our energy system. I will be discussing the Commission's ideas with European leaders at Versailles later this week, and then working to swiftly implement them with my team.”

Executive Vice-President for the European Green Deal, Frans Timmermans, said it is time we tackle our vulnerabilities and rapidly become more independent in our energy choices.

"Let's dash into renewable energy at lightning speed," he said. "Renewables are a cheap, clean, and potentially endless source of energy and instead of funding the fossil fuel industry elsewhere, they create jobs here. "Putin's war in Ukraine demonstrates the urgency of accelerating our clean energy transition.” 

Commissioner for Energy, Kadri Simson, said Russia's invasion of Ukraine has aggravated the security of supply situation and driven energy prices to unprecedented levels.

"For the remaining weeks of this winter, Europe has sufficient amounts of gas, but we need to replenish our reserves urgently for next year. The Commission will therefore propose that by 1 October, gas storage in the EU has to be filled up to at least 90%. We have also outlined price regulation, state aid and tax measures to protect European households and businesses against the impact of the exceptionally high prices.” 

Emergency measures on energy prices and gas storage

The Commission's ‘Energy Prices Toolbox' from last October has helped Member States to mitigate the impact of high prices on vulnerable consumers and it remains an important framework for national measures.

Today the Commission presented Member States with additional guidance, confirming the possibility to regulate prices in exceptional circumstances, and setting out how they can redistribute revenue from high energy sector profits and emissions trading to consumers. 

EU State Aid rules also offer Member States options to provide short-term support to companies affected by high energy prices, and help reduce their exposure to energy price volatility in the medium to long term.

Following a consultation on targeted amendments to the Emission Trading System State aid Guidelines, the Commission will also be consulting with Member States on the needs for and scope of a new State aid Temporary Crisis Framework to grant aid to companies affected by the crisis, in particular those facing high energy costs.

The Commission intends to present by April a legislative proposal requiring underground gas storage across the EU to be filled up to at least 90% of its capacity by 1 October each year. The proposal would entail the monitoring and enforcement of filling levels and build in solidarity arrangements between Member States. The Commission continues its investigation into the gas market in response to concerns about potential distortions of competition by operators, notably Gazprom.

To address the skyrocketing energy prices, the Commission will look into all possible options for emergency measures to limit the contagion effect of gas prices in electricity prices, such as temporary price limits.

It will also assess options to optimise the electricity market design taking into account the final report of the EU Agency for the Cooperation of Energy Regulators (ACER) and other contributions on benefits and drawbacks of alternative pricing mechanisms to keep electricity affordable, without disrupting supply and further investment in the green transition.

REPowerEU – eliminating EU dependence on Russian gas before 2030

Phasing out our dependence on fossil fuels from Russia can be done well before 2030. To do so, the Commission proposes to develop a REPowerEU plan that will increase the resilience of the EU-wide energy system based on two pillars: Diversifying gas supplies, via higher Liquefied Natural Gas (LNG) and pipeline imports from non-Russian suppliers, and larger volumes of biomethane and renewable hydrogen production and imports; and, reducing faster the use of fossil fuels in our homes, buildings, industry, and power system, by boosting energy efficiency, increasing renewables and electrification, and addressing infrastructure bottlenecks.

Full implementation of the Commission's ‘Fit for 55' proposals would already reduce our annual fossil gas consumption by 30%, equivalent to 100bn cubic metres (bcm), by 2030. With the measures in the REPowerEU plan, we could gradually remove at least 155bcm of fossil gas use, which is equivalent to the volume imported from Russia in 2021. 

Nearly two thirds of that reduction can be achieved within a year, ending the EU's overdependence on a single supplier. The Commission proposes to work with Member States to identify the most suitable projects to meet these objectives, building on the extensive work done already on national Recovery and Resilience Plans.

Following the invasion of Ukraine, the case for a rapid clean energy transition has never been stronger and clearer. The EU imports 90% of its gas consumption, with Russia providing around 45% of those imports, in varying levels across Member States. Russia also accounts for around 25% of oil imports and 45% of coal imports.

The Commission's Energy Prices Toolbox of October 2021 has been helping citizens and businesses to face high energy prices in recent months. 25 Member States have adopted measures in line with the toolbox which are already easing energy bills for over 70mn household customers and several million micro, small and medium-sized enterprises.

The Commission continues to work with neighbours and partners in the Western Balkans, and in the Energy Community, which share the EU's fossil fuel dependencies and exposure to price hikes, while also having committed to the same long term climate goals.

For Ukraine, Moldova and Georgia, the EU stands ready to provide support to ensure reliable and sustainable energy. The ongoing effort to provide for an emergency synchronisation of the Ukrainian and Moldovan electricity grids with the continental European grid is a clear token of this commitment.

Energy security 'must be prioritised with climate agenda in mind'

The current crisis in the energy markets has seen oil trading at over $130 a barrel, gas prices at record levels, and the prospect of physical shortages if Russian supplies are curtailed as a result of the events in Ukraine.  

Prices at these levels are already hitting business users hard, especially energy intensive industries that tend to be more directly exposed to changes in wholesale energy prices, and the risk of economic damage is high.

The UK and other European governments are urgently reviewing their energy policy in order to ensure supplies keep flowing - something that will be much harder to achieve if dependence on Russian oil and gas is to be reduced.

The flexibility of the international markets to respond is limited, and there is not much more OPEC countries can do to increase oil supplies. 

The UK government is therefore looking at how North Sea production could be increased and is expected to make announcements shortly on accelerating the roll out of renewables like wind and solar, new initiatives to improve energy efficiency, and continuing investment in low carbon nuclear for the longer term.

Recent events have strengthened the case for reducing dependence on fossil fuels, so it is no surprise that UK and European governments remain committed to their long-term objective of achieving Net Zero emissions by around 2050.  But the route by which we get there may have to be altered, at least in the immediate future, if our energy supplies are to remain secure.

As John Hall, Chairman of Alfa Energy Group, stated in a recent podcast: "In the shorter term, we are going to have to look at whatever we can to keep the lights on and keep industry running."