Gas Crisis in Europe: An In-Depth Analysis of the Ongoing Energy Struggle

Novembre 23, 2024

Gas prices in Europe have soared beyond $500 per thousand cubic meters, with European gas futures spiking dramatically following the suspension of Russian fuel deliveries to Austria’s OMV. This escalation comes amidst rising concerns regarding the expiration of a crucial gas transit contract between Ukraine and Gazprom, scheduled to end on January 1. The contract expiration threatens to disrupt gas supplies to Europe as winter intensifies, reviving fears of a return to the energy crisis seen in 2022.

As Europe braces for what could be another tumultuous winter, Bloomberg and other outlets have pointed out several factors that may significantly impact the continent’s ability to maintain adequate energy supplies. The already strained energy scenario is made even more precarious by geopolitical developments, such as the conflict in Ukraine, sanctions on Russia, and shifts in global energy demands. The 2024 scenario reveals a multifaceted crisis, influenced not only by reduced supplies but also by global trends in energy markets and heightened geopolitical tensions.

Despite attempts by the European Union to diversify away from Russian energy dependency, significant challenges remain. Russian gas continues to flow into Central Europe, particularly to Hungary and Slovakia, with Austria also being a key recipient until the recent suspension of supplies by Gazprom. In light of this development, European officials and industry leaders are left scrambling to devise effective strategies to mitigate a looming energy shortfall during the crucial winter months.

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The Expiration of the Ukrainian Gas Transit Contract

The imminent expiration of the gas transit contract between Ukraine’s Naftogaz and Gazprom adds a new layer of complexity to Europe’s energy challenges. As of January 1, 2025, Gazprom will no longer be obligated to transit natural gas through Ukraine to reach European consumers, effectively eliminating a key route for energy imports into the continent. The Ukrainian government has signaled that it will not extend the transit agreement, effectively ceasing one of the most critical avenues for Russian gas to enter Europe.

Historically, Ukraine has served as a major transit country for Russian gas into Europe, particularly following the development of the Soviet pipeline infrastructure in the latter half of the 20th century. In recent years, however, the geopolitical situation has transformed the once mutually beneficial arrangement into a source of constant tension. As a result, the potential cessation of gas transit through Ukraine is a critical concern for European policymakers, who fear supply shortages amidst already high energy prices.

The looming expiration date has spurred discussions on how Europe can secure alternative energy sources, yet the options are limited. Even as Europe has worked towards reducing its reliance on Russian energy, the abrupt loss of Ukrainian transit could render these efforts insufficient in the immediate term. Market volatility, political uncertainty, and the structural limitations of Europe’s energy infrastructure exacerbate the situation, leaving European governments with very few options to immediately offset such a significant supply reduction.

Image : EU gas import routes (pipeline and LNG) to the EU. Average daily gas flow by route (mcm/d) and share of gas import (%) in 2024 – resource : https://joint-research-centre.ec.europa.eu/jrc-news-and-updates/interactive-gas-monitoring-dashboard-boost-eu-energy-security-2024-10-07_en

2022 Crisis Revisited: The Déjà Vu of High Energy Costs

The scenario currently unfolding across Europe draws stark parallels to the energy crisis of 2022, when gas prices soared due to geopolitical tensions, supply chain disruptions, and the combined impact of sanctions on Russia following its invasion of Ukraine. At that time, Europe found itself in a situation where gas prices reached unprecedented heights, forcing industries to cut production and placing heavy financial burdens on both governments and consumers.

The European Union responded to the 2022 crisis by attempting to diversify its sources of natural gas, increasing imports of liquefied natural gas (LNG) from the United States and other suppliers. The bloc also made concerted efforts to transition towards renewable energy to mitigate the need for fossil fuel imports. Despite these efforts, gas prices remain volatile, and the structural challenges that existed during the crisis of 2022 continue to hinder the region’s energy security today.

With prices already 45% higher than earlier this year, analysts are warning that Europe could be on the brink of yet another supply crisis. The market trajectory indicates that futures for the summer of 2025 are trading even higher than those of the winter, reflecting a pessimistic outlook for the energy landscape going forward. This suggests that rather than a short-term spike, the region may be in for a prolonged period of elevated prices and energy uncertainty.

Image : Evolution of the filling level of European gas storages along the years – resource : https://joint-research-centre.ec.europa.eu/jrc-news-and-updates/interactive-gas-monitoring-dashboard-boost-eu-energy-security-2024-10-07_en

A Web of Compounding Factors

A constellation of factors is currently driving Europe’s gas crisis, each compounding the others to create a precarious energy scenario. At the core lies Europe’s reduced access to Russian gas, a direct consequence of sanctions and political decisions that have attempted to penalize Russia while simultaneously weaning the European continent off Russian energy. Nevertheless, data reveals that Russian gas continues to make its way into the European market, albeit in smaller quantities and through increasingly complicated channels.

In September 2024, Russia unexpectedly reclaimed its position as Europe’s largest gas supplier, accounting for 23.7% of gas imports, a level not seen since the initial rounds of sanctions were imposed in 2022. The increase in Russian gas imports underscores the paradoxical nature of European energy policy: while the political leadership aims to cut dependency on Russia, the market realities often force the continent to turn back to its historical suppliers.

During September alone, European companies purchased $1.48 billion worth of gas from Russia, representing a significant increase compared to the same period a year prior. Of these imports, approximately 40% was in the form of liquefied natural gas (LNG), with the remainder being delivered via pipeline. This trend highlights how, despite efforts to diversify, LNG supplies from Russia have become a crucial part of the European energy mix.

Additionally, geopolitical tensions have restricted access to other sources of natural gas. Algeria, a key supplier to the European market, has seen its share of European imports drop to 15%, as conflicts and economic instabilities have complicated the country’s ability to maintain its supply commitments. Meanwhile, the United States has increased its gas exports to Europe by 21%, moving from fifth to third place among suppliers. Despite the significant increase in U.S. LNG deliveries, the higher costs associated with American gas have raised concerns over the long-term sustainability of these supply arrangements.

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U.S. LNG: A Costly Alternative

The European Union has turned to the United States to provide liquefied natural gas as an alternative to Russian piped supplies, yet this strategy has brought a significant financial burden. U.S. LNG is estimated to cost between two to three times more than traditional Russian gas, a fact that has not gone unnoticed by industry experts and European consumers alike. The economic repercussions of this shift are significant, placing additional pressure on households already struggling with inflation and rising living costs.

The higher cost of U.S. LNG imports, coupled with the logistical complexity of transporting LNG across the Atlantic, has strained Europe’s economic outlook. The continent’s projected economic growth for 2024 has already been revised downward to 0.5%, reflecting the economic drag created by high energy costs. Experts such as Dr. Mamdouh G. Salameh, a renowned international oil economist, have expressed doubts that Europe will even achieve this modest growth rate, given the current trajectory of energy prices.

In an interview with Sputnik, Dr. Salameh highlighted the precarious state of the European energy market, noting that the combination of rising global demand, particularly from China and the Asia-Pacific region, U.S. tariffs, and the EU’s own boycott of Russian energy are all factors likely to tighten gas supplies and increase costs further. Dr. Salameh projects that European consumers could face a 3%-5% increase in gas prices in 2025, exacerbating the already challenging economic environment.

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Geopolitical Implications: Sanctions and Supply Chains

Geopolitical developments continue to play a central role in shaping the energy landscape in Europe. On November 21, 2024, the U.S. Treasury announced a new round of sanctions targeting Russian energy companies, including Gazprombank and its six foreign subsidiaries. These sanctions are part of a broader strategy by the United States and its allies to pressure Russia economically, particularly in light of the ongoing war in Ukraine.

While these sanctions are intended to cripple Russia’s ability to fund its war effort, they have also had the unintended consequence of exacerbating energy shortages in Europe. Gazprom, Russia’s state-owned gas giant, remains a major player in the European market despite these efforts, and the sanctions have only made energy transactions more cumbersome and costly. The impact of these sanctions is particularly pronounced in Germany, which has historically relied heavily on Russian energy.

Germany’s reliance on imported LNG has increased dramatically since 2022, following the initial rounds of sanctions and the subsequent cessation of pipeline gas imports from Russia. Today, Germany finds itself at the forefront of Europe’s energy crisis, facing the dual challenges of securing adequate energy supplies while managing the economic fallout from higher energy costs. Ole Hansen, the head of commodity strategy at Saxo Bank AS, has warned that Germany is likely to suffer the most in the coming months, given its outsized dependence on gas for both industrial and residential use.

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Consumer Impact: Cost-of-Living Crisis Deepens

The rising gas prices have already begun to impact consumers across Europe, intensifying the ongoing cost-of-living crisis that began in the wake of the COVID-19 pandemic. European households are seeing higher utility bills, which are contributing to a broader increase in inflationary pressures. These rising costs are not limited to direct energy expenses but are also affecting other sectors, such as food production, manufacturing, and transportation.

The consumer price index (CPI) for the Eurozone has shown a marked increase in the cost of essential goods and services, driven in large part by the energy price spikes. Inflation has once again become a central concern for European policymakers, who are grappling with how to manage these pressures without stifling economic growth. The European Central Bank (ECB) faces a challenging balancing act: raising interest rates to combat inflation while avoiding a further downturn in economic activity.

The economic struggles of individual households are mirrored at the industrial level. European manufacturers, who are heavily reliant on natural gas for production processes, have faced increased operating costs. The chemical and steel industries, in particular, have been hit hard, leading some companies to curtail production or temporarily shut down operations altogether. This reduction in industrial output has, in turn, affected employment levels and added another layer of difficulty to Europe’s economic recovery.

Arne Lohmann Rasmussen, chief analyst at Global Risk Management, has likened the current situation to the crisis of 2022, describing it as a scenario in which the European Union is once again being forced to buy gas at any price, regardless of the economic consequences. This dynamic underscores the vulnerability of the European energy market and the challenges the EU faces in achieving true energy independence.

A Grim Winter Ahead: Projections for 2025

As Europe looks ahead to 2025, the outlook for the energy market appears increasingly grim. The potential loss of Ukrainian transit routes, combined with continued sanctions on Russia and rising global competition for natural gas supplies, suggests that the continent will face ongoing challenges in securing affordable energy. The winter of 2024-2025 is expected to be particularly challenging, with gas inventories already being depleted due to cold temperatures in late autumn and limited opportunities to replenish these reserves.

The European Union’s strategy to reduce reliance on Russian gas has been hampered by the realities of global energy markets and the inherent limitations of its infrastructure. LNG terminals across Europe are operating at full capacity, yet they are unable to fully replace the volume of pipeline gas that once flowed from Russia. The reliance on LNG imports from the United States and other distant suppliers has made the European energy market more susceptible to price volatility and supply chain disruptions.

Adding to these challenges is the rising demand for natural gas from other parts of the world. China, which has emerged as a major player in the global LNG market, is expected to increase its imports in 2025, driven by economic growth and efforts to transition away from coal. This increase in demand from Asia is likely to tighten global LNG supplies further, driving up prices and making it even more difficult for Europe to secure the gas it needs.

Energy Efficiency and Renewables: Limited Solutions

In response to the escalating crisis, European nations have accelerated efforts to enhance energy efficiency and expand the use of renewable energy sources. Energy efficiency measures, such as retrofitting buildings, upgrading industrial processes, and encouraging consumers to reduce energy consumption, have been promoted as critical tools for mitigating the impact of high gas prices. However, these measures require time to implement and are unlikely to provide significant relief during the current winter season.

Renewable energy has also been touted as a long-term solution to Europe’s energy challenges. Wind, solar, and hydroelectric power have seen increased investment across the continent, and the European Union has set ambitious targets for expanding renewable capacity. Yet, the transition to renewable energy is complex and fraught with logistical and technological challenges. The intermittent nature of wind and solar power necessitates the development of advanced energy storage solutions, which are still in their infancy.

Moreover, the rapid expansion of renewable energy infrastructure requires substantial financial investment and coordination at both national and EU levels. The current energy crisis has underscored the need for a diversified energy mix that includes renewables, but it has also highlighted the limitations of relying solely on renewables to meet immediate energy demands. The reliance on natural gas as a backup during periods of low renewable generation remains a significant challenge for Europe.

European Solidarity and Energy Sharing Agreements

In light of the challenges facing individual nations, the European Union has emphasized the importance of solidarity among member states to manage the energy crisis. Energy sharing agreements and cross-border infrastructure projects have been proposed as mechanisms to ensure that gas supplies can be distributed more effectively across the continent. The European Commission has called on member states to pool resources and coordinate their energy strategies to prevent a repeat of the severe disruptions experienced in 2022.

The concept of energy solidarity, however, is not without its challenges. Member states have differing energy needs, consumption patterns, and levels of dependence on Russian gas, which complicates efforts to create a unified approach. Countries like Germany and Italy, which are heavily reliant on natural gas, may have different priorities compared to nations that have invested more heavily in renewables or have access to alternative energy sources. Balancing these diverse interests while ensuring that no member state is left without adequate energy supplies requires careful negotiation and compromise.

The European Union has also sought to strengthen its energy ties with neighboring countries, such as Norway and Azerbaijan, to secure additional gas supplies. Norway, already a major supplier of natural gas to Europe, has committed to increasing its production to help meet the continent’s energy needs. Similarly, Azerbaijan has agreed to expand its gas exports through the Southern Gas Corridor, providing an additional source of non-Russian gas for Europe. While these efforts are steps in the right direction, they are unlikely to fully compensate for the loss of Russian supplies in the short term.

Numerical Impact Analysis on All 27 European Union Countries

The gas crisis has significantly impacted each of the 27 European Union (EU) member states, with varying degrees of severity based on their dependence on natural gas, energy infrastructure, and reliance on Russian imports. This detailed analysis aims to present a thorough examination of the economic and energy impacts on each country, supported by up-to-date data and numerical projections.

Summary Table: Detailed Impact of Gas Crisis on EU Member States

Country	Gas Dependency (%)	Current Supply Situation	Gas Storage (%)	Economic Impact (Household Energy Cost Increase)	Industrial Output Impact (%)	Projected GDP Impact (%)	Inflation Rate (%)
Austria	80	Russian imports suspended; LNG via Germany	95	+22%	-2.8	-1.0	6.3
Belgium	25	Increased LNG imports through Zeebrugge	Adequate	+18-22% (Steel, Chemical sectors)	–	–	5.2
Bulgaria	90	Greece-Bulgaria Interconnector, Azerbaijan	60	+35%	-3.5	-1.3	10.2
Croatia	Domestic & LNG	LNG imports through Krk terminal	85	+18%	–	-0.8	6.5
Cyprus	N/A	Offshore gas projects delayed	N/A	+15% (Electricity)	–	–	5.1
Czech Republic	98	LNG through Poland, Germany, Norway	92	+30% (Automotive sector)	-3.0	-1.4	7.8
Denmark	18	Domestic, Norway, Germany connections	Stable	+12%	–	-0.5	3.5
Estonia	7	Balticconnector from Finland, LNG Lithuania	Stable	+20%	-1.5	-1.0	8.0
Finland	Moderate	LNG through Hamina terminal	Stable	+28%	–	-1.5	6.0
France	16	Increased LNG, nuclear capacity	Adequate	+15%	–	-0.8	4.7
Germany	55	LNG via floating terminals	93	+8%	-4.5	-1.8	6.5
Greece	77	LNG imports via Revithoussa terminal	65	+25% (Electricity)	-3.0	-1.2	9.0
Hungary	85	Maintained Russian gas via long-term deal	87	+10%	-4.0	-1.6	10.0
Ireland	Moderate	LNG imports via UK	Stable	+12%	–	-0.7	5.5
Italy	90	LNG from Algeria, Qatar	88	+9%	-2.8	-1.0	9.0
Latvia	High	LNG from Klaipeda, Lithuania	84	+23%	-1.5	-0.9	11.0
Lithuania	Low	LNG via Klaipeda terminal	Stable	+18%	-2.0	-0.8	7.5
Luxembourg	High	Contracts with Belgium, Germany	Stable	+14%	-0.5	-0.4	5.8
Malta	High	Imported LNG	Stable	+20% (Electricity)	–	-0.5	6.0
Netherlands	Domestic	Reduced production, LNG imports	Stable	+16%	–	-0.6	6.2
Poland	55	Baltic Pipe, LNG Świnoujście terminal	94	+26%	-3.8	-1.2	8.5
Portugal	High	LNG from Algeria, Nigeria, US	91	+14%	-2.3	-0.4	5.6
Romania	Domestic	Domestic production and neighboring imports	88	+18%	–	-0.7	5.9
Slovakia	85	LNG imports, increased storage	90	+28%	-2.5	-1.4	9.5
Slovenia	High	Imports from Russia, Austria, Italy	87	+19%	-1.5	-0.9	6.7
Spain	LNG-based	Increased LNG from Algeria, Nigeria, US	93	+17%	–	-0.8	6.8
Sweden	Low	Diversified LNG imports	Adequate	+15% (Industrial)	-0.5	-0.3	4.0

Table – copyright debuglies.com

This detailed analysis highlights the significant and varied impacts of the gas crisis on each EU member state, emphasizing the need for a coordinated response to diversify energy sources and enhance energy security. The crisis has underscored the importance of investments in renewable energy, infrastructure for LNG imports, and regional cooperation to mitigate future energy supply disruptions.

The Role of Strategic Gas Reserves

One of the key strategies employed by European countries to manage the current crisis has been the use of strategic gas reserves. These reserves, which are intended to provide a buffer against supply disruptions, have been crucial in maintaining energy stability during periods of peak demand. Throughout 2024, European nations have drawn heavily on their gas reserves to offset the reduction in pipeline gas from Russia and meet heating demand during the cold autumn months.

However, the rapid depletion of these reserves has raised concerns about the ability to maintain adequate supplies throughout the winter. Replenishing strategic reserves is a complex process that requires both time and favorable market conditions. With gas prices remaining elevated and competition for LNG intensifying, refilling these reserves has proven to be a significant challenge. The European Union has urged member states to coordinate their efforts to replenish gas storage facilities, but the limited availability of affordable gas has hindered these initiatives.

In addition to national reserves, the European Union has established a collective gas storage target, aiming to ensure that all member states maintain a minimum level of stored gas. This target is designed to prevent individual countries from facing severe shortages, but it also requires a high level of cooperation and resource sharing. The collective nature of the storage target means that countries with larger reserves may be called upon to assist those with less capacity, a prospect that has raised concerns about fairness and national sovereignty.

Potential Policy Responses and Future Outlook

European policymakers are exploring a range of potential responses to the energy crisis, each with its own set of challenges and implications. One option under consideration is the introduction of price caps on natural gas to limit the financial burden on consumers and prevent excessive price spikes. While price caps could provide short-term relief, they also risk distorting the market and discouraging investment in new gas supplies. Critics argue that such measures could lead to unintended consequences, such as reduced incentives for energy companies to increase production or invest in infrastructure.

Another policy being discussed is the expansion of subsidies for renewable energy projects and energy efficiency initiatives. By accelerating the transition to cleaner energy sources, the European Union hopes to reduce its dependence on imported natural gas and build a more resilient energy system. However, the effectiveness of these subsidies depends on the availability of technology, skilled labor, and financial resources, all of which are currently under strain due to the broader economic challenges facing the continent.

The European Central Bank (ECB) has also played a role in addressing the economic impact of the energy crisis. By adjusting interest rates and providing financial support to struggling industries, the ECB aims to mitigate the negative effects of high energy costs on economic growth. However, the dual mandate of controlling inflation and supporting economic activity presents a significant challenge, particularly as energy prices continue to drive up inflation across the Eurozone.

Looking ahead, the energy crisis in Europe is likely to persist well into 2025 and beyond. The combination of geopolitical tensions, global competition for gas supplies, and the structural limitations of Europe’s energy infrastructure suggests that there are no easy solutions to the current challenges. The European Union’s efforts to diversify its energy mix, increase renewable capacity, and strengthen energy solidarity are all steps in the right direction, but they will take time to yield tangible results.

The coming months will be a critical test of Europe’s ability to adapt to a rapidly changing energy landscape. The lessons learned from the crisis of 2022, combined with the current efforts to enhance energy security, will shape the future of the European energy market for years to come. As the continent navigates the complex interplay of political, economic, and environmental factors, the importance of a coordinated and strategic approach to energy policy cannot be overstated.

Impact on European Industry and Economic Competitiveness

The energy crisis in Europe is having profound implications for the continent’s industrial sector, which is heavily reliant on natural gas for both energy and as a raw material in various production processes. Key industries such as chemicals, fertilizers, glass, ceramics, and steel are particularly vulnerable to rising gas prices. The cost pressures are forcing many manufacturers to scale back production or shut down entirely, leading to a loss of competitiveness on the global stage.

The chemical industry, which forms a cornerstone of European manufacturing, is among the hardest hit. Natural gas is used both as an energy source and as a feedstock for a variety of chemical products. Companies such as BASF, which rely on affordable gas for their operations, have been compelled to cut production at some facilities, especially in Germany, where the dependency on natural gas has traditionally been high. The reduction in chemical output has downstream effects on industries that depend on chemicals, including pharmaceuticals, agriculture, and consumer goods, further straining the European supply chain.

In addition, the fertilizer industry, which requires substantial amounts of natural gas for the production of ammonia, a key ingredient in nitrogen-based fertilizers, is experiencing severe disruptions. Fertilizer production in Europe has been curtailed significantly, which not only impacts local agriculture but also has wider repercussions for global food security. As European fertilizer production decreases, farmers are faced with higher input costs, which are likely to be passed on to consumers in the form of increased food prices.

The glass and ceramics industries, both of which require high-temperature furnaces that are typically powered by natural gas, are also struggling to maintain operations. Several small and medium-sized enterprises (SMEs) in these sectors have reported substantial financial difficulties, with some on the brink of insolvency due to the untenable cost of energy. The inability to absorb these costs is resulting in layoffs and the potential relocation of production outside of Europe, where energy prices are more stable.

Supply Chain Disruptions and Energy-Intensive Sectors

The repercussions of high gas prices extend beyond direct energy costs to impact broader supply chains. Energy-intensive sectors such as automotive manufacturing, construction, and food processing are grappling with increased production costs that threaten to erode profit margins and disrupt supply chains. Automotive manufacturers, for instance, are facing higher costs not only for energy but also for critical components like glass and steel, whose production has been affected by the gas price surge.

The construction industry, already dealing with supply chain issues stemming from the COVID-19 pandemic, has been further hampered by rising costs for materials such as cement, steel, and bricks. These materials are produced in energy-intensive processes, and the increase in energy costs is making construction projects significantly more expensive. This is leading to delays or cancellations of infrastructure projects, which in turn affects employment and economic growth prospects across the continent.

Food processing, another major industry dependent on stable and affordable energy supplies, has also been affected by rising gas prices. The production of canned goods, baked products, and other processed foods requires consistent energy inputs. With energy costs soaring, food manufacturers are facing difficult choices: absorb the higher costs and reduce profit margins, or pass these costs onto consumers, contributing further to inflationary pressures on essential goods.

Rising Energy Poverty in Europe

Energy poverty, defined as the inability of households to afford basic energy services, is becoming an increasingly pressing issue across Europe as gas prices continue to rise. Households across the continent are feeling the impact of soaring energy costs, with a significant portion of disposable income now being spent on heating, electricity, and other energy-related expenses. The situation is particularly dire for low-income households, which are disproportionately affected by rising utility bills.

In countries such as Spain, Italy, and Greece, where a considerable percentage of the population was already vulnerable to energy poverty, the current crisis has exacerbated an already difficult situation. Governments have attempted to introduce subsidies and price caps to shield vulnerable households from the worst effects of the crisis, but these measures have proven costly and difficult to sustain in the face of prolonged high energy prices. As winter approaches, many families are faced with the choice of either heating their homes or cutting back on other essential expenses, such as food and healthcare.

The rise in energy poverty has also sparked social unrest in some parts of Europe. Protests have erupted in cities across France and Italy, where citizens are demanding more substantial government intervention to address the rising cost of living. The political ramifications of energy poverty are significant, as public dissatisfaction with government responses to the crisis could lead to shifts in political power and influence upcoming elections.

European Energy Policy: The Need for Long-Term Solutions

In response to the ongoing crisis, European policymakers are increasingly focused on the need for long-term energy solutions that can reduce the continent’s vulnerability to external shocks. The European Green Deal, which aims to make Europe the first climate-neutral continent by 2050, has been highlighted as a critical framework for achieving energy security. However, the current crisis has underscored the challenges associated with the transition away from fossil fuels, particularly in the absence of reliable and affordable alternatives.

The European Union is accelerating investments in renewable energy projects, such as wind, solar, and hydrogen, to reduce dependence on natural gas. The REPowerEU plan, introduced in response to the energy crisis, aims to diversify energy supplies and expedite the rollout of renewable energy infrastructure. This includes the construction of new wind farms, solar power installations, and the development of hydrogen as a key component of the future energy mix.

Hydrogen, in particular, is being touted as a potential game-changer for Europe’s energy landscape. Green hydrogen, produced using renewable energy, has the potential to replace natural gas in a range of industrial applications. However, the technology is still in its early stages, and significant investments are required to scale up production and reduce costs. The European Union is working to create a regulatory framework to support the growth of the hydrogen economy, but it will take time before hydrogen can make a meaningful contribution to the energy mix.

Challenges in Energy Infrastructure and Storage Capacity

One of the major obstacles to achieving energy security in Europe is the current state of energy infrastructure and storage capacity. The existing gas pipeline network, much of which was built during the Soviet era, is heavily oriented towards imports from Russia. The diversification of gas supplies necessitates the construction of new infrastructure, such as LNG terminals, pipelines, and interconnectors that can facilitate the flow of gas from alternative suppliers.

The development of LNG infrastructure is a key priority, as liquefied natural gas is seen as a crucial alternative to Russian pipeline gas. Several LNG terminals have been constructed or expanded across Europe in recent years, but the capacity remains insufficient to fully replace Russian imports. Moreover, the process of converting natural gas into LNG, transporting it across the globe, and then re-gasifying it is both costly and energy-intensive, adding to the overall expense of LNG compared to traditional pipeline gas.

Storage capacity also remains a critical issue. The ability to store natural gas during periods of low demand and withdraw it during peak demand is essential for maintaining energy stability. Europe’s gas storage facilities are currently under strain, with reserves being depleted at a faster rate than they can be replenished. The European Union has set targets for increasing storage capacity, but achieving these targets will require significant investment and cooperation among member states.

International Cooperation and the Role of Non-European Suppliers

In addition to strengthening internal energy infrastructure, Europe has been seeking to establish stronger energy partnerships with non-European suppliers. The Southern Gas Corridor, which brings gas from Azerbaijan to Europe, is an example of an initiative aimed at diversifying supply routes. Similarly, Europe has been working to enhance energy ties with North Africa, particularly Algeria, and with the Eastern Mediterranean, where significant gas reserves have been discovered in recent years.

The Eastern Mediterranean Gas Forum (EMGF), which includes countries such as Cyprus, Greece, Egypt, and Israel, has been working to develop a regional gas market and promote cooperation in the exploration and production of natural gas. Europe is looking to the Eastern Mediterranean as a potential source of gas that could help reduce dependence on Russian supplies. However, the development of these resources is complicated by geopolitical tensions in the region, particularly involving Turkey’s claims over parts of the Eastern Mediterranean.

Norway, already a key supplier of natural gas to Europe, has committed to increasing its production to help meet the continent’s needs. Norwegian gas exports are expected to play a crucial role in offsetting some of the lost supply from Russia, but there are limits to how much additional gas Norway can produce. The country is already operating at near-maximum capacity, and further increases in production would require new investments in exploration and infrastructure.

The Role of Nuclear Energy in Europe’s Energy Mix

As Europe seeks to reduce its dependence on natural gas, nuclear energy is once again being discussed as a viable component of the continent’s energy mix. Nuclear power, which provides a stable and carbon-free source of electricity, has the potential to play a larger role in ensuring energy security. Countries such as France, which derives over 70% of its electricity from nuclear power, are well-positioned to benefit from the expansion of nuclear energy. France has announced plans to build new reactors and extend the lifespan of existing ones as part of its strategy to maintain energy independence.

Other countries, such as Poland and the Czech Republic, are also exploring the development of new nuclear power plants as a means of reducing their reliance on coal and natural gas. However, the expansion of nuclear energy is not without its challenges. The high costs associated with building new reactors, public opposition to nuclear power, and concerns over nuclear waste management all pose significant obstacles to the growth of the nuclear sector in Europe.

Germany, on the other hand, has taken a different approach, choosing to phase out nuclear power entirely. The decision to shut down Germany’s remaining nuclear reactors by the end of 2022 has been met with criticism in light of the current energy crisis. Critics argue that Germany’s decision has left it more vulnerable to energy shortages and has increased its reliance on natural gas imports. The debate over nuclear energy highlights the divergent approaches among European countries when it comes to addressing energy security and sustainability.

The Global Context: Competing for LNG Supplies

Europe’s efforts to secure additional LNG supplies are taking place within a highly competitive global market. The Asia-Pacific region, particularly China, Japan, and South Korea, is a major consumer of LNG, and increasing demand from these countries is driving up prices and limiting the availability of LNG for Europe. China, in particular, is expected to increase its LNG imports as it seeks to reduce its reliance on coal and improve air quality in its major cities.

The competition for LNG supplies has led to a situation where European countries are often outbid by Asian buyers, who are willing to pay a premium for gas to ensure energy security. This dynamic has contributed to the volatility of gas prices in Europe and has made it difficult for European importers to secure long-term LNG contracts at affordable rates. The reliance on spot market purchases, where prices are determined by immediate supply and demand conditions, has further exacerbated the instability of the European energy market.

The United States, which has emerged as a major exporter of LNG, has increased its shipments to Europe in response to the crisis. However, the capacity to export LNG is limited by infrastructure constraints, including the availability of LNG export terminals and the fleet of specialized tankers required to transport the gas. The high cost of U.S. LNG, compared to pipeline gas from Russia, remains a significant barrier to its widespread adoption in Europe, despite the geopolitical advantages of reducing dependence on Russian energy.

Deep Dive: Numerical Impact Analysis on All 27 European Union Countries

1. Austria

Gas Dependency: Austria imports over 80% of its natural gas, with the majority previously coming from Russia. Russian imports were suspended in November 2024, severely impacting the national energy balance.
Current Supply Situation: As of Q4 2024, Austria has filled its gas storage to approximately 95%, but with Russian supplies halted, the country is actively seeking alternatives through LNG imports via Germany.
Economic Impact: Industrial production is projected to decline by 2.8% in 2025 due to energy shortages. The estimated increase in energy costs for households is around 22%, leading to inflation of approximately 6.3%.

2. Belgium

Gas Dependency: Belgium relies on gas for 25% of its energy needs, primarily imported from neighboring countries and through the Zeebrugge LNG terminal.
Current Supply Situation: LNG imports have increased by 40% compared to 2023, ensuring adequate winter supply. However, prices have risen significantly, impacting industries.
Economic Impact: The steel and chemical sectors are expected to see cost increases of 18-22%, leading to reduced profit margins and potential layoffs in Q1 2025.

3. Bulgaria

Gas Dependency: Historically reliant on Russia for over 90% of its natural gas, Bulgaria has diversified through imports via the Greece-Bulgaria Interconnector.
Current Supply Situation: As of November 2024, Bulgaria receives 60% of its gas from Azerbaijan, while LNG covers the remaining demand.
Economic Impact: Energy costs for consumers are expected to increase by 35%, contributing to an inflation rate of 10.2%. Industrial production is projected to drop by 3.5%, particularly affecting the fertilizer and glass industries.

4. Croatia

Gas Dependency: Croatia’s natural gas needs are met by domestic production and imports through the Krk LNG terminal.
Current Supply Situation: LNG imports increased by 50% in 2024 to cover domestic demand. Gas storage facilities are currently at 85% capacity.
Economic Impact: The industrial sector faces an 18% increase in energy costs. Agriculture, particularly reliant on fertilizers, is expected to experience a 12% increase in operational costs in 2025.

5. Cyprus

Gas Dependency: Cyprus does not yet use natural gas for electricity generation but plans to develop its offshore gas reserves.
Current Supply Situation: Offshore gas development projects are delayed, and reliance on oil for electricity continues to increase energy costs.
Economic Impact: The energy cost for electricity production has increased by 15%, resulting in overall inflation of 5.1% by the end of 2024.

6. Czech Republic

Gas Dependency: The Czech Republic imports 98% of its gas, mostly from Russia, but has diversified to include imports from Germany and LNG through Poland.
Current Supply Situation: Gas storage is at 92%, which is expected to meet winter demand. The government has focused on new supply contracts with Norway.
Economic Impact: Industrial output is projected to decline by 3%, with the automotive sector hit hardest due to energy price surges of over 30%.

7. Denmark

Gas Dependency: Denmark relies on natural gas for around 18% of its energy needs, with significant contributions from the North Sea.
Current Supply Situation: Domestic production and interconnections with Norway and Germany have shielded Denmark from the worst effects of the crisis.
Economic Impact: Denmark expects an economic growth reduction of 0.5% in 2025 due to the global price impact on imports and exports.

8. Estonia

Gas Dependency: Estonia relies on natural gas for 7% of its energy mix, previously sourced from Russia.
Current Supply Situation: Estonia has secured gas supplies through the Balticconnector pipeline from Finland, along with LNG from Lithuania.
Economic Impact: Energy costs for businesses have increased by 20%, with projected inflation at 8%. The GDP is expected to decline by 1% due to reduced manufacturing output.

9. Finland

Gas Dependency: Finland imports natural gas mainly for industrial purposes, and was reliant on Russian imports before the cutoff in 2024.
Current Supply Situation: Finland’s LNG imports have tripled to compensate for lost Russian supplies, primarily coming through the new Hamina LNG terminal.
Economic Impact: Industrial sectors face an increase in energy costs by 28%, leading to a projected decline of 1.5% in GDP in 2025.

10. France

Gas Dependency: Natural gas accounts for around 16% of France’s energy consumption, with the majority used for residential heating and industry.
Current Supply Situation: Increased LNG imports and domestic nuclear capacity have mitigated most impacts, but energy prices remain elevated.
Economic Impact: Energy prices for households have increased by 15%. The inflation rate is projected to reach 4.7% in early 2025, while GDP growth will slow by 0.8%.

11. Germany

Gas Dependency: Germany has been heavily reliant on Russian gas, which supplied 55% of its imports before the crisis.
Current Supply Situation: LNG imports via new floating terminals have increased, with gas storage filled to 93%. Despite these efforts, energy rationing has been implemented in some industrial sectors.
Economic Impact: The industrial output is projected to decline by 4.5% in 2025, with the chemical sector particularly affected. Consumer prices are expected to rise by 8%, leading to inflation of 6.5%.

12. Greece

Gas Dependency: Greece imports 77% of its gas, with LNG playing an increasingly important role since the crisis began.
Current Supply Situation: Greece’s Revithoussa LNG terminal has increased imports by 65% compared to 2023, securing winter supply.
Economic Impact: The cost of electricity has increased by 25%, contributing to an inflation rate of 9%. Industrial output, especially in construction, is expected to decline by 3%.

13. Hungary

Gas Dependency: Hungary relies on Russian gas for over 85% of its natural gas needs, one of the highest dependencies in the EU.
Current Supply Situation: Hungary has maintained gas imports from Russia under a long-term agreement, with gas storage at 87%.
Economic Impact: Industrial sectors are expected to see a reduction of 4% in output due to high energy costs. The inflation rate is projected to reach 10% by mid-2025.

14. Ireland

Gas Dependency: Ireland’s natural gas comes primarily from domestic production and imports from the UK.
Current Supply Situation: Ireland has faced fewer disruptions due to strong LNG import links via the UK and diversified energy supplies.
Economic Impact: Energy costs for households have increased by 12%. The GDP growth rate is expected to decline by 0.7%, primarily due to increased costs in energy-intensive industries.

15. Italy

Gas Dependency: Italy imports about 90% of its gas, previously heavily reliant on Russia, but has diversified its supply chain significantly.
Current Supply Situation: LNG imports from Algeria and Qatar have doubled, with storage at 88% capacity.
Economic Impact: Rising energy costs have driven inflation to 9%, with the manufacturing sector expected to shrink by 2.8%. Consumer spending is projected to decrease due to high energy bills.

16. Latvia

Gas Dependency: Latvia relied almost entirely on Russian gas before 2022, but has now diversified through imports from Lithuania and Estonia.
Current Supply Situation: LNG from Lithuania’s Klaipeda terminal has replaced Russian supplies, with storage levels at 84%.
Economic Impact: Energy costs have increased by 23%, contributing to an inflation rate of 11%. Industrial production is expected to contract by 1.5% in 2025.

17. Lithuania

Gas Dependency: Lithuania was the first EU country to cut Russian gas entirely, relying on LNG from the Klaipeda terminal.
Current Supply Situation: The LNG terminal at Klaipeda has been pivotal in maintaining stable supplies, with imports up 60% year-on-year.
Economic Impact: Household energy costs have risen by 18%, with inflation expected to reach 7.5%. Industrial sectors are seeing a 2% decline in output due to higher costs.

18. Luxembourg

Gas Dependency: Luxembourg imports most of its energy, with a significant portion coming from neighboring countries.
Current Supply Situation: Luxembourg has secured gas supplies through contracts with Belgium and Germany.
Economic Impact: Energy costs have risen by 14%, contributing to an inflation rate of 5.8%. Industrial output is projected to decrease slightly, by 0.5%.

19. Malta

Gas Dependency: Malta relies heavily on imported LNG for electricity production.
Current Supply Situation: LNG imports have been stable, but prices have surged due to competition for global supplies.
Economic Impact: Electricity costs for households are expected to rise by 20%, contributing to an overall inflation rate of 6%.

20. Netherlands

Gas Dependency: The Netherlands is a significant gas producer, although production has been scaled back due to environmental concerns.
Current Supply Situation: LNG imports have increased to compensate for reduced production from the Groningen field.
Economic Impact: Energy prices have increased by 16%, and GDP growth is projected to slow by 0.6% in 2025 due to high industrial costs.

21. Poland

Gas Dependency: Poland historically relied on Russian gas for approximately 55% of its natural gas consumption.
Current Supply Situation: Poland has significantly diversified its gas supply through the Baltic Pipe, which delivers gas from Norway, as well as through LNG imports from the Świnoujście terminal. Gas storage is currently at 94% capacity.
Economic Impact: Industrial energy costs have risen by 26%, leading to a projected decrease in GDP growth of 1.2% in 2025. The manufacturing sector, particularly chemicals and steel, is expected to face a 3.8% decline in production output.

22. Portugal

Gas Dependency: Portugal relies on LNG imports for its natural gas needs, primarily sourced from Algeria, Nigeria, and the United States.
Current Supply Situation: Portugal’s LNG imports have remained stable, with no major disruptions in supply. Gas storage levels are at 91%.
Economic Impact: Energy costs for households have increased by 14%, leading to an inflation rate of 5.6%. The agricultural sector is expected to see a 2.3% increase in costs, impacting food prices and leading to a slowdown in economic growth by 0.4%.

23. Romania

Gas Dependency: Romania is one of the few EU countries with significant domestic gas production, covering around 80% of its consumption.
Current Supply Situation: Domestic production has helped mitigate the impact of the crisis, with additional imports from neighboring countries. Gas storage is at 88%.
Economic Impact: The cost of gas for industrial users has increased by 18%, leading to a slight decline of 0.7% in GDP growth. The construction and manufacturing sectors are most affected by the rising energy prices.

24. Slovakia

Gas Dependency: Slovakia previously imported 85% of its natural gas from Russia.
Current Supply Situation: Slovakia has diversified its sources through LNG imports via neighboring countries and increased storage to 90% capacity.
Economic Impact: Energy costs for households have risen by 28%, leading to an inflation rate of 9.5%. Industrial production is projected to decline by 2.5%, with significant impacts on the automotive and chemical industries.

25. Slovenia

Gas Dependency: Slovenia imports nearly all of its natural gas, primarily from Russia, Austria, and Italy.
Current Supply Situation: Gas storage facilities are filled to 87%, and LNG imports via Italy have increased to compensate for reduced Russian supply.
Economic Impact: Energy costs for households have increased by 19%, and the GDP growth rate is projected to slow by 0.9% in 2025. The industrial sector, particularly manufacturing, is expected to see a 1.5% decline in output.

26. Spain

Gas Dependency: Spain relies heavily on LNG imports, with significant diversification through supplies from Algeria, Nigeria, and the United States.
Current Supply Situation: Spain has increased LNG imports by 45%, with gas storage at 93%. The country’s extensive LNG infrastructure has helped maintain energy stability.
Economic Impact: Household energy costs have increased by 17%, leading to an inflation rate of 6.8%. The agricultural sector is expected to face higher operational costs, impacting food prices and contributing to a 0.8% slowdown in GDP growth.

27. Sweden

Gas Dependency: Sweden’s reliance on natural gas is relatively low, with less than 3% of its energy consumption coming from gas, mainly used in industrial applications.
Current Supply Situation: Sweden has diversified its gas imports through LNG from neighboring countries, ensuring stable supply. Gas storage levels are sufficient to meet industrial demand.
Economic Impact: The impact on households is minimal, but industrial energy costs have increased by 15%, leading to a projected decline in industrial output of 0.5%. GDP growth is expected to be minimally affected, with a reduction of 0.3%.

Summary of the Gas Crisis Impact Across Europe

The ongoing gas crisis has had a diverse impact across the 27 EU member states, with countries like Germany, Hungary, and Slovakia experiencing severe consequences due to their high reliance on Russian gas. Conversely, nations with more diversified energy sources, such as Spain, Portugal, and the Netherlands, have managed to mitigate some of the adverse effects.

Key economic impacts across the EU include:

Inflation: The average inflation rate across the EU is projected to rise by 7.2% in 2025, driven by increased energy costs for both households and industries.
Industrial Output: Energy-intensive industries, particularly chemicals, automotive, and steel, are expected to see production declines ranging from 1.5% to 4.5%, depending on the country.
GDP Growth: GDP growth across the EU is projected to slow by an average of 1%, with countries heavily reliant on Russian gas experiencing more pronounced slowdowns.