The Russian invasion of Ukraine turned the European gas system upside down. Natural gas has flowed from east to west through European pipelines for decades. After the raid, that picture was completely tilted.
Gas expert Rene Peters of TNO: “The whole system was intended to transport gas from Russia to Western Europe. Now the gas flows from left to right to serve Eastern Europe.”
You see that very well On the BBL pipeline between the Netherlands and EnglandPeters says. “The Russian gas there has gone from Balgzand near Den Helder to Bacton, but since last year the gas has been flowing from the US, for example, from England to the Netherlands, and then that goes to Germany.” Unlike England, this country did not have LNG transshipment facilities, liquefied natural gas, last year.
The fact that gas can flow in two directions is credited to European policy dating back to 2015. With the 235-kilometer BBL pipeline, it will only be possible for gas to travel from west to east for four years. “Until then, pressure stations were only meant for one way.”
Now that prices are almost back to the old level, the question is whether this austerity is over
The change in the direction of European natural gas flow illustrates Ukraine’s impact on energy and climate. However, not much has changed. Until 2021 and until 2021, Russia supplied approximately 15 percent of the Dutch gas needs. Now that’s still about 10 percent, Peters says. Since the war, it has only been a matter of liquefied gas being transported by ship, mainly to Western Europe. This LNG is not subject to an EU embargo. This also does not make sense, because liquefied gas can be shipped all over the world.
Figures from the Ministry of Economic Affairs and Climate show that 7.5 percent of the LNG transported in Rotterdam in the first quarter came from Russia. The rest of the Russian gas comes through pipelines, including from Belgium.
Much less question
Another direct consequence of the war on the European continent is the drop in demand for gas. Dutch demand for gas fell last year by more than 20 percent Compared to 2021. More than 31 billion cubic meters were used instead of approximately 40 billion cubic meters. Now that prices are almost back to the old level, the question is whether this austerity is over.
“It’s hard to assess really lasting savings,” says Olof van der Gaag, president of the Dutch Sustainable Energy Association (NVDE). “Last year, the Netherlands insulated their homes for 11 billion euros, which is 40 percent more than in 2021. This ensures structural savings.”
At the same time, some large companies have had to temporarily put production on the back burner. At fertilizer producer Yara, with an annual consumption of 2 billion cubic meters, this immediately makes a huge difference. “With families there is of course a difference between being frugal or no longer able to pay the bill. The latter is not a savings that makes you happy,” says van der Gaag.
dictator
According to him, consciousness has already changed. You notice this not only at parties, where energy consumption has suddenly become a regular topic of conversation. “Sustainable energy has suddenly become cheaper and more reliable than fossil fuels, and that has also changed the industry,” van der Gaag says. “Shortly after the raid, I was on a task force on supply security. Representatives of the oil and gas sector were convinced that energy supplies from Russia would continue as normal. Now they also understand that a dictator can block gas supplies, but he can’t stop the sun and the wind.”
Gas consumption may have decreased significantly, but this does not apply to oil. Last year, the decline in use in the Netherlands was about 4 percent. “The big difference, of course, is that prices have gone up, but not by as much for gas,” says Hans van Cleef, an energy expert at consultancy Public Affairs. “Oil is really traded on the global market and then the impact of such a war is less serious.”
Read also: Is it a big problem if the supply of Russian gas decreases?
The advantage of oil is that transportation costs are lower than those of liquefied gas. “Oil is also less easy to replace than gas. If gas becomes too expensive for a power plant, you can easily use a coal-fired power plant instead. That instantly saves a lot.”
Groningen field
But let’s not pretend the gas market no longer faces threats, says Van Cleef. Severe winters can make the weather very interesting. A situation like last year cannot be ruled out. “The biggest challenge is ensuring that they get enough low-calorie gas, because it came from the soil of Groningen. Families use that.”
Nitrogen must be added to another gas, such as imported LNG, to make it suitable for central heating boilers in homes. But the purpose-built factory is still broken with all sorts of problems. Van Cleef: “I think that’s also why Groningenfeld is closed on October 1, but it won’t really be closed. In an emergency, we can still call it this winter.”
According to him, there are structural consequences for the international energy market. Because of the European ban, any investments are rarely made in Russia. International energy companies are gone, and with them a lot of knowledge. Look what happened to Venezuela: they can’t bring back the collapsed production there.”
price explosion
Gas prices may almost return to their old level, but according to energy economics professor Machell Mulder, last year’s price explosion will have a lasting impact. “Prices can get so high that this risk is there — I don’t think that realization is going away. The feeling of dependence has increased. This is reflected in homes, as well as in businesses. Who said things will still be quiet next year or five years from now?”
Prices are an incentive for the fossil industry to focus more on oil and gas extraction
Olof van der Gaag Head of NVDE
According to the economist in Groningen, it is now proven that even with “indispensable” energy, price matters. “You need very high prices for that. Gas demand fell by 20 percent, but that required a significant price increase.”
Mulder sees investments in sustainability increasing faster, but notes that the recent increase in the price of “fossils” has consequences, too. These prices are an incentive for the fossil industry to focus more on extracting oil and gas. Because that’s more useful: look at Shell’s earnings, for example.”
Last month, the group announced that oil production would not decline until at least 2030. “So you need additional government policy,” Mulder says. “Because you don’t want to invest more in fossil fuels. Then as a Treasury you have to issue fewer licenses and tax more profits.”
Energy saving commitment
Due to the recent energy crisis, the government has already taken additional measures. For example, after 2025 it will be mandatory for households to purchase a (hybrid) heat pump. Companies’ commitment to energy savings has been tightened. Sustainable investments must pay for themselves within five years – that’s seven years -.
For years this duty was a dead letter, but now there is enforcement. “You see the ministry going against the corporate lobby,” says Van der Gaag of NVDE. “I myself attended counseling in which the old industry played the long-standing record that profitable investments would be made automatically. That is not true. You notice that these kinds of arguments are getting worse in the ministry.”
If energy becomes cheap again, everyone who has invested in “sustainability” will feel disenfranchised
Margoline Demers Director of Nature and Environment
Natuur & Milieu environmental director Marjolein Demmers sees positive effects of the latest crisis, but also believes the Cabinet has missed an opportunity. The question is whether these effects are permanent, because this is really important for energy transmission. Why is the minimum energy price not specified? If energy becomes cheap again, everyone who has invested in ‘sustainability’ will feel disenfranchised.”
She fears that the industry, in particular, will quickly return to normal. Companies that use a lot of energy cut their production when gas prices skyrocketed. Of course, these are not structural modifications. The serious investments that are now being made in the industry stem largely from the 2019 Climate Agreement agreements.”
opportunities
According to Demmers, the Netherlands must therefore ask itself whether this energy-intensive industry should not move to countries where sustainable energy is cheaper. “We were cheaper with gas in the past, but we won’t be in the future.”
Crisis always presents opportunities and government should not shy away from that, says the Director of Nature and Environment. The Hague has done everything it can to become independent from energy-producing Russia. But the connection with the climate problem was hardly there.
The government may have been reluctant to make that link, Demers believes. “This war is terrible, but you can show and motivate the positive long-term consequences. The same thing happened with the corona crisis. Then you should have emphasized more that working from home also has its climate benefits.”
A version of this article also appeared in the newspaper on July 21, 2023.