Europe made its energy bed and now must sleep in it — shivering

Mark Milke and Lennie Kaplan, Financial Post, October 13, 2021

One of the more bizarre developments in Europe in recent years has been the twin policy paths whereby fossil fuels have been discouraged in favour of wind and solar, but deals have been struck with autocracies, including Russia, to import more fossil fuel via pipelines.

The net effect of the first policy, obvious in the last few weeks, has been to force European consumers and businesses to pay much more to heat and power their homes and run their businesses. That results from the intermittent nature of wind and solar: when the wind doesn’t blow and the sun doesn’t shine, the electricity grid needs backup. That comes from natural gas or coal, though coal, along with nuclear power, is increasingly being phased out. Needing backup means Europeans pay twice for power.

Now combine the coal and nuclear phaseouts with Europe’s political and policy disdain for local exploration for oil and natural gas, such as in 2017 when France proudly banned future exploration for oil and fracking for gas both at home and in its overseas territories. Then add parallel attempts to label Canadian oil as dirty and thus discourage future Canadian exports to Europe. The result is that the European demand for energy has hit limited supply, causing energy prices to soar.

A real-time example is occurring with the natural gas used to back up and power Europe’s electricity grid. On electricity prices, for example, Dutch TTF gas (a European benchmark price) has been reaching as high as €90 a megawatt hour in the last few weeks, more than five times what it was in January.

Price spikes have consequences. Even before the recent rise in electricity prices, an estimated 80 million households across Europe struggled to pay their power bills, with 12 million in arrears. A quintupling of power prices will cause these numbers to surge this winter.   

Now add in the other development: a Europe becoming more dependent on oil and natural gas from regimes hostile to European values, including Europe’s postwar practice of open societies, liberal democratic norms and tolerance. The best-known example of growing dependence on autocrats is the near-completed Nordstream 2 pipeline, which will bring Russian natural gas to Germany and other parts of Europe. Initially, some European and American politicians opposed the pipeline, fearing it would make the continent more dependent on Russian whims, including the use of energy as a geopolitical weapon. 

The concern is legitimate. In 2009, Russia cut off the natural gas supply to Ukraine in mid-winter, ostensibly over a pricing dispute. In reality, it was an attempt to control Ukraine. Since then, Ukraine has bought natural gas from third-party sources rather than directly from Russia.

Consider how dependent Europe already is on autocracies and tyrannies for another fossil fuel: oil. Between 2005 and 2019, European countries imported over 61.5 billion barrels of crude oil, worth just over €4.6 trillion or about C$6.9 trillion. About two-thirds of this came from countries with poor records for human freedom — in other words, tyrannies, autocracies or dictatorships. They were “Not Free” countries in the language used by Freedom House, a Washington D.C.-based think tank that has been measuring freedom scores for countries worldwide since 1973 and whose data we matched up against European Commission data on oil imports in our recent study on this subject.

In contrast, just 20 per cent of European oil imports came from “Free” countries and nine per cent from “Partly Free” countries, while four per cent came from countries whose freedom was not assessed.

Where did Europe’s Non-Free oil come from? Between 2005 and 2019 the top three suppliers were Russia (€1.3 trillion of exports to Europe), Saudi Arabia (€343 billion) and Libya (€305 billion). And who was buying? In 2019, Europe’s biggest client for autocracy oil was Italy, which took in 404 million barrels, worth €26.1 billion. Germany was second at 374 million barrels (€$23.8 billion) and Spain was third with 277 million barrels (€17.5 billion).  

One can favour free trade in oil and natural gas without ignoring the reality that Europe already depends on autocracies for the lion’s share of its oil imports and is tying its gas imports to them as well via Nordstream 2. By driving prices for consumers ever higher, Europe’s policies on renewables will mean more of the same into the indefinite future.

Mark Milke and Lennie Kaplan are with the Canadian Energy Centre, an Alberta government corporation funded in part by taxes paid by industry on carbon emissions. Image credit: Pixabay.