Energy crunch or climate crisis, for CEE policymakers fossil gas is king

Despite efforts to reduce the EU’s dependence on Russian fossil fuel imports since the 2009 Russia-Ukraine gas dispute, the reliance of EU countries on Russian gas supplies has only increased – from 25% of total gas demand in 2009 to 32% in 2021. And the current war in Ukraine brings this dependence into sharp relief.   

The period prior to the Russian invasion into Ukraine saw record-breaking surge in energy prices, in most part due to the increase in fossil gas prices. In the past months, both Russia and EU member states threatened to cut flows of Russian gas into Europe. Just last week, the European Parliament demanded a full embargo on Russian imports of oil, coal, nuclear fuel and gas and some EU governments made similar announcements or already followed on them.  

Evidently, this is not only an issue of EU energy security and energy prices that accompany the fossil fuels import dependence. Russia’s fossil fuel exports are financing Putin’s war machine in Ukraine. According to Europe Beyond Coal’s online tracker, nearly two months since the war broke, EU member states have been spending over EUR 33 billion on Russian fossil fuels. The EU has paid Moscow nearly EUR 21 billion just for fossil gas imports.  

Compared to western Europe, the reliance on Russian fossil energy imports is even greater in central and eastern Europe (CEE), as some countries are almost completely dependent on Russian fossil gas imports to satisfy their energy demand. At the same time, CEE governments are also the ones spearheading the EU discussion on stopping Russian fossil fuel imports. 

The Baltic states and Poland have been the most vocal about the need to end Russian fossil fuels imports, and they are also the ones following on their statements in this regard. Lithuania was the first EU country to almost completely halt Russian gas imports. Similar claims are made for Latvia and Estonia, while Poland already announced it won’t renew its long-term fossil gas contract with Russia’s Gazprom that is ending in December this year.  

Despite these bold steps, these governments’ perspective and plans concerning possible solutions to the energy crisis and potential alternatives to Russian fossil gas imports are worrying.  

Bankwatch has analysed the announcements governments in Bulgaria, Czechia, Estonia, Hungary, Poland and Romania have made on their plans to transition away from Russian fossil fuels, and most are based on the idea that Russian fossil gas can only be replaced with other fossil gas imports. In some cases, governments look to prolong coal dependence or add nuclear to the country’s energy mix. None of these governments is even willing to consider systemic changes to our energy needs that had been desperately needed even before the Russian invasion of Ukraine.  

In fact, even when energy security is ostensibly guiding policymakers’ decision, the discussions in CEE countries appears to overlook the fact that the existing concept of EU energy security is essentially based on dependencies on foreign imports, often from undemocratic regimes. The need for a step increase in the expansion of renewables is only partially addressed in these governments’ announcements, while energy efficiency measures are not considered an important part of solution.  

Some actions these governments now take as a response to the threat to energy security threat risk locking the region into fossil gas dependencies for the next 20-30 years due to nature of such contracts and the situation on the global fossil gas markets as most of the current fossil gas trade is locked into long term contracts.  Exporters are looking to secure long term contracts before increasing their production to ensure the financial viability of their projects.  

In Bulgaria and Czechia, entrenching obsolete energy sources  

Bulgaria is totally dependent on Russia for gas supplies and the government announced it would not place sanctions or stop the purchase of Russian gas simply because it has no alternatives. However, Sofia has now accelerated projects such as the Gas Interconnector Greece – Bulgaria that will allow it to access Azeri gas through the Trans Adriatic Pipeline and it has also been negotiating new LNG import agreements with the United States. 

The Bulgarian government has committed to use EU recovery funds for tripling renewable power generation, battery storage for flexibility of the system and renovation of buildings. At the same time Bulgaria is eyeing to fastrack plans to build a new nuclear reactor at the Kozloduy nuclear power plant. Government has revealed that Greece is interested in buying electricity from a future new nuclear power plant in Bulgaria.  

Czechia has been a bit more ambitious in its response to the energy crisis as it seems that at least part of the government’s narrative has centered on investments in renewables and energy efficiency coupled with expedited roll out of heat pumps. However, diversification of gas suppliers is still viewed as key to energy security in Czechia and there were some statements from the government that it’s considering acquiring a stake in an LNG terminal in one of the neighboring countries. In a long-term perspective, Prague still portrays nuclear energy as the  backbone of the country’s energy mix. In addition, the Czech government  decided to pull out from its proposal to use EU funds for the installation of fossil gas boilers.  

LNG ambitions in Estonia 

In Estonia, much of the conversation since the invasion concentrated on the government’s formal intention to purchase or charter a floating LNG terminal. Once the site of an onshore LNG terminal planned to be built by a private investor, Paldiski is now set to host an offshore LNG facility enabled with public money. 

Earlier, the European Commission had rejected Estonian proposals to include plans for an LNG terminal in the list of so-called EU Projects of Common Interest. If approved, such status would allow privileged access to EU public funds and fast permitting. But the Commission argued the existing LNG terminal in Klaipeda, Lithuania, had the capacity to serve all Baltic states but had been underutilized. 

According to the Estonian Ministry of Economic Affairs, a new LNG terminal could be up and running by the end of 2022 and could carry a EUR 500 million price tag. Due to relatively small gas demand in Estonia, the government depicts it as a joint project with Latvia and Finland, both of whom have higher demand for gas and are also very reliant on Russia. 

The only other energy investment that Tallinn has publicly announced is using the supplementary state budget to connect renewable energy micro-producers to the national electricity grid. In the meantime, the Estonian forestry industry has playing up the prospects of substituting Russian gas with biomass in district heating systems. Yet, Estonia already sees excessive levels of clearcutting as a result of high export volumes of forest biomass to western Europe.  

Hungary and Poland: A Russian gas dove and a Russian gas hawk 

Although nearly 90 percent of the fossil gas imported into Hungary comes from Russia, the government has not made any announcements in recent months as to how it plans to decrease the country’s dependence on Russian gas. Rather, it has just signed a new long-term gas import contract with Moscow. . 

Gas prices for households are fixed and the government is committed to keep this measure for as long as possible. Due to the national elections that took place in early April, most of the government energy-related messaging was focusing potential voters. In late March, Prime Minister Orban announced plans to transform the national electricity production over the next decade to centre on nuclear and solar. Although there was some change of heart in Orban’s perspective on the EU’s approach to Russia following a landslide electoral win, Hungary did support the European Council’s March declaration on ending the EU’s dependence on Russian gas, oil and coal as quickly as possible. But what this will practically mean when the new government updates its decarbonisation policy, strategies and plans for 2030 remains unclear. 

In late March, the Polish government announced it will embark on “de-russification” of the its energy policy, in a bid to cease Russian energy imports by 2023. Long term contracts with Gazprom will not be renewed. 

Warsaw plans to replace Russian gas with imports from other countries. With an annual capacity of 10 billion cubic meters, comparable to amounts currently imported under the current Gazprom deal,  Baltic Pipe would make Norway Poland’s main gas supplier once completed. 

Another point in Poland’s diversification plan is liquified fossil gas brought in through the terminal in Świnoujście, currently being expanded, and a new offshore LNG installation in Gdańsk. 

Although no concrete regulations have been tabled yet, the Polish government’s narrative already contains numerous false solutions and lacks important elements. A pillar of the state’s energy sovereignty should now become nuclear power. Also, the government intends to maintain coal units for an unspecified period of time. 

That said, Prime Minister Mateusz Morawiecki’s cabinet has recently been highlighting renewables development, for the first time naming renewable energy a key to the country’s energy independence. Though, it is yet to announce any reforms that would waive limitations to renewables development. 

Not least worrying, energy efficiency has been entirely absent from the government’s narrative and no more ambitious goals in energy savings, building renovation are expected.  

Romania: Black Sea (g)aspirations 

Although Romania imports only 10-15 percent of its gas demand from Russia, the government appears keen to diversify its gas imports. It has also endorsed a proposal that includes the transport infrastructure offered by the Romania-Bulgaria Interconnector and the BRUA gas pipeline in plans to extend the Southern Gas Corridor to the Balkans and central Europe.  

Bucharest is also looking into the possibility of reserving capacity in LNG terminals in Greece and Croatia, and has already held talks with Qatar about a potential gas import deal. 

Prospects for domestic gas also features high on the agenda. Romanian decision makers have been pushing to revise the offshore law and introduce better fiscal regulations for companies wishing to invest in the Neptun Deep perimeter and start exploitation in the Black Sea which holds around 200 billion cubic meters of gas. Private oil and gas firm OMV Petrom and state-owned Romgaz  are awaiting the offshore law revision to make investment decisions they expect by next year at the latest. 

Romania also looks to the U.S. for energy cooperation, and government representatives have recently met with the Department of Energy’s David M. Turk to discuss both the development of Romania’s civil nuclear programme and the diversification of fossil gas supply sources. 

There has also been much talk about hydrogen investments, and specifically distribution infrastructure including at least 1870 km of pipelines for the distribution of blended fossil gas with hydrogen in the Oltenia region that is proposed to be financed with the EU recovery funds.