What Europe’s Natural Gas Addiction Means For Investors In 2022
The risks of the West’s energy dependence on Russia have finally come home to roost, but where do we go from here?
Since the fall of the Soviet Union, the world has basked in a period of relative peace. A combination of nuclear weapons and economic interdependence was thought to have made conflict between major powers an impossibility.
Then, Russia invaded Ukraine and the mirage was shattered.
Historians will be searching for the source of this conflict for years to come, but there is a single clear thread that led to Russia’s confidence in the days before the invasion: Europe’s dependence on Russian fossil fuels -- in particular, the reliance of countries like Germany on Russian gas.
Why Is Europe So Reliant Upon Natural Gas?
The European Union is the largest importer of liquid natural gas (LNG) in the world, and prior to the invasion of Ukraine, 41% of it came from Russia. This demand is largely driven by the bloc’s efforts to decarbonize and meet its climate targets. It has also necessitated eliminating or reducing coal from the energy mix and increasing renewable energy sources like wind or solar.
The problem for Europe is that its energy grid is not geared up to deal with intermittent renewable energy sources, so it needs a predictable source of energy to produce its base load: natural gas.
In the 60s and 70s, the embargo against Russia would have been less problematic because Europe was able to produce its own natural gas supplies and meet internal demand. Unfortunately, North Sea reserves became economically unviable, and Russia became the supplier of choice for the European Union.
Putin’s invasion of Ukraine has created a particular problem for Europe. The continent is eager to demonstrate support for Ukraine but is unable to militarily intervene due to the risks of nuclear warfare. This means that the Bloc’s only real weapon is economic: starve Russia of the financial resources it needs to fund its war machine.
For this tactic to be effective, Europe will need to find ways to wean itself from Russian gas, but it may be easier said than done. Germany relies on Russian gas for around 50% of its imports and European LNG terminals are not set up to handle major imports from the US or Qatar.
Which raises the question: where can Europe go from here?
How Can Europe Remove LNG From Its Energy Mix?
In Germany’s case, the war has reawakened an old debate about nuclear power. In the wake of the Fukushima disaster, Germany had been trying to remove nuclear energy from its mix, with plans to turn off all plants by 2022.
Unfortunately, nuclear energy isn’t a long-term solution, it is expensive to keep plants running, and building new plants would take years, although some see significant potential for Small Modular Reactors (SMRs).
Some countries, particularly Poland, have taken extreme steps to remove Russia from their energy mix in the wake of the annexation of Crimea in 2014. However, the Polish solution still relies on coal-fired power plants which is not a viable solution for other countries that have to comply with European green targets.
The big problem for Europe is that most states are still acting independently, but a real long-term solution will require a truly complete European energy grid, which will take time to negotiate.
Does the IEA Have the Answer?
However, there is one plan that makes sense: The International Energy Agency (IEA) 10-point plan to reduce EU reliance on Russian natural gas.
This plan is broad, but starts with not renewing expired gas contracts with Russia, sourcing gas from other nations in the short-to-medium term, and introducing minimum natural gas storage requirements for nations to increase their ability to weather supply shocks.
It also calls for an acceleration in investment in renewable energy, methods to reduce energy demand such as heat pumps and better insulation, as well as continuing to operate existing low-carbon energy sources like nuclear or biofuel.
What Does This Mean For Green Energy Investors?
From an investment perspective, this crisis has created an opportunity. Europe will finally be forced to seriously consider how to implement large-scale renewable energy projects, rather than relying on consumers installing solar and wind power on their homes.
This means that projects like wind power in the North Sea may suddenly become priorities for European governments, and investments in renewable energy companies should become very attractive in short order.
However, I believe that this has been at least partially priced in by the market. The quickest way for Europe to solve its energy problems lies in dealing with demand reduction, not supply. This means that investments in companies that focus on improving insulation or providing heat pumps are likely to do well sooner than investments in big risky renewable energy projects.
On a smaller scale, this is also an investment that ordinary homeowners, landlords, and construction companies can make today.
Even something as simple as properly insulating an attic can reduce household energy bills by as much as 10% to 30%. These savings will quickly add up as energy prices continue to rise and represent the easiest way for many of us to make an immediate impact.
How Will These Investments Impact LNG Prices?
Finally, we should address the elephant in the room, natural gas prices. In the short-to-medium term, we will undoubtedly continue to see a major increase in demand for gas in the European Union.
This will have a knock-on effect globally, as China, India, and the EU will now all be competing for the same supply of gas, making the system more vulnerable to local conditions like cold snaps.
Risk-tolerant investors may have an opportunity to take advantage of this situation by investing in ETFs with global gas exposure. However, they should be aware that as Europe transitions away from gas and toward renewables, these investments will become higher risk over time.
The Ukraine crisis has completely upended the global economy. It will be hugely difficult for governments and investors to square their desire to decarbonize, with spiraling gas prices.
However, in the long-term, it may help to force the European Union to get serious about reducing their reliance on natural gas, which could prove vital in combating the climate crisis before it is too late.
GCT Featured Articles
Oslo, Norway – Eco-Capital
Oslo: Net Zero Future | Oslo has fleets of clean mass public transit - trams, electric buses and ferries - powered...Read Post
Regenerative agriculture creates carbon sinks; turning farms into healthy ecosystems that sequester carbon with plentiful...Read Post
Sustainable City – CHICAGO
Chicago might not be widely known as a green city, however, the city has a vast network of sustainable mass public transit...Read Post
Vauban and the Plus-Energy Sun Ship
Vauban is an exemplary sustainable town and a zero-emission district. Most energy for buildings is from rooftop solar...Read Post
Climate Solution – Sustainable Agriculture
Benefits of Sustainable Agriculture | Sustainable ag. turns farms into thriving biodiverse lands that produce...Read Post
Austin, Texas – A Sustainable City
Eco-friendly Capital | Austin is emerging as a leader in renewable energy, community solar, and LEED building efficiency...Read Post
12+ Ways You Can Help the Environment
Lower your carbon footprint, save energy, and help the environment. Here are 12+ actions for sustainable individuals:...Read Post
10 Ways to Reduce Food Waste
by Jane Marsh | Significant amounts of food waste originate from cities. Urbanites can use food waste reduction methods...Read Post
Modern Sustainable Waste Management Technologies
5 Ways for SMART Cities to Implement Sustainable Waste Management | by Jane Marsh | Cities are implementing zero-waste...Read Post
5 Categories of Change in Climate
Climate change is adversely affecting all parts of the earth. There have been dramatic increases in greenhouse gas emissions...Read Post
10 IoT and Sustainability Technologies for Smart Cities
Technologies Benefit Sustainable Smart Cities | by Jane Marsh | As the conversation around greenhouse gas emissions...Read Post
Profiles in Sustainable Cities – San Diego, California
Sustainable cities, like San Diego, have eco-city designs that prioritize consideration of social, economic, and environmental...Read Post
Offshore Wind Farms in the United States | Block Island Leads the Way
First of many US offshore wind farms | The United States' 1st operational offshore wind farm is the Block Island...Read Post
Clean Energy Jobs are UP, and RE cost is down
Clean Energy JOBS | The future of employment in the energy sector is in clean energy, energy efficiency, and renewable...Read Post
Using Technology to Provide Clean Water to Cities
How Technology Can Help Cities Avoid Another Flint Water Crisis | Article by Jane Marsh | The green movement is influencing...Read Post
How Safe & Clean is Nuclear ☢️ Energy?
When looking at climate solutions for clean energy generation, it is prudent to look at all clean energy sources. Nuclear...Read Post
Kamuthi Solar Project, Bhadla Solar Park; and the largest solar PV farms in India, China, and other countries
Featuring over 2.5 million individual solar PV modules, and on 2,500 acres, the Kamuthi Solar Power Project supplies...Read Post
Microgrids spread across Africa
Developing Microgrids | As African nations push for rural electrification, many look to microgrids as a sustainable...Read Post
Future Generations of Batteries
Next generation li-ion batteries | Next-gen lithium-ion (li-ion) batteries can charge quickly, are rechargeable,...Read Post
Clean Hydrogen Power
Hydrogen (H2) and the Clean Energy Transition | Hydrogen created with clean energy is one of the most promising...Read Post
Nuclear – necessary energy
Both nuclear and renewable energy are needed in the global energy mix to help fight climate change. In order to cut...Read Post
COP21 – good news for the planet
NDCs and Net Zero Pledges | At COP21, commonly referred to as the Paris Climate Accord, nations sent representatives...Read Post
Plan for the Expansion of Smart Meter Infrastructure
Modern SMART Meters | Many buildings in America today still rely on inefficient energy infrastructure, such as older...Read Post
Recycling – how we are doing as a global community; waste-to-energy
Effective waste management strategies for cities include citywide recycling programs, circular economy strategies, as...Read Post
Permanent ban on new coal mines and other sustainability priorities
Strategies for mitigating climate change | What are the best strategies for mitigating global warming? How is the...Read Post
10 Sustainable Technologies Improving Air Quality in Cities
GREEN Tech for Healthy Air | Article by Jane Marsh | Cities are the heart of every global region. They are headquarters...Read Post
Shortfall in International GHG Reduction Pledges
Is the World Going to Meet its Climate Targets? There is a substantial shortfall between GHG emission reduction pledges...Read Post
The Global Fight Against Climate Change; NDCs and Net Zero Targets Worldwide
Nationally Determined Contributions | As part of the ongoing global battle against climate change, almost 200 countries...Read Post
Breakthroughs in Solar Photovoltaic (PV) and Solar Thermal Technology
Solar - the most abundant renewable energy on the planet | Recently there have been dramatic breakthroughs in solar...Read Post
Renewable Energy – Breakthroughs in Wind Energy
Onshore Wind Farms - Cheap and Clean Energy | Onshore wind farms now provide the least expensive form of energy, renewable...Read Post
Economy vs. the Environment
Economic growth does not have to come at the expense of the environment. Sustainable technologies (such as renewable...Read Post
Desalination – Clean Water for a Thirsty World
The two desalination plants featured below; one in Carlsbad (San Diego county, California - featured photo), and one...Read Post
10 Countries Promoting the use of Electric Vehicles (EVs)
Why Is There A Need For EVs Globally? In its World Energy Outlook, the International Energy Agency identifies pathways...Read Post
Smart City Energy Infrastructure
Updating Infrastructure for Developing Renewable Energy in Cities | People-centered smart cities are cropping up worldwide....Read Post
EVs and the Future of Urban Transit
Electric Vehicle (EV) Infrastructure | What will be done to develop electric vehicle infrastructure? With cars that...Read Post
The Role of E-mobility Trends in Decarbonizing Transport
Decarbonizing the Transportation Sector with E-mobility | It's no secret that transportation is a major source of...Read Post
Putting a Price on Carbon
Carbon Markets | Carbon cap and trade systems are regulatory policies in which countries, provinces, states, and even...Read Post
Deforestation and solutions; including reforestation | Deforestation of our planet, for centuries, has led to issues...Read Post
UN Framework Convention on Climate Change (UNFCCC) – Conference of the Parties | World leaders, dignitaries,...Read Post
Carbon tax – a levy on pollution whose time has come
Defining effective carbon taxes | A carbon tax is a levy in countries and regions on: fossil fuel power plants, oil...Read Post
Improving energy efficiency
Energy Efficiency Foundations for Green Building: Energy Star, LED and CFL Lights, LEED technologies When it comes to...Read Post
Decoupling and Divestment to Reach Sustainability
Economic Growth Without Environmental Impact Decoupling in eco-environmental terms can be defined as economic growth...Read Post
ISEGS – A Shining Example of Concentrated Solar Power (CSP)
Ivanpah Solar Electrical Generating System (ISEGS) Ivanpah Solar Electrical Generating System (ISEGS) is a 392 MW solar concentrated...Read Post
Car-sharing and Ride-hailing
Sustainable Commuting | Many ride-sharing fleets are converting to electric cars. Car-sharing (a.k.a. ride-sharing)...Read Post
California – Current Progress of a Climate Champion
Learning From California's Struggle to Balance Decarbonization With Energy Resilience | Since California passed the...Read Post
A Close Look at San Diego’s HERO Program
San Diego, Green Buildings, HERO Program | The importance of green energy for use in homes and businesses is becoming...Read Post