The EU’s Dual Dilemma

In the March issue of Streetlight Confidential I wrote an article laying out the cost of the moral high ground where energy sanctions on Russia were concerned.

For all the condemnation of Russian aggression, the EU has not been willing to cut the Russian energy cord… for obvious reasons.

Russia supplies a massive amount of energy to all of the EU. I laid it out in your last letter…

The European Union imported nearly €100 billion ($110 billion) worth of Russian energy last year. Russia supplies about 40% of the bloc’s imports of natural gas, and about 27% and 46% of its imported oil and coal respectively.

Because of this, the EU is facing a fairly unique dilemma. They either have to justify the economic (energy) security of buying Russian oil, gas and coal over the moral superiority of sanctioning the evil empire or as reports: 

“We are working on a sixth sanctions package and one of the issues we are considering is some form of an oil embargo. When we are imposing sanctions, we need to do so in a way that maximises pressure on Russia while minimising collateral damage on ourselves,” (European Commission executive vice president Valdis) Dombrovskis told The Times.

Good luck with that. 

The reality is that Europe is pretty much screwed. It needs to re-imagine its entire energy relationship with the world. And to do that, it needs a new best friend.

The EU’s Dual Dilemma…

Natural gas has always been thought to be a cheap, clean and easily accessible source of energy.

Because of the EU’s “green” ambitions, that’s not the case anymore.

Their (along with Germany, their biggest economy) efforts to lead the green movement over the past three years depleted their natural gas reserves. Add to that the spike in energy demand following COVID reopenings along with a hard winter in 2021 and demand has pretty much spiked off the charts.

The price of natural gas doubled in a very short time.  Factor out the hit the market took due to the lockdowns in 2020 and the price of natural gas has gone from roughly $2.60 in Jan of 2021 to over $8 in Apr 2022. That’s 207% — in 15 months.   

And now, the threat of sanctioning Russian supply completely out of the equation has led to an extremely tight natural gas market around the world. All of which has led to a predictable end… 

Remember, markets are forward thinking. They anticipate supply and demand. Thanks to the situation in the EU, it’s become clear that demand for natural gas is going to be massive. And will likely persist for the foreseeable future. 

This leads to two questions. First, how can that demand be met (without crushing European citizens under massive energy bills)? 

And second (and maybe more importantly in their minds) how can they “keep the lights on” today, while not losing momentum on their renewable energy mission narrative. How can they fall back to relying on fossil fuels while still claiming that fossil fuels have to be eliminated in order to save the planet?

I’ll share one possible scenario in your next letter… 

Make the trend your friend,

Bob Byrne
Editor, Streetlight Daily