The year 2022 exposed both dramatic structural weaknesses and the astonishing adaptability of Europe’s energy sector. With Russia’s invasion of Ukraine it became clear that Europe’s dependency on energy imports from Russia are not a theoretical issue, but a grave strategic liability. Russia tried to exploit this vulnerability by emptying EU storage sites over the summer of 2021, leaving the EU in need of extra 33 bcm to refill its storage facilities. Russia then reduced its gas exports to the EU by 86 bcm (60%) in 2022. The EU coped by reducing the gas demand by more than 10% and almost doubling its liquefied natural gas (LNG) imports.
However, withheld gas supplies were not the only challenge for Europe’s energy sector. During 2022, France saw an inconsistent use of its nuclear reactors, with up to half of them being offline at certain times. In addition, Southern Europe experienced an especially severe draught, which implied low hydro-power production. Thus, the EU lacked about 7% of its low-cost electricity supplies.
Wind and solar power compensated for a third of the shortfall. And running coal and gas power plants made up for another 10% of filling the gap. But this implied that the very scarce gas had to be burnt for electricity production and still the electricity demand needed to be reduced by about 5%.
Overall, Europe managed this energy supply crisis through a combination of (1) letting the internal market re-organise energy flows and rebalance energy demand-and-supply through painfully high prices, and (2) overcoming financial and regulatory barriers to storage filling and LNG infrastructure development.
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