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Interview: EU faces difficult energy structural readjustment as Russian supply decreases

An oil refinery

Beijing, China | Xinhua | After losing reliable and more affordable supplies from Russia, the European Union (EU) is facing a very difficult energy sector structural readjustment and may slip into economic recession this winter or next spring, a Chinese scholar on European studies has said.

“If there were no Russia-Ukraine conflict, the next 10 or 20 years could be good days for Europe. It would play a leading role in renewable energy transformation, and at the same time it could continue to use convenient and affordable energy from Russia,” Cui Hongjian, director of the department for European studies at the China Institute of International Studies, told Xinhua in a recent interview.

However, since EU countries followed the United States to impose sanctions on Russia, things have changed.

Energy supply from Russia, notably natural gas pipelined via the Baltic Sea, was seriously reduced. Up to 40 percent of the natural gas used previously in the EU to heat homes and power businesses came from Russia. Now this figure has fallen to around 9 percent.

An energy crisis hits European countries especially hard as they rely heavily on imported energy, which is key to their economies, said the scholar.

“Europe is a relatively energy-poor continent. Of course, the Europe we are talking about now is Europe other than Russia,” he said. In this context, Europe has proposed engaging in green transition and directing its energy supply toward more renewables and less fossil fuel.

Under its original plans, the period from now to 2030 would serve as an important energy transition period for EU, Cui said. During this period, Europe could gradually reduce dependence on fossil energy. Now the balance has been broken, and many tasks that had been scheduled for the future must be done immediately.

“The EU has given itself a task: By 2027, it has to complete replacing Russian energy. In other words, now 40 percent of natural gas and more than 30 percent of oil have to be found elsewhere. The task is very arduous since the world energy market is relatively saturated,” he said.

The economic structure of European countries makes them particularly vulnerable to an energy crisis, the scholar said. “When we look at the economic structure of Europe, on one hand they lack energy, and on the other, Europe lacks a large market.”

He explained that for a long time Europe has been taking advantage of globalization, importing raw materials and exporting high-level industrial products and finished goods. The profits of the European industrial system are mainly from huge intermediate added value.

As the energy crisis intensifies, Europe could slip into a recession this winter into next spring, Cui warned.

“Germany, the locomotive of the European economy, has stagnated in the second quarter. There is a high probability that the European economy represented by Germany is likely to experience a recession.”

To make things worse, it will also have an impact on the existing industrial system, including some current fiscal structures, as well as the current welfare systems in Europe, he added.

As EU countries suffer from the lingering energy crisis, the United States becomes the biggest beneficiary, the scholar said, adding that Europe is reluctant to abandon Russian energy, which is more convenient and cost-effective, and switch to buying expensive American liquefied natural gas.

“(Former U.S. President Donald) Trump tried desperately to sell to Europe before, but at the time Europe was reluctant to accept it because of market and economic reasons. But the Ukraine crisis is changing all that,” he said.

In June, the quantity of liquefied natural gas purchased by Europe from the United States exceeded the pipeline transported gas purchased from Russia, which means that the United States is replacing Russia and may become Europe’s largest energy supplier, Cui said.

Meanwhile, such purchases, made in haste, can’t enjoy the favorable prices locked through long-term contracts. Europeans can only buy at short-term contract prices that are remarkably higher.

“Therefore, we can see that the United States is the biggest beneficiary of this energy crisis. Huge profits flow into the pockets of U.S. natural gas suppliers.”

The United States has not only destroyed Russia’s energy supply to Europe, but also replaced it, making Europe not only more dependent on it for security, but also for energy in the future, Cui said. ■

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