1 00:00:02,360 --> 00:00:09,360 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. I'm Stephen Carol and 2 00:00:09,400 --> 00:00:11,640 Speaker 1: this is Here's Why, where we take one news story 3 00:00:11,680 --> 00:00:13,720 Speaker 1: and explain it in just a few minutes with our 4 00:00:13,760 --> 00:00:15,160 Speaker 1: experts here at Bloomberg. 5 00:00:19,120 --> 00:00:23,360 Speaker 2: We are still importing Russian energy and this has to stop. 6 00:00:23,960 --> 00:00:28,440 Speaker 2: We have to be faster because every payment is feeling watches. 7 00:00:28,520 --> 00:00:32,000 Speaker 1: This cannot we support Ukraine to fight the Russian Crashia 8 00:00:32,040 --> 00:00:35,559 Speaker 1: War is very strange that we finance Russia by importing 9 00:00:35,600 --> 00:00:39,040 Speaker 1: the oil and guests. Hunger is a landlocked country. We 10 00:00:39,080 --> 00:00:43,800 Speaker 1: cannot neglect the energy coming from Russia by pipelines. Half 11 00:00:43,840 --> 00:00:47,000 Speaker 1: of the Hungarian needs of energy are coming from Russia. 12 00:00:47,800 --> 00:00:52,200 Speaker 2: In three years, oil revenues from Russia have gone down 13 00:00:52,400 --> 00:00:56,920 Speaker 2: in Europe by more than ninety percent. Now we're turning 14 00:00:57,160 --> 00:00:58,760 Speaker 2: that page for good. 15 00:01:00,040 --> 00:01:02,800 Speaker 1: Russia's full scale invasion of Ukraine in twenty twenty two 16 00:01:03,000 --> 00:01:06,160 Speaker 1: tore up Moscow's relationship with much of the rest of Europe, 17 00:01:06,480 --> 00:01:08,959 Speaker 1: winning the continent off Russian gas. It's been a key 18 00:01:09,000 --> 00:01:11,400 Speaker 1: part of that rupture, and it's been a long and 19 00:01:11,440 --> 00:01:15,040 Speaker 1: painful process which now looks likely to end in twenty 20 00:01:15,080 --> 00:01:19,119 Speaker 1: twenty seven. Here's why Europe is taking years to phase 21 00:01:19,120 --> 00:01:23,440 Speaker 1: out Russian gas. Our EU energy reporter John Angel joins me. 22 00:01:23,520 --> 00:01:27,040 Speaker 1: Now for more. John, First of all, how important were 23 00:01:27,120 --> 00:01:30,360 Speaker 1: Russian gas applies to Europe before twenty twenty two. 24 00:01:30,800 --> 00:01:34,000 Speaker 3: I think it's just hard to state how important Russian 25 00:01:34,120 --> 00:01:36,480 Speaker 3: energy supplies were to the EU. I mean, this is 26 00:01:36,480 --> 00:01:40,320 Speaker 3: something that has been building since the nineteen seventies. Back then, 27 00:01:40,360 --> 00:01:43,280 Speaker 3: the Soviet Union and West Germany at the time struck 28 00:01:43,319 --> 00:01:46,760 Speaker 3: a deal gas for pipelines, and since then you've really 29 00:01:46,840 --> 00:01:50,240 Speaker 3: seen Europe building its reliance on Russian supplies. So in 30 00:01:50,240 --> 00:01:55,559 Speaker 3: twenty twenty one, before the invasion of Ukraine, Russia made 31 00:01:55,640 --> 00:02:00,680 Speaker 3: up around forty five percent of the EU's demand for gas. 32 00:02:00,960 --> 00:02:03,760 Speaker 3: This was coming through several different routes, but mainly via 33 00:02:03,920 --> 00:02:08,160 Speaker 3: pipeline through Ukraine and of course nord Stream into Germany. 34 00:02:08,280 --> 00:02:11,840 Speaker 3: So it was a lot, it was very cheap, it 35 00:02:11,880 --> 00:02:15,920 Speaker 3: was powering much of German industry, helped Germany be the 36 00:02:15,960 --> 00:02:20,680 Speaker 3: industrial superpower it is today. Overall, around one hundred and 37 00:02:20,720 --> 00:02:25,160 Speaker 3: fifty billion cubic meters of gas was coming from Russia 38 00:02:25,400 --> 00:02:28,280 Speaker 3: to the EU. And just to put that in perspective, 39 00:02:28,320 --> 00:02:31,320 Speaker 3: it's quite difficult to visualize, but that's around like four 40 00:02:31,400 --> 00:02:35,359 Speaker 3: thousand Empire state buildings. And also I mean it's around 41 00:02:35,360 --> 00:02:39,280 Speaker 3: one thousand, five hundred LNG tankers worth of gas, and 42 00:02:39,800 --> 00:02:43,320 Speaker 3: to put it in comparison, the next biggest supplier, Norway, 43 00:02:43,639 --> 00:02:46,440 Speaker 3: was barely half of that, and that's just gas. I mean. 44 00:02:46,520 --> 00:02:50,639 Speaker 3: Russia was also responsible for much of Europe's demand for coal, 45 00:02:50,800 --> 00:02:53,359 Speaker 3: around fifty percent, and also around a third of its 46 00:02:53,400 --> 00:02:56,120 Speaker 3: oil supplies were coming from Russia, so it was really 47 00:02:56,160 --> 00:02:57,480 Speaker 3: really a significant amount. 48 00:02:57,760 --> 00:02:59,679 Speaker 1: So how much has changed since then? 49 00:03:00,440 --> 00:03:02,360 Speaker 3: I think it's important to note as well that things 50 00:03:02,360 --> 00:03:07,360 Speaker 3: were already beginning to change before Russia invaded Ukraine in 51 00:03:07,400 --> 00:03:11,480 Speaker 3: February twenty twenty two. The summer before, we saw Russia 52 00:03:11,520 --> 00:03:16,080 Speaker 3: beginning to manipulate energy markets in the EU and that 53 00:03:16,240 --> 00:03:19,359 Speaker 3: was beginning to have quite a significant impact of prices. 54 00:03:19,400 --> 00:03:22,840 Speaker 3: But clearly it was the invasion in February twenty twenty 55 00:03:22,840 --> 00:03:27,440 Speaker 3: two that was the major catalyst, and Europe was very 56 00:03:27,520 --> 00:03:32,320 Speaker 3: quick in acting, realizing that its addiction to Russian energy 57 00:03:32,360 --> 00:03:36,240 Speaker 3: supplies was simply not something that could be sustained. And 58 00:03:36,280 --> 00:03:39,600 Speaker 3: so it's been quite a dramatic shift. And I mean, 59 00:03:39,640 --> 00:03:43,120 Speaker 3: you had a meeting of EU ministers it felt like 60 00:03:43,160 --> 00:03:46,040 Speaker 3: every couple of weeks in the months coming after that, 61 00:03:46,400 --> 00:03:48,720 Speaker 3: and they were basically trying to work out ways of 62 00:03:48,800 --> 00:03:52,080 Speaker 3: how they were going to end this addiction, if not 63 00:03:52,160 --> 00:03:56,280 Speaker 3: by going cold Turkey, by speeding it up very very quickly. 64 00:03:56,840 --> 00:03:59,200 Speaker 3: And so we saw the EU adopt a number of 65 00:03:59,200 --> 00:04:03,640 Speaker 3: different things. There were some sanctions that came primarily in 66 00:04:03,680 --> 00:04:07,320 Speaker 3: the field of oil and coal. Gas was not sanctioned 67 00:04:07,360 --> 00:04:10,760 Speaker 3: in the immediate aftermath, but the EU did put in 68 00:04:10,800 --> 00:04:13,960 Speaker 3: place a number of other measures to try and diminish 69 00:04:14,040 --> 00:04:16,839 Speaker 3: quickly its reliance from Russian gas. A number of countries 70 00:04:16,880 --> 00:04:20,159 Speaker 3: decided no longer to buy Russian gas anymore. They acted 71 00:04:20,320 --> 00:04:23,720 Speaker 3: unilaterally on that front. And you also saw the EU, 72 00:04:23,839 --> 00:04:26,680 Speaker 3: which at the same time is trying to green its economy. 73 00:04:26,720 --> 00:04:30,080 Speaker 3: It was negotiating a bunch of EU climate legislation. They 74 00:04:30,120 --> 00:04:33,200 Speaker 3: actually decided to double down on that. So they decided 75 00:04:33,279 --> 00:04:37,360 Speaker 3: to massively speed up the rollout of renewables. More renewables 76 00:04:37,360 --> 00:04:41,000 Speaker 3: means less gas. They also decided to put in place 77 00:04:41,080 --> 00:04:44,479 Speaker 3: a lot of different measures to boost energy efficiencies, such 78 00:04:44,520 --> 00:04:50,000 Speaker 3: as by renovating homes. Of course, it did also come 79 00:04:50,040 --> 00:04:54,680 Speaker 3: with a number of side effects. Europe's energy costs hit 80 00:04:54,920 --> 00:04:58,080 Speaker 3: record highs gas prices, the costs that you and I 81 00:04:58,120 --> 00:05:02,960 Speaker 3: paid to heat our homes in increased dramatically. We saw 82 00:05:03,240 --> 00:05:06,760 Speaker 3: the EU put in place rules to massively curtail its 83 00:05:06,960 --> 00:05:09,120 Speaker 3: gas demand in order to make it through the winter. 84 00:05:09,520 --> 00:05:12,159 Speaker 3: But you also saw the side effect of that was 85 00:05:12,240 --> 00:05:15,919 Speaker 3: that a much of Europe's industry also started shutting down, 86 00:05:16,279 --> 00:05:21,279 Speaker 3: and it hasn't really recovered fully since all that. To 87 00:05:21,320 --> 00:05:23,960 Speaker 3: bring us to where we are today, the EU is 88 00:05:24,080 --> 00:05:28,520 Speaker 3: still importing gas from Russia. It was around forty five 89 00:05:28,520 --> 00:05:31,599 Speaker 3: percent and now it's come down to around thirteen percent, 90 00:05:32,040 --> 00:05:32,719 Speaker 3: which I think a lot of. 91 00:05:32,720 --> 00:05:35,320 Speaker 1: People will still find surprising because we're this far into 92 00:05:35,440 --> 00:05:38,960 Speaker 1: India War in Ukraine and Russia is still supplying some 93 00:05:39,240 --> 00:05:42,320 Speaker 1: gas to Europe, So why has this process taken so loar? 94 00:05:42,920 --> 00:05:47,200 Speaker 3: So the gas that comes via pipeline drop off significantly. 95 00:05:47,279 --> 00:05:51,120 Speaker 3: We obviously saw explosions in the North Stream pipelines, and 96 00:05:51,200 --> 00:05:54,040 Speaker 3: even before that gas had stopped flying through them. We 97 00:05:54,360 --> 00:05:57,920 Speaker 3: saw at the end of last year the final direct 98 00:05:58,000 --> 00:06:01,120 Speaker 3: pipeline route from Russia to Europe in terms of gas 99 00:06:01,200 --> 00:06:03,720 Speaker 3: that came through Ukraine, that got finished. But we did 100 00:06:03,800 --> 00:06:07,760 Speaker 3: see a massive increase in LNG supplies coming from Russia. 101 00:06:07,839 --> 00:06:11,760 Speaker 3: So why has this final pocket of Russian gas been 102 00:06:11,839 --> 00:06:14,760 Speaker 3: so difficult to get rid of? Well, the EU did 103 00:06:14,880 --> 00:06:17,720 Speaker 3: sanction oil and coal, has been unable to do that 104 00:06:18,000 --> 00:06:22,080 Speaker 3: with gas because sanctions require unanimity among the EU twenty 105 00:06:22,160 --> 00:06:25,679 Speaker 3: seven member states. And so while most EU member states 106 00:06:25,720 --> 00:06:28,880 Speaker 3: support the goal of getting rid of Russian gas supplies, 107 00:06:29,600 --> 00:06:33,920 Speaker 3: notably two countries, Hungary and Slovakia, have consistently said that 108 00:06:34,040 --> 00:06:38,400 Speaker 3: they would block any sanctions on Russian gas. These are 109 00:06:38,400 --> 00:06:41,839 Speaker 3: two landlocked countries, they can't easily get gas from other 110 00:06:42,000 --> 00:06:47,280 Speaker 3: places outside of Russia. They connected via pipeline, and they 111 00:06:48,040 --> 00:06:52,400 Speaker 3: also have two leaders which are still quite close to Russia. 112 00:06:52,720 --> 00:06:55,000 Speaker 3: So that's been the fundamental challenge in trying to get 113 00:06:55,080 --> 00:06:56,480 Speaker 3: rid of that last pocket of gas. 114 00:06:56,680 --> 00:06:59,560 Speaker 1: So EU energy ministers have now agreed a plan to 115 00:06:59,600 --> 00:07:03,400 Speaker 1: finally ban Russian supplies completely by twenty twenty seven. Has 116 00:07:03,440 --> 00:07:04,080 Speaker 1: that going to work? 117 00:07:04,760 --> 00:07:08,040 Speaker 3: It's not via sanctions, As I said, sanctions require unanimity. 118 00:07:08,240 --> 00:07:10,720 Speaker 3: So before the summer, I mean, the Commission was working 119 00:07:10,840 --> 00:07:13,440 Speaker 3: really really hard on trying to work out ways of 120 00:07:13,520 --> 00:07:17,760 Speaker 3: how it could circumnavigate this block from Hungary and Slovakia. 121 00:07:17,880 --> 00:07:21,120 Speaker 3: So they came up with quite a clever solution that 122 00:07:21,360 --> 00:07:27,000 Speaker 3: would still ban all Russian gas coming to the EU, 123 00:07:27,200 --> 00:07:29,880 Speaker 3: starting with short term contracts by the end of this year, 124 00:07:30,000 --> 00:07:32,880 Speaker 3: no later than the middle of next year, and then 125 00:07:33,080 --> 00:07:37,520 Speaker 3: all long term contracts by the end of twenty twenty seven. 126 00:07:38,000 --> 00:07:42,360 Speaker 3: And the beauty in the Commission's opinion of this measure 127 00:07:42,440 --> 00:07:46,520 Speaker 3: is that it only requires a qualified majority of member states. 128 00:07:47,640 --> 00:07:49,920 Speaker 3: The no one country can block it, So no one 129 00:07:50,080 --> 00:07:54,560 Speaker 3: country can block it. There were some concerns about this 130 00:07:54,840 --> 00:07:58,000 Speaker 3: as a tool, whether it would be able to act 131 00:07:58,080 --> 00:08:01,040 Speaker 3: as a so called force measure, which would mean that 132 00:08:01,920 --> 00:08:05,400 Speaker 3: it would put an immediate halt to contracts companies that 133 00:08:05,520 --> 00:08:08,480 Speaker 3: have contracts with Russia. There was concerned maybe it might 134 00:08:08,520 --> 00:08:11,240 Speaker 3: not work, but the EU has consistently said that this 135 00:08:11,400 --> 00:08:14,240 Speaker 3: is a strong enough tool that it will result in 136 00:08:14,360 --> 00:08:17,040 Speaker 3: no more gas coming from Russia to the EU by 137 00:08:17,080 --> 00:08:18,320 Speaker 3: the end of twenty twenty seven. 138 00:08:19,200 --> 00:08:21,920 Speaker 1: What happens if there is a piece deal to end 139 00:08:22,000 --> 00:08:24,200 Speaker 1: the war in Ukraine, is the EU likely to turn 140 00:08:24,320 --> 00:08:25,559 Speaker 1: back to Russia for gas. 141 00:08:25,920 --> 00:08:27,840 Speaker 3: Right now, we have these two elements. We've got the 142 00:08:27,880 --> 00:08:30,440 Speaker 3: sanctions on LNG and we've got the ban on all 143 00:08:30,560 --> 00:08:33,439 Speaker 3: gas by twenty twenty seven. One of the things that 144 00:08:33,800 --> 00:08:38,320 Speaker 3: Energy Commissioner Dan Jorgensen has expressed to us in several 145 00:08:38,400 --> 00:08:41,400 Speaker 3: interviews is that the beauty of the ban by twenty 146 00:08:41,480 --> 00:08:45,400 Speaker 3: twenty seven, unlike sanctions, is that it doesn't need to 147 00:08:45,440 --> 00:08:49,240 Speaker 3: be renewed every year. In theory, when it is fully 148 00:08:49,360 --> 00:08:52,839 Speaker 3: passed and put in shrined into EU law, it means 149 00:08:53,080 --> 00:08:58,040 Speaker 3: that Russian gas will be permanently banned from coming to 150 00:08:58,160 --> 00:09:01,360 Speaker 3: the EU unless there's a major of member states that 151 00:09:01,520 --> 00:09:05,560 Speaker 3: decide to overturn that ban. We have seen such strong 152 00:09:05,720 --> 00:09:09,480 Speaker 3: support in the EU for this measure that that is 153 00:09:09,520 --> 00:09:12,640 Speaker 3: a significant hurdle to reach, and I think as long 154 00:09:12,840 --> 00:09:16,760 Speaker 3: as Russian President Vladimir Putin is still in the Kremlin, 155 00:09:17,240 --> 00:09:19,760 Speaker 3: it seems very tricky to see how that would be possible. 156 00:09:20,120 --> 00:09:23,839 Speaker 3: Of course, over the summer we did see some growing 157 00:09:23,880 --> 00:09:27,080 Speaker 3: speculation that there might be a piece deal between Russia 158 00:09:27,120 --> 00:09:30,040 Speaker 3: and Ukraine, but the message from the EU is quite 159 00:09:30,080 --> 00:09:32,079 Speaker 3: clear at the moment that they see this as a 160 00:09:32,200 --> 00:09:36,280 Speaker 3: ban that will come into effect and not change anytime soon. 161 00:09:36,600 --> 00:09:39,880 Speaker 1: Okay, thanks to our EU Energy reporter John Inger. For 162 00:09:40,040 --> 00:09:42,560 Speaker 1: more explanations like this from our team of three thousand 163 00:09:42,679 --> 00:09:45,439 Speaker 1: journalists and analysts around the world, go to Bloomberg, dot com, 164 00:09:45,520 --> 00:09:50,240 Speaker 1: slash explainers. I'm Stephen Carroll. This is here's why. I'll 165 00:09:50,280 --> 00:09:52,400 Speaker 1: be back next week with more. Thanks for listening.