9 March 2022
As devastating images and stories continue to emerge from the Russian invasion of Ukraine, the European Commission has begun to rethink its energy policy and security.
Currently, the bloc as a whole depends on Russia for 40 per cent of its gas supply, but just yesterday the Commission announced its intention to shrink that figure by two-thirds within a year.
What exactly is going on with gas prices at the moment? Where are the effects most acutely seen? What does it spell for our climate targets? And what are some possible solutions being explored right now?
We dug in, called around and pulled together what we managed to find out.
What exactly is gas used for?
Fossil gas – which you might have also seen referred to as natural gas or methane gas – is a greenhouse gas emitting, finite fuel source – and it’s used across our economy.
According to the latest available data from the Sustainable Energy Authority of Ireland (SEAI), gas supplies just over half of Ireland’s electricity generation. Wind comes in second at 36 per cent, and peat and coal combined clock in at 5 per cent.
It also supplies a good portion of the country’s heat, and if you live in an urban area in Ireland, there’s a good chance you’ve got a gas boiler heating your home.
Then there’s its lesser known use: synthetic fertilisers.
During the Second World War, the United States discovered in making munitions that synthetic fertiliser could be made from gas and that revelation transformed agriculture – which is one of the reasons why we’ve seen the rise of mass-scale agriculture.
“Any place you’ve got intensive agriculture, you’re going to have a dependency on natural gas,” Feasta economist Caroline Whyte told The Green News.
So to put it simply: it’s ubiquitous.
It’s also often cited by policymakers as a “bridge fuel” as societies transition to renewable energy, particularly for the fact that it has roughly half the emissions per unit of electricity generated when compared to its coal counterpart.
However, methane leaks throughout the gas supply chain, and the greenhouse gas is estimated to have a warming effect that is 84 to 87 times greater than carbon dioxide over a 20 year period.
Right. And what’s been happening with gas prices?
Gas prices have been climbing since the summer and skyrocketed by a staggering 250 per cent between January and September of last year.
We reported on the reasons behind the price surge at the time, and there were a number of them. An unusually cold spring in 2021 drove up gas demand and depleted stores of it at a time where Europe normally purchases a big quantity of the fuel to provide a buffer for the upcoming winter.
Instead, there was a considerable amount of gas used and we entered the autumn and winter months with a shortfall of supply.
As we started to emerge from the worst of the pandemic, energy demand increased as economies reopened, hotter summers led to greater air conditioner use and all of that was further compounded by high gas usage for the winter we’re just coming out of.
Now, following the Russian invasion of Ukraine, we’re seeing gas prices soar to new heights.
While Ireland isn’t dependent on Russian gas in order to power itself (less than 2 per cent of our gas imports come from the country) – we are subject to the commodity price, according to Dublin City University Professor of Electricial Engineering Barry McMullin.
“There’s a pan-European market for gas. So if there’s a shortage, it will drive up the price for whoever can supply it,” he told us.
That leads to something known as windfall profits for non-Russian gas suppliers, meaning that these companies will see a sudden spike in their earnings due to the current circumstances.
The EU has its sights set on that it would appear, as it included a proposal in yesterday’s package to tax these profits.
And what effect is this all having?
The most immediate one we can see is further hikes in the cost of living.
Prior to the invasion, that was already climbing upwards and with higher gas prices affecting heating, electricity and food production – it’s set to increase even further.
And the people set to bear the worst brunt of that price spike are those earning the least.
According to a recent publication from the Central Bank, the lowest 20 per cent of earners in Ireland experienced a higher increase in the cost of living than their richer counterparts.
The squeeze on their wallets amounted to a 6 per cent increase in their living costs as of December 2021, while the highest 20 per cent of Irish earners saw their cost of living increase by 5.3 per cent.
Notably, energy bills made up over half of that 6 per cent increase for the lowest earners, Social Justice Ireland analyst Colette Bennett highlighted.
Meanwhile for those highest 20 per cent earners, energy cost increases made up 1.8 per cent of that overall 5.3 per cent increase.
“So when we’re talking about a fuel supply crisis, it is going to be the lowest earners that are going to be most impacted,” Ms. Bennett said.
And then there are the implications for greenhouse gas emissions targets. As we noted at the top, the European Commission is planning to take a number of measures to wean the bloc off Russian gas, including diversifying the supply of the fuel and ramp up storage by the start of next winter.
However, the overseer of the European Green Deal Frans Timmersman acknowledged that countries may have to burn coal for longer in order to avoid switching to gas, which spells trouble for European-wide climate ambition.
As gas prices soar, coal could see itself become price-competitive and ultimately used more for power generation, despite the extra cost of its burnage under the European Emissions Trading Scheme (ETS).
The package released yesterday also included a number of climate-friendly proposals, such as expanding renewables and ramping up heat pump installation across the continent.
However, while these measures are important they are ultimately “multi-annual, not a three or six-month programme,” according to Prof McMullin.
“We need emergency action on multiple time scales, and so we should be wary of privileging one time scale over another. But the progress on building insulation and heat pumps is unlikely to go fast enough to make a significant difference,” he said.
We’ll continue to follow these developments and bring you our reporting as soon as we have it. If you’re looking to dive deeper into yesterday’s EU announcement, check out Daniel Murray’s reporting over at the Sunday Business Post.