EU lays out contingencies in case Ukraine crisis hits energy supply

Brussels is considering how to protect consumers from a possible energy crisis as part of plans to protect European households, businesses and borders from the fallout from a Russian military escalation in Ukraine.

Diplomats have told the Financial Times that the EU is discussing contingency measures to deal with risks from soaring gas prices, a possible migration crisis and cybersecurity threats if Russia invades Ukraine.

The priority for EU contingency planning is to deal with any reduction in gas flows from Russia, which, as Europe’s largest supplier, accounts for around 40% of imports.

World leaders will meet on both sides of the Atlantic on Monday to seek a diplomatic solution to defuse the crisis with Russia. Emmanuel Macron will meet Vladimir Putin one-on-one in Moscow after three phone calls over the past 10 days. The French president plans to tell his Russian counterpart that while Ukraine’s security cannot be compromised, he understands that Moscow has its own concerns.

Meanwhile, Olaf Scholz flew to Washington to meet Joe Biden for the first time since becoming German chancellor in December. He intends to present a united front with the US president over accusations that Berlin has become a weak link in Western resistance against the buildup of more than 100,000 Russian troops on the Ukrainian border.

European Commission President Ursula von der Leyen told the Financial Times in an interview on Friday that the EU had to be prepared for “any scenario” with Russia and Ukraine, part of which was to do everything she could to find alternative energy sources.

“You would never trust an unreliable gas supplier,” she said. “This scenario would be very difficult for the EU, but the same is true for Russia with its one-dimensional economy. In such a situation, we would also do everything to ease the pressure on households and consumers.

The Commission is considering how it could intervene temporarily to weaken the link between record gas prices and the wholesale cost of electricity in the EU in the event of a gas crisis – a measure that EU officials rejected there a few months ago during a record spike in electricity prices.

Europe’s energy regulator has warned against disrupting the bloc’s electricity pricing system, saying introducing tools such as price caps would jeopardize the security of the supply by forcing some suppliers to close their doors.

Officials told the FT that short-term plans to deal with a crisis would also include securing increased flows of liquefied natural gas from major producing nations.

Energy prices in Europe hit record highs in late 2021, driven by fears over Russia’s willingness to supply imports during a major military conflict. If Moscow cut off all supplies to Europe, it would lead to emergency rationing and blackouts in the EU, Citi analysts say.

Contingency plans are due to be presented to EU capitals next month, although an extraordinary summit will be convened sooner if Moscow increases its military threats.

Officials said the talks were also likely to include how to handle any potential flow of refugees from Ukraine to neighboring EU countries. Poland, Slovakia, Hungary and Romania all border Ukraine.

The EU’s reliance on Russian gas has long been seen as a drag on the bloc’s ability to impose punitive sanctions on Russia. Senior EU officials have in recent weeks embarked on diplomatic charm offensives against major LNG producers, with the United States, Azerbaijan and Qatar being approached for additional supplies.

After talks in Baku on Friday, EU Energy Commissioner Kadri Simson said Azerbaijan had shown a “clear readiness to support the EU in the event of disruption of gas flows”.

She is due to talk to the United States this week about the country’s LNG capacity. The EU further plans to open discussions with Nigeria as it seeks ways to expand its LNG supply sources.

The commission said Brussels was working on ways to “make our energy markets even more resilient and to function in the most optimal way”.

Christi C. Elwood