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Russia’s power squeeze on Europe thaws icy UK-EU relations

Russia’s energy squeeze on Europe thaws icy UK-EU relations

This text is an on-site model of our Britain after Brexit publication. Enroll right here to get the publication despatched straight to your inbox each week

Hey from Brussels, from the place I’m standing in for Peter this week whereas he suns himself in Europe’s record-breaking heatwave.

I arrived right here final Sunday, deeply grateful for the air con, but additionally hyper-aware that the cool blast is a reminder of how tough issues may turn out to be this winter as Europe faces crucial cuts to its power provides from Russia.

As I turned off the air con, it acquired me considering: may power be one thing that lastly unites the EU and UK after months of rancour over border preparations with Northern Eire?

Nothing unites individuals like a typical enemy. Russian president Vladimir Putin’s willpower to weaponise gasoline and oil provides to Europe in retaliation for the UK and EU’s assist for Ukraine seems to do exactly that.

As Peter talked about final month, the urge for food for a commerce warfare sparked by the UK’s unilateral motion over Northern Eire in June is prone to dissipate within the face of rocketing power payments and the prospect of gasoline rationing.

“I feel the primary driving issue now could be the Ukraine warfare and the fallout, and the truth that the EU will likely be compelled by its personal strategic must diversify away from Russian power. That can swamp the consequences of Brexit,” says Matt Gertken, geopolitical strategist at BCA Analysis.

Earlier than the warfare, Europe imported about two-fifths of its gasoline from Russia (and about 30 per cent of its oil, though this makes up a a lot decrease proportion of gasoline for the ability sector). The EU has now vowed to wean itself off Russian fossil fuels — earlier than 2030 for gasoline it says — however Moscow has already drastically minimize provides.

Bar chart of percentage share of the €102bn total value of imports from outside EU, showing Russia dominated EU imports of natural gas in 2021

Within the UK, Russian gasoline made up solely 4 per cent of gasoline used thanks largely to the UK’s underwater gasoline faucet: the North Sea shelf, which provides about half of the nation’s wants.

Imports and exports of pure gasoline between the EU and the UK remained largely the identical. They totalled lower than 1 billion cubic metres in both route, a micro quantity in contrast with the 155 bcm that the EU imported from Russia earlier than the Ukraine warfare.

However that doesn’t imply the UK is proof against its neighbour’s woes, nor that power is a backwater of the EU-UK Commerce and Cooperation Settlement (TCA). Excessive costs and extra competitors for international assets are going to hit family payments wherever you might be in Europe.

This week, analysts estimated that will increase to the UK’s power worth cap this winter may push annual power payments to greater than £4,200 in January, a few £500 improve on earlier forecasts.

Nonetheless, power negotiations in the course of the Brexit course of had been unremarkable in contrast with flashpoints on fishing and Northern Eire. The UK needed to “uncouple” from the EU’s power grid which means that the buying and selling system moved from “implicit” (which entails megawatt capability and house on the interconnectors being auctioned collectively) to an “specific” system the place megawattage and interconnector slots are cut up, making it much less environment friendly. To not an ideal extent, operators say, however sufficient to make commerce suboptimal.

The UK was additionally kicked out of the North Sea Vitality Cooperation, a bunch of eight EU international locations across the North Sea plus the European Fee that’s designed to supervise the event of offshore wind farms and connections from them to the grid.

The UK expects to be allowed again into the NSEC, however Brussels has dragged its toes on readmitting the nation. In response to one UK diplomat concerned within the Brexit talks, as a result of power was seen as a) important and b) largely innocuous, negotiations on the subject had been used as a bargaining chip to drive motion on fishing licences by the EU facet.

The choice must be “primarily political”, the diplomat mentioned, noting {that a} North Sea power co-operation with out the UK, whose operators run two-fifths of North Sea wind farms, is “a bit unusual”. If you happen to needed to manage interconnecting cables between North Sea offshore windmills, as an illustration, the UK would possibly must have an enter.

Provided that co-operation on pure assets is difficult at the most effective of occasions, there was one thing exceptional about watching the EU’s 27 power ministers come to an settlement in July to chop gasoline use by 15 per cent between August and March subsequent 12 months in an try to scale back reliance on Russia’s pure assets — regardless of the arm’s size checklist of exemptions included.

That favoured EU phrase “solidarity” was the mot du jour. A well timed reminder, maybe, that the EU was initially arrange as a neighborhood for commerce in coal and metal.

Might power solidarity prolong from Brussels to the UK too?

Acrimony over the UK’s unilateral motion on Northern Eire prompted the European Fee to ban all communication between its mandarins in Brussels and UK diplomats, though invites have been accepted each methods over the summer time. However as the present power disaster deepens, the temper music has improved.

There are provisions within the TCA which permit for UK-EU co-operation. Take, for instance, making ready for the likelihood that Moscow utterly turns off the faucet. This appears to be like more and more seemingly, and pipeline flows from Russia had been halted this week after a tussle over funds. It additionally places in place an obligation to not endanger mutual safety of power provides. An EU official mentioned that the fee was “in shut contact with the UK authorities on these points”.

Minutes from a joint committee assembly on power between Whitehall and Brussels in March underline that co-operation “is of significant significance in gentle of the present safety state of affairs in Europe” and be aware a plan to arrange a specialised working group to observe the safety of provide.

Within the meantime, UK exports of pure gasoline to the EU have additionally elevated.

Line chart of EU imports of natural gas from the UK (% of total) showing EU scrambles for natural gas  from all avenues

But, there are nonetheless sharp reminders of the frosty relations. The minutes present that the UK is pushing for a speedier decision to the problem of “market coupling” (buying and selling throughout interconnectors talked about above). The UK diplomat identified that each time the EU touts the locations apart from Russia from which it sources pure gasoline, together with regimes equivalent to Qatar and Azerbaijan, “it received’t point out the UK by title” and, “with the Tory management election, I don’t assume issues will enhance”.

Gertken additionally warns that because the EU takes to the excessive seas to search out sufficient liquefied pure gasoline to interchange what it imports from Moscow that it may go into direct competitors with its erstwhile member.

We’re getting into right into a resource-starved surroundings and an energy-deficient surroundings, so you possibly can see how the EU will likely be attempting to hoard their very own pure gasoline provides and that results in competitors for pure gasoline sources and LNG.

That heatwave that summer time vacation goers are having fun with is compounding the state of affairs. French nuclear reactors are down following cracks to infrastructure and a scarcity of water to chill the reactors. The water ranges within the Rhine are so low that barges carrying coal can’t journey up it. To cap it off, Norway warned this week that it must restrict power exports after its hydropower assets dried up.

That can pile additional strain on the UK and the EU as they diversify provides: Norway was the largest exporter of gasoline to the UK and the second largest to the EU after . . . Russia.

Brexit in numbers

To proceed the theme, it’s fascinating to match how family power payments within the UK are shaping up in contrast with EU international locations. Sometimes, UK properties are extra reliant on gasoline for heating and, whereas that doesn’t are available in any giant proportion from Russia, the market costs that decide a bit of our payments have soared.

Hat tip to the FT’s power editor David Sheppard for this wonderful explainer on why British power payments are so excessive. It reveals that gasoline payments are prone to peak within the first and second quarters of subsequent 12 months and are unlikely to fall again to something close to pre-Ukraine warfare ranges by the tip of 2023.

As David says, it’s tough to match UK payments on a like-for-like foundation with European counterparts. Largely, they appear to be larger, though the common power invoice in Belgium, the place I’m scouting out the effectivity rankings of potential flats in the mean time, rose from €894.75 in April 2021 to €1,581.85 in April 2022, in line with — decrease than the UK’s £1,970 in April per Ofgem knowledge.

EU capitals, nonetheless, are making a lot higher inroads into power financial savings. Even international locations which might be much less reliant on Russian gasoline equivalent to Spain are setting up power effectivity suggestions. Madrid has ordered companies to not air-condition workplaces under 27C and informed outlets to show lights off at night time.

French president Emmanuel Macron has mentioned the federal government is making ready an “power sobriety” plan for the autumn (extra lights off and turning heating down) principally directed at enterprise in order that households will likely be protected.

The Germans who’ve been worst hit by the provision crunch from Russia have already began to restrict scorching showering occasions and to shut leisure centres in some cities.

Will the UK observe go well with? Ministers have began to attract up plans in case Britain loses electrical energy provide of as much as a sixth of its peak demand. It actually makes for an unenviable in-tray in Downing Avenue for Liz Truss or Rishi Sunak come the colder months.

And, lastly, three unmissable Brexit tales

  • Liz Truss has set herself heading in the right direction for a showdown with the Financial institution of England ought to she (as is probably going) turn out to be UK prime minister in a month’s time. Allies of Truss informed the FT’s political editor George Parker that the international secretary would “positively” assist efforts to evaluate choices made by Metropolis regulators in the event that they maintain up post-Brexit reforms.

  • Our columnist Philip Stephens takes on the storied historical past of the EU’s lawnmower directive and makes use of it to level out that discuss of a “bonfire” of EU rules by the 2 Tory management contenders will solely result in UK companies being compelled to pay twice.

  • Lastly, one for summer time holidaymakers: the Guardian studies that the EU has delayed the introduction of its €7 visa-waiver scheme, which applies to 60 international locations outdoors of the Schengen space, and would, EU officers say, velocity up border hold-ups. As a result of be launched by the tip of this 12 months, it’s now anticipated to begin at first of 2024.

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