The EU’s €250 billion gas gamble
Analysis by Ember and Global Witness finds that persistently high gas prices could cost Europe €250 billion more than the European Commission estimated.
About
The scope of this report is to show the potential costs associated with failing to reduce the EU’s dependence on fossil gas.
This analysis examines different EU gas demand and price scenarios and compares the calculated costs to those originally forecast by the European Commission in the “Fit for 55” policy package.
Executive summary
EU plans for gas could cost €250 billion more in 2030 than the Commission expected
REPowerEU will only cut the bill by €47 billion – underlining the need for more ambitious renewables targets
- At current fossil gas prices, forecast 2030 gas consumption in the “Fit for 55” package could cost the EU €250 billion more than anticipated
- REPowerEU gas demand reductions do not go far enough – only decreasing this cost by €47 billion
- A more ambitious, renewable-focused scenario slashes the costs in half
This analysis by Ember and Global Witness examines the fossil gas consumption in the EU’s “Fit for 55” policy package. It finds that, at current gas prices, the projected gas demand for 2030 could cost Europe €250 billion more than the European Commission originally estimated.
Faced with the war in Ukraine, Europe rightly aims to reduce the continent’s reliance on Russian fossil fuels. As fossil gas prices are set to remain high and volatile for years, failing to drastically reduce Europe’s gas dependency would expose the Union and its citizens to exorbitant and avoidable financial risk. Instead of gambling away up to €250 billion on a polluting fossil fuel, this money is better spent on a transition that can bring stable, clean and affordable energy to all Europeans.
Risks of fossil dependence
The risks of Europe’s dependence on fossil fuels have never been so apparent
And it is not just affecting gas, nor is it temporary. These hikes in fossil fuel prices and volatility have severe knock-on effects for electricity prices and inflation, and they seem unlikely to subside for at least the next three years. Skyrocketing prices are exacerbating an already dire situation: even before the current price shock, up to one in four European households could not afford to adequately heat, cool or light their homes. In March, the International Panel on Climate Change called for a substantial reduction of overall fossil fuel use if governments aim to limit global warming to 1.5°C. It placed the risk of global stranded assets in fossil fuel reserves and infrastructure at higher than $1 – 4 trillion by 2050. We have moved into an era of structurally high prices and sustained risk associated with fossil fuel dependence.
The EU and its citizens cannot afford to remain exposed to these unprecedented and unnecessary levels of risk.
Cost of inaction
Potential costs of inaction are enormous
Even minimal shifts in the gas price have huge cost implications. Every €1/MWh increase in the 2025 or 2030 calendar year gas prices (TTF) equates to a €3 billion invoice for the EU. On 21 April the TTF 2025 price spiked by €4.15/MWh and on 3 March the TTF 2030 price jumped by €2.34/MWh, demonstrating the scale and reality of the financial risk.
The European Commission REPowerEU communication released in March contained strategies to cut Russian fossil gas imports into the EU. These proposals could potentially see total EU 2030 gas demand reduce to 2280 TWh (-19%), equating to a saving of €8 billion at the current forecast 2030 TTF gas price. However, more ambitious gas demand reductions are possible. For example, the renewables-focused Paris Agreement Compatible Scenarios for Energy Infrastructure (PAC) has 2030 gas demand as low as 1416 TWh. This would reduce those gas costs by €21 billion. If the current 2022 gas price is applied, these savings rise to €47 billion and €123 billion for the REpowerEU and PAC demand scenarios respectively.
Lack of ambition
EU’s current response to reducing fossil gas consumption is not ambitious enough
The European Commission has recognised the urgent need to end Russian fossil fuel dependence and outlined ways to achieve this, both in the short-term and by 2030. However, the proposals do not go far enough and leave the EU extremely vulnerable to fossil gas price and supply uncertainty.
The EU imported ~350 billion cubic metres (bcm) of gas in 2021. 155 bcm (45%) of these imports were from Russia. Under the existing REPowerEU strategy, the European Commission proposes actions to reduce Russian gas imports by two-thirds by the end of 2022, predominantly by securing alternative sources of supply.
While this strategy is understandable as an immediate solution, in the longer term the EU must take this opportunity to end its reliance on all gas, not just Russian gas. Otherwise, it risks simply replacing one gas dependency with another and prolonging its exposure to global fossil fuel market dynamics and volatility.
Conclusion
Accelerating the clean energy transition is the solution - urgent action required
Diversifying gas supply rather than accelerating the clean transition away from all fossil fuels will exacerbate the EU’s exposure to unnecessary economic and geopolitical risks, worsen the energy poverty crisis, negatively impact developing countries due to inflated prices, and derail climate objectives.
In January, Fatih Birol of the IEA declared that a commodity price shock would add $US741 (€584) to the average EU household bill in 2030 if governments continued with their stated policies. He concluded that clean energy investment remains inadequate and needs to triple by 2030 to get the world on track to limit global warming to 1.5 °C.
A recent report found that the EU can reduce gas demand and end Russian gas imports by 2025 through clean energy solutions – without building new gas import infrastructure, committing to expensive long-term gas contracts or extending coal power. This requires urgent action and considerable effort to achieve a massive expansion of wind and solar deployment and a significant increase in energy efficiency and electrification measures.
The EU’s “Fit for 55” policies must be ramped up as they were set in the now redundant paradigm before the energy crisis and Russia’s invasion of Ukraine. This includes increasing the EU’s 2030 renewable energy target to at least 50% and energy savings target to 45%. The European Commission should also carry out a new impact assessment for its recently proposed reform of the EU’s gas market rules.
As high prices and volatility seem here to stay, the best way to shield consumers and mitigate risks is to reduce fossil fuel consumption through the accelerated deployment of cheaper, cleaner, homegrown renewables.
Supporting Material
Methodology
Calculations
- Gas demand for the “Fit for 55” policy package (MIX Scenario) is calculated from the Primary Production and Net Imports for natural and manufactured gases (ktoe).
- 2030 gas demand reductions under REPowerEU were calculated as 55.5 bcm. 18 bcm from increased biomethane production plus 37.5 bcm from increased hydrogen production (average of 25-50 bcm estimated in the March 2022 communication).
- The REPowerEU 10 bcm potential gas savings from energy efficiency measures is not included in the demand reduction calculation as it is achieved through turning down heating thermostats by 1°C, which will most likely only have a temporary impact and not affect 2030 gas demand.
- The REPowerEU gas savings of 2.5 bcm from rooftop solar and 1.5 bcm from heat pumps are excluded as these are frontloaded and, therefore, not additional to existing FF55 measures.
- 2030 gas demand for the PAC scenario is taken from the EU-28 Primary Energy supply for fossil gas (1727 TWh). This is then multiplied by a factor of 0.82 to derive the EU-27 figure. 0.82 is calculated from the ratio of EU-27/EU-28 gas production and supply in 2020.
- 2022 gas price is calculated from the actual day ahead TTF prices for January to April and the monthly futures prices for May to December recorded on 29 April 2022.
- Conversion factors:
- 1 ktoe (thousand tonnes of oil equivalent) = 0.1163 TWh
- 1 bcm = 840 ktoe
- 1 boe (barrel of oil equivalent) = 1.7 MWh
- 1 NCV (Net Calorific Value of gas) = 0.9 GCV (Gross Calorific Value of gas)
