The tragedy playing out in the Ukraine will have awful consequences for those living in the region. However, it has already affected us all in Europe in different ways, and the effects on the EU and the Irish economies may be pretty significant.
The Russian policy of restricting supply of gas to Europe last year was a preparation for more direct action over Ukraine. The failure to fill the very limited EU gas storage facilities over the summer means that this winter we are dependent on continuing deliveries of gas by pipeline from gas fields, be they in Norway or Russia.
Currently Europe depends on Russia for between 30 per cent and 40 per cent of its gas. In the Irish case we get around 35 per cent of our gas from the Corrib gas field and the rest is imported by pipeline from Britain and wider afield.
While we don’t have supply contracts with Russia the integrated nature of the European gas market means that any shortfall in Russian supply to Europe will have an immediate impact on us all.
While it is not in Russia's long-term economic interest to severely restrict Europe's gas supply it may well use it to further escalate the Ukraine crisis. A significant part of Europe's gas comes in a pipeline through the Ukraine, and Ukraine is also dependent for its own gas supply on Russia. These supplies could be cut off by Russia.
If Europe were to suddenly lose the 30 per cent plus of its gas supply that comes from Russia it would have an immediate effect across the continent. Because gas is essential to our economies the price would have to rise to astronomical levels to reduce demand to the point where it matched the restricted supply. The potential disruption from leaving it to the market would be severe.
EU members
Instead it is likely that the EU Commission would activate existing provisions allowing for sharing of limited supplies of gas among EU members.
If Ukraine were cut off from Russian supplies it would be likely that it too would be included in any EU sharing arrangements. Similar arrangements exist through the International Energy Agency, which saw Europe supply diesel to the US when it was temporarily affected in 2005 by hurricane Katrina, devastating New Orleans, and severely damaging oil refineries on the east coast of the US.
While the UK is not an EU member it would almost certainly participate in such a joint rationing scheme. It already imports half of its gas, mostly through pipelines passing through the EU, so it would have little choice. However, because of its commitment to European security and support for Ukraine, it would, in any event, be certain to participate.
Its participation would be important for Ireland as two-thirds of our gas either comes from UK fields or through pipelines passing through the UK.
Thus the activation of an EU rationing system would affect Ireland even though we are not directly dependent on contracts with Russian companies. A sudden reduction in Irish gas supplies of 30 per cent to support other EU countries more dependent on Russian contracts, such as Germany, would pose major implementation difficulties for the Government.
Supply shortage
Last year 60 per cent of our gas went to generate electricity. If electricity supply were to be maintained this would leave very little gas over for heating homes or for industry.
One option already being implemented is that instead of closing the Moneypoint coal-burning electricity station to reduce greenhouse gas emissions, it is currently being cranked up to offset high-price gas.
However, because the rest of the EU is also temporarily shifting from gas to coal, which is particularly bad for global warming, it has also resulted in a record price for the environmental permits needed if you burn dirty fossil fuels.
At the very least the Ukraine crisis is already a major factor in our current high rate of inflation. This may well get worse. If gas rationing became necessary at an EU level, while it would prevent a massive price surge it would have a corresponding dramatic effect on our lives.
Because the wind doesn’t always blow, gas will remain essential to our economies as we move to eliminate all greenhouse gas emissions by 2050. As a result Ireland and the EU as a whole need to take the security of gas supplies more seriously in the future through diversifying our sources for that gas.
