European plan to de-energize Russia faces possible delays and increased costs

Europe’s ambitious timetable for decoupling from Russian energy faces potential delays and additional billions of dollars in cost, as the war in Ukraine makes steel, copper and aluminum rarer and more expensive.

According to Bloomberg, the rush to replace Russian fossil fuels is pushing the continent to focus on boosting liquefied natural gas flows in the short term and increasing production from renewable sources by 2030. Germany commits to build two liquefied natural gas terminals , France wants to resume talks with Spain on a connecting pipeline and the UK is seeking more domestic wind, solar and nuclear energy.

However, prices for essential materials continue to rise. Steel, copper and aluminum have hit record highs in the last 12 months, with the Bloomberg Commodity Spot Index jumping 46% over the same period. Rising prices threaten to slow down projects such as the European Union’s plan to nearly triple wind and solar power this decade, a colossal investment that would require about 52 million tonnes of steel alone.

“This war is having an impact, of course, on all those companies, including us, that are on the verge of making quite large investments,” said Fred van Beers, CEO of SIF Holding NV, which manufactures steel platforms for wind turbines. “This brings ups and downs to the business.”

Prior to the invasion, Russian gas was relatively cheap, easy to transport, and generous. These factors, as well as the expected opening of the Nord Stream 2 pipeline to Germany, helped persuade Europe to reduce its own production and start shutting down coal-fired power plants and nuclear reactors to focus on cleaner sources. energy.

The EU imported about 155 billion cubic meters of gas from Russia last year, according to the International Energy Agency. In the aftermath of the war, the bloc wants to reduce dependence by two-thirds this year.

About 30 billion cubic meters can be replaced by other suppliers, with the difference being covered by renewable energy, nuclear and changes in consumption, the IOC said. For the EU, the cost of building such infrastructure could be up to 20% higher than it was before the start of the war, said Grant Sporre, an analyst at Bloomberg Intelligence.

“The construction will be more expensive than the governments intended,” Sporre said. “We may see some projects being delayed as prices remain high.”

The European Commission’s transitional plan includes the installation of 290 gigawatts of wind energy and 250 gigawatts of solar energy. The bill for steel alone amounts to 65 billion euros at current market prices.

Russia and Ukraine are the largest exporters of steel plates used in the construction of turbines and gas pipelines. Although there are alternative sources, the cost for them is 50% higher than normal, according to Rysted Energy AS.

The problem is exacerbated by China’s decision to shut down the Tangshan steel plant in an effort to control a rise in Covid-19 cases.

“There is a surge in supply chain costs for all steel products in Europe,” said James Ley, senior vice president at Rystad Energy Metals.

Copper is another vital component, with high conductivity that is ideal for internal wiring and external cables. Europe needs about 7.7 million tonnes to meet its 2030 target, and this year’s rally adds about $ 7.6 billion to the price, according to Bank of America.

Then there is the aluminum required for solar panels, turbines and the networks to which they are connected. Europe has a critical shortfall because production fell after the spike in energy costs.

Russia is the largest producer outside of China, with refined aluminum accounting for about 5% of world production. The market was already tight at the start of this year, according to BloombergNEF, and prices skyrocketed in March. The risk that Russian missions could be “strangled” by possible sanctions has helped fuel these increases.

“People may have to make do without Russian supplies,” said Andrew Forrest, president and founder of Fortescue Group Metals. “It is certainly possible, but there will be a period of adjustment.”

More grids will be needed to transport huge amounts of production from renewable energy sources to where electricity is needed. The addition of new connections requires a cumulative investment of about 1.5 trillion. dollars from 2020 to 2050, according to the BNEF.

At the same time, liquefied natural gas is gaining momentum with Germany’s plans for two new terminals as early as this year and securing a floating storage and regasification plant from the Netherlands in March. Italy and Estonia are also pushing for the rapid creation of their own.

The United Kingdom and France are planning a huge expansion of nuclear energy. About 230,000 tonnes of steel reinforcement will be used to build Electricite de France’s Hinkley Point C in the south-west of England, and another reactor is planned.