European competitiveness threatened by continued imports of volatile LNG

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Key points:

  • Europe is increasingly relying on imports of liquefied natural gas (LNG) as it seeks to shift away from a reliance on Russian fossil fuels. 
  • Rising imports of LNG have coincided with higher gas price volatility in Europe. In the last five years, the volatility in European gas prices has been double the historic average. 
  • Sudden spikes in gas prices have widespread economic and social impacts because they often set electricity prices in Europe. In 2022, a surge in gas prices pushed up electricity costs for households and businesses. 
  • European demand for LNG is predicted to fall over the long-term but LNG’s growing share of imports will remain an ongoing threat to the region’s competitiveness.
  • Geopolitical tensions surrounding an unpredictable second Trump presidency and intense competition with Asia for LNG might mean more price volatility in future. 
  • However, increased domestic solar and wind electricity generation could shield European countries from LNG price volatility.

Europe eyes increased imports of LNG

LNG markets are predicted to enter a “golden era” in the next few years as the inauguration of US President Donald Trump for his second term in office is expected to lead to a surge in production and exports of LNG from the US. The International Energy Agency (IEA) expects global LNG supply to grow by almost 6% in 2025, as several large LNG projects come online. Over the next decade, surging LNG supply is expected to exceed demand, a trend that will push down LNG prices. 

Some see rising LNG supply as an opportunity for Europe. The EU has said it aims to replace Russian gas flowing through Ukraine, following the end of a transit deal in December 2024, with imports of LNG. This is part of the EU’s wider plan to phase out Russian fossil fuels following the country’s invasion of Ukraine in February 2022. 

Joining the dots: Rising LNG imports and price volatility in Europe

The European benchmark for natural gas prices, the Title Transfer Facility (TTF), has experienced a rise in volatility. The average price volatility in the last five years has been two times higher than the historical average. Between 2019-2024, the average 30 day price volatility for the TTF was 85%, compared to 39% over the period 2005-2019 (Figure 1).

While energy analysts have speculated that the TTF volatility is partly structural, Europe’s increased dependence on LNG has also been cited as a driver. LNG became the new baseload source of European gas supply in 2022 (Figure 2), making the region increasingly sensitive to the liquidity and volatility of the global LNG market. Between 2005 and 2019, LNG made up 22% of European gas imports. This jumped to 44% between 2020 and 2023, with LNG overtaking pipeline imports for the first time in 2022. A report by ex-European Central Bank President Mario Draghi on EU competitiveness highlighted that: “LNG prices are typically higher than pipeline gas on spot markets owing to liquefaction and transportation costs.”

Figure 1: TTF price volatility 2005-2024
Figure 2: European gas imports 2005-2023

One of the drivers of TTF price volatility in Europe is intense competition with Asia for LNG. Price rises in Asia have reverberated back into European prices – a trend that is expected to become more prominent in future. In early 2024, rising demand in Asia, partly due to heatwaves, lower prices and lower domestic gas production, played a role in pushing up prices in Europe. “Gas prices in Europe are likely to remain volatile for some time as the EU has to compete with the more price-sensitive China and to a lesser extent India and Thailand for LNG cargoes. This dynamic introduces greater price unpredictability, as the reliability of LNG cargoes is not guaranteed in the very short term at the most optimal price,” said Stephen Ellis, an investment strategist at Morningstar.

Europe potentially faces even more intense competition with Asia and other regions for LNG if it follows through with a pledge to end gas imports from Russia by 2027 – something the new EU energy commissioner Dan Jørgensen says he intends to do. Russia still remains a key source of LNG for the EU, despite the bloc’s efforts to diversify. The end of the Russia-Ukraine transit deal already increased gas prices in Europe at the start of January, and is expected to do the same in Asia. Gas contracts in Europe are “trading at around triple pre-crisis levels so far in 2025,” according to Bloomberg. This could be made worse by colder weather in both regions. “If Europe also experiences a colder winter, buyers in Europe would have to compete for spot LNG cargoes, which in turn would raise prices at both European and Asian price hubs, especially if fuel switching is not possible,” said the US Energy Information Administration.

High energy prices weaken European competitiveness

Persistently high energy prices are restricting the competitiveness of European industry, according to the Draghi report, which noted that “even though energy prices have fallen considerably from their peaks, EU companies still face electricity prices that are 2-3 times those in the US”. A study by Goldman Sachs Research found that the higher cost of electricity is a key driver of Europe’s lower productivity relative to the US economy. 

One of the key factors in higher electricity prices has been Europe’s reliance on gas. An IMF working paper found that: “the recent spike in wholesale electricity prices in Europe has broadly been driven by the cost of production at natural-gas power plants.” In Germany at the time of Russia’s invasion of Ukraine in 2022, “electricity prices were extremely volatile and closely connected to gas price trends“. The rise in natural gas prices contributed to widespread high wholesale electricity prices in Q2 2022 when “the highest price was €500/ MWh and the average was €186.98/ MWh“. The high electricity prices hurt some key German industries such as the automotive sector. A survey of automotive companies at the time by lobby group VDA found that 10% had production restrictions and 85% considered Germany an “internationally uncompetitive location” in terms of energy prices and supply.

The impact of gas on electricity prices was felt throughout Europe – with households and businesses1Page 46. facing high energy costs, and vulnerable, low-income households being disproportionately impacted. The Draghi report found that “at the peak of the energy crisis, natural gas was the pricesetter 63% of the time, despite making up only 20% share of the EU’s electricity mix.”

Figure 3: Price-setting technology per member state and their generation mix
Source: The future of European competitiveness: Report by Mario Draghi, 2024.

Reducing Europe’s exposure to volatile LNG will enhance its competitiveness

Researchers and analysts predict that EU demand for imported LNG will potentially reduce from 2023, as climate and energy policies such as increasing energy efficiency and expanding renewable energy sources are expected to reduce gas demand by at least 40% through 2030. The EU may be better insulated against LNG volatility in the future due to this decreased demand. However, electricity prices are frequently set by the price of gas – even if used in smaller amounts. This represents an ongoing threat to stable and affordable electricity prices, and therefore the region’s competitiveness. This interlinkage is mainly driven by the design of the EU’s electricity market. “Market rules in the power sector do not fully de-couple the price of renewable and nuclear energy from higher and more volatile fossil fuel prices, preventing end users from capturing the full benefits of clean energy in their bills,” according to the Draghi report. 

The EU plans to increase its use of domestic renewable energy in order to achieve energy independence, reduce energy costs and strengthen the bloc’s competitiveness. The shift to an electrified, renewables-based and efficient energy system would reduce the “overall exposure to fossil fuel price volatility”, according to the IEA. The transition could have a “net positive effect on energy security,” provided that investments are aligned to “address new challenges posed by the increased reliance on renewables,” the IMF said. Electrification based on low cost renewable energy could also increase European competitiveness by narrowing the gap between energy costs paid by European businesses and their competitors in different regions, according to Goldman Sachs Research. 

The Draghi report finds that: “Decarbonisation could be an opportunity for Europe, both to take the lead in new clean technologies and circularity solutions, and to shift power generation towards secure, low-cost clean energy sources in which the EU has generous natural endowments.” 

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Azerbaijan’s energy and climate policies dominated by gas export expansion plans

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Key points:

  • Azerbaijan is the world’s 28th-largest oil and gas producer. It has been increasing exports with gas shipments rising more than 13% in the first seven months of 2024.
  • Expanding production comes as European countries continue seeking to reduce dependence on Russian gas.
  • Azerbaijan has agreed with the EU to increase gas exports to 20 billion cubic metres (bcm) a year by 2027, up from 11 bcm in 2022, but this agreement is coming under greater scrutiny over concerns of human rights abuses.
  • In mid-2024 gas exports began flowing to Slovenia and there are ongoing discussions about supplying Slovakia, Bulgaria and Czech Republic.
  • Azerbaijan has been proposed as a transit country for gas via Ukraine once Russia’s access to its pipelines expires at the end of the year.
  • Azerbaijan is importing Russian gas for its own domestic use, enabling it to meet its export commitments.
  • The government has explicitly stated its intention to increase renewable energy so that it can free up gas supplies to export to Europe.
  • In July 2024 Elnur Soltanov, the Azerbaijan deputy energy minister and COP29 chief executive said that fossil fuel production could be aligned with a 1.5C pathway and that the focus should be on emissions. 

Azerbaijan’s economy is dominated by oil and gas

Azerbaijan is the world’s 28th-largest oil and gas producer, with production of around 1 million barrels of oil equivalent per day in 2023. The country holds around 0.4% of global oil reserves. Between 2000 and 2021 natural gas supply grew by 128%. During the next ten years the country is planning on expanding its gas production from around 37 billion cubic metres (bcm) to 49 bcm in 2033. Oil and gas make up 98% of total energy supply, over 90% of exports and one-third of GDP. Gas exports increased by 29,290% between 2006 and 2021. According to the energy ministry, exports rose more than 13% in the first seven months of 2024, reaching 7.5 bcm between January and July 2024, up from 6.6 bcm over the same period in 2023. The country is set to increase gas production by a third over the next decade.

Europe is Azerbaijan’s largest market for gas exports

Europe is a key export market, accounting for more than half of gas sales. Data from the Azerbaijan energy ministry shows that around 11.4 bcm of a total 22.3 bcm of natural gas exports went to the EU in 2022. In 2023 exports to the EU reached 12 bcm out of a total 23.9 bcm.

Russia’s invasion of Ukraine increased the EU’s goal of finding alternative sources of energy supply. In 2022 the EU and Azerbaijan signed an agreement to increase exports of natural gas to 20 bcm a year by 2027. This is now coming under greater scrutiny from MEPs who cite human rights abuses as a reason to suspend this agreement. This is raising diplomatic tensions between Azerbaijan and the EU.

Doubts have been raised about the country’s ability to double its contribution to the EU’s gas supplies due to infrastructure and investment shortfalls. However, production is expected to increase at certain locations such as the Azeri-Chirag-Gunashli and Umid fields. In July 2024 Azerbaijan called on the EU to commit to longer gas contracts to provide certainty to investors, but was facing reluctance in light of the bloc’s climate targets.

Europe’s dependence on Azerbaijan’s gas continues to evolve:

SOCAR deals support growing production

The state oil company SOCAR is involved in increasing exports to Europe and has been expanding its operations alongside global majors, including Gazprom. Fossil fuel companies are forecast to invest more than USD 41 billion into the country’s gas fields. Recent deals include:

The country’s economic reliance on gas is not without risks. The World Bank warned in a November 2023 report that “Azerbaijan’s development trajectory remains exposed to global energy markets’ volatility” and that the country will not be able to achieve strategic priorities outlined in Azerbaijan Vision 2030 if it remains reliant on oil and gas rents. The World Bank states: “Remaining prey to commodity cycles and facing a depleting oil asset base, Azerbaijan’s economy will be tested by the headwinds brought by global decarbonization”. An October 2024 assessment by Chatham House highlights the country’s reliance on oil and gas as the bedrock of its role on the international stage is likely to be undermined by declining reserves, and rising costs for production and financing. The government reports that the non-oil economy is growing and claims it is diversifying away from fossil fuels.

COP29 hosts see a future of fossil fuels

As the COP Presidency, Azerbaijan has defended the continued production of oil and gas:

Climate targets and renewable energy in the shadow of gas exports

Azerbaijan’s Nationally Determined Contribution, submitted to the UNFCCC three years late in 2023, states the aim to reduce greenhouse gas emissions by 40% by 2050 (using 1990 as the baseline reference year, which is controversial because at the time the country was part of the Soviet Union and had lower emissions). The COP29 president said in March 2024 that the climate target could be strengthened and that the country aimed to maximise investment in green energy production. In September 2024, the civil society organisation Climate Action Tracker concluded the country’s NDC to be “critically insufficient” and offered recommendations to upgrade it.

In April 2024 President Aliyev said the country aimed to build 2 GW of renewable energy capacity by 2027, and 5 GW by 2030, and that it was “working on” a national climate plan that would be aligned with the 1.5C warming goal of the Paris agreement. In August 2024 it was reported that SOCAR had joined the Oil and Gas Methane Partnership, which aims to reduce methane emissions. Meanwhile, the country’s gas production was revealed to be getting dirtier, with the volume of gas being flared at oil and gas installations increasing by 10.5% between 2018 and 2023.

Gas is the primary feedstock for domestic energy. In 2021 renewable sources – hydro, solar, wind and biofuels –made up 1.4% of national energy supply. Hydropower dominates the country’s renewable energy generation, with a capacity of more than 1,300 MW. However, its long-term role could be affected by increasing water scarcity due to climate change. Government statistics show wind capacity is 66 MW, solar energy 282 MW and bioenergy 38 MW.

New capacity is being developed. In 2022 construction began on a 240-MW wind farm with Saudi Arabia’s ACWA Power, and on a 230-MW solar power plant with the UAE’s Masdar. In 2023 implementation agreements were signed with ACWA Power on a 1.5-GW wind power project, a 1-GW onshore solar power plant and on energy storage systems. SOCAR is a partner in these projects. In April 2024 the country launched its first auction for the design, financing, construction and operation of a 100-MW solar power plant, with support from the European Bank for Reconstruction and Development (EBRD). In June 2024 the government said the aim was for 33% of installed capacity to be from renewable energy by 2027. The country has agreed to work with China on installing renewable energy.

The government has plans to turn Nagorno-Karabakh, the area it took full control over in September 2023, into a green energy zone with solar, wind and hydro electric power projects in development. BP is reported to be planning to build a solar farm in the region. SOCAR has so far connected 23 villages via gas pipelines.

One driver of the country’s push for renewables is to free up supply to increase gas exports to Europe, which are targeted to double by 2027. In November 2023, Azerbaijan’s deputy energy minister Samir Valiyev said: “By the end of 2027, wind and solar power plants with a capacity of 1,862 MW are planned to be put into operation, which frees up more than 1 bcm of gas”. In April 2024 President Aliyev reinforced this point at a speech in Berlin where he said increasing green energy would mean that “at least five additional billion cubic metres of gas will be exported to Europe. So it’s actually a win-win situation”.

Elements of this paper were updated on 29 October 2024.

Energy markets one year after the Ukraine invasion

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Key points

  • The EU has already substituted nearly 75% of Russian gas imports
  • Gas demand in the EU dropped 10% in the first nine months of 2022, and is set to fall by 43% by 2030 if the EU delivers on its long-term climate pledges
  • Significant excess import capacity is being built in the EU – new LNG capacity in development could provide 65% more gas than Russia was supplying in late 2022
  • Global gas demand is now forecast to peak before the end of the decade, with 88% of the growth in electricity demand being met by renewables over the next three years compared to just 1% for fossil fuels
  • High gas and coal prices accounted for 90% of the increase in electricity costs around the world in 2022, with European governments committing over EUR 750 billion to shield consumers from the immediate impacts of high energy prices
  • The EU spent EUR 252 billion on gas imports in the first nine months of 2022, up EUR 186 billion on the same period the previous year, a rise of 286%
  • Western energy sanctions are estimated to be costing Russia EUR 280 million per day, with the country’s deficit having reached USD 25 billion

“Energy markets and policies have changed as a result of Russia’s invasion of Ukraine, not just for the time being, but for decades to come… Government responses around the world promise to make this a historic and definitive turning point towards a cleaner, more affordable and more secure energy system.” 1https://www.iea.org/reports/world-energy-outlook-2022

Fatih Birol, head of the International Energy Agency (IEA)

The response to Russia’s invasion has accelerated the energy transition

Europe
Source: European Council analysis of European Commission data
Data: EU gas imports.xlsx
Source: Zero Carbon Analytics analysis. Gas import volumes from Breugel analysis of ENTSO-G data, share from Russia from European Council analysis of European Commission data, LNG capacity under development from US Energy Information Administration.
Data: EU gas imports.xlsx
Global
Source: PORT PC – Polish Organization for the Development of Heat Pump Technology
Data: Heat pump sales.xlsx
Source: EMBER, IEA

Renewable energy has saved taxpayers and consumers billions

Continued use of fossil gas has cost taxpayers and consumers billions

Source: Cambridge Economics: France, Germany, Italy, Poland, Spain
Source: European Commission
Data: EU gas demand and costs.xlsx
Source: IEEFA, IHS Markit

Russia has been hurt financially while European industry has grown

Russia
Europe
  • European industry had been widely expected to be hardest hit by high gas prices. Gas demand in European industry fell by an estimated 15% in the first eight months of 2022 compared to the same period in the previous year.30https://www.iea.org/reports/gas-market-report-q4-2022
Source: Eurostat
Data: EU industrial output.xlsx

How climate action can address the cost of living crisis

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Key points

  • The world is facing an energy crisis of “unprecedented depth and complexity”. The dramatic rise in fossil fuel prices has fuelled inflation across the world
  • The resulting cost of living crisis has left many households struggling or unable to access adequate energy to heat or light their homes
  • Leading institutions such as the International Energy Agency recognise that the crisis is caused by gas prices in particular, not renewables
  • Energy efficiency measures, such as insulation and smart meters, are a relatively quick and low cost way to reduce energy demand
  • Renewables are considerably cheaper than fossil fuels, so expanding renewable capacity can cut the cost of electricity, as well as reducing energy market volatility, enhancing energy security and helping achieve climate goals
  • Heat pumps offer a cheaper, cleaner alternative to gas heating, so can reduce energy bills significantly
  • Policy measures to reduce car use can help address cost of living issues as well as reducing emissions.

Energy and the cost of living crisis

The cost of energy began to soar across the world in 2021. This was caused by a rise in global energy demand as economies recovered from the Covid pandemic and a lack of investment in supply to match it. The Russian invasion of Ukraine also reduced supply significantly, causing prices to shoot up. Price rises in gas have been particularly extreme in Europe and reached an all time high in August 2022. The IEA estimates this was the main factor behind the dramatic increase in wholesale electricity prices in the EU. Along with nuclear outages in the European summer, these price hikes have all contributed to a rise in the cost of living for consumers, creating an energy crisis of “unprecedented depth and complexity,” according to the International Energy Agency (IEA). Increasing energy prices also contribute to wider inflation as the costs of producing goods and services also increase. Indeed rises in energy prices caused half of annual Consumer Price Index inflation in Europe in May 2022.

The rise in fossil fuel prices has been reflected in consumer energy bills across Europe. As a result, the International Monetary Fund (IMF) estimates that households in the EU will face, on average, a 7% rise in their cost of living in 2022. Clearly within this average, some households and countries will be impacted more than others, depending on how much of the increase energy companies pass on to customers and what protections governments offer their citizens.

Consumers are being hit in other ways too. Rising oil prices have pushed petrol and diesel prices up significantly – in the UK, for example, prices are up over 40% since May 2020, while diesel prices in Germany have risen over 70% in the same period. 

Rising fossil fuel prices are also feeding through to higher food prices, as increased energy, transport and fertiliser (the bulk of which is made using natural gas) costs drain household budgets even further.  Increases in food prices are being exacerbated by the war in Ukraine, as Russia and Ukraine account for around 30% of global wheat exports as well as being major exporters of fertiliser globally.  

Some commentators have blamed the cost of living crisis on the costs of implementing policies and measures designed to make our energy systems net zero by 2050.  This briefing explains why renewables and energy efficiency are in fact an essential part of the solution to the cost of living crisis.

Who is being hit hardest?

Poorer households are impacted disproportionately, given that energy bills take a greater share of their income compared to wealthier households.

Rising energy prices have led to many households falling into energy poverty, where they experience a combination of low income, high energy costs and inadequate energy efficiency measures, to the point where they cannot afford to warm their homes adequately. In 2021, before the worst of the energy crisis, nearly 7% of EU citizens could not afford to keep their homes adequately warm. The European Commission recognises that rising energy prices since 2021 are likely to have exacerbated this situation.

Many factors influence household energy costs, such as the price of gas for heating and the level of energy efficiency in the home – both the building itself and the appliances within it. Lower income households are less able to respond to price rises by investing in measures to improve the efficiency of the building, installing renewable technologies such as solar panels or heat pumps, or buying new appliances to replace less efficient ones.

In addition, a high proportion of lower income households rent their homes rather than owning them. As well as being unable to afford to pay for measures to reduce their bills themselves, they may also find that their landlords are unwilling to invest in energy saving options, such as insulation.

What is being done?

Many governments have introduced subsidies, tax cuts or price controls to protect consumers from the full extent of energy price rises. The cost to European governments of these measures since the summer of 2021 is estimated to exceed 3.5% of GDP, or EUR 705 billion, by the end of 2022.

However, these are only short term responses. In many cases they are also badly designed and targeted equally to all consumers, rather than providing more support to vulnerable consumers that need it most. In the longer term, a different approach will be required, not only because these short term measures do not address the underlying problem, but because limiting the impact of energy price rises actually reduces incentives to use less energy, improve efficiency and install renewable technologies, thereby maintaining demand for energy and ultimately keeping prices higher than they would otherwise be.

What could be done to reduce energy prices?

The IEA, World Economic Forum and World Bank among many others all agree that a well managed energy transition, away from fossil fuels to renewables, could help reduce the volatility of energy markets. As the head of the IEA has said: “This is not a renewables or a clean energy crisis; this is a natural gas market crisis.” 

A recent study by the IMF found that renewables generation reduced the wholesale price of electricity in Europe – for every 1% increase in renewables, there was a reduction of 0.6% in wholesale prices.1The study looked at the period 2014-21, before the worst of the energy crisis. It might well be that the dampening effect on prices is more pronounced now given the rises in gas prices. The higher the level of renewable generation, the greater the reduction in the price of electricity. This is known as the Merit Order Effect, where renewables such as wind and solar, which have no fuel costs and low operating costs, displace generation such as natural gas, which has high fuel costs.

Electricity price fluctuations due to the Merit Order Effect
Source: Clean Energy Wire

In other words, investing in renewables, energy efficiency and other low carbon options is key to reducing volatility and high prices in energy markets. This in turn will help address the impacts of energy price rises on the food system. Governments must, therefore, now shift their focus away from ‘sticking plaster’ responses such as price caps to energy price rises and instead invest in these longer term solutions to the underlying problems.

Improving energy efficiency

Reducing demand for energy is the most effective long term solution to ameliorate poor households’ exposure to volatile energy markets, while also reducing carbon emissions. As the saying goes, ‘the cheapest energy is the energy you don’t use’. Measures range from relatively simple interventions such as installing or improving loft insulation and draft proofing, to more complex steps such as solid wall insulation. Even a simple switch to using more efficient thermostats could collectively save EU citizens up to EUR 12 billion in energy bills.

Europe has some of the oldest and least efficient buildings in the world and they are responsible for one third of Europe’s CO2 emissions. Addressing this problem is a relatively low cost and quick way to reduce energy demand – The European Consumer Organisation (BEUC) estimates that ambitious housing retrofit policies could pay for themselves in less than two years. 
Improving energy efficiency can also have health benefits, including improved air quality, reduced respiratory and heart illnesses, improvements in mental health and fewer winter deaths.

Increasing renewable capacity

Zero carbon electricity from renewables can provide us with sustainable power, heat and mobility. Increasing the level of renewably-generated electricity is the key to unlocking decarbonisation across the energy system.  

Renewable technologies such as solar and wind are now cheaper to build and operate than conventional fossil fuel plants following a dramatic decline in costs over the last decade. Indeed new onshore wind and solar projects are 40% cheaper than new coal and gas-fired power plants, BloombergNEF calculates, while savings from renewable capacity added in 2021 alone will save at least USD 55bn in electricity generation costs globally in 2022, according to IRENA (see chart below). One of the main reasons is that most renewables have no fuel costs, unlike fossil fuel plants.

Estimated savings in 2022 from renewables added in 2021 displacing fossil fuel generation
Source: IRENA

Rystad Energy estimates that current high gas prices mean it would, in fact, be 10 times cheaper to build new solar pv capacity in Europe than to operate gas fired power stations in the longer term. The savings are so big, that a rapid green energy transition is likely to result in trillions of dollars of savings compared to investing in fossil fuels.

Building and operating renewable energy plants also avoids having to import fossil fuels from outside Europe, so improving the security of energy supply. IRENA estimates that the use of solar pv and wind power avoided around USD 50 billion worth of fossil fuel imports between January and May 2022 alone.

The way power markets operate in Europe is also a factor in high prices. The wholesale price that generators are paid for electricity is set by the highest cost generator – gas fired plants. This is known as marginal, or pay-as-clear, pricing. The European Commission has put forward proposals on how this might be reformed so that the lower costs of renewables are better reflected in consumer bills. These include increasing the levels of electricity storage and demand-side measures to enhance the system’s flexibility and encourage the development of smart grids, all of which can help reduce reliance on fossil fuels and lower prices.

Installing heat pumps

Investments in household energy efficiency also pave the way for low-carbon heating technologies. Using electricity to provide heat can save money, particularly when using heat pumps, which are more efficient than both gas boilers and traditional electric heaters. When powered by renewable energy, they also avoid burning fossil fuels. A study has shown that the use of heat pumps in the UK could save households up to 27% on their heating bills compared to a gas boiler, while the IEA found that, in the context of current high gas prices, US households could save USD 300 a year and those in Europe USD 900 if they installed heat pumps. Using heat pumps at off-peak times could allow people to reduce their heatings costs by up to 31% compared with conventional fuels.

If heat pump installation is paired with renovating buildings to make them more energy efficient, the average European bill for heating could be halved by 2050, according to one study. Moreover, those installations would allow Europe to cut its annual spending on gas imports by EUR 15 billion by 2030.

Electrifying transport

Transport accounts for around a quarter of carbon emissions in the EU and, unlike other sectors, emissions from transport are rising. Addressing the climate impact of the transport sector is, therefore, vital if the EU is to achieve its net-zero targets. As about 60% of transport emissions come from driving cars, changing personal transport is key.

While electric vehicles (EVs) still cost more to buy than conventional vehicles, the cost of batteries for EVs has tumbled over the last decade – a battery pack cost USD 684/kWh in 2013 but had fallen to USD 151/kWh in 2021. The rate of this decline has slowed in recent years, partly as a result of lithium supply chain issues, but some car manufacturers such as Renault and Ford have announced battery pack targets of USD 80/kWh by 2030, substantially reducing the future cost of EVs.

Despite the rise in electricity prices, a recent study in the EU found that, when using private home chargers, EVs are still cheaper to run than combustion-engine vehicles.  As discussed above, increased levels of renewables in our electricity systems will help bring prices down further in future.

In addition to the climate impacts of internal combustion engines, they are also responsible for causing premature deaths and illness. The European Environment Agency reports that there were more than 300,000 premature deaths in 2020 caused by exposure to particulates, nitrogen dioxide and ozone, the first two of which are emitted directly by cars.

Some countries have taken short-term measures to encourage people to use public transport as a way of addressing cost of living pressures. For example, a €9 monthly ticket introduced for regional transport in Germany during 2022 led to reduced car use as well as a 1.8Mt reduction in CO2 emissions and a 7% reduction in local air pollution.  Well thought out policy measures can contribute to increasing the use of public transport, addressing the cost of living crisis and reducing emissions and other environmental damage.

However, a sustainable reduction of cars per capita requires better infrastructure such as more EV charging points or more cycle lanes to make lower carbon alternatives more viable. According to The European Cycling Federation, EU citizens could save up to EUR 2.8 billion each year on fuel bills if 30% of journeys were cycled instead of driven. Policies need to be put in place to promote walking, cycling and greater use of public transport.

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    The study looked at the period 2014-21, before the worst of the energy crisis. It might well be that the dampening effect on prices is more pronounced now given the rises in gas prices.

European jet fuel: How big a role does Russia play?

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Key points

  • Five per cent of the jet fuel imported to Europe last year came from Russia (13,000 b/d), representing more than USD 1 million a day
  • This accounted for 1.3% of total jet fuel consumed in the EU
  • Pre-Covid, imports were much higher – 36,000 barrels a day in 2019, for example
  • Among major European airlines, British Airways-owner IAG was the biggest user of Russian jet fuel last year
  • UK airports Heathrow and Gatwick have been the biggest consumers of Russian jet fuel.

Country breakdown

The EU imported 13,000 b/d of jet fuel from Russia in 2021. This equates to 1.3% of total jet fuel consumption, or 5% of imports. It also represents USD 1,001,000 a day flowing from the EU to Russia (at an average price of $77 per barrel). This is a significant drop in volume from pre-Covid levels – in 2015-19, annual jet fuel imports from Russia averaged 30,200 b/d (USD 1,751,600 a day, taking the average price of jet fuel across the five-year period). This equated to 2% of total average annual consumption.

For comparison, 20% of the EU’s imported jet fuel in 2021 came from the UAE, 16% from Kuwait, 12% from India, 10% from South Korea and 8% from Saudi Arabia.

Between 2011 and 2019, the main growth markets of imported jet fuel were Russia, the UAE and Saudi Arabia. Imports from Russia increased 620%, while those from the UAE (168%) and Saudi Arabia (127%) more than doubled. Despite the dramatic drop in demand brought about by the pandemic, imports from Russia in 2021 were 160% higher than in 2011.

However, Covid has started to reshape the landscape. Between 2020 and 2021, imports from Saudi Arabia, the UAE and Russia were down 30%, 21% and 13% respectively. Meanwhile, imports from Turkey (11%) and India (20%) rose. 

In 2021, 71% (699 of 988 b/d) of the jet fuel consumed by the EU was produced (refined) in Europe, 14% in the Middle East and 11% in Asia Pacific. 2% came from Russia and the former Soviet Union states. 

Airline breakdown

In 2021, British Airways-owner IAG was by some distance the biggest consumer of jet fuel imported from Russia. The airline used on average 586 b/d of Russian jet fuel. This equates to USD 45,122 a day. Again this is a significant drop from pre-Covid levels – between 2015-19, it used on average 1,974 b/d (USD 114,492 a day, again taking the five-year average price) of jet fuel from Russia. Over this same period, SAS was the biggest user of Russian jet fuel, averaging 3,277 b/d (USD 190,066).

At 308 b/d, Scandinavian Airlines (SAS) was the next biggest consumer of Russian Jet fuel last year, followed by Wizz Air (169 b/d), Easyjet (166), Ryanair (150), Turkish Airlines (106), Lufthansa (57), Air France (29) and Pegasus (25).

Airport breakdown

In 2021, among Europe’s leading airports, London’s Heathrow was the biggest consumer of Russian jet fuel, at 874 b/d (USD 67,298 a day). This is a significant drop from pre-Covid levels, when the airport’s annual average from 2015-19 was 4,101 b/d (USD 237,858 a day, using the five-year average price). Airports in London – namely Heathrow and Gatwick – were by far the largest consumers of Russian jet fuel between 2011 and 2021, accounting on average for 92% of consumption of Russian jet fuel.

Last year, the next biggest consumer of Russian jet fuel was Paris’ Charles de Gaulle (706 b/d), followed by Amsterdam’s Schiphol (225 b/d) and London’s Gatwick (126 b/d).

The data upon which this briefing is based was commissioned from Energy Aspects last year, before the Russian invasion of Ukraine

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