Reliance on Russian Natural Gas
Europe mainly depends on Russian natural gas supplies since it is both cheap and convenient, mostly being carried by the vital undersea pipeline Nord Stream 1 linking Russian gas to Europe via Germany. The region relies primarily on imports to meet its natural gas requirements to generate electricity, power industries, and heat homes in winter.
Prior to the Russian invasion of Ukraine, 43% of the European Union’s total imports of natural gas came from Russia, followed by 21% from Norway, 8% from Algeria, and 5% from Qatar. In 2020, Germany alone accounted for almost 20% of Russia’s total gas exports – but Germany further distributes it to other European countries.
The construction of a parallel Nord Stream 2 pipeline was underway to expand the import route before Germany deferred the project in February following Russia’s aggression in Ukraine. European Union’s acute dependence on Russian gas is principally driven by a decades-long project led by Germany to increase co-dependence and trade to ease tensions and avoid conflicts.
In efforts to increase regional trade and develop mutually beneficial relations, Europe’s dependence on Russian gas increased as it continued to flow uninterrupted through the years. Even during the Cold War, in the midst of heightened tensions, the gas flowed as the Soviet Union required hard currency and Europe needed the Soviet gas. Despite Russia’s annexation of Crimea in 2014, Germany continued to support the construction of the Nord Stream 2 pipeline.
However, the conflict in Ukraine has exposed Germany’s flawed, high-risk policy. Since the Russian invasion, the EU has approved bans on importing Russian coal and oil, set to take effect later this year, but has excluded natural gas because of its sheer dependence on it.
This has allowed Putin to leverage his control over natural gas exports to the EU to pressurize the European leaders and retaliate against the bloc’s severe sanctions on Russia. The resource has become a central point in EU-Russia relations exacerbating tensions.
Russian Gas Supply Cut-off
Playing the energy pressure game, Moscow – through Russian state-owned energy giant Gazprom – cut off the gas supply to Poland, Bulgaria, Denmark, Finland, France, and the Netherlands. The gas was cut off to Poland and Bulgaria because they refused to pay in rubles. It was not seen as much of a problem as Poland was already planning to phase out Russian gas by the end of the year, and others had alternative sources.
However, concerns over Europe’s energy security and the need for strategic diversification of energy resource imports grew considerably as Russia reduced gas supplies to Austria, the Czech Republic, Germany, Italy, and Slovakia, with the Nord Stream 1 pipeline supplying only 20% of its capacity. Countries having closer ties with Russia, such as Belarus and Turkey, have seen only negligible disruptions.
These cutbacks hit countries that are major economies and heavily dependent on Russian gas, sending shockwaves throughout the Eurozone. As Russian gas supplies continue to ebb, leaders of Europe are criticising Putin for weaponizing food and fuel and conducting ‘gas blackmail’, realizing they have made a grave political mistake by becoming too dependent on Russian energy supplies.
Moscow denies the allegation and has cited turbine problems as its reason for cutting gas supplies which have been sent to Canada for repair and maintenance. Putin has said that the dwindling gas supplies are due to the West’s own fault and the situation may worsen as Canada delays the return of the turbine. The EU responded back blaming Gazprom for not providing the required custom papers for the return of the turbine from Canada.
Technical experts also believe that the gas shutoff is because of Russia’s mala fide intentions since other turbines are available to Russia as alternatives and the absence of a single turbine cannot affect the gas supply to this extent. Over the conflict in Ukraine, the EU and Russia continue to trade economic blows and hostile rhetoric.
Why are the Supply Reductions of Great Concern for the EU?
Russia is currently supplying 15% of Europe’s natural gas, far below the pre-war levels. Moscow’s most recent announcement has further fuelled the fears of a complete Russian gas shutoff, wreaking economic and political havoc in the coming winter in Europe. Ahead of Moscow’s announcement, European Commission President Ursula von der Leyen emphasised Europe needs to be ready whether it’s a partial, major, or complete cut-off of Russian gas.
This has left the EU scrambling to fill its underground gas storage in time for winter. Since the gas utilities operate on a consistent pattern where the reserves are filled over the summer when the gas prices are cheaper and are drawn down over the winter as heating demand rises, the supply deficiency will make replenishing the storage more expensive, complex, and almost impossible for Europe to acquire the fuel it needs for the winter.
Currently, Europe’s underground storage tanks are 57% full. The European Commission has called for each country to reach at least 80% by November while Germany optimistically aims to fill them up to 90%. However, analysts warn that Bulgaria, Hungary, and Romania will be unable to meet the EU’s 80% target if they continue using the gas at their current rate, while Germany, Austria, and Slovakia will be struggling to fill their storage caverns if Russia halts the gas flow.
After months of periodic cutbacks in gas supplies to Europe, Germany’s storage facilities are at roughly 65 percent capacity, falling far short of its projected target. Germany has signalled it is moving to the ‘alert level’ of its emergency plan as reduced Russian flows have exacerbated the fears of a long, hard winter ahead for the country.
Impact of Gas Cut-off
Natural gas is utilised by various energy-intensive industries, including paper mills, glassmakers, steel, chemical and ammonia producers, which are already facing increased costs and increased pressure to reduce use, contributing to the European economy’s slowdown.
Gas is necessary for generating electricity because renewable energy sources like wind and sun are unreliable and create less power due to unpredictable weather changes and when demand for electricity increases during cold or hot weather, such as the recent heatwave in Europe that set record highs.
The increased demand and shortage in supply of natural gas from Russia have caused the energy prices to soar unprecedentedly, contributing to a cost-of-living crisis and economic recession in the Eurozone. The import of oil and gas in Europe is invoiced in the US dollar, which has contributed to the devaluation of the Euro as it has almost reached parity with the US dollar for the first time in twenty years. This will also put the import-oriented business at disadvantage.
The rising inflation and Euro’s devaluation can further push the European Central Bank to raise interest rates more rapidly as it is already preparing to tighten the borrowing cost for the first time in eleven years. According to updated EU estimates, a suspension in Russian gas supply to the European Union could cut the region’s GDP by up to 1.5 percent if the next winter is cold and the region fails to take pre-emptive measures to save energy.
Whereas in the event of a mild winter, a halt in gas imports from Moscow would affect GDP by 0.6-1%. As the energy crunch worsens, the cost of food, electricity, supplies and everything in between will skyrocket for people and businesses.
EU’s Response to Russian Gas Cut-off
The EU, which obtained over 40% of its gas from Russia before the war, had announced to cut imports by two-thirds by the end of the year and completely phase out Russian gas by 2027. It further intends to ban Russian coal from August and most Russian oil within six months.
The goal is to diminish Russia’s $850 million per day from oil and gas supplies to Europe in order to prevent it from financing its conflict in Ukraine. The bloc has purchased expensive liquefied natural gas (LNG), which is to be carried by ships from the United States, as opposed to Russian gas that flows through undersea pipelines, which is normally cheaper.
The war has increased energy costs, which are stoking record inflation in Europe and helping Russia accumulate high revenue. The EU is looking to diversify its suppliers, which include Israel, Egypt, Norway, and Azerbaijan. Efforts are underway to obtain more pipeline gas from Norway and Azerbaijan, while simultaneous energy production from renewable sources and energy conservation are to be encouraged.
The EU signed a memorandum of understanding with Azerbaijan last week to double their imports of Azeri natural gas by 2027. Human rights organisations have questioned the bloc’s deal with Azerbaijan, claiming that the country’s repressive regime will utilise the agreement to avoid accountability for human rights violations. Germany is bringing in four floating LNG import terminals, two of which are set to open this year.
Despite the EU’s consistent emphasis on renewable energy, the crisis is forcing governments to reluctantly return to the use of fossil fuels. Germany had planned to phase out coal entirely by 2030 but is now forced to defer the project and immediately legislate to revive coal-fired power facilities as a temporary fix. The Dutch government has reopened coal-fired power plants at full capacity in order to save natural gas that would otherwise be consumed to generate energy.
As Europe continues to suffer from the effects of global warming and climate change, this will cause a considerable increase in the emissions of climate-warming greenhouse gases from coal-burning. The EU Vice Chancellor called the return to coal unfortunate but a sheer necessity in the given situation. The European countries are hoping additional supplies and reduced demand will help the EU reach its storage goal of 80% before the winter begins.
While awareness campaigns for gas conservation are in full swing, incentivising low gas usage and increasing energy bills is expected to stimulate a natural reduction in consumption. The EU, with the exemption of a few countries, has agreed on coordinated action to decrease natural gas usage this winter to protect themselves from future supply cutbacks by Russia as it invades Ukraine.
They agreed on a new European law aimed at reducing gas demand by 15% from August to March. The proposal calls for voluntary national initiatives to reduce gas usage, but if those do not deliver enough savings, the 27-member bloc will be forced to take mandatory actions as analysts believe Europe’s gas security remains fragile despite all these measures.
A Frigid Future?
The European Union’s reliance on Russia for natural gas and the imposition of severe sanctions by the bloc in wake of Russia’s military aggression in Ukraine has backfired in an unexpected manner. Moscow is leveraging its control over one of the most important resources to pressurize the European leaders and stabilise its presence in Ukraine.
With the energy prices skyrocketing, the Euro devaluating, Russian gas supplies continuously ebbing as Europe apprehends a total cut-off, and gas storage caverns standing below the minimum threshold ahead of a long and hard winter, Europe is on the verge of a political and economic crisis.
It is struggling to mitigate the impact of the Russian supply reductions by engaging with other suppliers, returning to the use of coal for energy production, hoping for better weather conditions and implementing strict measures for gas conservation. This is a historic test of European solidarity – one it cannot afford to fail – with implications far beyond the energy sector for the region.
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