How Europe Has Become So Dependent on Putin for Gas
(Bloomberg) -- Europe’s relations with Russia are close to their lowest point in decades. Yet now President Vladimir Putin’s willingness to open the spigot on Russia’s copious natural gas -- or not -- may be what determines how cold many Europeans get this winter. That’s despite the European Union’s vow a decade ago to reduce its dependence on Russian energy, to avoid this kind of vulnerability. It’s been a contentious issue within the economic bloc and has caused rifts with the United States. Now Putin is dangling the possibility of a surge in gas exports, but possibly with strings attached.
1. How vulnerable is Europe?
A supply crunch in October provided a vivid insight into Europe’s reliance on gas flows from Russia. Gas storage tanks in the EU were at their lowest seasonal level in more than a decade, after longer-than-usual maintenance at Norwegian fields and Russia rebuilding its own inventories. Benchmark gas prices traded as high as 162 euros ($188) per megawatt-hour on Oct. 6, compared with about 20 euros at the start of the year. It was against this background that Nord Stream 2, a new Russian pipeline under the Baltic Sea to Germany, was completed in September.
2. What’s Russia’s agenda?
In exchange for increasing gas supplies, Russia wants Germany and the EU to give the approval it needs to begin using the pipeline, according to people close to Gazprom and the Kremlin. It might not be approved until May if regulators use all the time they’re allowed. Putin stepped in to ease pressure on the market in late October by ordering state-run gas giant Gazprom PJSC to start refilling its European gas-storage facilities, sending prices lower. But after Putin’s intervention, Gazprom only booked a fraction of extra capacity in existing pipelines, leaving energy markets on edge.
3. How did it get this way?
Gazprom supplied almost a third of all gas consumed in Europe in 2020 and will likely become an even more important source in the short term as the continent shrinks domestic production. Russian gas is attractive because it’s usually cheap and almost always available. The bloc’s top economies are shutting down coal plants, and some are even planning for the end of nuclear power. Natural gas provided about 22 percent of Europe’s energy mix in 2019 and Russia’s role as a major supplier has been enhanced by the depletion of North Sea gas fields controlled by the U.K. and the Netherlands.
4. What’s the reaction to the pipeline?
There was strong opposition from the U.S., which imposed sanctions that delayed construction but didn’t prevent its completion. Both President Joe Biden and his predecessor, Donald Trump, warned against the risk of Europe becoming too dependent on Russian gas. Poland, Slovakia and other countries that host existing pipelines were also opposed, saying it would tighten Russia’s hold over the region by giving it the capacity to bypass countries at will, including Ukraine. Russia has been in conflict with Ukraine since 2014, when a pro-Russian president there lost power and Russia seized the Crimean Peninsula.
5. What other supply networks are there?
Outside supplies, mostly from Russia, Norway and Algeria, account for about 80% of the gas the EU consumes. Some of the biggest economies are among the most exposed, with Germany importing 90% of its needs. Countries such as Belgium, Spain and Portugal face the problem of low storage capacity, as does the U.K., which is no longer part of the bloc and closed its only big gas storage site. The continent has a mass of pipelines, including Yamal, which runs from Russia through Belarus and Poland before reaching Germany, and TAG, which takes Russian gas to Austria and Italy. Many cross several borders, creating plenty of possible choke points.
6. How did Russia become so dominant?
With its vast Siberian fields, Russia has the world’s largest reserves of natural gas. It began exporting to Poland in the 1940s and laid pipelines in the 1960s to deliver fuel to satellite states of what was then the Soviet Union. Even at the height of the Cold War, deliveries were steady. But since the Soviet Union broke up, Russia and Ukraine have quarreled over pipelines through Ukrainian territory, prompting Russian authorities to find other routes. Gazprom’s shipments to western and central Europe in 2021 could reach about 158 billion cubic meters, similar to 2020 but below the 2018 record of 176.8 billion.
7. Is it able to disrupt the market?
In 2006 and 2009, disputes over pricing and siphoning of gas led to cutoffs of Russian supplies. The second shutdown lasted almost two weeks in the dead of winter. Slovakia and some Balkan countries had to ration gas, shut factories and cut power supplies. Since then, the most vulnerable countries have raced to lay pipelines, connect grids and build terminals to import liquefied natural gas, a supercooled form of the fuel that can be shipped from far-away fields, such as those in Qatar.
The Reference Shelf
- A Bloomberg story on how Russia’s dirty gas is keeping Europe from freezing over.
- Bloomberg Opinion’s Julian Lee on how Russia is no longer Europe’s reliable gas supplier.
- A New York Times article on Putin’s leverage over Europe.
- QuickTakes on Ukraine, fracking, fracking in Europe and liquefied natural gas.
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