Russian gas has been attractive to Europe because it was easy to transport and almost always available. Its importance grew in recent years as some countries moved to end coal and nuclear power generation and production from their own gas fields declined. Russian state-controlled company Gazprom was supplying about a third of all gas consumed in Europe, until the war in Ukraine disrupted supplies and underscored the risk of overdependence on one energy provider.
1. What changed as a result of the war?
After Russia invaded Ukraine, the European Union drew up a plan to cut gas imports from Russia by two-thirds by the end of 2022. Russia, after suffering punishing sanctions, hit back, with President Vladimir Putin signing a decree demanding that all buyers from “unfriendly” countries pay in rubles starting from April. They would have to open special accounts with Russia’s Gazprombank JSC, in foreign currency and rubles, to handle their payments. Buyers in Poland, Bulgaria, Denmark, Finland and the Netherlands refused to abide by the new terms and had their gas cut off. Later, Russia also slashed supplies via its biggest pipeline to the continent, cutting shipments even to those who found workarounds to the new payment order. As a result, customers in Germany, Italy, France and Austria didn’t get all the gas they asked for. In July, EU energy ministers reached a political agreement to cut their gas use by 15% through the winter of 2022/23. While the target was voluntary, it could become mandatory if an emergency arises.
2. How did Russia become so significant?
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 and through 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, Moscow and Kyiv have quarreled over pipelines through Ukrainian territory, prompting Russian authorities to find other routes. Still, Europe has kept its vast dependency on Russian gas, which was often cheaper than alternatives, even when Moscow annexed Crimea in 2014.
3. How vulnerable is Europe?
A supply crunch in 2021 offered an insight into Europe’s reliance on gas from Russia, with benchmark prices more than tripling. Stockpiles in the EU fell to a record low with heavy maintenance taking place in North Sea fields and supplies of liquefied natural gas redirected to meet soaring demand in Asia. In 2022, with Russian supplies under threat, European LNG imports were pushed to full throttle, domestic producers promised to keep output as high as possible and EU buyers tapped new supplies from Africa to Central Asia. Yet Russian volumes were still too large to fully replace in the short term. In mid-June, flows through the Nord Stream pipeline -- the biggest link from Russia to the EU -- fell by about 60%, with some utilities struggling to stay afloat and big industrial users considering energy saving measures. From late July supplies through Nord Stream were set to drop to around 20% of capacity, with Gazprom saying that a turbine due for maintenance would be taken out of service. But European politicians and Kremlin insiders see political motives in the move, as Russia retaliates against sanctions on the nation over its war in Ukraine.
4. How vulnerable is Germany?
The EU’s economic powerhouse used to rely on Russia for more than half of its gas and about a third of its oil. The dependency declined to 26% for gas and 12% for crude by the summer. The standoff with Moscow led Germany to double down on renewables and invest in LNG import facilities, but it will take years for those other sources to come online. In the meantime, the government was reviving heavily polluting coal plants and subsidizing purchases from alternative energy suppliers to offset the sharp drop in Russian gas imports.
5. Which other countries are exposed?
Land-locked nations in eastern and central Europe are more vulnerable to Russian gas disruption as they have fewer alternative options compared with western and southern European nations. Russian supplies accounted for about 40% of Italy’s demand in 2021, but that country has been scouring the globe for replacements and has secured new agreements with suppliers, particularly in North Africa. Some smaller gas buyers like Finland, which has also been deprived of Russian gas, are planning to use floating LNG terminals. Poland, which generates most of its electricity from coal, invested in a new gas pipeline from Norway, set to start flows in October, while Bulgaria plans to increase Azeri gas imports in 2022 with the opening of a spur from Greece, a country that can also supply LNG.
6. What role does Ukraine play?
About a third of Russian gas flowing to Europe normally passes through Ukraine. Supplies via the country were curbed after May 11 when a transit point was put out of service amid fighting in the eastern part of the country, and Russia refused to redirect flows, keeping transit via the nation limited. Prior to the cuts, Ukraine had been expecting to earn at least $7 billion from transit fees under a five-year transit deal in December 2019.
7. How has Russia disrupted the market before?
In 2006 and 2009, disputes with Ukraine over pricing and siphoning of gas led to cutoffs of Russian supplies transiting through the country. 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 LNG shipped from as far as Qatar and the U.S.
8. What supply networks are there?
Outside supplies, mostly from Russia, Norway and Algeria, account for about 80% of the gas the EU consumes. Germany imports much of its gas via Nord Stream, a pipeline under the Baltic Sea which has been fully operational since 2012. (A further pipeline, Nord Stream 2, was completed in late 2021 but became entangled in politics and is now firmly on ice.) With Nord Stream’s flows persistently reduced, Germany and its allies have been bracing for the possibility that Putin could cut off flows for good. Belgium, Spain and Portugal face the problem of low storage capacity, as does the UK, which is no longer part of the bloc and closed its only big gas storage site. The continent has a mass of pipelines but many cross several borders, creating plenty of possible choke points, while some nations still lack connecting links.
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