1. How vulnerable is Europe?
A supply crunch in late 2021 provided a vivid insight into Europe’s reliance on gas flows from Russia. 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 reached an all-time high on Dec. 21 and more than tripled in 2021. It was against this background that Nord Stream 2, the new Russian pipeline under the Baltic Sea to Germany, was completed in September but became entangled in politics and a lengthy regulatory process.
2. What’s Russia’s agenda?
Russia has been sending less gas to Europe since the summer, first saying it needed to fill domestic storage sites ahead of the winter, and then citing lower requests for the fuel from its European buyers. Putin said in December that supplies via the Nord Stream 2 pipeline “would undoubtedly lower the price on the spot market” in Europe. The German regulator said its approval won’t come before July at the earliest, while Foreign Minister Annalena Baerbock warned against energy being used as a weapon. After Russia’s talks with the U.S. and NATO on security in Europe concluded in January without a clear path forward, an American diplomat said Russia must decide if it’s interested in resolving the standoff over Ukraine or is seeking a pretext to invade.
3. How disruptive could a war in Ukraine be?
Conflict could delay or block approval for the Nord Stream 2 project. The administration of U.S. President Joe Biden has said it would support legislation proposed by New Jersey Senator Bob Menendez that would enact sanctions on the pipeline if Putin attacks Ukraine. In January the Senate blocked a separate measure advocated by Republican Senator Ted Cruz designed to impose sanctions on the pipeline. The more the start of operations on the pipeline is delayed, the higher the risk that gas flows to Europe will continue to be restricted, according to Goldman Sachs Group Inc. About a third of Russian gas flowing to Europe passes through Ukraine, and with a history of supply disruptions over price disputes, Russia would probably strive to be seen as a reliable supplier even if the military crisis escalates, analysts have said.
4. How did the situation get this way?
Gazprom PJSC 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. Russia’s role as a major supplier of natural gas has been enhanced by the depletion of North Sea fields controlled by the U.K. and the Netherlands.
5. What’s been 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 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.
6. 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.
7. 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 Europe and Turkey were about 177 billion cubic meters in 2021, according to calculations by Bloomberg News and BCS Global Markets based on the company’s data. The Russian producer missed its own “conservative” target for 2021 exports of as much as 183 billion cubic meters to the region, an estimate it stuck to since the spring and maintained at the end of October, even as Europe clamored for more supplies.
8. 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 as far as Qatar and the U.S.
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