Putin's gas warfare might galvanize Europe (2023)

Think back 12 months to when the world was beginning to emerge from the Covid lockdowns. It was a time when energy demand surged dramatically, and oil and gas producers were struggling to meet this demand. As a result energy prices soared.

Through the autumn of 2021, the European benchmark gas price – known as the Title Transfer Facility or TTF – continued to climb and it became clear something was up with Russian pipeline gas supplies.

The International Energy Agency pointed out in October 2021 that Russia could and should export more gas to Europe to demonstrate its reliability as a supplier. Gazprom, however, would only meet its contractual obligations and no more. The Russian state-owned company withdrew from the European spot market and the rise in the price of energy carried on.

In 2021, the European Union had imported about 60 per cent of the energy it consumed, with 40 per cent of that coming from Russia. Natural gas made up the largest proportion of this Russian supply at 41 per cent of total consumption. Oil made up a further 36 per cent and coal another 20 per cent. Some 75 per cent of this Russian gas was delivered through fixed pipelines.

Since Vladimir Putin ordered the invasion of Ukraine last February, however, the level of Russian gas consumed by EU countries has fallen dramatically. As of this autumn, it had dropped to about 9 per cent. As news of the invasion emerged, the gas market responded with a spike in price. Since then, Russia and Europe have engaged in a game of chicken.

The level of EU sanctions has escalated in protest at Russia’s illegal war on Ukraine, while Moscow has found means to ‘weaponize’ its gas flow into Europe. At the start of September, Russia closed down the Nord Stream-1 pipeline into Europe indefinitely – all the while benefiting from increasing revenues for lower volume of exports.

It is against this backdrop that Europe is entering the winter months with huge uncertainties surrounding its gas security, a situation compounded by a wider crisis in its power generation capacity driven by extreme weather and ageing infrastructure.

The successful drive to store gas

The good news is that the EU has made real progress filling up its gas storage facilities for the winter, now exceeding its 80 per cent target. Full storage would mean a supply that could last up to three months. This eases the need to pay for gas at any price and has come about largely because European buyers have attracted high volumes of liquefied natural gas (LNG) to its shores, mostly from the United States.

No doubt LNG plants around the world are cashing in on record prices and working at maximum capacity. Europe’s liquefied gas terminals have been working flat out at the same time.

(Video) Gravitas: Putin's gas war divides Europe

Britain has played a role here. In the absence of significant domestic storage of its own, LNG deliveries have passed through the country via two interconnector pipelines to Belgium and the Netherlands.

It has also increased its export of electricity to the EU as output from France’s nuclear power stations has significantly decreased due to routine summer maintenance and age-related problems that affect many reactors. Whether any of this gas or electricity will return to Britain in the winter will depend on how much we are prepared to pay for it, and how the EU responds to any emergency now that Britain is outside its internal energy market.

Pakistan, India and Bangladesh’s gas supplies have been hit by Europe’s billing war

The drive to fill Europe’s storage facilities has been helped by a drop in China’s energy demands due to the severe economic impact of its ‘zero Covid’ policy, with LNG imports falling as much as 22 per cent year on year. But that may change if China suffers a harsh winter.

Other countries have been hit by the high gas prices triggered by Europe’s billing war with Pakistan, India and Bangladesh failing to secure the liquefied gas they need. Europe has exported its energy insecurity with little concern for the consequences with many countries seeing the crisis as a ‘European war’. India, for example, has been only too ready to strike deals to import Russian oil and gas, as has China.

While seeking alternative sources of supply, the EU and its member states have been busy developing short-term contingency plans and longer-term strategies to get through the winter and plan for a future without Russian gas. These include the May RePowerEU plan, with objectives to diversify gas supply and increase storage before winter, increase renewable energy output and greater energy efficiency and become independent from Russian fossil fuels well before 2030.

Europe is weaning itself off Russian gas

The prospect of little or no Russian gas flowing to Europe is fast becoming a reality. In July targets were adopted to reduce European gas demand by 15 per cent, with more draconian actions if there is significant gas shortage. Further plans were proposed in September to reduce electricity consumption, particularly at peak time, as well as cap the prices renewable energy and nuclear generators can charge to help ensure major fossil fuel producers making huge profits pay their fair share.

The British government has announced measures to limit the bills of domestic customers for two years and retail consumers for six months. The production of gas and oil, both offshore and on-land with a lifting of the ban on fracking, is being encouraged. It also intends to put in place measures that will make Britain a net energy exporter by 2040. The emphasis here is on the supply side, with little being said about reducing demand this winter or next.

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In Germany, floating liquefied gas terminals are being secured and new onshore LNG import capacity is being built. Across Europe, where possible, coal-fired power stations are being readied.

Questions are also being asked about Germany’s remaining nuclear power stations. It had hoped to phase out nuclear power by the end of the year but is now reconsidering the decision to shut down its last three nuclear plants. It is also thinking about bringing three plants retired last year back online.

Britain is looking to reinstate the Rough Gas Storage facility closed in 2017 to provide greater resilience, with plans to accelerate the deployment of nuclear, offshore wind, hydrogen and carbon capture and storage, all part of its existing Net-Zero strategy. The decarbonization of the EU’s power sector is leading to the greater use of renewable and a switch from coal to gas. Consequently in 2021, a combination of primarily hydro, solar, biomass and wind provided 37 per cent of its power, compared with 21 per cent in 2010 and 12 per cent in 1990.

While the share of natural gas in total electricity production increased from 8.6 per cent in 1990 to 23.6 per cent in 2010, it then fell to 20 per cent in 2021. By comparison, in the same year gas accounted for 40 per cent of power generation in the UK. Nuclear power’s contribution has remained relatively constant, but ageing plants in some countries threaten supply.

In the medium-term, finding alternative sources of supply will probably mean liquefied natural gas, which should become more readily available in the second half of the 2020s. It also means reducing gas demand on a permanent basis through fuel-switching, improved efficiency and demand reduction. This should be coupled with accelerating the rate of decarbonization and electrification.

The journey towards energy security can become a force for good. More broadly, Europe’s success in accelerating the move to a low-carbon economy serves as a model for elsewhere.

Greater cooperation between EU states - and Britain?

Europe’s new reliance on liquefied natural gas could ultimately lead to climate action in Africa, as it will require the building of new energy relationships on the continent as LNG-exporting projects begin to be developed there.

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In return, Europe can invest in supporting domestic gas power generation, the deployment of low-carbon technologies and nature-based solutions in these new exporting countries.

How feasible this is remains to be seen. Ideally, by 2030 Europe will no longer be consuming Russian gas. It will also be consuming less gas than might have been the case, alongside lower carbon emissions and increased clean-power generation.

There will also be renewed commitment to the EU’s ‘Fit for 55’ targets to cut greenhouse gas emissions by at least 55 per cent by 2030, and greater cooperation between member states. It is even possible that Britain will be welcomed as a partner and that the critical role of the British gas infrastructure will be recognized.

Thus, despite having to weather challenging times in the next couple of winters, the horrible tragedy of war and its impact on European and global energy prices could lead to greater energy security and much needed climate action.

Best and worst energy scenarios

Gas security emergencies are usually short-term events triggered by technical failures or extreme weather, not the kind of geopolitical blackmail that Europe now faces. Here, Mike Bradshaw sketches out two scenarios at opposing ends of the spectrum. Reality hopefully lies somewhere in between.

The worst scenario

The current electricity supply problems continue throughout the autumn, resulting in more gas-powered generation than usual and making it difficult to keep storage full for the winter. A demand-reduction tactic is applied, and energy rationing becomes necessary in winter.

The European Union sets a price cap on Russian gas, and Moscow responds by ceasing all flows of gas to the EU for the foreseeable future.

A hard winter in Europe and northeast Asia drives up demand and a prolonged period of Dunkelflaute – literally a ‘dark lull’ in the conditions needed to generate wind and solar power – across north-western Europe reduces renewable power generation at a critical time. This results in an increased demand for gas and a further draw-down on storage.

A cold winter in Asia increases competition for the limited amount of flexible LNG deliveries – not tied up in long-term deliveries that must be delivered to a given market – driving prices even higher in Europe. Beijing lifts it zero-Covid policy and industrial output surges, with increased LNG imports into China, adding further stress to the market.

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Following on from these events, emergency measures must be taken in Europe to reduce gas demand through physical reductions in supply earlier than expected. The European Commission imposes targets on member states.

Despite all the talking, in the face of a real crisis, the EU member states demonstrate a distinct lack of solidarity, hoarding gas and reducing electricity exports, exacerbating the situation. Britain closes the gas interconnectors at critical times to maintain the integrity of its domestic pipeline system.

Record high prices and energy shortages drive Europe into recession, energy poverty skyrockets, people die in cold homes and many businesses are forced to close. Social unrest erupts across Europe, undermining consensus on support for Ukraine – just what Putin hoped for.

The best scenario

As autumn arrives the crisis in the power sector eases and less gas is required to keep the lights on, allowing storage levels to remain high going into the winter heating season.

Despite numerous interruptions and uncertainty in relation to Russian gas pipeline deliveries, and despite the rhetoric on both sides, gas flows are resumed through Nord Stream 1 pipeline and through Ukraine. Flows are nowhere near ‘normal’ but, as gas continues to flow, storage levels remain adequate and are only drawn down late in the heating season, as usually occurs.

A mild, windy winter in Europe increases wind power generation and reduces heating demand and mild weather in northeast Asia reduces seasonal gas demand and the winter heating season starts late and finishes early. Although the global LNG market remains tight, Europe is able attract the cargoes it needs to balance supply and demand without breaking the bank.

In China, the continuation of the zero-Covid policy results in a muted recovery of industrial demand and gas imports are still well below 2021 levels.

The EU demand-reduction measures make a difference and most, though not all, member states do not have to resort to supply restrictions, and power outages are avoided. Britain can keep both gas and electricity interconnectors open all winter to the benefit of all.
Energy prices remain high and volatile, but efficiency savings and demand reduction soften the blow, and Europe avoids a widespread recession.

The various support packages put in place by national governments and adjustments to electricity markets mean that the cost of intervention and support is manageable and most households, while stretched, can heat their homes and businesses are able to open.

(Video) Putin's Road to War: Julia Ioffe (interview) | FRONTLINE

FAQs

Can EU survive without gas from Russia? ›

No Russian imports: The EU would have no choice but to slash its annual demand for gas by 10-15%. 2. Limited Russian imports: The EU would continue to suffer from a highly volatile gas market.

What happens if Russia cut gas supply to Europe? ›

A full shutdown, while not their base case, could drive European household energy costs up by about 65% to around €500 ($512) per month, according to estimates by Goldman Sachs Research. Industries like chemicals and cement in Germany and Italy might have to cut their gas usage by as much as 80%.

Can Europe replace LNG with Russian gas? ›

Renowned oil and gas trader Pierre Andurand says that Europe can replace a large part of Russian natural gas with LNG. At the current pace of Europe's liquefied natural gas imports, LNG supply corresponds to about two-thirds of lost Russian supply, Andurand said.

Is Europe taking gas from Russia? ›

In 2021, the EU imported 83% of its natural gas. Since Russia's invasion of Ukraine, gas imports from Russia to the EU have been significantly reduced. This has mainly been compensated for by a sharp increase in imports of liquified natural gas (LNG), particularly from the US.

Can China replace Europe for Russian gas? ›

Despite an attempted pivot over the course of 2022, the bulk of Russian gas can't simply be redirected to China at the same scale in the near term. China purchased just 16.5 billion cubic metres (bcm) from Russia in 2021, while Europe inhaled 170 bcm that same year.

What happens if Russia stops gas to Germany? ›

The cumulative loss of GDP of an end to gas deliveries could amount to 220 billion euros by the end of next year, roughly 6.5 percent of Germany's annual economic output, the economists said.

Can Germany replace Russian gas? ›

Before Russia invaded Ukraine on February 24, Germany relied on Russia for 55% of its gas supplies. In August, however, that proportion fell to 9.5%, according to a spokeswoman for the Federal Ministry of Economics. Habeck has said that Russian gas will not be fully replaced until at least 2024.

Will Europe move away from Russian gas and oil? ›

European Union leaders say they will block Russian oil imports arriving by sea by the end of 2022. The EU has also committed to reducing gas imports from Russia by two-thirds within a year. The bloc is also looking at accelerating its clean energy transition by setting aside "go-to areas" of land or sea for renewables.

Can the US supply gas to Europe? ›

In other words, U.S. sellers have been able to supply more gas to Europe by diverting export cargoes, rather than by selling gas that would otherwise have been used domestically.

Can Europe survive winter without Russian gas? ›

Even in a worst-case scenario, in which there is no piped Russian gas and low demand destruction, BNEF estimates Europe would still have enough gas to endure the coldest winter of the last 30 years without depleting its inventories. Looking further ahead, the region could be well-positioned for winter 2023-24 as well.

Can the world live without Russian oil? ›

But much of that increased output would require further investment and much more time. As a result, a total loss of Russian oil exports would be very damaging for global GDP in the short/medium term. Much higher prices would drive demand destruction (less economic activity) to rebalance the market.

How quickly can Europe replace Russian gas? ›

If Europe can replicate its own maximum rate of deployment of nuclear power (which happened from the late 70s to early 80s), it could push out Russian gas out within 6 years. If Europe can replicate some of the faster rates, like those historically observed in Sweden, it could push out Russian gas within three years.

Can the US replace Russian gas? ›

U.S. LNG Cannot Replace The Russian Natural Gas That Europe Has Lost. Europe has relied on U.S. LNG imports to offset the loss of Russian gas, with nearly 70% of U.S. LNG exports heading to Europe in September.

Which European countries are still buying gas from Russia? ›

Among Europe's major economies, Germany imports around half of its gas from Russia, while France only obtains a quarter of its supply from the country, according to the latest available data.

Who is buying Russian gas now? ›

India and China are currently the largest single buyers of Russian crude oil. India's imports of Russian oil have rocketed from a very low base at the start of the year reaching a peak in June and July and largely maintaining these levels through to October.

Can Russia sell its gas to China? ›

Russia's Gazprom already supplies gas to China through the first Power of Siberia pipeline under a 30-year, $400 billion deal, which was launched at the end of 2019. Expected to supply 16 billion cubic meters of gas this year, it will deliver increasing volumes before reaching full capacity of 38 bcm by 2025.

Is Switzerland dependent on Russian gas? ›

Switzerland's first source of vulnerability stems from its high dependence on Russian gas imports (it is estimated around 43% of natural gas consumed in Switzerland ultimately originates in Russia).

Which countries stopped using Russian gas? ›

Lithuania has become the 1st European country to stop using Russian gas.

How long will Russia's gas last? ›

Russia's proven reserves of oil and gas will suffice for 39 and 80 years, respectively, whereas coal reserves will suffice for an even longer period in accordance with updated national register data, General Director of the State Commission on Mineral Resources Igor Shpurov said in an article for InfoTEK analytical ...

What happens to gas if Russia invades? ›

“The risk is that if Russia cuts exports of its oil in response to sanctions or other U.S. moves, it could cut the flow of oil to global markets, throwing supply and demand balance out the window, and could lead to a large jump in oil and thus gas prices.

How long will Germany's gas storage last? ›

2, Germany's gas storage levels stood at 99.3% and Mueller said that Europe's top economy could keep going for around 9-10 weeks were it solely to rely on those tanks - provided it'll be a mild winter as was the case in 2021/2022.

Can Norway supply gas to Europe? ›

More than seven months into the war in Ukraine, the Scandinavian country is increasingly central to Europe's energy security. Norway, not Russia, is now the European Union's leading natural gas supplier.

Where else can Europe get gas? ›

Russia is the largest supplier of natural gas to Europe, sending about 40% of the continent's supplies shipped by pipeline. The next-largest suppliers via pipeline are Norway (22%), Algeria (18%) and Azerbaijan 9%. Europe also receives natural gas that is liquefied and delivered by ship.

Can coal replace Russian gas? ›

In the short term, reducing our dependence on Russian gas would inevitably mean a return to coal. This would put policies to reduce greenhouse gas emissions on hold, as coal emits about four times more CO2. The demand for Russian gas in Europe can be reduced by 18-20% by using coal-fired power plants.

Can Europe survive painlessly without Russian gas Bruegel? ›

Replacing 130 bcm of natural gas imports from Russia within a year would be a significant challenge, but, as our rough estimates show, not impossible.

Who is Russia's biggest customer for oil? ›

European nations are the largest collective buyer of that oil, while China is the petro-state's largest single purchaser. In 2021, Europe bought up about 42 percent of Russia's total oil production, while China purchased 14 percent and 30 percent stayed in Russia.

Can US replace Russian oil? ›

Replacing Russian imports with domestic oil

Most experts agreed that the U.S. could replace Russian oil by increasing domestic production — though some cautioned there might be a lag.

Can the US supply its own oil and gas? ›

The U.S does indeed produce enough oil to meet its own needs.

Why doesn't the US send more natural gas to Europe? ›

But the big problem with sending Europe more energy is that natural gas, unlike crude oil, cannot easily be put on oceangoing ships. The gas has to first be chilled in an expensive process at export terminals, mostly on the Gulf Coast. The liquid gas is then poured into specialized tankers.

Can Finland manage without Russian gas? ›

Energy production in Finland is much less reliant on gas. The country already has five nuclear reactors, with a sixth planned which will eventually produce about 60 percent of the country's electricity. Few homes here use gas and heating is generally supplied centrally.

Will Europe have enough gas for winter? ›

26 (UPI) -- After months of scrambling, it looks like the economies of Europe will have enough natural gas stored to get through the winter, an energy consultant group said Wednesday. European economies had relied heavily on Russia for its import streams of crude oil and natural gas.

Is Europe running out of gas? ›

Europe is struggling to contain an energy crisis that could lead to rolling blackouts, shuttered factories and a deep recession. The primary cause: Russia has choked off the supplies of cheap natural gas that the continent depended on for years to run factories, generate electricity and heat homes.

What Happens If Europe stops buying Russian oil? ›

Prices for oil would likely go up, not just for Europe but for the rest of the world too, because oil is a global commodity and a net loss of supplies from Russia would be likely. That would mean higher costs for driving and heating fuel and more consumer inflation.

What would happen if we stop getting oil from Russia? ›

If Russia were eventually shut off from the global market, rogue countries such as Iran and Venezuela might be “welcomed back” as sources of oil, said Claudio Galimberti, an analyst at Rystad Energy. Such additional sources could, in turn, potentially stabilize prices.

Who can replace Russian oil? ›

Saudi, with 2m bpd spare, and the United Arab Emirates with 1.1m bpd are the only two leading oil producers with immediate spare capacity to offset a Russian shortfall.

Can US send oil to Europe? ›

The U.S. is shipping the largest amount of crude oil to Europe since Washington ended its ban on exports more than six years ago as buyers seek alternatives to Russian supplies.

Could the US replace Russian oil in Europe? ›

Without long-term contracts, there will be no one to invest in these projects. At 13.1 million bpd of production, the U.S. theoretically would only be able to offset 1.3 to 1.5 million bpd of the crude currently going to Europe from Russia, leaving Europe 3 million bpd short of replacing Russian supplies.

Is American gas cleaner than Russian gas? ›

A recent life cycle analysis conducted by the Department of Energy's (DOE's) National Energy Technology Laboratory on U.S. LNG exports show that American LNG can be up to 30% cleaner than Russian natural gas.

Why isn't the US pumping more oil? ›

The reason that U.S. oil companies haven't increased production is simple: They decided to use their billions in profits to pay dividends to their CEOs and wealthy shareholders and simply haven't chosen to invest in new oil production.

Is Spain buying gas from Russia? ›

Natural Gas Imports from Russia in Spain averaged 9991.27 Terajoule from 2018 until 2022, reaching an all time high of 31505.00 Terajoule in June of 2022 and a record low of 0.00 Terajoule in February of 2018. This page includes a chart with historical data for Spain Natural Gas Imports From Russia.

Has Britain stopped buying Russian gas? ›

The UK imported no coal or gas from Russia in August 2022. The total value of UK fossil fuel imports from Russia has fallen since Russia launched its full-scale invasion of Ukraine in 2022. It was £3.95 billion in the year to August 2022.

Is China buying Russian oil? ›

The slowdown in trade is causing Russian crude supplies to build up, weighing on prices, as China and India have become major buyers of the oil since the Ukraine war broke out.

Can Norway replace Russian gas? ›

Norwegian gas could replace enough Russian gas to prevent the power sector from returning to coal. Here, access is facilitated by infrastructure and by markets in large cities and industries. Infrastructure is now in place for Norwegian gas to reach Poland and the Baltic states.

Does Norway buy Russian gas? ›

Norway has taken the lead from Russia in supplying natural gas to Europe, Reuters has reported, as Moscow chokes off its deliveries and EU countries work on cutting Russian energy imports.

Can the world survive without Russian oil and gas? ›

But much of that increased output would require further investment and much more time. As a result, a total loss of Russian oil exports would be very damaging for global GDP in the short/medium term. Much higher prices would drive demand destruction (less economic activity) to rebalance the market.

How much does the EU rely on Russian gas? ›

The EU imported approximately 155 billion cubic metres (bcm) of natural gas from Russia in 2021. That amounts to around 40% of the EU's total gas consumption, with dependency rising to 65% in Germany.

Can the UK survive without Russian gas? ›

Unlike other countries in Europe, the UK is in no way dependent on Russian gas supply. We meet around half of our annual gas supply through domestic production and the vast majority of imports come from reliable suppliers such as Norway.

What happens if Russian gas is cut off? ›

Based on a standard economic approach, our analysis shows that a full cut-off from Russian gas supply as of August 2022 would exhaust gas reserves by end-2022. Some countries will be hit more severely than others, in particular Austria, Belgium, Germany, and Italy.

How long could the US go without oil? ›

Oil Reserves in the United States

The United States has proven reserves equivalent to 4.9 times its annual consumption. This means that, without imports, there would be about 5 years of oil left (at current consumption levels and excluding unproven reserves).

Is Spain dependent on Russian gas? ›

As a result, Spain has increasingly turned to other nations for its energy security. Despite the war in Ukraine, Spain's natural gas imports from Russia increased 23% this year compared to 2021.

How will Germany replace Russian gas? ›

Stricken importer Uniper (UN01.DE) has said it is sourcing Norwegian, Dutch and Azeri gas via pipelines and using its global role as a trader of liquefied natural gas (LNG) to procure more of the super-cooled gas into north western Europe. In 2021, it turned over 350 seaborne LNG cargoes.

Can US supply gas to Europe? ›

In 2021, the United States exported a record 9.8 bcfd of gas as LNG with 3.3 bcfd, or 34%, going to Europe. Most U.S. LNG went to Asia in 2021 because prices there averaged $18 per million British thermal units (mmBtu) versus $16 in Europe .

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