If Russia Cuts Europe’s Gas…

January 26, 2022

Europe on the brink of war is the leading story just about everywhere. Underlying that is the puzzle of Vladimir Putin’s motives.
I’ve posted recently about Russia’s slow squeeze on European gas supplies. That strategy might have unintended blowback for Putin and his fossil oligarch circle.

Times has a good primer, worth reading the whole thing, I excerpt the money quotes here.

New York Times:

While Russia masses troops and military equipment near its border with Ukraine, parallel tensions have been building in world energy markets.

It is not hard to see why. Natural gas flowing through a web of pipelines from Russia heats homes and power factories across much of Europe. Russia is also one of the continent’s key sources of oil.

Now Western officials are considering what happens if Moscow issues a doomsday response to the tensions — a cutoff of those gas and oil supplies, in the depths of Europe’s winter.

The standoff over Ukraine comes at an inopportune time. World energy prices are already elevated as supplies of oil and natural gas have lagged the recovery of demand from the pandemic.

In Europe, record high prices are drawing tankers of natural gas from the United States, Qatar and elsewhere. On Tuesday, White House officials said discussions were underway to get more natural gas to the continent. Whether this will be enough to defuse the risk of an energy cutoff remains to be seen.

This winter Europe is living through an energy crisis, with soaring prices for natural gas and electricity. It started when storage levels of gas fell well below normal last year.

Natural gas is trading at about five times the price of a year ago. Although prices are now about half of the peak reached late last year, they are roughly seven times higher than levels in the United States. High gas prices raise electricity costs, threaten big increases in consumers’ bills and have pushed some energy-hungry factories like fertilizer plants and metal smelters into temporary shutdowns.

Russia has added to these woes. It has exported less gas than usual and has kept storage levels at European gas facilities owned by Gazprom, the Russian gas monopoly, at rock bottom. Such tactics have helped raise anxiety about whether enough gas will be available to make it through a cold winter.

Russia supplies about one-third of Europe’s natural gas, and its prominence as a supplier has grown as the continent’s domestic output has declined.

Production in the Netherlands, once a major gas producer in the European Union, has been dropping sharply as the Dutch government gradually shuts down the huge Groningen field in response to earthquakes set off by gas production.

Gas is also growing in relative importance as coal-fired power stations are shut down in countries like Germany in order to meet environmental goals and nuclear plants are also closed there and in Britain.

Despite Europe’s big investments in renewable energy like wind and solar power, it still needs conventional sources of supply. Gas-fired power plants are one of the few options left.

While flows of natural gas vary and have fallen of late, about one-third of Russia’s gas exports to Europe usually go through Ukraine. Those pipelines could become collateral damage during a Russian invasion, analysts say.

Some observers think that Mr. Putin would be wary of taking such drastic steps against what are his most important customers. Doing so would put a key source of revenue at risk.

“While Europe is hugely dependent on Russian gas, Russia is hugely dependent on the European market and can’t easily substitute for it,” said David Goldwyn, who was the special envoy for international energy affairs in the Obama administration.

Mr. Goldwyn, who is now president of Goldwyn Global Strategies, an advisory firm, added that Mr. Putin was trying to strike a balance “between being a reliable supplier as he has been to Germany and reminding Europe how dependent they are on Russian gas.”

In recent months Russia has been putting Europe through something of a stress test, squeezing gas flows in an apparent attempt to coerce approval on issues like Nord Stream 2, the $11 billion undersea pipeline connecting Russia to Germany that is awaiting final approval.

Market forces are working, if belatedly. An armada of giant ships has been bringing cargoes of liquefied natural gas, which is gas chilled to liquid form, lured by high prices and cajoling from the Biden administration. The ships are coming from the United States and elsewhere, and a single tanker can hold the equivalent of three times the current daily transit volumes from Russia through Ukraine.

The surge has been significant: In January, flows of liquefied natural gas to Europe have actually exceeded those of Russian gas. These shipments, along with a relatively mild winter so far, have at least temporarily eased fears of a shortfall.

Mr. Putin’s behavior has most likely raised doubts about Russia’s claims to be a reliable energy supplier, and it may well hasten the shift away from fossil fuels to renewable energy, a move that undercuts the Russian economy.

“This crisis will only accelerate the geopolitical motivation to get off the dependency on gas in general and Russian gas in particular,” Mr. Goldwyn said.

3 Responses to “If Russia Cuts Europe’s Gas…”

  1. Europe needs to get rid of Russia’s gas. It’s disrupting their politics.

  2. John Kane Says:

    Mr. Putin’s behavior has most likely raised doubts about Russia’s claims to be a reliable energy supplier
    Possibly but nothing in the Cold War and in the chaos of the 1990’s affected gas contracts. I think Russia figures that a record of strictly observing contracts beats interrupting gas flows for a momentary advantage.

    @ robertscribbler

    Europe needs to get rid of Russia’s gas. It’s disrupting their politics.

    Very true. That much dependency is bad but who is going to replace it? Given the USA’s recent record of sanctioning anybody and anything it looks like a worse choice. Does Qatar have the shipping and processing facilities to handle this?

    • rhymeswithgoalie Says:

      …but who is going to replace it?

      Energy efficiency and RE+storage becoming not only more cost-effective, but politically safer.

      As I’ve droned before, getting rid of fossil fuel, even without the threat of greenhouse gases, would be good for society. Invading or sucking up to petrostates has led to bad international outcomes.

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