Recent comments by the head of the IEA about the security of Russian gas supplies have been widely reported. Fatih Birol warned European governments and gas consumers that they should prepare for a complete shutdown of gas supplies from Russia this winter. He warned that governments should take steps now to reduce gas demand and continue to operate older nuclear power stations, which had been expected to be shut down because of their age. The aim of course is to increase Russia’s leverage over Ukraine and its allies as we go into the winter peak of energy demand.
The comments bring into sharp focus previously unspoken fears by the EU that it could be held to ransom by Russia because of Europe’s high level of dependence on Russian gas as part of its energy mix. Birol’s concerns centre on current reductions in Russian gas supplies to Europe having a negative impact on Europe’s ability to fill its gas storage facilities and thereby increasing Russia’s leverage over the EU in the winter when demand soars and countries are most vulnerable to supply reductions.
Last autumn the IEA already accused Russia of manipulating gas supplies to Europe ahead of the former’s invasion of Ukraine, a charge that Russia denies.
Europe has responded to the looming crisis, but only to some degree. In Germany, old coal-fired stations are to be brought back into use despite the fact that carbon emissions and levels of pollution will increase as a result with Germany’s dependence on coal for electricity generation rising by a third despite the country’s plans to eleminate coal from the energy mix by 2030 . With the potential for gas supplies to be auctioned to reduce consumption, Germany clearly takes the threat of a shortfall of Russian gas seriously. Even the Greens have signed up to the new energy security agenda, noting that the change was “bitter but essential”. Germany has begun an efficiency drive while Italy may reduce supplies to industrial users but not all European countries appear to be as prepared to take the pain
Earlier in June Russia reduced gas supplies through the existing Nord Stream 1 pipeline by some 60%, blaming the shortfall variously on annual maintenance and essential equipment left stranded by the imposition of sanctions. Whatever the reason, the line looks set to be completely closed in about three weeks’ time for its summer maintenance programme. This brings us back to European concerns that Russia might reduce or cut entirely gas supplies to the continent around then to prevent Europe from refilling its gas storage facilities and put Russia in a stronger position as we go into the winter. The current impact of the reduced deliveries is limited since gas demand in the winter is four to five times higher than in the summer. But the impact on Europe’s ability to fill its gas storage facilities, is immediate. Certainly German business leaders have criticised the decisions as “political” because of the coordinated nature of the shortfalls from Nord Stream 1 and from other Russian pipelines such as Yamal-Europe or through Ukraine which have previously been used when Nord Stream 1 capacity was offline.
Perhaps it should not have come as such a surprise to the Europeans that Russia has started to weaponise its gas supplies to Europe in response to EU sanctions on Russia. Yet even in the coldest days of the Cold War, gas supplies from Russia to Europe continued to flow whether detente or proxy-conflicts were the order of the day. This time it is different, Russia seems intent on using the gas weapon against Europe in a way that it has not done before – quite a change in its approach to its European partners. It has been a wake-up call to many European gas companies and consumers that Europe has become overly dependent on gas imports and, particularly, on Russian gas imports. That dependency is now being turned against them, a fact that many Europeans had feared but that many also failed to notice, refusing to believe that Russia would turn the gas weapon on its most important customers. Europe of course has made it clear that, as part of its response to the war in Ukraine, it wants to reduce its dependence on Russian gas over time, with some suggesting that European demand for Russian gas has already declined by half. It may not be a surprise that Russia has responded in kind by cutting its own gas supplies to Europe.
One of the likely impacts, which we are already seeing, are higher gas prices in response to lower supplies, with the higher prices choking off some – but by no means enough – of the excess gas demand. With inflation hitting double-digits in several countries higher energy prices are an unwelcome addition to the economic challenges that they already face. Russia seems set to challenge the Europeans and their jointly-agreed sanctions policy using the gas weapon, hoping to split the EU we assume, something that we have not seen before so clearly (although land wars in Europe have also been relatively infrequent events).
European concerns now focus on whether gas deliveries could be reduced further as winter approaches. The FT noted recently that gas storage was just 58% full against a November target of 90% and the supply shortfalls were only adding to the problems in reaching the 90% target. The harder it becomes to fill Europe’s gas storage facilities, the greater the leverage that Russia will have in the winter period. Europe is responding, chartering LNG storage facilities, accepting coal as a power-generation fuel, seeking to reduce gas demand generally. Ironically, the IEA notes that the one thing that western governments are not doing as well on as they should be is investment in renewable energy. The challenge from Russia has given a new degree of impetus to the switch from carbon-intensive fuels to low or zero-carbon fuels but the challenge of increasing the pace of adoption of renewables in economies still dependent on hydrocarbons for energy supplies is still a significant one. The current situation with Russian gas supplies to Europe should act as a wake-up call to all those believing that the energy world will go back to normal when the Russia-Ukraine situation stabilises. That seems unlikely: the genie is out of the bottle when it comes to weaponising gas supplies and it will be very hard to get it back inside.
Global Energy Comment 