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Why is Europe so dependent on Russian gas?

Russian gas is attractive to Europe because it is usually cheap, easy to transport, and almost always available.
Capped-Flows

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Russian gas is attractive to Europe because it is usually cheap, easy to transport, and almost always available. Some EU countries closing coal-fired power plants are heavily dependent on Russian gas, and Germany is even planning to end its nuclear program. The depletion of North Sea fields controlled by the UK and The Netherlands has further strengthened Russia's gas market dominance. Gazprom supplies Europe with a third of its gas, but the conflict between Russia and Ukraine has made this Europe's Achilles heel.

Germany has warned that Russian cuts to European gas supplies could trigger an energy market collapse akin to the Lehman Brothers financial crisis.

What changes did the conflict bring?


The European Union plans to cut gas imports from Russia by two-thirds by the end of 2022 after Russian President Vladimir Putin ordered all “unfriendly” countries to use the rouble as the settlement currency for gas transactions from April in response to Western sanctions. According to Russian rules, European countries must open special accounts in foreign currency and ruble at Gazprom Bank to process gas purchases. Poland, Bulgaria, Denmark, Finland, and the Netherlands have all been snuffed out by Russia for refusing to comply with the new rules. Since then, Russia has also sharply curtailed pipeline gas supplies to the continent, even in countries trying to comply with the new payment rules. The net result is that customers in Germany, Italy, France, and Austria are not receiving all the requested gas.

How did Russia become so important?


Russia has the world’s largest gas reserves, thanks to its vast Siberian fields. It began exporting gas to Poland in the 1940s and in the 1960s laid pipelines to carry the gas to or through the former Soviet republics. But since the fall of the Soviet Union, Russia and Ukraine have repeatedly sparred over gas pipelines crossing Ukrainian territory, prompting Russian authorities to look for alternative routes.

Pipeline Puzzle

How vulnerable is Europe?


The tight supply situation in late 2021 gave us an insight into just how dependent Europe is on Russian gas exports, with benchmark prices more than tripling. Gas stocks in the EU have fallen to record lows as North Sea fields take longer to maintain than expected and some liquefied natural gas (LNG) is shipped to Asia, where demand is soaring. European LNG imports rose rapidly in 2022 as Russian supplies could not be secured and domestic suppliers pledged to keep production as high as possible, with EU buyers looking to Africa, Central Asia, and other sources for new supplies. But Russia’s presence in the gas market is too large for Europe to find a complete substitute anytime soon. By mid-June, Moscow’s gas flows to Europe through the Nord Stream pipeline had plummeted by about 60%, forcing utilities to tap reserves typically reserved for the winter peak.

How vulnerable is Germany?


The EU depends on Russia for more than half of its gas and a third of its oil. The stand-off between Russia and the West has prompted Germany to develop renewable energy and invest in LNG import facilities, but it will take years for these to become operational. At the same time, Germany is restarting dirty coal-fired power plants and providing subsidies to other energy suppliers to offset plummeting Russian gas imports.

How have other countries been affected?


Central and Eastern European countries are more vulnerable to Russian gas disruptions because their economies have fewer alternatives than their counterparts in western and southern Europe. Russia will supply 40 percent of Italy’s gas needs in 2021, but Italy has struggled to find alternative sources globally and has struck new deals with some suppliers, particularly in North Africa. Some smaller buyers, such as Finland, plan to use floating LNG terminals. Poland, which gets most of its electricity from coal-fired plants, has invested in a new pipeline from Norway that is expected to open in October.

Share of natural gas imports coming from RU, 2020

What is Ukraine’s role?


About a third of Russia’s natural gas passes through Ukraine to Europe. The flow of gas through Ukraine has been reduced since May 11 after a gas crossing point was closed due to heavy fighting between Russia and Ukraine in the east. When Ukraine and Russia reached a five-year gas transit agreement in December 2019, Ukrainian President Volodenmyr Zelensky said his country would receive at least $7 billion in transit fees.

Capped Flows

How did Russia disrupt the market before?


Disputes with Ukraine over gas prices and siphoning led to Russia cutting off supplies to Europe in 2006 and 2009. The second “death” lasted nearly two weeks in the winter. Slovakia and some Balkan countries have had to ration gas, close factories, and cut power supplies. Since then, the most vulnerable countries have raced to lay pipelines, connect power grids and build terminals for importing LNG. LNG can be imported from as far away as Qatar and the United States.

What are the supply networks?


External supplies come mainly from Russia, Norway, and Algeria, which account for about 80% of the EU’s gas consumption. Some of the biggest economies are most at risk. Germany imports 90% of its gas, much of it via Nord Stream 1, a pipeline buried under the Baltic Sea. The pipeline has been fully operational since 2012. (Pipeline 2 was completed late last year, but political concerns prevented it from being opened and it remains suspended.) The problem for Belgium, Spain, and Portugal is that storage capacity is small, as is Britain, which is no longer part of the EU and has closed its only big gas storage station. The continent has a large number of gas pipelines, but many cross multiple borders, creating a large number of possible choke points.

Gas Connections

END.

DiskMFR Field Sales Manager - Leo

It’s Leo Zhi. He was born on August 1987. Major in Electronic Engineering & Business English, He is an Enthusiastic professional, a responsible person, and computer hardware & software literate. Proficient in NAND flash products for more than 10 years, critical thinking skills, outstanding leadership, excellent Teamwork, and interpersonal skills.  Understanding customer technical queries and issues, providing initial analysis and solutions. If you have any queries, Please feel free to let me know, Thanks

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