With no end to Moscow’s devastating war on Ukraine in sight, a related battle that is bloodless but potentially painful for both sides is now under way. It pits Russia, the world’s largest natural-gas exporter, against the European Union, the world's third-largest economy -- and it could get worse before it’s over.
The EU has made it clear it plans to end its historical dependence on Russian energy -- an effort to stop funding an unprovoked assault that has killed thousands of people and generated growing evidence of war crimes, and to remove a powerful lever of influence from President Vladimir Putin’s hands.
Putin wants to try to convince Europe of the consequences -- to show that Europe is going to pay for their support of Ukraine."-- Will Pomeranz, Kennan Institute
The bloc has already announced a ban on Russian coal, effective this August, and this week may announce a ban on Russian oil starting in January 2023.
With natural gas, it’s not that simple.
While some EU officials have called for a ban on Russian gas, the issue is a lot more contentious because -- unlike oil and coal -- the 27-nation bloc cannot replace it in the short-term without damaging its economy, experts say.
Putin, unwilling to let Russia’s largest gas customer end the dependence on its own schedule and leave his country with a shattered economy, appears to be seeking to seize on that vulnerability.
'Europe Is Going To Pay'
Last week, Russia announced it was halting gas supplies to EU member states Poland and Bulgaria, in what European officials and analysts say is an attempt by Putin to divide the EU and send a warning to the rest of the bloc.
“Putin wants to try to convince Europe of the consequences -- to show that Europe is going to pay for their support of Ukraine,” said Will Pomeranz, the acting director of the Wilson Center’s Kennan Institute in Washington.
“If the economy suffers and people suffer, [it's possible] that European nations -- Germany or France or some other nations -- would say, ‘This isn't worth it,’” he said.
Some in Europe are already saying it.
Days before Russia invaded Ukraine on February 24, Germany shelved Nord Stream 2, a $10.5 billion pipeline built to bring Russian gas to Germany under the Baltic Sea. But in April, German Finance Minister Christian Lindner resisted calls for an EU embargo on Russian gas imports “in the short term,” saying it would “inflict more damage on ourselves than on them."
Germany is Russia’s largest natural-gas client in the EU, accounting for nearly a third of the imports -- which totaled 155 billion cubic meters (bcm) last year, including 140 bcm by pipeline. That amounted to roughly 40 percent of the EU’s gas consumption in 2021, making Russia the largest supplier to the bloc.
For decades, Russia has been a major source of gas used to heat homes, schools, and hospitals, generate power, and fuel industrial facilities in Europe. With Russian-EU ties increasingly strained and critics accusing Putin of using energy as a weapon, the mutual reliance has grown increasingly awkward in recent years.
With its unbridled aggression and evidence of atrocities some believed were unthinkable in Europe in the 21st century, Russia’s unprovoked war on Ukraine has given the EU a powerful incentive to break off what looks like an increasingly risky relationship as soon as reasonably possible.
'A Bit Challenging'
The European Commission said in March that the bloc could cut Russian gas imports by as much as two-thirds this year -- or roughly 100 bcm -- and fully end deliveries “well before 2030.”
Is that possible?
The commission’s calculation includes acquiring an additional 50 bcm of super-chilled liquefied natural gas, or LNG, and 10 bcm of piped gas from non-Russian sources, as well as reducing needs by 20 bcm through new solar and wind projects coming online this year and by 14 bcm from efficiency improvements.
Carlos Diaz, an analyst at Oslo-based research firm Rystad Energy, called the 2022 target “a bit challenging” due to a potential decrease in power generation from existing nuclear and hydroelectric power plants.
“Maybe they can get close, but there’s limited capability of substituting for gas in the power sector,” he told RFE/RL.
Diaz said the EU has the capacity to import even more LNG than the 50 bcm the European Commission is targeting for the year, but the problem is finding it at an affordable price.
LNG supply will only grow by about 25 bcm this year, meaning Europe will need to take volumes from Asia -- the largest LNG market -- to meet its needs, he said.
European LNG prices have surged over the past year to record highs and now surpass Asian prices, making the EU a more attractive destination for exporters, especially those in the United States.
The LNG market will remain tight until the middle of the decade, when the United States and Qatar are expected to significantly boost supply, Diaz said, meaning that Europe may struggle to increase LNG imports further in 2023.
Though Europe has been investing heavily in alternative energy over the past decade to cut demand for fossil fuels, its domestic gas production has been falling sharply.
EU members, including Germany, had turned to Russia to fill the void.
Now, European nations are reconsidering their production plans amid the crisis.
Norway, which is not an EU member, plans to increase gas production this year to meet the bloc’s growing need for non-Russian energy. The second-largest supplier to the EU after Russia, the Scandinavian country plans to complete a new 10 bcm pipeline to Poland via Denmark later this year.
The Netherlands announced in January that it would nearly double production at Groningen, once Europe’s largest natural-gas field, to about 7.6 bcm this year from an earlier estimate of 3.9 bcm.
Production has fallen sharply at the field in recent years due to tremors that have damaged property, and the government had planned to shut it in 2023. But following Russia’s invasion of Ukraine, local residents are in favor of raising production at the field to 12 bcm, a level considered safe.
Thierry Bros, an energy expert and professor at the research university Sciences Po Paris, told RFE/RL that if European natural-gas prices start skyrocketing, the Dutch government “may rethink their own policy” and boost production even more than planned.
Romania, the second-largest natural gas producer in the EU after the Netherlands, has the potential to increase output by 10 bcm annually from fields in the Black Sea, but disputes over offshore taxation have repeatedly delayed projects.
Even if it's going to be difficult, that's what war is all about. You don't fight a war by just walking and shopping."-- Thierry Bros, Sciences Po Paris
Romania may now “try to speed up these developments” due to the crisis, Diaz said.
Looking beyond Europe, the EU could receive more gas this year from countries in North Africa, including Algeria, its third-largest supplier after Russia and Norway. Italy earlier this month signed a deal with Algeria to increase imports starting in the autumn. The agreement calls for up to an additional 9 bcm in 2023-24.
Azerbaijan may be able to increase gas exports to the EU this year by 2 bcm, and the Caspian Sea state could further ramp up exports later in the decade if pipeline capacity is expanded.
The Trans Adriatic Pipeline, which carries Azerbaijani gas to Europe, said it could potentially double capacity to 20 bcm in stages over several years.
Meanwhile In Moscow
Russia is taking its own measures in the mounting confrontation over energy supplies.
After the EU imposed new sanctions on the Russian economy following the invasion of Ukraine, Putin demanded that “unfriendly” European countries pay for Russian natural gas in rubles -- or, more precisely, pay hard currency at an account at Gazprombank and then convert the sum into rubles.
The ruble scheme is a potential violation of sanctions and some EU countries, including Poland and Bulgaria, have refused to bend to the demand. The two countries combined consume about 12 bcm of Russian natural gas and had planned to let their contracts expire at the end of the year.
Poland will start receiving gas directly from Norway once the new pipeline via Denmark is completed, while Bulgaria will start receiving Azerbaijani gas this year when an inter-connector pipeline from Greece is completed.
Russia will be in a very tight spot economically if the EU meets its goals for 2022 and beyond.
Russia supplied the EU with 140 bcm of natural gas via pipelines from fields in western Siberia and has no alternative export route. Moscow has described plans to build a pipeline to connect the western Siberian fields with an export pipeline to China, but industry analysts say that is years away, at best.
A complete cutoff of Russian gas supplies to Europe, initiated by either side, would cost Russia tens of billions of dollars a year in lost revenue.
The Price That Must Be Paid?
Whatever happens, the showdown over gas supplies could have major legal ramifications. Russia has long-term contacts with more than 20 European nations that extend for varying periods -- as far as 2040, in the case of Austria.
As Russia needed to invest billions of dollars upfront to develop the fields and pipelines to carry the gas to Europe, it has demanded sales guarantees. These so-called "take-or-pay" contracts require European companies to pay for a minimum amount of gas each year, even if they don’t take it.
The EU will have to analyze whether it is breaching any contracts as it seeks to end Russian gas imports, because there could be “very big legal implications,” Diaz said.
Likewise, European countries could sue Russia if they are cut off by the Kremlin, Bros pointed out.
“It's going to be a hefty price to pay on any side,” he said, adding that claims could reach the hundreds of billions of dollars.
As for the efforts to reduce reliance, Bros said the EU should announce a ban on Russian gas to take effect by the end of the year, in order to drive efficiency improvements, increase investment in alternatives, and build infrastructure such as LNG re-gasification plants.
While that could hurt European industry, Bros believes it’s the price that must be paid to stop Russia’s invasion of Ukraine.
“Even if it's going to be difficult, that's what war is all about. You don't fight a war by just walking and shopping,” he said. “We have to take steps ourselves, like energy efficiency, demand reduction, and some demand destruction.”