As Europe works to stay warm this winter, can Russia help?
With Europe in a natural gas crunch, Russian President Vladimir Putin is touting the benefits of the Nord Stream 2 pipeline, which runs under the Baltic Sea and is awaiting German regulatory approval. Here’s a look at the supply shortage and how Russia factors in.
| Frankfurt, Germany
Europe is short of natural gas – dangerously short. A cold winter could mean a severe crunch, and utility bills are headed higher, burdening ordinary people and weighing on the economic recovery from the coronavirus pandemic.
Russian President Vladimir Putin has promised to help fill European gas storages as energy prices soar – but supply shortages and political tensions have continued to rattle energy markets, keeping prices high. That’s pinched businesses and forced them to pass along costs to customers already facing higher bills at home.
Moscow has been accused of using the volatile situation to push for a quick launch of a newly built Russian pipeline under the Baltic Sea: Nord Stream 2, which is awaiting German regulators’ approval and has been criticized by Ukraine, the United States, and others.
With Europe dependent on imported gas and Russia supplying 40% or more of those imports, Mr. Putin has leverage. He’s said the new pipeline already is filled with gas and could help increase supplies “the day after” it’s approved.
Here are important factors behind the gas crisis:
How did Europe get into this mess?
Multiple reasons. One was a cold winter that drained gas reserves, which are used to generate electrical power and typically replenished in summer. That didn’t happen this year.
Hot weather drained more gas than usual through demand for air conditioning. Less wind meant less renewable electricity, leading generators to reach for gas fuel. Limited supplies of liquid natural gas, an expensive option that can be delivered by ship instead of pipeline, were snapped up by customers in Asia.
On top of that, Europe for years has pushed for day-to-day spot pricing, instead of long-term contracts. Russian-controlled gas giant Gazprom has fulfilled those long-term contracts but hasn’t pumped additional gas beyond that. Mr. Putin says customers who have those contracts pay much less for gas than other buyers.
Prices were seven times higher in October than they were at the beginning of the year and have eased to about four times higher lately.
How does the Nord Stream 2 pipeline play into this?
Gazprom invested billions into building the 1,234-kilometer (765-mile) pipeline to Germany. It would allow Russia to sell gas directly to a major customer and circumvent a pipeline through Ukraine, which has faced relentless pressure from Russia following Moscow’s 2014 annexation of the Crimean peninsula and its support for separatist rebels in Ukraine.
Even before the 2014 hostilities, Moscow had launched efforts to diversify gas supply routes to the European Union, saying the Ukrainian system is dilapidated and accusing the country of siphoning gas.
Ukraine stands to lose $2 billion in annual transit fees. It and Poland, which sits on another bypassed pipeline, are fiercely opposed to Nord Stream 2. The U.S. and some other countries also have been strongly critical, warning the project would increase Europe’s energy dependence on Russia.
British Prime Minister Boris Johnson said Monday that he hoped “other European countries may recognize that a choice is shortly coming, between mainlining ever more Russian hydrocarbons in giant new pipelines and sticking up for Ukraine and championing the cause of peace and stability.”
Several analysts said they don’t expect Nord Stream to come on line this winter – though there has been speculation Europe might allow gas to start flowing while regulators review it, perhaps in exchange for sending more gas through Ukraine.
Has Russia withheld extra gas supplies?
Gazprom says no. The head of its export branch, Elena Burmistrova, said this month that “we aren’t interested in either record low or record high gas prices,” adding that “we want to see a well-balanced and predictable market.”
At least some analysts agree.
Thomas O’Donnell, an energy and geopolitical analyst at the Hertie School graduate university in Berlin, said Russia had to fill its own gas reserves – just like the EU – after a cold winter.
While Mr. Putin relishes his role as the “gas godfather” and has exploited the shortage to press for approval of Nord Stream 2, “the more mundane reality is ... there simply has been no spare Russian gas to export until Russia finishes filling its own domestic storage for winter,” wrote Mr. O’Donnell, who blogs at globalbarrel.com. “The godfather was bluffing.”
Mr. O’Donnell said the only way for Russia to help make up the gas shortage this winter would be to pump more gas through Ukraine – assuming Gazprom is willing to do that.
Mr. Putin ordered Gazprom to send gas into European storage after Russia finished filling its reserves last week, but “it’s limited,” Mr. O’Donnell said. “He could be making a show of doing much more.”
U.S. officials agree.
“Russia can and should provide additional supplies through Ukraine, which has sufficient pipeline capacity, and they don’t need Nord Stream 2 for that,” Karen Donfried, the top U.S. diplomat for Europe, said last week.
“And, if Russia fails to do that, obviously it’s going to hurt European energy security and bring into question what Russia’s motives are for withholding those supplies,” she said.
By underlining Europe’s dependence on Russian gas, Mr. Putin and Gazprom may hope for more lenient EU market regulation of Nord Stream 2, Mr. O’Donnell said.
The pipeline hit a delay Tuesday when German regulators suspended the approval process because of an issue with the pipeline operator’s status under German law.
What impact could Europe’s gas shortage have?
Natural gas prices will sooner or later be reflected in home and business charges for electricity and gas.
The European Commission, the EU’s executive arm, cited spiraling energy costs as a drag on the pandemic recovery because higher bills will take money away from consumer spending and business investment.
Europe’s tight market is echoing in the U.S., helping raise prices there, though the U.S. market has not seen anywhere near Europe’s price spike.
What could it mean for the winter?
Analysts say it’s hard to predict. Everyone hopes there isn’t a big late-winter storm that would threaten dwindled supplies.
Analysts have speculated that electricity could be rationed – perhaps for some industrial customers at first – if things get really bad.
An energy apocalypse – a total loss of electricity or heat if gas reserves are drawn to zero and can’t be substituted – would likely cause deaths among poor and vulnerable populations, like what happened in Texas this year when a winter storm knocked out power, leading to more than 200 deaths.
What about Belarus’ threat to cut off gas supplies?
Poland and other EU nations accused authoritarian Belarus President Alexander Lukashenko of using migrants trying to get to the EU through Belarus’ border with Poland as pawns to avenge sanctions over his government’s crackdown on protests.
With the EU threatening more crippling sanctions, Mr. Lukashenko threatened to cut off Russian gas supplies to Europe that pass through a pipeline in Belarus.
Although his statement further rattled the markets, it’s unlikely Mr. Lukashenko would be able to fulfill his threat, given his political dependence on Russia and Moscow’s desire to maintain the reputation of a reliable supplier.
Valery Karbalevich, an independent Belarusian political analyst, dismissed Mr. Lukashenko’s threat as bluster.
“The decisions are made in Moscow, not Minsk,” he said. “Lukashenko wants to scare the EU and drag Putin into the confrontation, trying to provoke the Kremlin to take a more radical action.”
This story was reported by The Associated Press. Vladimir Isachenkov reported from Moscow. AP journalist Yuras Karmanau in Kyiv, Ukraine, contributed to this report.