How Europe is dependent on Russia for its energy needs?

Author: Yuvi February 20, 2022

How Europe is dependent on Russia for its energy needs

Amid a volatile Ukraine standoff, Europe’s dependence on Russia for its natural gas needs has come to the fore, potentially undermining West’s sanctions efforts on Moscow.

Amid a volatile Ukraine standoff, Europe’s dependence on Russia for its natural gas needs has come to the fore, potentially undermining West’s sanctions efforts on Moscow.

Sharpening projections of an imminent Russian incursion into Ukraine, even as the Kremlin continued to deny it, the United States said on February 18 that Russia had now assembled 190,000 troops in and around the Ukrainian borders. might have done. In addition, the announcement that Russian President Vladimir Putin will oversee the country’s latest display of strength over the weekend – nuclear drills where he will launch ballistic and cruise missiles – has also raised alarm in the West.

In addition to mobilizing troops, US and EU allies have insisted on taking the economic sanctions route if Mr Putin follows through. They threaten Moscow with the prospect of halting US technology, aerospace, and defense exports, cutting Russia off SWIFT, restricting access to Western financial markets, and even directly imposing sanctions on Mr. are.

More importantly, a major sanction is being discussed against Russia for somehow blocking the new 1,222-km-long underwater gas pipeline called Nord Stream 2, which runs from Russia to Germany, which will be developed by September 2021. Was completed but still waiting. Regulatory approval from Germany to become truly functional.

The $11 billion pipeline will pass under the Baltic Sea through Finland, Sweden and Poland before entering Germany, bypassing other pipeline routes through Ukraine. The first phase of the Nord Stream, already operating since 2011, suffered significant losses in transit fees to Ukraine that Russia would charge for its supply routes – as much as US$720 million annually.

Mr Biden has “promised” that “there will no longer be any Nord Stream 2” if Russia invades Ukraine. Washington is also pushing to reduce Europe’s gas imports from Russia. While EU allies, including Germany, have shown support for the sanctions route, this solidarity may lose momentum when it comes to a larger measure – withdrawing support from Nord Stream 2.

This is due to Europe’s excessive reliance on Russia for its energy needs, mainly natural gas, which is used for industrial purposes and heating millions of homes across the continent. Experts say that if Moscow continues to generate revenue from gas trade with European countries, the impact of other economic sanctions may be mitigated, which will increase with the new pipeline.

How dependent is Europe on Russia for natural gas?

Russia is the largest supplier of natural gas to Europe, which depends on the former for about 40% of its natural gas needs. Russia is followed by Norway, which supplies about 22% of Europe’s gas needs; Algeria and Azerbaijan supply less than 20% and 10% respectively.

Europe’s dependence on Russia was put into perspective in late 2021, when Russia cut its gas supplies to Europe, deepening the Ukraine crisis. This was not done openly, as Moscow was still fulfilling its contractual gas; It stopped selling excess natural gas purchased on a spot basis. This led to the energy watchdog International Energy Agency accusing Russia of undermining Europe’s energy security.

When additional sales were cut, energy prices in the continent rose almost five-fold from €19 per MWh to €95 per MWh. However, this increase was also accompanied by lower gas storage levels and higher coal prices in Europe. The impact of supply cuts was also felt by consumers, who received higher gas and electricity bills, with governments introducing tax breaks and subsidies.

According to the union statistical office Eurostat, about one-fifth of the EU’s energy demand is met by natural gas, making gas the continent’s second largest source of energy. Natural gas makes up about 20% of the continent’s electric power generation. Its use as an energy component, and the continent’s dependence on other countries to obtain it, is seen to be increasing as the region looks to lower carbon emissions to meet climate goals.

Germany, Europe’s largest economy, depends on Russia for 65% of its natural gas needs, while Italy gets 43% of its gas from Russia and a little over 16% from France. Although other smaller countries, such as the Czech Republic, Hungary and Slovakia, depend almost entirely on Russia for their natural gas requirements, Poland gets 50% of its gas from the latter.

Russia’s natural gas producer Gazprom, largely controlled by the Kremlin, is responsible for supplying gas to Europe as part of its long-term contacts. On top of this, it does spot sales on its electronic selling platform (ESP) to countries based on their time-based requirements. In a time coinciding with the volatile Ukraine situation, the platform has not been offering additional sales on ESP since last August, sending enough gas to meet contractual requirements.

According to its official figures, Gazprom also likely missed its contractual goals for Europe in 2021. Although it was initially planned to send 183 billion cubic meters (BCM), the figure for gas shipped outside the former Soviet bloc was 185.1 BCM, including 10 BCM exports to China. Europe’s 2021 supplies were down from a record high in 2018, when it shipped 201 bcm of gas to the continent. However, the company said it would increase gas pipeline supplies to Germany by 10.5% and Italy by 20.3% in 2021.

Europe’s reliance on Russia will only increase when the Nord Stream 2 pipeline for Germany becomes functional, as Gazprom has stated that the new pipeline will have an annual capacity of 55 BCM, factoring in the annual Nord Stream supply to 110 BCM. . existing pipeline. This does not include gas entering Europe from other pipelines.

Over the past two decades, Russia has been building supply routes to Europe that bypass Ukraine; Meaning, if it shuts off gas to Ukraine in the event of a crisis, European supplies would not be adversely affected due to the other available lines. Before the 2000s, the Brotherhood pipeline passing through Ukraine delivered 110 BCM annually to Europe, but the new pipelines passing through Turkey-Yamal, Turkstream and Blue Stream made it possible to deliver about 80 BCM annually without passing through Ukraine.

Europe’s options

Mr Biden is trying to reduce Moscow’s leverage by supplying and asking more suppliers to send LNG or liquefied natural gas to Europe.

The US is the EU’s largest LNG supplier, sending a record 400 million cubic meters of LNG per day to the region in recent months. More incoming LNG has also led to a fall in energy prices.

However, there are also constraints, liquefaction plants are required to liquefy the gas upon onloading, and to convert LNG back into gaseous form, offloading ports require regasification plants. Both types of plants cost billions of dollars and take a long time to build.

While Europe has greatly expanded its regasification capacity over the years, global suppliers of LNG are already producing as much gas as they can.

While experts say a complete cut of natural gas from Russia is unlikely in the event of a conflict, if it does happen, the supply of LNG from the US, which cannot be increased overnight, is only two-thirds full. Will be able to Europe’s gas is needed, according to Amy Myers Jaffe, managing director of the Climate Policy Lab at Tufts University.

In cases of shortages, LNG vessels going elsewhere have been diverted to Europe, when buyers offered to pay higher prices, but this would not always be possible.

What will be the effect on Russia?

While Europe is dependent on Russia for a large part of its energy needs, it is also the largest buyer of the latter, producing about three-quarters of the gas, meaning significant revenue is coming to Moscow. Europe also buys oil from Russia and together, oil and gas exports make up a large portion of Russia’s federal budget.

In recent years, however, Russia has structured its budget in such a way that it can set aside $630 billion in foreign exchange reserves, meaning that if revenues from gas are hit for a short time, the country will will be able to afford it.

A long-term trade cut with Europe would not prove favorable, however, as Europe would also begin to intensify its efforts to find alternative suppliers and sources of natural gas.

20 February, 2022, 10:47 am

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