EXPLAINER: Can Europe live without Russian natural gas?
Jul 19, 2022, 7:26 PM | Updated: Jul 26, 2022, 9:41 am
(AP Photo/Michael Probst, File)
BERLIN (AP) — Europe is in an energy crisis, and it means countries will struggle to keep homes warm and industry humming this winter.
That is because Russia has slashed Europe’s flows of natural gas, used to power factories, generate electricity and heat homes in the winter. Moscow says deliveries through a major pipeline to Germany, Nord Stream 1, will drop to 20% of capacity this week, blaming technical reasons.
European leaders are bracing for the possibility of a complete cutoff, saying Russian President Vladimir Putin is using energy for political leverage in his confrontation with the West over the war in Ukraine. The European Union has agreed to ration gas.
Here are key things to know about the energy crisis:
DID RUSSIA CUT OFF GAS TO EUROPE?
It has reduced supplies significantly. Even before the invasion of Ukraine, Russia was not selling gas on the short-term spot market. After the EU imposed sanctions on Russia’s banks and companies and started sending weapons to Ukraine, Russian cut off gas to six countries and reduced supplies to six more.
Flows into Germany, the EU’s biggest economy, through Nord Stream 1 are set to be dialed back by 80%, with Russia blaming parts needing repairs. It comes after fears that the pipeline wouldn’t reopen at all after 10-day maintenance period.
The 27-member EU has been left scrambling to fill gas storage ahead of winter, when demand rises and utility companies draw down their reserves to keep homes warm and power plants running.
The EU’s goal is to use less gas now to build storage for winter. Europe’s gas reserves are only 65% full, compared with a goal of 80% by Nov. 1.
WHY IS RUSSIAN NATURAL GAS SO IMPORTANT?
Russia supplied some 40% of Europe’s natural gas before the war. That has dropped to around 15%, sending prices through the roof and straining energy-intensive industries.
Gas is used across a range of processes that most people never see — to forge steel to make cars, make glass bottles and pasteurize milk and cheese.
Companies warn that they often can’t switch overnight to other energy sources such as fuel oil or electricity to produce heat. In some cases, equipment that holds molten metal or glass is ruined if the heat is turned off.
High energy prices are already threatening to cause a recession in Europe through record inflation, with consumers having less to spend as costs rise for food, fuel and utilities. A complete cutoff could deal an even heavier blow to an already troubled economy.
WHAT IS THE NORD STREAM 1 PIPELINE?
It is the major European natural gas pipeline that runs under the Baltic Sea from Russia to Germany and is Germany’s main source of Russian gas.
Kremlin spokesman Dmitry Peskov said reductions through Nord Stream 1 follow delays in reinstalling a part that was sent to Canada for repairs, while another turbine is expected to shut off because it needs repairs now.
“The situation has been critically complicated by the restrictions and sanctions imposed on our country,” Peskov said.
European leaders reject the technical explanation.
Putin “is trying to weaken the great support for Ukraine and drive a wedge into our society,” German Economy Minister Robert Habeck told news agency dpa. “To do this, he stirs up uncertainty and drives up prices.”
Europe needs to save 12 billion cubic meters of gas, the equivalent of 120 LNG tankers, to fill its storage levels by winter.
Three other pipelines bring Russian gas to Europe, but one through Poland and Belarus has been shut down. Another, through Ukraine and Slovakia, is still bringing reduced amounts of gas despite the fighting, as is one through Turkey into Bulgaria.
Gas also comes by pipeline from Norway, North Africa and Azerbaijan.
WHAT’S PUTIN’S GAME?
Although Russia’s oil and gas exporters are selling less energy, spiking prices mean Putin’s earnings have actually increased, according to the International Energy Agency.
Since the invasion, Russia’s revenue from exporting oil and gas to Europe has doubled over the average from recent years, to $95 billion, the Paris-based IEA said.
The increase in Russia’s energy revenue in just the last five months is three times what it typically makes by exporting gas to Europe over an entire winter.
So Putin has cash in hand and could calculate that painful utility bills and an energy recession could undermine public support for Ukraine in Europe and increase sentiment for a negotiated settlement in his favor.
“Based on what we have seen over the past year, it would be unwise to exclude the possibility that Russia could decide to forgo the revenue it gets from exporting gas to Europe in order to gain political leverage,” IEA Executive Director Fatih Birol said.
WHAT CAN EUROPE DO?
The EU has turned to more-expensive liquefied natural gas, or LNG, which comes by ship from places like the U.S. and Qatar. Germany is fast-tracking construction of LNG import terminals on its North Sea coast, but that will take years. The first of four floating reception terminals is to come online later this year.
But LNG alone can’t make up the gap. The world’s LNG export facilities are running at full capacity amid tight energy markets, and there’s no more gas to be had. An explosion at a U.S. terminal in Freeport, Texas, that sent most of its gas to Europe took 2.5% of Europe’s supply offline overnight.
Plus, Europe will be competing with Asia for limited amounts of LNG, with analysts at Capital Economics expecting prices to stay high. Even U.S. prices, which are normally insulated, will go up because its a major LNG exporter, they said.
Conservation and other energy sources are key. For example, Germany is running coal plants longer, creating a gas auction system intended to encourage conservation, and resetting thermostats in public buildings.
EU energy ministers have agreed to a draft law that aims to drop gas demand by 15% between August through March through voluntary national steps. Mandatory actions could be triggered in the 27-member bloc if not enough gas is saved.
Countries have been scrambling to secure alternative energy supplies, with leaders of Italy, France and the EU recently sealing deals with their counterparts in Algeria, Azerbaijan and the United Arab Emirates.
COULD PEOPLE FREEZE THIS WINTER?
It’s unlikely homes, schools and hospitals will lose heat because governments are required to impose rationing first on businesses. The German government also could allow gas suppliers to immediately pass on increases to customers.
The choices could include torpedoing industry and/or socking consumers with even higher bills.
The IEA recommends European countries step up campaigns people to conserve at home and plan to share gas in an emergency. And time is getting short.
“European leaders need to be preparing for this possibility now to avoid the potential damage that would result from a disjointed and destabilizing response,” Birol said. “This winter could become a historic test of European solidarity — one it cannot afford to fail — with implications far beyond the energy sector.”
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