After Russia’s invasion of Ukraine, the sanctions against the Kremlin, led by Western countries, are increasing day by day. On February 25th 2022, one day after Russian troops attacked Ukraine at the behest of Vladimir Putin, the US, EU, UK and Canada and some of their allies announced a series of sanctions [BBC, 2022]. With the sanctions targeting the Russian economy, especially the removal of some Russian banks from the SWIFT system, it is aimed that the Putin administration takes a step back in Ukraine. Instead of backing down, Putin intensified the attack, which led the US to announce sanctions targeting the energy sector. In retaliation for these sanctions, Russia announced that it would export natural gas to Europe in “rubles” [Euractive.com, 2022]. This could be seen as a way for Russia to support its unstable currency and also retaliate against its European neighbors for Western sanctions over the invasion of Ukraine. In this way, by forming a new front in the war, Moscow signaled that it is willing to use Europe’s excessive dependence on Russian gas as a political leverage.
After Poland and Bulgaria refused to pay for Russian natural gas in rubles, Russia’s halting of natural gas shipments to these countries on April 28th 2022 [Reuters.com, 2022], indicates that the European energy crisis has escalated. On the other hand, Uniper, the parent company of Hungary and Germany, which has so far only imported Russian natural gas, stated that they can adapt to the Kremlin’s proposed system to make gas payments in rubles without violating European Union sanctions [Dailymail.co.uk, 2022].
According to data, 38.2% of the EU’s gas need in 2021 came from Russia, 21.9% from Norway, 18.4% as liquefied natural gas (LNG), 9.4% from Algeria, 9.1% was obtained from the production of EU countries, 2.2% from Azerbaijan and 0.8% from Libya. LNG, which constitutes 20% of the total gas imports, in the total supply of 80 billion cubic meters of LNG in 2021, the USA owns 20%, Qatar 20%, Russia 18%, Nigeria 17%, Algeria 14%, Norway 2% and the remaining 9% belong to other suppliers [Anadolu Agency, 2022].
While the data reveals that the EU’s main supplier of natural gas is Russia, gas from this country is mostly sent to Europe via pipelines such as Yamal-Europe, which passes through Belarus and Poland, Nord Stream, using the Baltic Sea, and Ukraine, Soyuz and TurkStream. Europe imported about 40% of the natural gas, in other words 175 billion cubic meters from Russia in 2021. Russian natural gas transported through Ukraine decreased by 70%. Accordingly, the supply, which was 140 billion cubic meters in 1998, decreased to 42 billion cubic meters in 2021. Natural gas coming through Ukraine mostly goes to Slovakia and from there to Austria and Italy [Euronews.com, 2022].
While the situation of the EU with its main energy supplier is difficult, the EU needs to either increase its purchases from other suppliers or find new energy suppliers. In this regard, the EU’s energy infrastructure is sufficient to buy more gas from Norway and North Africa and increase the amount of LNG imports, it is stated that it is not possible to increase the gas supply in these quantities rapidly. Norway, which is the country that provides the highest gas flow to the EU after Russia, explained that its gas production capacity is at the maximum level and it is not possible for them to fill it in case of Russia’s interruption, causing a further reduction in options. Algeria has the opportunity to increase its gas flow to Europe with LNG and gas lines to Spain and Italy. However, Algeria is expected to increase the amount of gas by a few billion cubic meters per year due to the current infrastructure insufficiency. In 2020, 8.1 billion cubic meters of gas was sent to Europe from the Trans Adriatic Pipeline (TAP), which was built to transport the natural gas extracted from Azerbaijan’s Shah Deniz 2 field to Europe. It does not seem possible to increase this number rapidly [Anadolu Agency, 2022].
On the other hand, global LNG markets are already in a tight spot due to increased demand as a result of the economic recovery. Providing its LNG to Asian countries with long-term contracts, Qatar announced that it is already producing at full capacity and that it will not contribute to Europe if Russian gas is cut off [Reuters, 2022a]. The EU, on the other hand, is making persuasive efforts to buy the gas of Asian countries that have made purchase agreements with long-term contracts in global markets. However, since Asian countries do not have many options in gas supply, it is stated that they do not approach the EU swap requests warmly.
The EU’s annual LNG import capacity is at the level of 157 billion cubic meters, enough to meet around 40% of total current gas demand. Even with continued flow from Russia, the EU uses 66% of its total LNG capacity. For this reason, it does not seem possible to meet all the needs with LNG in a large-scale blackout. Experts point out that the global LNG capacity and LNG-carrying vessels are almost fully utilized [Energy.ec.europa.eu, 2022].
Natural gas prices in Europe rose significantly in the second half of 2021, long before the current crisis in Ukraine, mainly due to the strong increase in post-pandemic demand. On December 21st 2021, prices hovered below €50 per megawatt-hour throughout the summer, reaching a peak of €180 per megawatt-hour [Europarl.europa.eu, 2022]. This came after relatively low levels of natural gas storage.
European gas storage levels are very low during the winter season when demand is at its highest. EU gas tanks are currently around 40% full, and this gas is expected to run out in a very short time if there is an interruption from Russia [Bruegel.org, 2022]. In this case, the EU does not have many options except importing electricity, restarting coal power plants that are harmful to the environment and incompatible with climate targets, the extension of the duration of the nuclear reactors that are planned to be closed, and the activation of closed power plants. Considering the fact that the EU needs to reduce domestic demand, it is foreseen that natural gas and electricity restrictions may be applied, especially in the industry that consumes high energy.
About a quarter of the EU’s oil imports also come from Russia. Europe’s dependence on Russian energy caused the first crack in the West’s collective response to Russia’s aggression, and the EU stayed out of a ban on oil imports from Russia by the US and UK [Rferl.org, 2022]. At the summit held in Brussels on March 24th 2022, European leaders announced that they plan to become completely independent of Russian energy supplies by 2030 (at the Versailles summit of the heads of state and government of the European Union on March 10-11, the date was announced – by 2027), while today the EU, according to the European Commission, in gas consumption depends on 90% of imports, about 40% of which on Russia, but the numbers vary greatly for individual EU countries. Russia covers a quarter of crude oil imports and 45% of EU coal imports [Konoplyanik, 2022].
In summary, Russia, which started to use its energy superiority as a political weapon during the war, as a counter reaction to the sanctions imposed on itself. On the other hand, Europe, which has a high energy dependency, must either accept Russia’s payment terms or quickly find an alternative. Considering the speed and capacity of the above alternatives, it is obvious that Europe should accept Russia’s terms for now and produce projects for the future.
References
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BBC (2022). What Sanctions are being Imposed on Russia over Ukraine Invasion? Retrieved from https://www.bbc.com/news/world-europe-60125659. Accessed on 02.05.2022.
Bruegel.org (2022). Can Europe Survive Painlessly without Russian Gas? Retrieved from https://www.bruegel.org/2022/01/can-europe-survive-painlessly-without-russian-gas/. Accessed on 02.05.2022.
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Eurporal.europa.eu (2022). Russia’s War on Ukraine: Implications for EU Energy Supply. Retrieved from https://www.europarl.europa.eu/RegData/etudes/ATAG/2022/729281/EPRS_ATA(2022)729281_EN.pdf. Accessed on 02.05.2022.
Daylimail.co.uk (2022). Europe’s Biggest Energy Companies Prepare to Undercut EU Sanctions by Agreeing to Pay for Russian Gas in Rubles. Retrieved from https://www.dailymail.co.uk/news/article-10762549/Europes-biggest-energy-companies-prepare-pay-Russian-gas-roubles.html. Accessed on 02.05.2022.
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Reuters.com (2022a). Qatar Says it cannot Unilaterally Replace Europe’s Gas Needs in Case of Shortage. Retrieved from https://www.reuters.com/business/energy/qatar-says-it-cannot-unilaterally-replace-europes-gas-needs-case-shortage-2022-02-01/. Accessed on 02.05.2022.
Note: The views expressed in this blog are the author’s own and do not necessarily reflect the Institute’s editorial policy.