Russia Cut Off Gas Supplies to Six Countries

Context

After the EU imposed sanctions and sent weapons to Ukraine, Russia cut off gas supplies to six countries and reduced supplies to another six. This escalation may impede the region’s gas pipeline issue.

Relevance

Mains Paper 2: International relations: Important International Institutions, Bilateral, regional and global groupings

Mains Question

What are the two Nord Streams to make headlines? Are they a solid pillar of Russia’s strategic significance in Europe? Comment. (150 Words)

The gas Crisis and beyond

• Even before the drama surrounding the reopening of the Nord Stream 1 pipeline from Russia to Germany, Europe faced an energy crisis.
• While natural gas began flowing again recently following a 10-day maintenance shutdown of a major pipeline, Europe will still struggle to keep homes warm and industry running this winter.
• This is because Russia has already reduced the amount of natural gas used in Europe to power factories, generate electricity, and heat homes during the winter, and Russian President Vladimir Putin has warned that the supply may continue to dwindle.
• Deliveries through Nord Stream 1 were reduced by 60% before annual repairs began, and were expected to remain significantly below the pipeline’s full capacity.
• Government officials had feared that the pipeline would never reopen, claiming that Putin is using energy as political leverage in his conflict with the European Union over the Ukraine war.

Did Russia cut off gas to Europe?

• It has significantly reduced supplies.
• Russia was not selling gas on the short-term spot market even before the invasion of Ukraine.
• After the EU imposed sanctions on Russia’s banks and businesses and began sending weapons to Ukraine, Russia cut off gas supplies to six countries and reduced supplies to another six.
• Flows into Germany, the EU’s largest economy, were reduced by two-thirds, with Russia blaming a part that was sent to Canada for maintenance but was not returned due to sanctions.
• European leaders dismissed that claim, calling it a political manoeuvre designed to create uncertainty and drive up energy prices.
• It has forced the EU’s 27 member states to scramble to fill gas storage ahead of winter, when demand rises and utility companies draw down reserves to keep homes warm and power plants running.
• The EU’s goal is to use less gas now in order to build winter storage. Europe’s gas reserves are only 65 percent full, compared to an 80 percent target by November 1.

Why is Russian gas so important?

• Prior to the war, Russia supplied roughly 40% of Europe’s natural gas; that figure has since dropped to around 15%, sending prices skyrocketing and putting a strain on energy-intensive industries.
• Gas is used in a variety of processes that most people are unaware of, such as forging steel to make automobiles, manufacturing glass bottles, and pasteurising milk and cheese.
• Companies warn that they frequently cannot switch to other energy sources such as fuel oil or electricity to produce heat overnight.
• In some cases, turning off the heat damages equipment that holds molten metal or glass.
• High energy prices are already threatening to cause a recession in Europe due to record inflation, with consumers having less money to spend as food, fuel, and utilities prices rise.
• A total shutdown could wreak even more havoc on an already troubled economy.

What is the Nord Stream 1 pipeline?

• It is a major European natural gas pipeline that runs from Russia to Germany under the Baltic Sea and is Germany’s primary source of Russian gas.
• Klaus Mueller, the head of Germany’s network regulator, tweeted on Thursday that gas deliveries could reach the pre-maintenance level of around 40%.
• Even if Nord Stream 1 resumed at a reduced capacity, Europe would need to save 12 billion cubic metres of gas, the equivalent of 120 LNG tankers, to fill its storage capacity by winter.
• Three other pipelines transport Russian gas to Europe, but one, which runs through Poland and Belarus, has been closed.
• Another, through Ukraine and Slovakia, is still bringing limited amounts of gas into Bulgaria despite the fighting, as is one through Turkey.
• Gas is also piped in from Norway, North Africa, and Azerbaijan.

Importance of the pipelines:

• Every year, Europe consumes more than 100 billion cubic metres (bcm) of natural gas, with Russia accounting for roughly 40% of that total.
• Europe has become more reliant on gas imports in recent years as domestic gas production has declined. It is difficult to reduce reliance on Russian gas because there are no easy replacements.
• Many European businesses have made significant investments in Nord Stream 2, putting pressure on governments. Finally, a reduction in Russian gas would raise already high domestic gas prices, which would be unpopular.
• In Russia, which has the world’s largest natural gas reserves, gas and oil sales account for roughly 40% of the country’s budget.
• Nord Stream 2 is significant because it eliminates the risks associated with sending gas through transit countries, reduces operating costs by eliminating transit fees, and provides direct access to Germany, its most important European customer.
• It increases Europe’s reliance on Russia while providing it with a reliable customer.

What Putin’s geopolitical desire?

• According to the International Energy Agency, despite Russia’s oil and gas exporters selling less energy, rising prices mean Putin’s earnings have increased.
• Russia’s revenue from exporting oil and gas to Europe has more than doubled since the invasion, to $95 billion, according to the Paris-based IEA.
• Russia’s energy revenue has increased threefold in the last five months, more than tripling what it typically makes by exporting gas to Europe over an entire winter. As a result, Putin has cash on hand and may calculate that high utility bills and an energy recession will erode public support for Ukraine in Europe and increase sentiment for a negotiated settlement in his favour.
• Canada has stated that it has granted permission to return the component that powers a compression station.

What options do Europe have?

• The EU has turned to less expensive liquefied natural gas, or LNG, imported by ship from countries such as the United States and Qatar.
• Germany is speeding up the construction of LNG import terminals along its North Sea coast, but it will take years.
• The first of four floating reception terminals is expected to be operational later this year. However, LNG alone will not fill the void.
• The world’s LNG export facilities are at full capacity due to tight energy markets, and there is no more gas available.
• An explosion at a US terminal in Freeport, Texas, which shipped most of its gas to Europe, knocked out 2.5 percent of Europe’s supply overnight. Conservation and alternative energy sources are critical.
• Germany, for example, is extending the life of coal plants, instituting a gas auction system to encourage conservation, and resetting thermostats in public buildings.
• The European Union recently proposed that member countries reduce their gas consumption by 15% in the coming months on their own initiative.
• The European Commission, the EU’s executive arm, is attempting to gain the authority to impose mandatory reductions across the bloc in the event of a severe gas shortage or unusually high demand.
• The measures will be discussed by EU member states at an emergency meeting of energy ministers next Tuesday.
• Countries have been scrambling to secure alternative energy supplies, with leaders from Italy, France, and the European Union signing agreements this week with their counterparts in Algeria, Azerbaijan, and the United Arab Emirates.

Could people freeze this winter?

• Because governments are required to impose rationing on businesses first, it is unlikely that homes, schools, and hospitals will lose heat.
• The German government could also allow gas suppliers to pass on price increases to customers right away.
• The options include destroying the industry and/or saddling consumers with even higher bills.
• The IEA recommends that European countries step up conservation campaigns at home and plan to share gas in an emergency. And time is running out.