Nothing surprising. Simply put, in local parlance, Europe is America's little b!tch. France is an unwilling participant.
Russian and U.S. officials traded threats Tuesday about what might be the Kremlin’s most potent weapon in its campaign to divide NATO as it weighs aggression against Ukraine: natural gas.
As Russia’s tanks and troops are amassing at Ukraine’s borders, Moscow has reduced the amount of natural gas flowing into the heart of Europe. It is delivering enough to keep power plants and factories humming and ensure that European homes can fend off the chilly January gloom — but not enough to prevent prices from soaring to record levels.
The fuel has arrived for decades, through periods of crisis and tension and even the breakup of the Soviet Union. But now Russia is threatening to cut off the gas if it faces economic sanctions following an incursion into Ukraine, and the United States and its allies are scrambling to line up a substitute.
“How reliant is Europe on Russian gas? The short answer is very,” said James Huckstepp, manager of European gas analytics for S&P Global Platts.
With European leaders already worrying about the skyrocketing cost of gas and electricity, the Biden administration warned Russian President Vladimir Putin on Tuesday that further disruption to natural gas markets would only hurt his own country.
A senior Biden administration official said Tuesday that the United States had held discussions with major natural gas producers in North Africa, the Middle East and Asia, as well as domestically, about their capacity and willingness to “temporarily surge” their natural gas output for European buyers. The president plans to host Qatari Emir Tamim bin Hamad al-Thani at the White House on Monday, where they will discuss channeling Qatari gas to Europe.
“If Russia decides to weaponize its supply of natural gas or crude oil, it wouldn’t be without consequences to the Russian economy,” added the official, who spoke on the condition of anonymity because the White House has not announced specific policy responses. “Remember, this is a one-dimensional economy. It needs oil and gas revenues as much as Europe needs supplies."
But Russian policymakers say that if their country is disconnected from the international bank processing system known as SWIFT, as U.S. leaders have threatened, they won’t keep natural gas flowing.
“If Russia is disconnected from SWIFT, then we will not receive currency. But buyers, European countries first of all, will not receive our goods: oil, gas, metals and other important components of their imports,” Nikolai Zhuravlev, the vice speaker of Russia’s upper house of parliament, told the Tass news agency on Tuesday.
The tensions illustrate the danger of Europe’s long-standing dependence on Russian gas, the limits of substituting liquefied natural gas shipments from the United States and Qatar, and the obstacles to meeting climate goals as European countries look to coal and even oil as emergency fuels.
Europe began importing natural gas from the Soviet Union in the 1970s, and in recent years it has relied on Russia to meet roughly 40 percent of its natural gas needs, according to E.U. figures. But Russia, which had been selling about half of those gas supplies under long-term contracts, has effectively stopped making other supplies available through the spot market. As a result, European natural gas prices have soared to about six or seven times their usual levels.
Because of held-back supply, the volumes of natural gas stored in Europe — the buffer that can help the continent withstand challenges to its energy supply — are at their lowest levels for this time of year since 2011, according to data from the Gas Infrastructure Europe trade group. Even without any disruptions, supplies will be tight for the next three months, as the continent pushes through its long winter.
With European leaders already split about how much they should sacrifice for Ukraine, the continent’s vulnerabilities are ripe for Kremlin exploitation. Russia briefly cut off gas to Ukraine in 2006 and again 2009 during moments of geopolitical tension, creating shortages in Europe, although it has never imposed a long-term embargo.
E.U. policymakers say they fear that Russia could cut energy supplies to Europe in an effort to split off countries, including powerful Germany, that have been more muted in their support for Ukraine. Germany depends more on Russian gas than the rest of Western Europe, importing more than half its supplies from Russia, and it is led by a new and untested Social Democratic coalition, a party that has historically favored friendly relations with the Kremlin.
German Chancellor
Olaf Scholz — in office only since December — has offered mixed messages about whether he will give final approvals to the already-built Nord Stream 2 gas pipeline if Russia invades Ukraine. That project, which links Germany and Russia underneath the Baltic Sea, would double Russia’s ability to deliver gas directly to Germany. Many other European countries opposed the project precisely because it deepens Germany’s energy dependence on Russia.
A Russian cut-off would hurt the country’s long-term ability to sell its fossil fuels and could force Europe to shake its dependence for good. But the blockade could serve a more fundamental purpose of Putin’s than pure economic interests: reshaping Europe’s alliances and undoing the past 30 years of Eastern Europe’s alignment toward the West, policymakers said. He has already demanded a rollback of NATO’s presence essentially to where it stood shortly after the 1991 collapse of the Soviet Union.
“One of their aims is to splinter the West. To find possibilities that we will start talking in different voices, having different positions,” Lithuanian Foreign Minister Gabrielius Landsbergis told reporters at a meeting of E.U. foreign ministers in Brussels on Monday.
For now, Europe has been hurrying to fill supply holes, in part by firing up coal power plants and by increasing imports of liquefied natural gas. That technology enables the fuel to be transported by ship from the United States and the Middle East instead of simply by pipeline from Russia and North Africa. But it’s difficult, expensive and subject to complicated bottlenecks, such as the chokepoint on the Iberian Peninsula between Spain and France.
“I don’t see how you reduce Europe’s huge dependence on Russian energy flows,” said Robert McNally, founder of a consulting firm called the Rapidan Energy Group. “The only scalable alternatives to Russian gas and oil would be European gas, oil and coal, along with much higher imports of the same from friendlier parts of the world.”
Lured by high prices, both the United States and Qatar have increased their liquefied natural gas shipments to Europe in recent weeks. Even though Europe’s gas reserves are low, it can probably withstand a total Russian cutoff for this winter, said Georg Zachmann, an energy expert at Bruegel, a Brussels-based policy think tank. Far harder would be a longer halt to supplies that would leave it without enough gas for next winter, he said.
“For Europe, it’s a worrisome threat,” Zachmann said. “If this drags on for two winters, getting a full winter’s worth from global markets is challenging.”
That scenario would force Europe into almost wartime measures, with energy prices spiking so high that extensive subsidies would be necessary. European countries would also have to work out a political compromise to share the sacrifice.
That is a tricky proposition. Not all of them are deeply invested in the fate of Ukraine. And some countries are more vulnerable to disruptions than others. France, for instance, has ample nuclear power and multiple liquefied natural gas terminals. Neighboring Germany has no such terminals and is also phasing out nuclear power.
The debate over supplies is complicated by Europe’s ambitious climate goals, which are heavily reliant on natural gas as a bridge fuel during the shift toward renewable energy. Many companies have recently had to turn to the carbon markets, where they can buy carbon credits to offset their carbon emissions from burning more fossil fuels. Last week, carbon prices were about four times as high as their average from 2015 to 2020, S&P Global figures show.
Several years ago, many oil and gas industry executives urged faster issuance of permits for LNG export facilities in the United States, painting a picture of “freedom gas" that could help Europe in a scenario similar to the one it now faces. Until now, most U.S. supplies have been sent to Asia, where gas prices are higher.
But in December, 95 tankers went from the United States to Europe, and U.S. exports to Europe over the winter are up about 15 percent from a year ago, according to S&P Global. More than half of all U.S. LNG exports — led by Cheniere and ExxonMobil — are now heading toward Europe, up from a third in the first quarter of last year.
“We definitely need more gas supplies to address high prices on a worldwide basis,” said Meg Gentle, a former chief executive of Tellurian, an LNG exporter, and now executive director of a decarbonization company. She said that U.S. spare export capacity “should bring some of that to the world market and ease some of the tightness.”
But even U.S. spare capacity is limited, making it difficult for Europe, whose terminals are operating at about 70 percent of what they can handle.
“I think with the LNG from the U.S. and other sources too, they could squeak through, but they will have to start planning for a future where they can’t rely on these gas supplies,” said Angela Stent, a nonresident senior fellow at the Brookings Institution and former Russia adviser to Presidents Bill Clinton and George W. Bush.
The gas crisis has also reignited the debate over nuclear power. The crisis has coincided with the December shutdown of three German nuclear power plants, part of a phased reduction in nuclear power since the tsunami off Japan’s coast in 2011 damaged the Fukushima nuclear plant and led to the prolonged shutdown of Japan’s nuclear fleet. Three more German plants are expected to close this year.
In December, the European Commission also labeled nuclear power as “green” energy, opening up investment opportunities across the continent for the next 20 years.
“Unfortunately, Germany will not return to nuclear, which would be the rational thing to do,” said Lars Josefsson, retired chief executive of Vattenfall, one of Europe’s largest utilities.
At the same time, some analysts said the crisis showed that renewable storage was insufficient and would increase the need for intermittent natural gas. Others said it showed the urgency of using more wind, solar and energy efficiency to ease reliance on Russia. Germany still plans on boosting renewables from 44 to 80 percent by 2030, an effort that will significantly loosen Russia’s gas-fired grip on the continent.
In the meantime, U.S. and European diplomats will seek to keep Russian forces at bay.
“This is not an asymmetric advantage for Putin," the U.S. official said Tuesday. "It’s an interdependency.”
Perry Stein in Brussels contributed to this report.
