The current crisis in Europe due to a potential Russian invasion of Ukraine has high energy stakes. Russian gas sold in Europe is of great concern to Washington, especially since Russia’s annexation of Crimea in 2014.
Posted at 3:00 p.m.
Because Europe depends on about 40% of gas from Russia for its energy needs. And Ukraine is both a consumer of this gas and an important transit route to the European market. However, twice in recent years, in 2006 and 2009, the Russians have temporarily cut the supply of gas to this country because of disputes over prices. But this transit also represents a source of financial benefits for Ukraine, amounting to 2 billion dollars in 2020. However, the volume transited fell by 25% in 2021, which deprived Kyiv of significant revenue.
This conflict-ridden relationship has led Gazprom, the world’s largest gas producer, majority-owned by the Russian government, to build an entirely new pipeline aimed at bypassing Ukraine, even, some say, weakening it: Nord Stream, commissioned in 2012, with 1200 km of pipes passing under the Baltic Sea and directly connecting Russia to Germany.
With Germany separating from its nuclear power plants (2022) and its coal (2030), and having to replace these energies with gas, the firm Gazprom, in partnership with other European companies, is launching the Nord Stream 2 project.
This pipeline aims to double the transit capacity of Nord Stream.
Its construction, which began in 2018, is now complete. But the pipeline could not yet be put into operation, because officially still awaiting regulatory authorizations.
From the outset, this project to transport additional Russian gas was the subject of strong opposition from Eastern European countries, particularly Poland, worried about too great a vulnerability towards a such supplier.
Attractive gas sales for the United States
This position is fully shared by Washington. Both the Trump administration and that of Joe Biden have shown a strong consensus against Nord Stream 2. The Americans argue that this pipeline will make Europe too dependent on Russian gas, subjecting it to potential blackmail from Moscow. And also contribute to the enrichment of the oligarchs of this country.
The United States has given muscle to this opposition by adopting sanctions against any company participating in the Nord Stream 2 project, helping to lengthen its timetable, but without stopping it. Commercial interests are also involved: since the shale gas revolution, the Americans have become major gas producers, then exporters of liquefied natural gas (LNG). Last December, the Americans were even the largest exporters of LNG in the world, a first, surpassing Qatar and Australia, mainly due to demand in Europe.
Russian gas is of course a direct competitor of LNG exported from the United States: any delay in the commissioning of the Nord Stream 2 project is of course the business of these American gas companies.
Several observers bring nuances to the supposed will of the Russians, in particular of the firm Gazprom, to be able to do geopolitics with its gas. Its sales are subject to the competition policy of the European Union: the firm has already been sanctioned in 2012 for abuse of a dominant position. It is also recalled that any breach of its contractual obligations would give it the unfortunate reputation of an unreliable supplier, which can only harm its future commercial positioning on the continent.
In terms of energy, therefore, Russia has a lot to lose from military action in Ukraine. With the resulting sanctions, it would jeopardize its important gas sales in Europe. However, Gazprom has posted record profits in recent months, which it certainly does not want to compromise. Russia would also jeopardize the future of its Nord Stream 2 pipeline, in which it has invested $11 billion.
Russian gas, essential to Europe’s energy security or geopolitical tool in the hands of Moscow?
One thing is certain, consumers in Europe are the big losers in this crisis.
Because it adds anxiety to an already disturbing period: gas stocks are low and prices have exploded for six months.
Any new supply disruption and the ensuing price hike could only put additional pressure on the already strained household budget and that of the many industries that depend on it.