Winter of Humiliation: The Russian Gas and Europe

WINTER IS COMING, BUT NOT THE RUSSIAN GAS

Image Graphics by Team Geostrata

Europe has faced extreme summers this year and is now preparing for the upcoming harsh winter. This situation has arisen because Russia has started to play the Russian "gas" as a "weapon of war" against Europe this year. Russia is the largest producer and supplier of gas in the world, especially to Europe, as Russia has supplied 40% of European gas imports in 2021. The European nations want to shift their dependence to other sources but still, it will not happen in a single day.

This gas crisis question arose after The Russian state-owned gas company Gazprom in mid-June cut gas supplies in the Nord Stream 1 pipeline to just 40 percent of capacity. The pipeline which generates the Russian gas to Germany through the Baltic Sea – and Berlin fears that Moscow might stop supplies Germany still gets 35 percent of its gas from Russia – down from 55 percent before the Russian rollover in Ukraine.

Russia has already taken strict action against Finland, Poland, and Bulgaria as it stopped supplying Russian gas to them over their refusal to pay in roubles.

Why is Europe so dependent on Russia for its winter gas consumption?

LNG is considered a safe, reliable, and clean source of energy. It is the cleanest burning fossil fuel and around the world, it is used in homes and businesses for cooking and heating, and it can also be converted into fuel for buses, trucks, and cars. It also provides affordable fuel for power generation that produces fewer than 70% greenhouse gases emission than coal. So it is aligned with the zero-emissions commitment by 2050 of Europe. So when the wind is not blowing and the sun is not shining or simply other sources of renewable energy are not in use. LNG in those circumstances can be used to generate electricity. Natural gas is also an essential raw material for many common products such as paints, dyes, plastics, medicine, textile, and the medical industry. So now it is apparent that European nations, which face very harsh winters, are very dependent on this fuel for their survival.

Can Europe shift its dependence away from Russian gas?

Image Credits: The Economist

The first major challenge which Europe faces for this will be the traditional infrastructure. "There is infrastructure missing for the west-to-east flows,” said Marco Saalfrank, who is the head of continental Europe merchant trading at Axpo Solutions AG in Baden, Switzerland. “ So the infrastructure cost of importing the Natural gas from other regions such as Algeria, Azerbaijan, and Qatar has a huge infrastructure cost. European nations which are on the verge of recession cannot afford this huge infrastructure cost in the present upheaval Economic scenario.

Second is the Floating LNG terminal, which might be the best present solution, as it doesn't have such a great infrastructure cost. At least eight ship-borne LNG terminals known as floating storage and regasification units, or FSRUs, have been announced over the past three months from the Netherlands to Germany and Estonia. But while some can be installed as soon as next winter, they’re only good when connected to existing grids and backed up by agreements for round-the-clock supply.

The problem here also lies with the European landlocked countries such as Hungary and Bulgaria, where there is no access to the LNG terminals. Even Hungary rejected the proposal of Ursula Von der Leyen, President of the European Commission, to reduce the Russian gas supply by 15% this year. Even Russia, who is a close ally of Hungary, also assured to increase in the Russian gas output for Hungary in winters. Gas is also becoming a tool for Russia to play its divide and rule game inside the EU.

What will be its implications for Russia?

These "gas wars" by Russia over Europe can be good in the short-term, but once the European countries will shifts their dependence on other reliable partners such as Azerbaijan, Qatar, Algeria, and the US, which has increased its gas supply to Europe by 47% after the start of Russia-Ukraine war, as US is also a huge supplier of LNG and only comes second in LNG exports after Russia. This will be a double-edged sword for Russia because then Russia can only diversify its gas imports toward China and other reliable Russian partners. But it will also require huge infrastructure costs for the diversification of Russian gas to Asia, and the present economic situation of Russia does not allow it.

What's next?

It will be interesting to see what's next. Because now European countries along with Germany are sure that they cannot be relied upon as a volatile source of natural gas suppliers for them and they are also joining hands with other reliable partners such as the US and Azerbaijan. The visit of Italian PM Mario Draghi to Algeria at the start of July and the recent visit of Ursula Von der Leyen to Azerbaijan to increase the gas supply for Europe. Europe has started to face the aftershock of the Russia-Ukraine war as now the Euro is floating at par with the dollar. Russia is also looking toward other reliable partners for its gas. So it will be interesting to see how much time their push and pull is going to take place. Yet, Winter is still to come to Europe. But the question is will Russian gas come? And how will Europe manage in case Russia goes on the same path for Natural gas even in winter?

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BY AADARSH TRIPATHI

TEAM GEOSTRATA

tripathiaadarsh275@gmail.com