Harsh winters await if Europe doesn’t act fast on impending gas crisis

EU states need to be nimbler, to anticipate their opponent’s moves — imagining the worst — and to avoid fighting on ground of Moscow’s choosing

The EU has proceeded in imposing sanctions, including the plan to phase out Russian oil imports by the end of this year. But the Kremlin can retaliate in unexpected ways. Reuters

The Leningrad symphony of Soviet composer Dmitri Shostakovich captures the relentlessly advancing threat of the Nazi invaders to the city with a quiet theme that grows ever louder and harsher.

In the same way, while measured debate continues in the halls of Brussels, a gas crisis has been on the march. Western European politicians are only starting to hear the warning.

From last October, Russian gas exports to Europe dropped sharply, mostly by constricting flows through the Yamal natural gas pipeline system that goes through Poland. Storage facilities within Europe controlled by Russia were not refilled for winter, even while others were charged as normal.

A variety of explanations came from state gas export monopoly Gazprom and other commentators: Russia needed first to fill its domestic storage before the cold season; its production was down following a fire at one of its fields; it was a commercial move to push up prices to earn more for its remaining sales; and it was pressuring Germany to approve the operation of the new Nord Stream II pipeline.

On February 24 — the day the Ukraine war started — the true motivation became clear: squeezing Europe to deter any objections to what the Kremlin thought would be a quick, victorious attack against Kyiv.

Similar obfuscation and the proffering of multiple non-exclusive explanations for Russia's conduct have persisted this year. European customers have been disconnected stepwise, with people regarded as particularly “unfriendly” or refusing to meet Russia’s demands for payment in roubles affected.

Poland and Bulgaria were cut off on April 27, with Finland on May 21, Denmark, Netherlands and some German supply similarly affected on May 31. Despite this, the EU Commission eventually waved through Russia’s payment plan.

Transit of Russian gas through Ukraine has continued through the fighting, quite remarkably, but it is now at about a quarter of last year’s levels.

In May, Ukraine closed the Sokhranovka station, which transits about 8 per cent of gas from Russia to Europe, blaming interference by occupying forces. It proposed a different transit point, but Gazprom claimed this was not technically feasible.

On May 11, Moscow sanctioned the operator of the Yamal pipeline — of which Gazprom still owns 48 per cent. Yamal flows this year have been far below historic levels and dropped to zero for the last few weeks. Even shipments through the Turkstream pipeline, which (naturally) supplies Turkey, and through it some south-east European countries, have fallen away recently.

Last Tuesday, Gazprom said Canadian sanctions were preventing the return from repairs of a turbine used to compress gas, reducing flows on the Nord Stream I pipeline to Germany by 60 per cent. Austria, the Czech Republic, Slovakia, France and Italy have also had reductions in deliveries.

German economy minister Robert Habeck said in early March: “I do not expect it [a cut of Nord Stream I deliveries] because Russia must know … it will turn out to be an unreliable supplier.”

That ship of Russian reliability had already sailed in October, and was definitely scuttled by the EU strategy to get off Russian gas entirely. Now, he realises, “the Russian side’s argument is simply a pretext. It is obviously a strategy to unsettle and drive up prices”.

Nord Stream I closes entirely for annual maintenance between July 11 and July 21 — it will be critical to see whether it resumes afterwards, and at what levels, or this serves as an excuse for further reductions.

Europe has been hurrying through the low-demand summer to refill storage before the winter heating season. Germany’s stocks are 52 per cent full, and it wants them 90 per cent filled by November.

But on June 8, there was an explosion at the Freeport liquefied natural gas plant in Texas, which provides almost a fifth of US exports. The plant, which has suffered a string of previous accidents, will be out of action for three months and may not be back to full capacity until the end of the year. This endangers European plans to replace Russian with American gas.

The EU has proceeded with imposing sanctions, including the plan to phase out Russian oil imports by the end of this year, accommodating the interests of all member states. The problem with this approach in an adversarial situation should be all too clear.

The Kremlin can move faster in response, not bound by legal considerations, it can retaliate in unexpected ways, and try to pick off European countries individually. It already benefits from a fifth column in Budapest.

Russia’s moves also follow economic logic. What is the point of exporting large volumes of oil and gas at very high prices to accumulate funds that cannot be saved overseas (because they might be seized), and cannot be spent on imports (because sanctions prevent buying anything useful)?

Piling up cash at home causes the rouble to appreciate and makes other industries uncompetitive. The rouble is now at 57.5 to the dollar, much stronger than pre-war levels of about 75, while Russian Industry Minister Denis Manturov says metals exports are only competitive at 70 roubles per dollar.

If the EU cuts off oil and gas imports, Russia may as well move first and turn up the pressure. Its political and financial motives align. Meanwhile, Brussels seems to imagine it is still dealing with a bloodless opponent, like climate, that does not retaliate or pre-empt.

European states need to be nimbler, to anticipate their opponent’s moves — imagining the worst — and to avoid fighting on ground of Moscow’s choosing. Defending Europe’s gas supplies does not have to be done necessarily or only through the gas market.

As Napoleon said, in war, “the moral is to the physical as three is to one”. There are no easy solutions. European governments need to prepare their citizens for a test of ingenuity and endurance. Not just this coming winter, but the next one too, are going to be very hard.

Robin M Mills is the chief executive of Qamar Energy and author of The Myth of the Oil Crisis