How Europe's reliance on Russia's gas plays into the war in Ukraine
Updated February 24, 2022 at 4:24 PM ET
As much as 40% of Europe's natural gas is supplied by Russia — prompting fears about what might happen if Moscow cuts off some or all of that supply.
The United States and its NATO allies are trying to punish Russia with heavy economic sanctions in response to Russia's invasion of Ukraine. It's difficult to say how Russian President Vladimir Putin might retaliate. As of early Thursday, Russia's major energy company Gazprom said gas exports via Ukraine continue as normal.
Read on to understand why energy is a central concern following Russia's invasion of Ukraine.
Why is natural gas important to this crisis?
In short, many countries in Europe are dependent on Russia for imports of natural gas and, to a lesser extent, oil.
Foremost among them is Germany, Europe's largest economy, a key ally of the United States and a historically important participant in negotiations about Ukraine.
No country buys more natural gas from Russia than Germany, which depends on the fuel to help heat homes in winter and operate factories.
In a significant move on Tuesday, German Chancellor Olaf Scholz said the government was postponing certification of the Nord Stream 2 gas pipeline from Russia, saying he wanted to "send a clear signal to Moscow that such actions won't remain without consequences."
President Biden followed, ordering sanctions on the company Nord Stream 2 AG that is building the pipeline between Russia and Germany, as well as its officers.
Speaking on NPR's All Things Considered on Wednesday, German Ambassador to the U.S. Emily Haber said the pipeline "has never been operational, so it will not immediately affect the development of the gas prices."
How dependent is Europe on Russian gas?
More than 38% of the natural gas used by European Union members in 2020 was imported from Russia, according to Eurostat, the EU's statistics office.
Across Europe, however, the reliance on Russian gas varies widely by country. Some buy very little Russian gas, like the United Kingdom, or use low amounts of natural gas altogether, like Sweden.
But others — especially in central and Eastern Europe, including states once part of the Soviet bloc — are 100% reliant, or close to it, on Russia for significant natural gas needs.
Western leaders, both in Europe and the U.S., have long urged Europe to reduce reliance on Russia in order to limit the continent's vulnerability to geopolitical plays by Russian President Vladimir Putin.
"The fact that they are dependent on Russian gas has given Vladimir Putin tremendous coercive power over Europe's economies," said retired Gen. H.R. McMaster, a former U.S. national security adviser, in an interview with NPR last month.
During an energy crisis in Europe last fall, Russia dialed back exports to Europe, helping exacerbate the low inventories and high demand that sent energy prices spiking.
"In the typical Russian fashion, they did it in a way that they couldn't be accused of breaching any of their commercial relations, but still managed to give a strong reminder to Germany, in particular, and the rest of Europe, just how dependent they were on Russian gas," says David Goldwyn, president of the Goldwyn Global Strategies energy advisory firm. "They're no fools."
Germany's U.S. ambassador remarked, "these surging gas prices that we see [are] mainly due to the fact that Russia has weaponized energy exports and energy contexts in recent times."
Putin denies using gas as a political tool.
What will happen to Europe if Russia shuts off the valve?
A sudden, complete cutoff of Russian gas to Europe is unlikely. But if it were to happen, experts warn it would be painful. Another option available to Russia would be to cut off gas exports via pipelines in Ukraine — a move that would notably affect Germany. (Germany's reliance on Ukraine-based pipelines is part of the reason for its interest in Nord Stream 2.)
With supply drastically affected, Europe's already-high energy prices would likely skyrocket.
"If we will get additional volumes from Norway and from Azerbaijan and from Qatar and from the United States, then we can build up a scenario how to handle the situation that is theoretically possible if we have full disruption of gas flows from Russia," said European Commissioner for Energy Kadri Simson, speaking at a news conference on Tuesday.
One short-term solution is importing liquefied natural gas from countries like Qatar and the U.S. The U.S. has dramatically increased its exports of LNG to Europe in recent years. But experts say that LNG supplies would likely be unable to cover all needs in the case of a complete Russian cutoff.
Quickly implementing alternatives to natural gas is a challenge. For instance, coal is not an attractive solution, given efforts by many European countries to reduce carbon emissions and tackle climate change.
What is the view from Russia on this issue?
In a sense, analysts say, now could be an opportune time for Putin to cut the lines: Russia is sitting on $630 billion in currency reserves, meaning it could potentially afford a short-term hit to revenue. Meanwhile, gas and oil prices are very high, so a cutoff would seriously hurt the coffers of European countries scrambling to cover the shortfall.
But just as Europe depends on Russia for gas, Russia also depends on Europe for revenue. Europe buys nearly three-quarters of Russia's gas.
With gas prices spiking, Russia's natural gas sales soared to more than $60 billion in 2021. The country's largest gas company, Gazprom, is majority state-owned, and revenues from sales make up a major portion of Russia's federal budget.
"It needs oil and gas revenues at least as much as Europe needs its energy supply. Two-thirds of Russia's export revenues come from oil and gas. That's about half of Russia's budget revenues. So this is far from checkmate for Putin. This is a codependency," Daleep Singh, the White House deputy national security adviser for international economics, told NPR.
A cutoff would also likely prompt Europe to fast-track alternative energy sources, says Henning Gloystein, director of energy at the Eurasia Group.
"There would be an immediate, concerted effort by the European Union to permanently reduce gas reliance on Russia, which obviously won't solve the problem this winter. But over the next two years, that would have pretty strong consequences," Gloystein says.
How does the U.S. play into all this?
The Biden administration says it is hitting Russia with sanctions while trying to avoid impacts on fuel supply and prices.
"Our sanctions package is specifically designed to allow energy payments to continue," Biden said on Thursday.
"We are closely monitoring energy supplies for any disruption. We've been coordinating with major oil producing and consuming countries toward our common interests to secure global energy supplies."
He said the U.S. would release more barrels of oil if needed and is coordinating with other countries to do so too.
But when the White House announced penalties on the company building Nord Stream 2 earlier this week, President Biden said, "Through his actions, President Putin has provided the world with an overwhelming incentive to move away from Russian gas and to other forms of energy."
The U.S. and European countries are now hitting Russia with a raft of more sanctions, including on Russian banks and elites.
Helping to diversify European energy supplies has been part of the U.S. response, alongside NATO defense and diplomatic efforts.
"We've been working very closely with Germany and with Europe to surge capacity from other parts of the world — from Europe, from North Africa, the Middle East and Asia — and we think we're prepared to compensate for any shortfalls that might materialize," said Singh.
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