• Complicated gas supply considerations shaping Russia-Ukraine tensions as European energy trilemma bites

    Date posted:

    • Post Author

      Patrick Lavery

      Combustion Industry News Editor

Ongoing geopolitical tensions over Ukraine have continued to be connected to the issue of European gas prices, as Europe faces its “worst energy crisis since the Arab oil embargoes of the 1970s”. An opinion piece in the Financial Times by Constanze Stelzenmueller of the Brookings Institution has framed the European Union’s dependence on Russian gas supplies (which usually amount to over 40% of European supply) as the inevitable result of the approach to the ‘energy trilemma’.

This three-way conundrum in providing energy is between environmental sustainability, social impact, and security, and Ms Stelzenmueller’s opinion is that the EU’s choices over the last two decades have prioritized the first two at the expense of the third. This is supported by the contention of the International Energy Agency chief, Fatih Birol, that Russia is holding back at least one-third of the gas it could currently supply to Europe, while letting storage facilities it controls within the EU to reduce their inventory, to create the current gas crisis for geopolitical purposes. (It should also be noted that Russia is fulfilling its contractual obligations in regards to supply to Europe). Essentially, the accusation is that Russia is demonstrating Europe’s reliance on Russian gas supplies in order to strengthen its ability to achieve its strategic objectives in relation to Ukraine.

The Nord Stream 2 pipeline – still requiring approval from Germany to begin operations – is another element in the picture, and the high energy prices within Europe could provide impetus to more quickly give an operating licence to the new pipeline, therefore increasing supply and presumably lowering prices. The timing of the pipeline approval will do little to alter European dependence on Russia for gas, however, and Europe will continue to face a tough choice if military actions were to begin involving Ukraine. It has been reported that the USA is talking to Qatar and other large gas exporters in regards to alternative gas supplies in the event of military conflict, but it appears that in the short-term there are limited options. Qatar already has long-term fixed supply contracts with its mostly Asian customers, and while new production capacity is expected, it is expected only “over the next few years”. One would imagine that the facilitation of Qatari supply would probably require the building of additional infrastructure (such as more LNG terminals), which themselves would take years to build, and come at a cost.

It is a highly complicated and unpredictable picture. The prospect of Europe turning away long-term from Russian gas may discourage Russian military moves in the short term (should they actually intend them), as Europe is such an important commercial partner. Although China is a huge growth customer, the fact that the Nord Stream 2 pipeline has been built shows that both Russia and the EU (especially Germany) see the commercial relationship continuing for years to come (though Russia is said to be studying how to supply gas from Western Siberia to China). It does appear that military involvement is not Russia’s first choice, as the military build up around Ukraine is said not to be sufficient for an invasion, and Russian authorities have repeatedly stated it is not their intention to take military action, while the steady expansion of a long-term rival (NATO) towards its borders is an understandable concern. At the same time, Europe appears most dependent on Russian gas right now – perhaps Russia sees this as the best time to arrive at a compromise on the further expansion of NATO.