Are Europe and Putin Frenemies over gas? Talk about strange bedfellows!
Weaning Europe Off Russian Gas Will Take Time
Pipeline diplomacy with Moscow has built an interdependence that will take years to unwind
By Rochelle Toplensky, WSJ
Feb. 7, 2022 7:26 am ET
Europe and Russia have been gas-bound frenemies for decades. In Washington today, recently installed German Chancellor Olaf Scholz will be under serious pressure to rethink the relationship. While a quick breakup isn’t likely, change is coming.
Previous Ukraine crises pushed Europe to link up its internal energy market and invest in renewable power. The current one is likely to give another boost to clean energy and improve the region’s connections with the rest of the world.
About 40% of Europe’s gas imports come from Russia, while 70% of state-run supplier Gazprom’s OGZPY 3.29% gas pipeline sales are to Western Europe. The close German-Russian relationship is no accident. It was built on a Cold War-era West German policy of “pipeline diplomacy” with Moscow that tied both sides together, says Henning Gloystein of political think tank Eurasia. “This policy very much still lives on in the SPD,” he said, referring to the political party that leads Germany’s new government under Mr. Scholz.
In Germany and beyond, particularly in former Eastern bloc nations, many are growing more wary of this interdependence. Successive Russian-Ukrainian crises have strengthened European Union resolve for more energy security. But change will only happen slowly, given the time and huge investment required to switch fuels or build pipelines or liquefied natural gas terminals.
When Gazprom shut off gas to Ukraine for the first few weeks of 2009, the EU prioritized connecting its internal market to insulate members against a similar threat. “EU gas demand has never returned to the peak of that time, so you could argue that Gazprom shot itself in the foot back then and is at risk of making the same mistake again now,” says Mr. Gloystein.
Europe has made some progress. Gazprom was forced into more flexible contracts that allow buyers to share their gas. Connections were built and upgraded to allow two-way gas flows. Investment was also fast-tracked to build renewable power generation and electricity links as well as new LNG terminals and pipelines.
Despite all this, Europe remains very reliant on Russian gas. Switching from coal to gas-fired power and closing nuclear plants has increased gas demand. At the same time, domestic gas supply is shrinking: Local reserves are being depleted, a big Dutch field is being closed and new exploration is almost impossible due to public pressure.
This year gas in Europe has been in short supply partly because Gazprom allowed its sizable storage in the region to run unusually low and the company limited its pipeline deliveries to contractually obligated amounts. Russia said it gave priority to domestic needs, but President Vladimir Putin’s comments that quick approval of the controversial Nord Stream 2 gas pipeline would help rebalance the European market exacerbated fears that Moscow might be weaponizing energy.
The gas crunch, coinciding with fresh tensions between Russia and Ukraine, has moved energy security back up the agenda. The EU has proposed new rules to improve gas storage and enable joint buying of strategic stocks. Interest in long-term supply agreements is increasing and officials are speaking to Azerbaijan, Qatar and the U.S. about additional supplies, though it is companies that sign contracts rather than the EU.
Europe’s green deal, which looks likely to include gas as a transition fuel away from more heavily polluting alternatives, also is getting a boost from this crisis. There are moves to cut permitting time for renewable developments, promote power-purchase agreements more widely and fast-track energy efficiency measures such as building renovations. Gazprom also has diversified its customer base with LNG terminals and a pipeline to China and Turkey, with plans in the works for more.
Europe and Russia are working to reduce their co-dependency, which could benefit gas exporters in the U.S. and elsewhere. Still, Germany’s persistent faith in pipeline diplomacy is likely to result in a pace of change that frustrates Washington.
Write to Rochelle Toplensky at email@example.com