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The writer is professor of political economy at the University of Cambridge and author of ‘Disorder: Hard Times in the 21st Century’
The assumption that Europe could not forsake Russian natural gas did much to inhibit the EU and US’s ability to support Ukraine from the moment of Moscow’s annexation of Crimea in 2014. The first months after Russia’s invasion in February 2022 did little to challenge this supposition.
Although Ursula von der Leyen, president of the European Commission, promised that the EU would phase out Russian imports by 2027, there were no sanctions on Russian gas exports until December 2023. Emboldened, Vladimir Putin ordered Gazprom, the state-run monopoly, to reduce supply from June 2022, forcing the EU into an emergency plan to cut gas consumption by 15 per cent by March last year.
A year on, the EU has ended the winter season with a record volume of stored gas. Prices, meanwhile, are back to the level before they began to soar in the second half of 2021. Undoubtedly, Europe has benefited from the good fortune of two mild winters, unlike Japan where several power plants have been shut down to avoid gas shortages elsewhere. But much of the continent has foregone pipelined Russian gas and reduced demand by a fifth without anything like the social and political upheaval once feared in European capitals.
Gas dependency has not proved to be the weapon Putin envisaged during the mid-2010s when he sought to control central and southern Europe by reconfiguring transit from the second Nord Stream pipeline under the Baltic Sea to TurkStream under the Black Sea. For Russia, Europe’s resilience has been a geopolitical disaster since, unlike with oil, Gazprom cannot replace European customers with Asian ones. The west Siberian fields are not set up to deliver liquefied natural gas exports and only China has a pipeline in the region.
For Europe, success simultaneously reflects strength and weakness. European companies’ sheer ability to pay secured new contracts as well as spot purchases from the US and Qatar. While Asian emerging market demand slumps on price increases, European companies will pay whatever is required. Here, a comparison with China is instructive. In the second half of 2021, a surge in Chinese imports dramatically drove up LNG prices for European countries. But when Europe wanted much more LNG in 2022, Chinese demand slumped. And while it recovered last year, China still procured less than in 2021.
By contrast, reducing gas consumption has delivered an industrial shock to Europe. Home to the EU’s most gas-intensive sectors, Germany saw a 24 per cent drop in industrial gas consumption between 2021 and 2023. Now, output for the entire EU manufacturing sector has fallen for the final two quarters of last year. Producing fewer goods with gas feedstock inside the EU also has geopolitical consequences: a significant volume of the nitrogen fertilisers that come into Europe arrive from Russia.
Europe’s present gas security at lower consumption relies on the American victory over Russia in the competition for the European gas market. This began with the shale boom when the EU was rich enough to be the principal site of the contest between the world’s two energy superpowers. Now Russia has been left with Hungary, Austria, the Czech Republic and Slovakia, and exports to all but Hungary are threatened by the end, in December this year, of transit through Ukraine.
Yet Europe’s large-scale shift to LNG in a world where Asian countries wish to use more gas has necessarily opened a new round in this near-decade-old competition. The US retains huge advantages. In 2023, it was the world’s biggest LNG exporter with 80 per cent of the additional supply on the market last year coming from its ports. Nonetheless, Russian LNG imports to the EU rose by 38 per cent between 2021 and 2023, replacing about 10 per cent of the lost Siberian supply with gas from the Arctic.
Europe is still exposed to Russian ambition. The Biden administration has paused licences for new LNG export projects. This may not last: the restriction is under legal challenge in Louisiana from 16 states, and this month has become entangled in the impasse in the House of Representatives on a vote on military aid to Ukraine. But the conflicts around American LNG reflect the fact that the ability of US energy companies to export is always subject to contested domestic politics. While expanding oil and gas markets is an unequivocal reason of state for Putin, it is not in Washington. In the ensuing uncertainty, the EU has found only respite from, not a remedy for, the geopolitical vulnerabilities formed by its foreign gas dependency.