Gas supplies to Europe key factor in Ukraine crisis
The current crisis in Ukraine has highlighted Europe's heavy energy dependence on Russia. Even if the EU prefers to follow Washington's foreign policy towards Moscow, it is undeniable that in the event of a confrontation the big loser would be Europe. In the midst of a serious energy crisis, the continent could be left without Russian gas supplies; not only because Russia might decide to suspend supplies, something that some analysts rule out, but also because, as Brussels and Washington have announced, sanctions would affect trade and economic relations with Russian companies, such as the energy giant Gazprom.
The Russian state-owned company is the main supplier of gas to Europe. According to figures from the European Statistical Office (Eurostat), in recent years three quarters of the gas imported by EU countries has come from the Russian company. According to Statista data collected by NIUS, while in some countries such as Spain or the Netherlands the supply of Russian gas does not exceed 11%, others such as Finland or Latvia import more than 90%. This is the predominant trend among Central and Eastern European countries.
If there is one European country that stands out in this respect, however, it is Germany. The nation, which imports more than half of its supplies from Russia, has been described by the Frankfurter Allgemeine Zeitung as 'Gazprom's main customer'. For this reason, Berlin's stance on some issues vis-à-vis Russia has differed from those of its European and US allies. For example, in the case of the Nord Stream 2 pipeline. This project, in addition to benefiting Russia, also benefits Germany and several national companies, such as Uniper and Wintershall DEA, investors in the project.
Despite the German government's suspension of the certification process for the pipeline, the project has sparked controversy between Germany and the United States. Berlin went so far as to call the sanctions imposed by former President Donald Trump on Nord Stream 2 "interference". The issue surrounding Nord Stream 2 also creates divisions within Germany. While the Ministry of Defence argues that the pipeline should be separated from the dispute in Ukraine, the Ministry of European Affairs argues that the project should not be approved because of Russian actions on the border.
Germany is also pursuing a different policy from its partners in the current NATO-Moscow crisis. Chancellor Olaf Scholz has decided not to send arms directly to Ukraine, which has provoked criticism from Kiev.
Despite Gazprom's importance to European energy, the company has been the target of sanctions by Western countries. The administration of former US president Barack Obama chose to penalise the company, in addition to sanctioning its oil subsidiary, Gazprom Neft. Poland, a European country that receives at least 50% of Russian gas, according to data from the Polish Electricity Grid Company (PGE), also decided to penalise Gazprom in 2020 with a fine of 6.5 billion euros for the construction of the controversial Nord Stream 2 gas pipeline. The Polish Competition and Consumer Protection Office considered that this project could violate free competition.
Warsaw is one of the main detractors of Nord Stream 2 as the country's authorities seek to reduce its dependence on Russian gas. In this regard, Polish gas company PGNiG expects not to have to buy any more Russian gas after 2022, when its long-term agreement with Gazprom ends. "We assume that after 2022 we will not be forced to buy gas from Gazprom. This is our strategy. That is why we are diversifying gas supplies to Poland, to ensure energy security," Pawel Majewski, the company's chief executive, told Reuters news agency. Regarding Nord Stream 2, Majewski said that if it starts operating, it must operate "in accordance with European law". Another pipeline, Yamal-Europe, which also runs through Belarus and Germany, passes through Poland. Nord Stream, on the other hand, runs through the Baltic Sea to Germany's northern coast.
With the aim of reducing Russian energy supplies, Poland has begun to establish trade relations with countries in the Persian Gulf, such as Qatar and Saudi Arabia. With Riyadh, Warsaw has signed an agreement whereby Saudi state-owned Aramco will acquire a 30 per cent stake in Poland's second largest oil refinery in the Baltic city of Gdansk. The Saudi company will increase the Polish refinery's oil supplies to between 200,000 and 337,000 barrels per day.
On the other hand, Doha has become one of Poland's main gas suppliers. Through an agreement between PGNiG and Qatargas, the Qatari energy company will supply the European country with one million tonnes of gas until 2034. Both companies have continued to strengthen this cooperation. In 2017 Qatargas agreed to increase the volumes of liquefied natural gas (LNG) it supplies to the Polish company to 2 million tonnes. Maciej Woźniak, Deputy Chairman of the Board of Directors for Business Affairs, referred to this agreement as "Qatargas' biggest contract in Europe".
Qatar has also become the main alternative to Russian gas for other countries. Joe Biden will meet with Emir Tamim bin Hamad Al Thani in Washington later this month to discuss shipping Qatari liquefied gas to Europe in the event of a conflict with Russia. "The United States has pledged to support Europe if there are energy shortages due to conflict or sanctions," a senior State Department official told Reuters.
However, several media outlets have pointed to the possibility that Qatar may not be able to cope with Europe's gas supply. As reported by Al-Arabiya News, several experts have warned that the volumes of liquefied gas that may be shipped to Europe by some Qatari companies, mentioning Qatar Energy in particular, would be too small to make much of a difference. Also, according to Bloomberg, Qatar has only shipped six cargoes of gas to northeastern Europe since mid-December, while the US sent 42 during the same period.
Most of Qatar's cargoes are sent to Asia, where Doha has agreements that it cannot suspend. Asian countries such as Japan, South Korea and India account for 75% of Qatari gas exports, according to 2020 figures from Qatar's national statistical authority (PSA). The rest is exported to Europe and Latin America.
The Qatari authorities have also warned about the situation. Saad al-Kaabi, Qatar's energy minister, said last October that the country could not pump more gas to help mitigate prices that rose last year due to the coronavirus pandemic. "We are producing at maximum capacity. We are producing as much as we can," he said. In this context, as Ashraq Business reports, Doha is spending around $30 billion to increase its production capacity by 50 per cent, but this project will not be completed for another five years.
Europe began receiving Russian natural gas in the 1970s, during the Soviet era. Thane Gustafson, an expert on Russian politics, notes in his book Kimat that even at the height of the Cold War, Moscow did not shut off gas exports. On the other hand, during the Ukraine-Russia gas dispute in 2009, the flow of gas through Ukraine was only interrupted, and only briefly.
If current tensions between NATO and Russia do not escalate and the EU does not pass economic sanctions, Moscow is not planning to curb gas supplies to Europe. Gregor Pett, executive vice president for market analysis at Uniper, a German energy company, explained in a recent interview that Russia seeks to maintain its reputation as a stable gas supplier. He also points out that gas exports are an important economic factor in the country.
Even when Belarusian President Alexander Lukashenko threatened to stop gas supplies to Europe during the migration crisis, Putin pointed out that such a decision would be a violation of the gas transit agreement. In addition, the Russian president opted to increase gas supplies via the Yamal-Europe pipeline. According to the TASS news agency, the gas volume rose to 860,000 cubic metres per hour, up from 360,000 cubic metres per hour previously.
However, if Russia is disconnected from the SWIFT international payment system, Europe will not receive oil and gas, as Nikolay Zhuravlev, deputy chairman of the Federation Council (Russia's upper house of parliament) warned. "If Russia disconnects from SWIFT, we will not receive foreign currencies. The buyers, European countries in the first place, will not receive our products: oil, gas, metals and other important components of their imports," Zhuravlev told TASS. This possibility was raised during the summit between European foreign ministers and Antony Blinken, although a group of countries led by Germany rejected the proposal.
