OOne question dominates the energy industry: Will Vladimir Putin turn the tap back on? This week, Kremlin-controlled energy company Gazprom halted gas supplies through the Nord Stream 1 gas pipeline for maintenance until July 21, after already cutting production to less than 40% of capacity. Now there are growing fears that the Russian president is simply refusing to reactivate it.
This week, energy executives at the Aurora consultancy conference in Oxford were asked to vote on whether to return supplies. A forest of confident arms rose for ‘yes’, a similar amount for ‘no’. Only Putin knows the answer.
Fears for gas supplies led European nations to quickly fill their storage capacity ahead of winter. Andriy Yermak, chief of staff to Ukrainian President Volodymyr Zelenskiy, accused Russia of “gas blackmail”. By contrast, countries with closer ties to Russia, including Belarus and Turkey, saw little disruption.
Although Moscow has had a history of restricting gas flows to Europe in past disputes with Ukraine – including in 2005-06, 2009 and 2017 – many industry players had assumed that because the Kremlin had maintained supply throughout the Cold War, it would not resort to cutting off its largest market. However, Ben van Beurden, CEO of Shell, said this week that Putin has now shown “he is able and willing to weaponize supplies”.
The strategy has the apparent aim of weakening Kyiv’s allies and, potentially, turning nations against each other. This week, pro-Putin Hungarian Prime Minister Viktor Orbán said he would stop gas exports to his neighbors. The move undermines a settlement that mandated solidarity between European countries to prevent supply cuts seen after the 2017 Russia-Ukraine gas dispute.
Less gas sold in Europe means less money for the Kremlin’s war chest, and the EU has pledged to cut Russian imports by two-thirds by the end of the year on that basis. However, although EU leaders have agreed to a partial embargo on Russian oil, any outright ban on its gas seems unlikely given how many of its members depend on it. So which countries are most vulnerable to pressure from Putin as he turns the screw?
Europe’s economic powerhouse has been most exposed to the sudden shortage of Russian gas after the shutdown of Nord Stream 1, which runs from Vyborg, northwest of St Petersburg, under the sea to Germany’s Baltic coast.
German Economy Minister Robert Habeck says the Kremlin is using gas “as a weapon” and admits his country has made a “serious political mistake” by becoming too dependent on Russian supplies. Germany imported 59.2 billion cubic meters of gas via Nord Stream 1 in 2021 and had hoped to double that via a new sister pipeline, Nord Stream 2, but suspended those plans days before the invasion of Ukraine. .
Germany has hastily attempted to wean itself off Russian gas to distance itself from Putin since the war. Meanwhile, Gazprom cut supplies through Nord Stream 1 to 40% capacity in mid-June. As a result, Germany’s dependence on Russian gas has fallen from 55% of total consumption to 35% since the war. But the government has always been forced to declare a gas crisis, asking industrial users to reduce their consumption and encouraging councils to turn off traffic lights at night, reduce the use of air conditioning and stop lighting the historic buildings.
Investors are the most pessimistic about the German economy since the throes of the eurozone debt crisis in 2011, fearing it could slide into recession.
Italians are currently battling a heat wave, but staying warm this winter remains a priority in a country with the oldest population in Europe. Russian gas imports accounted for 18% of pre-war consumption in Ukraine and are largely transported via the Trans Austria gas pipeline.
Energy group Eni said this week that Gazprom would cut deliveries to Italy by a third, on top of cuts of 60% since the outbreak of the war. Confindustria, the association representing Italian industries, said a complete shutdown could see its GDP fall by 2%. Rising bond yields indicate that markets are increasingly concerned about the country’s ability to repay its huge debts.
Gas storage sites in Italy are now around 60% full and plans have been launched to ask consumers to turn down their heating this winter and spend less time showering.
SPP, the main Slovak gas importer, gets most of its gas from Russia and even Zelenskiy acknowledges that the Slovaks cannot immediately cut off this source. SSP managed to increase imports of liquefied natural gas (LNG) from Norway and other countries until the end of the year. A new Polish-Slovak interconnection pipeline, which is expected to open later this year, is also being tested.
Austria receives 80% of its gas from Russia and its storage depots only cover 39% of its annual needs. The government has pledged to spend 6.6 billion euros to build up reserves, although Haidach, one of Europe’s largest underground gas reservoirs, is unlikely to be filled due to tensions between its co-owners – a German and Austrian company and Gazprom.
The Dutch Energy Ministry said the country had successfully met its goal of ending its need for Russian gas for domestic use. However, as a huge storage and transport hub, it could be hit by reduced flows. In May, Gazprom cut off gas supplies from Dutch company GasTerra after it refused to meet Kremlin demands that all gas be paid for in roubles.
France is less dependent than some of its neighbors on Russia, which supplies it with around 17% of its gas. But replacing power generation is complicated by the fact that many French nuclear power plants, which could have taken over, are out of service for maintenance and repair. Russia briefly cut off supplies to France in June and Paris finance minister Bruno Le Maire this week described a Russian gas cut as the “most likely scenario”.
He said the country would initially ask households and businesses to reduce their energy consumption, then later consider building new infrastructure such as a floating LNG plant. French tire giant Michelin said it had converted its boilers to ensure they are capable of running on both oil and gas.
Spanish Prime Minister Pedro Sánchez is facing geopolitical tensions over the country’s gas supply on all fronts. Its decision to support Morocco in a dispute over Western Sahara has led to a reduction in gas flows from Algeria, which has now been overtaken by Russia as Spain’s second largest supplier, behind the United States. . The Russian supply consists entirely of LNG while the Algerian gas is largely routed to Spain.
Sanchez spoke of Spain’s existing facilities – the country accounts for 37% of EU regasification capacity, where LNG is converted back into natural gas – and could therefore increase exports to the rest of Europe. Spain and neighboring Portugal have also introduced a temporary cap on the wholesale gas price.
Russia cut off Poland and Bulgaria in late April after refusing to comply with its demands to pay in roubles. Poland had received about half of its gas from Russia, with 9.9 billion cubic meters of the 20 billion it uses per year via the Yamal gas pipeline. However, it depends on coal for most of its electricity and has already filled its gas storage sites.
A 1996 contract with Gazprom was due to end this year and Poland had no intention of renewing it. Tom Marzec-Manser, head of gas analysis at consultancy ICIS, said: “Poland is not in a bad position because it has not trusted Russia for many years. It started this conversation about security of energy supply much earlier than other countries.