The EU’s natural gas troubles won’t end after ditching Russia
July 21, 2022
- When Russian energy giant Gazprom shut off the Nord Stream 1 natural gas pipeline for routine summer maintenance last week, Germany and the rest of the EU feared that Russian President Vladimir Putin would refuse to turn the tap back on as a way of punishing the West for sanctions against Russia.
The jitters dissipated somewhat when Nordstream went back online Thursday, albeit at 40% capacity. But Berlin and other European capitals still worry that if things go south, they’ll need to ration gas at the worst possible time: when they need it to keep homes warm during the winter. European Commission President Ursula von der Leyen is urging EU members to ration natural gas by 15% through next March to prepare for a likely future cut in supply.
- The Europeans have long realized that over-depending on (and over-investing in) a single energy source makes them geopolitically vulnerable. But cutting off Russia and turning to the Middle East and North Africa will be anything but smooth sailing.
Lands (and waters) of opportunity. Recent data show that in 2021 North Africa sat on 620 trillion cubic feet of natural gas, with Algeria already one of Europe’s top five suppliers.
Recently discovered offshore gas fields in the eastern Mediterranean hold an estimated two trillion cubic meters in Israeli waters. Not to mention Qatar, the world’s no. 1 liquified natural gas producer (LNG is easier to transport by sea) that’s eager to do more business with Europe.
That’s good news for the EU, which last year imported a whopping 40% of its gas from Russia.
European leaders are wasting no time. Outgoing Italian PM Mario Draghi signed a deal on Monday with Algerian President Abdelmadjid Tebboune for the Maghreb country to become Italy’s top gas supplier.
And in the last few weeks, Qatar agreed to increase LNG exports to Germany, while the EU inked a trilateral agreement with Egypt and Israel to deliver LNG from Israel’s offshore fields (via Egyptian facilities).
Europe seems to think: “Get this, Vladimir — we’re gonna cut you off, turn south and import more gas than ever before.” Easy, right? Not really.
Diversification tradeoffs. Europe buying more gas from North Africa and the Middle East commits dozens of countries to extraction, processing, storing, and delivery.
One might say that multiple suppliers carry more risks. But it’s also true that by diversifying its gas sources, Europe exposes itself to “less single points of failure,” says Raad Alkadiri, Eurasia Group’s top energy expert. “That gives those sources of gas less leverage, and it also means that disruption in one area doesn’t get magnified.”
However, there’s no such thing as a risk-free energy supply.
- What’s more, “all energy is political,” Alkadiri notes. So, when Europe plans to decouple from Russian gas, in a sense it’s “jumping out of the frying pan and into the fire.”
This time, the Europeans claim, it’ll be different. Europe’s new gas policy will be susceptible to different — and less purely political — risks than those stemming from an aggressive Russia. Those are mainly infrastructure investment and contractual security.
“The biggest immediate challenge is creating the right infrastructure to allow that movement to take place,” Alkadiri says. That means not only investing big in places like North and Western Africa as well in the eastern Mediterranean but also building expensive facilities in Europe to manage gas, particularly if it’s LNG.
And although Europe will drag its feet into those projects, Alkadiri maintains that “it has a political incentive, an energy security incentive, to make them in the short term.”
The climate conundrum. Another big headache will be that Europe’s future climate plans — achieving net zero emissions by 2050 — collide with those of its new gas partners. Europeans understandably are reluctant to sign contracts that require them to continue importing fossil fuels in the distant future.
- “Europe isn’t looking to replace all Russian gas for the next 20 years,” Alkadiri notes. “What it’s looking to do is to replace enough Russian gas for the next 10 years so that its very ambitious decarbonization agenda can be achieved.”
The gas-exporting nations Europe is turning to now to replace Russian supplies know that time is not on their side.
“There’s a tension between the short-term need for gas prices and Europe’s longer-term energy transition,” says Ben Cahill, a senior fellow at the Center for Strategic and International Studies.
Yet “it’s very difficult to compete for energy supplies on the market unless you sign a long-term contract because we have got a very tight energy market, elevated prices, and buyers who are scrambling for gas,” he adds.
Concessions across the board. Europe won’t approach all exporting countries in the same way and vice versa.
For example, Qatar has much more leverage on the negotiating table due to its unique ability to deliver high volumes of LNG fast. Doha will thus squeeze profits while it can and request that Europe sign longer-than-wanted deals. After all, Asian buyers are just around the corner.
But with non-established players in gas markets, including many African nations, shorter contracts are more likely. Unfortunately, that also means that those countries have less incentive to invest in facilities and supply chain security — which, in turn, opens the door to future supply disruptions.
It’s a risk that Europe is unable to calibrate but feels forced to take.
Unrealistic outlook. “The idea that Europe can secure gas supplies just up until the year 2030, and then diversify away quickly, is not a very realistic way of procuring gas supplies,” Cahill says.
Indeed, Europe’s energy plans are “predicated on absolutely everything falling into place at the right time, and that rarely happens in the market,” Alkadiri concludes.
It’s a less enjoyable position than expected for the Europeans, who are noticing that decoupling from Russian gas might open a Pandora’s box of many more problems down the line than heating houses for the next few winters.