Can Europe Escape Gazprom's Energy Stranglehold?

No Secure Supply without Russia
Such interpretation can be found rather easily in official Russian media. State news agency Novosti offered the following explanation for the strategy and tactics of the state-owned Russian gas corporation: “During the assessment of any move by the corporation on the European market one should always bear in mind one crucial fact: Gazprom must finish construction of the Nord Stream 2 pipeline.”

The Novosti article straightforwardly recognizes that “Russia withholds its supplies” and not just with the aim of replenishing both corporation and public coffers. “The second — and no less important — aim is to accustom our Western partners to the obvious idea: guaranteeing their own security of supply is only possible in close partnership with Russia.”

It appears, at the moment, that Europe will, via Ukraine, only receive as much gas as stipulated in the Russian-Ukrainian five-year transit contract concluded at the end of 2019. For Gazprom, it makes no sense to provide less as the booked quantity must be paid completely either way. The corporation, however, also doesn’t want to book additional capacities at a much higher charge.

Political Pressure from Moscow in Favor of Nord Stream 2?
The contract, however, stipulates that during the first year, 2020, transit quantities should amount to 65 billion cubic meters, but that they are reduced thereafter, in 2021 to 2024, to 40 billion cubic meters annually, since Gazprom assumed at the time of signing that construction of Nord Stream 2 would be completed — which was thwarted by US sanctions.

This is what brings about the current situation: Europe receives, via Ukraine, significantly less gas than it likely will need. At the same time, Gazprom fulfills its contractual obligations by letting its European reservoirs run dry, and the corporation can afford itself extended maintenance service to both its pipelines into the EU.

Ultimately, all this could lead to a situation in which, at some point in autumn perhaps, Russia’s state-owned corporation tells the Europeans to choose between two alternatives: Either grant an operating license for Nord Stream 2 — construction of which will probably have been completed by then — with its capacity of 55 billion cubic meters very quickly, or face major gas supply problems during the winter as reservoirs are still half empty, and the Russian energy giant can choose not to increase gas deliveries through Ukraine.

Also at Stake: The Role of Natural Gas in Decarbonization
This scenario is supported by the fact that, during an auction on July 5, Gazprom did not want to book additional transit capacities in either Ukraine or Poland for one year in advance, arguing that this could still be done on a monthly or quarterly basis. This seems to be another clear signal that, from autumn 2021, the Russian state-owned corporation plans to service increased gas demand in Europe exclusively through its own new pipeline in the Baltic Sea.

For the time being, Heiko Lohmann, who has said, “It would be much more comfortable for Europe to have this pipeline,” does not believe that such an obvious attempt at blackmailing Europe is possible.

“Thus far, Gazprom has never really exerted pressure on its Western European buyer countries — at least, it has never become known,” he said. “If a precedent happened now, for the first time, this would have devastating consequences for Gazprom in the political debate.”

For if Gazprom actually began “to exert overt pressure” in autumn, this would enormously fuel an already heated debate in Europe about the short-, medium- and long-term role of gas within the framework of decarbonization and strengthen the position of all those who champion a much quicker withdrawal from using natural gas, Lohmann told DW.

Initially, though, Europe would have a serious supply problem.

Andrey Gurkov is Deutsche Welle’s economic analyst.This article is published courtesy of Deutsche Welle (DW).