To Be or Not to Be? Russian Gas Issue Leads to Divisions Within EU

The empirical rule, suggested by Italian economist Vilfredo Pareto, states that 20% of efforts produce 80% of the result, and the other 80% of efforts produce only 20% of the result. This rule characterizes with surprising accuracy the efforts of the European Union to implement the course of complete cessation of natural gas consumption from Russia. The first 20% of efforts have been effective, and EU consumption of Russian gas has fallen nearly fivefold compared to 2021. But then, according to the new European Commissioner for Energy, Dan Jorgensen, the EU started moving “in the wrong direction,” namely increased imports of Russian gas. For example, according to the European Commission’s latest quarterly review, in the third quarter of 2024, 20% of gas imported by the EU was of Russian origin. It included 8.4 billion cubic meters (bcm) of pipeline gas and 4.3 bcm of LNG. Compared to the third quarter of last year, the increase was 20% for pipeline gas and 27% for LNG. As of mid-December, Europe had imported a record 16.5 million tons of Russian LNG, up from last year’s imports of 15.18 million tons, according to Kpler experts.

Jorgensen, in his first interview, promised to redirect the EU in the right direction and announced a roadmap to resolve the issue. He is committed to implementing his plan, which focuses “primarily on gas,” within the first 100 days of taking office. The Commissioner did not specify what exactly he was going to do. But clearly there will be no easy solutions: opposition to the plan from individual countries and the energy business in the EU itself is growing.

Since the approval in March 2022 of the REpowerEU strategy to rid the EU of Russian energy by 2027, it has not received absolute support from all EU member states. Opponents of this strategy have been particularly vocal among natural gas consumers. This is why, unlike oil, there is still no direct legislative ban on gas imports from Russia in the EU. The only restriction at the moment is a ban on re-exporting LNG from Russia delivered by ice-class ships from the EU outside its borders. Europeans’ purchases of LNG are also restricted by extraterritorial US sanctions on the products of some Russian LNG plants, as well as problems with payments for Russian gas imposed again by the USA.

From the very beginning of the “existential” battle with Russian energy sources, two EU countries, Hungary and Slovakia, have acted as gas dissidents. The divergence of positions between the European Commission and these countries, which, incidentally, are categorized as “unfriendly countries” in Russia itself, was determined by practical considerations. These countries, which are not the richest in the European Commonwealth and have no direct access to the sea or LNG terminals, have no other source of natural gas comparable to Russia’s in price and volume. However, the events of December 2024 showed that the number of supporters of natural gas from Russia is not limited to Hungary and Slovakia.

For example, in December, one of the items in the final draft of the election program of the party gaining strength in Germany, Alternative for Germany (AfD), was the resumption of trade relations with Russia in the energy sector. Party officials say that “Russia is a supplier of cheap gas, trade with which must resume.” Against the backdrop of declining living standards for Germans due to rising energy prices and accelerating deindustrialization of the country, this agenda item will bring the AfD many additional votes.

While on an official level the German Ministry for Economic Affairs and Climate Action is strongly opposed to importing Russian natural gas in any form, it recognizes that it is unable to keep track of all LNG entering the country, especially if that gas comes in regasified form from other EU countries via pipelines. The head of the German gas company Uniper admitted in 2023 in this regard that ships carrying Russian gas are still unloaded at German LNG terminals. And according to the Financial Times, in November 2024, the German Ministry for Economic Affairs and Climate Action still had to step in and demand that Deutsche Energie Terminal, which operates four LNG terminals in Germany, not accept any LNG deliveries from Russia until further notice. This came after the company, for whatever reason, notified authorities that it planned to unload a Russian tanker at Brunsbüttel on November 17. The ministry emphasized that the rejection of LNG from Russia is necessary “to protect state interests.” It would be strange if Deutsche Energie Terminal received any other response from German officials. As a result, the methane carrier unloaded in a neighboring country.

In the midst of the semi-explicit German connivance with Russian LNG supplies, which the British newspaper could not fail to notice, the statement by Italian Energy Minister Gilberto Pichetto Fratin, made on December 13, can be viewed as a challenge to the Brussels mainstream. The minister said that he did not rule out resuming gas imports from Russia after the end of the war in Ukraine. The difference between this position and the REpowerEU strategy is that the latter does not envisage a return to gas imports from Russia under any conditions. The rationale for the Minister’s position is as follows: Italy is desperately trying to reduce the cost of electricity. So far, nothing can be thought of except the construction of nuclear power plants and a return to Russian gas purchases. Indeed, for Italy, two-thirds of whose gas is burned in power plants, its high price is a serious problem. In mid-December, Italy’s natural gas price was the highest in Europe. The price premium compared to prices in northwest Europe reached 50 euros per thousand cubic meters. Natural gas demand in Italy in the first half of December amounted to 270 million cubic meters per day, which is 8% higher than the demand for the same period last year due to consumption by power plants.

The evolution of the views of Fratin and his entourage is notable because a year earlier the minister proudly reported that Italy had managed to reduce its dependence on Russian gas from 40 percent to a paltry few percent. If the option of returning to nuclear power looks like a baseless fantasy, importing Russian natural gas is a realistic way to reduce electricity prices. It may be pure coincidence, but a few days after Fratin’s announcement, on December 17, the first LNG vessel from Russia after March 3, 2023, namely the tanker Cool Rower with 155,000 cubic meters of liquefied natural gas, docked at Italy’s Tuscany terminal. What is surprising, however, is that Fratin’s ministry is part of the cabinet of Prime Minister Georgia Meloni, who is a strong supporter of the latest 16th package of anti-Russian sanctions. This package would presumably include sanctions against LNG from Russia.

The approaching deadline for the expiration of the contract for the transportation of Russian gas through Ukraine at the end of 2024 became the reason for the first protest action in the EU for the preservation of Russian gas supplies, which questioned the European Commission’s course of refusing such supplies. Central Europe’s leading energy companies sent a letter to EU head Ursula von der Leyen on December 17, asking her to facilitate the extension of the deal on Russian gas transit through Ukraine. The unfinalized version of the letter, seen by Politico magazine, also mentioned Czech, German, and Ukrainian energy companies. The Moldovan Moldovagaz also signed this version of the letter. The leaders of the countries whose companies withdrew their signatures from the official version of the letter apparently decided not to enter into an open conflict with the European Commission. However, the position of energy companies from non-signatory countries is more than obvious.

In this letter, gas supply companies, network operators, and industrial consumer associations from Hungary, Slovakia, Austria, and Italy stated that the complete reorientation of European gas flows from east to west has not been tested, and the cold winter weather conditions pose significant risks to energy security with corresponding socio-economic consequences. According to the letter, continued transit through Ukraine “will contribute to maintaining low gas prices and industrial competitiveness in the region that includes Austria, Hungary, Italy, and Slovakia.” Despite opposition from political circles, energy companies in Austria and Italy were able to convey their position to the EC. Among the signatories on the Italian side is the Società Concortile “Gas Intensive,” an association of the largest industrial consumers of natural gas.

To summarize the essence of this memorandum in a few words, its authors believe that, unlike the European Commission, the existential issue for them is not the rejection of natural gas from Russia, but, on the contrary, its preservation in the energy balance.

The content of the letter is in clear contradiction with the position of European Commission chief Ursula von der Leyen, who said in November that pushing Russian natural gas out of the European market and relying on American LNG would help lower energy prices in Europe. There is no need to prove that this statement of the head of the European Commission represents a “new word” in economic science, as it was previously believed that limiting the number of suppliers leads to the exact opposite results. However, modern European liberal political elites are characterized by an unwillingness to see what does not fit into the ideological picture of the world they have created. And this picture increasingly falls out of sync with reality the further it goes.

The coming year of 2025 is indeed not the right time to experiment with the removal of 14 billion cubic meters of Russian gas from the European energy balance. EU natural gas consumption has stabilized in 2024 and will start to grow next year, according to IEA estimates. The EU’s own production is steadily declining. There will not be enough additional LNG volumes on the market to replace Russian gas in the European market for at least the next year and a half to two years. The last two winters in the Northern Hemisphere have been exceptionally mild, balancing the world’s natural gas markets. However, temperatures in Europe and Asia are likely to be lower this autumn and winter season due to the La Niña effect. This will create competition for spot LNG supplies between Europe and Asia and increased demand in the market. In addition, colder weather in the USA could lead to a drawdown in US storage inventories. European energy companies are particularly concerned about rapidly depleting natural gas reserves in their own underground storage facilities. According to GIE, the peak inventory level was 95.3% as of October 28, while inventories fell to 76.7% as of December 18. On the same date a year earlier, the UGSF was 88.2% full.

The European Commission’s reaction to the letter from Central European energy companies was predictable. A positive response to the requests of these companies by the EC leadership is impossible, as it would be contrary to its underlying geopolitical goals. The supporters of preserving the transit of Russian gas through Ukraine were persistently indoctrinated with the idea that they could do without Russian gas. What would be the price of its replacement for EU consumers is not Ursula von der Leyen’s or Dan Jorgensen’s problem. The EC’s attitude towards the countries that depend on Russian gas can be generally expressed as follows: “If we follow the requirements of the buyers of gas from the Russian Federation, they will never give it up. It may require sacrifices on their part, but there is no other way out.”

Finding itself in a difficult situation and unwilling to abandon its priorities, the EC rushed to blame Ukraine for the transit interruption. Vladimir Zelensky was entrusted with delivering the unpleasant truth about the termination of Russian gas transit through Ukraine to the leaders of European countries, who gathered in Brussels on December 19. He drew the final line in the fate of Ukrainian transit. He said that for Ukraine any form of substitution of Russian gas for gas of another owner is unacceptable if it continues to finance “the aggressor.” It should be noted that for many months Ukraine has been instilling false hope in buyers of Russian gas that if this gas is re-purchased by another supplier, for example, Azerbaijan, transit of such “non-Russian” gas could be continued. It was no secret that no supplier to Europe from the east has 14 billion cubic meters of gas available to send via the Ukrainian route to Europe. So, why did Ukraine delay until December 19 to principally clarify its position?

The fact is that the decision to stop transit on January 1, 2025, as well as the refusal to provide gas transit services through one of the delivery points in the Russian Federation (Sohranivka) starting May 2022, was imposed by the European Commission on Ukraine. The Ukrainian side apparently hoped until the last moment that transit would be preserved and it would not have to demonstrate its excessive principledness in this matter. The fact is that maintaining transit was extremely important for the functioning of Ukraine’s gas transportation system. Refusal of such transit is fraught with the collapse of the entire Ukrainian GTS.

It was also not in Ukraine’s interest to have a conflict with the countries for which the termination of transit could create serious problems with energy security and deprive them of additional revenues from transit to Europe. This included Slovakia, through which Russian gas flows to Austria. Ukraine, by the way, has offered its own solution to preserve transit. Slovakia did not have to pay Russia until the end of hostilities. Slovakia naturally refused such an offer and said that it reserved the right to consider measures in response to the damage to Slovak economic interests, including the suspension of electricity exports to Ukraine and humanitarian aid.

It was hardly in Ukraine’s interest to take responsibility for a possible humanitarian catastrophe in Transnistria, which receives Russian gas via the Ukrainian route. The alternative route of gas transportation to Transnistria via the Trans-Balkan gas pipeline also passes through the territory of Ukraine, and Zelensky’s statement about categorical refusal to transport gas of “occupants” leaves no chance to use this alternative route.

It is inconceivable that politicians in Ukraine would be capable of unilaterally taking steps that posed even the slightest threat to the energy supply of the European continent. They could only decide to do so after receiving appropriate instructions from the EU, down to step-by-step instructions. Deviations from the written scenario were not allowed because of the threat of being an outcast in Europe and forever losing the possibility of integration with the “civilized community.”

I would like to emphasize once again that the decision to stop transit was not a sovereign decision of Ukraine, it was imposed on it by the European Commission. Whether it was an emotional impromptu decision or a whim on the Ukrainian side, as it may have seemed from the outside, the EU was very quick to quash any threats to the energy security of its members.

Thus, the European Commission leadership, having persuaded Ukraine to stop the transit of Russian gas, has achieved its goals of restricting the flow of Russian energy goods into the EU, leaving the role of the “scapegoat” to Zelensky and his team. Ukraine’s energy security has been dealt a serious blow. But an equally serious blow has been dealt to the unity within the European Union. The main events are still to come.