When Victory is Akin to Defeat

But the European Commission is not going to stop there; by 2027, any import of natural gas from the Russian Federation must be stopped. The simplest way to “cancel” Russian gas would be prohibitive sanctions, as was done with oil, but this is not yet possible due to the opposition of the countries that have not found alternative suppliers.

However, as shown by the sabotage of the Nord Stream 1 and 2 gas pipelines, all means are good to achieve such an important goal. After 2024, Ukraine promises to close its pipelines for transporting Russian gas, which is the direction where the bulk of gas flows to the EU. In this case, the only route left for the Russian Federation will be supplies to the EU through Turkey. But this is where Bulgaria got involved in solving an important geopolitical problem, and this year, in violation of all the rules, it introduced a discriminatory prohibitive duty on the transportation of gas originated from Russia.

Notably, the policy of reducing dependence on Russian pipeline gas has a long history in the EU. It coincided with the arrival of the Atlanticists in the leadership of the European Union in 2004. Twice, in 2005 and 2009, when pro-Western politicians were in power in Ukraine, they initiated crises with gas supplies from the Russian Federation, the purpose of which was to discredit the reliability of gas from the east. Bulgaria did not stand aside even then. It showed itself in 2014, when, out of Euro-solidarity, at the last moment it refused to accept the Russian gas pipeline South Stream on its territory, forcing it to become Turkish Stream as a result.

Nevertheless, attempts to reduce dependence on pipeline gas from the Russian Federation without resorting to radical measures have had no effect. Imports of pipeline gas to Europe in general and to the EU continued to grow, especially after the introduction of sanctions against the Russian Federation in 2014 (see Fig. 1 below), as buyers of Russian gas did not take seriously the horror stories of Euro-Atlanticists, according to which Russia is using it as a political weapon. There is no doubt that these buyers did not need pseudo-protection from the actions of the dominant supplier, given the reliability, price level, and predictability of supplies.

Many clients of PJSC Gazprom, not to mention numerous new contenders for this role, are ready to return to their previous relationships, especially since the Russian Federation impeccably fulfills its contractual obligations. This is evidenced by the increased demand for Russian LNG, which is not subject to restrictions typical for export gas pipelines. While in 2021 the European Union purchased 13.5 billion cubic meters of LNG from Russia, in 2022 it was already 18.5 billion, and in the three quarters of 2023 it amounted to 14 billion. To ensure that the volumes of liquefied gas from the Russian Federation do not exceed supplies through pipelines, the USA showed concern for European buyers and hastened to impose sanctions against the LNG plant under construction in Russia.

The abrupt rejection of Russian gas in such huge volumes could not but have serious consequences for all parties. The consequences of this are yet to be assessed. But some conclusions can be drawn now.

To begin with, the substantive meaning of the REPowerEU document was not concern for the energy security of European customers. In reality, this security has become an issue that has eclipsed all others just now. The goal of the gas fighters was to deal a painful blow to the Russian economy. This knockout blow, along with others, should have deprived it of important export revenues and provoked discontent in the country. Which should have led to a change of Putin’s “regime”. This never happened. The “regime” in Russia has only strengthened, which cannot be said about the positions of traditional political parties in the EU. Let’s compare 70% of public support for Putin and 17% for Scholz. The Russian economy, despite the hostilities, is showing strong growth against the backdrop of fading economic growth rates in the EU.

Gazprom, the national gas champion, having lost the European gas market, found itself in a difficult situation, losing 44% of net profit for 9 months of 2023. However, the company is actively reorienting its export activities to other markets. China’s exports via the Power of Siberia gas pipeline will increase by 43% to 22 billion cubic meters in 2023, and next year 38 billion cubic meters will be sent to the Celestial Empire. Gazprom began exporting gas to the countries of the former Soviet Union, which became net importers. So, Uzbekistan will receive about 3 billion cubic meters per year. The loss of the European market will have to be compensated by increasing regulated domestic prices. But their growth of 9% since March 2024 is incomparable with the jump in domestic prices on the European gas market.

A direct consequence of the victory over Russian pipeline gas was the aggravation of the energy crisis in Europe. It should be particularly emphasized that we are talking about the aggravation of the crisis. The crisis declared itself immediately after the EU economy emerged from the pandemic, even before the total “rejection” of energy resources from the Russian Federation. It was the surge in post-covid demand for energy resources that revealed their shortage. This shortage became a manifestation of the chronic underfunding of global oil and gas since the mid-2010s due to its classification as a “planet killer.” In addition, the rise in energy prices was influenced by the uncontrolled emission of money that unfolded during the pandemic. This resulted in unprecedented inflation.

In this regard, the attempts of the European Commission to blame the causes of the crisis on “Putin’s unmotivated aggression against Ukraine” only cause bewilderment. Straining all analytical abilities, I can only see the cause-and-effect relationship between the energy crisis and “unmotivated aggression” in the fact that it became an excellent opportunity to solve the problem of dependence on Russian gas using methods that previously could not be applied while remaining within the legal framework.

The loss of a key supplier in just a few months has caused natural gas prices in Europe to increase, in some cases by multiples, compared to previous periods. The average price of a month-ahead contract on TTF for 2022 jumped one and a half times to $1,400 per thousand cubic meters against the already heated prices in 2021.

The EU’s costs for protecting consumers (businesses and households) from its own anti-Russian sanctions exceeded 500 billion euros and will reach 1 trillion euros (!) by the end of 2023. Through multi-billion-dollar injections from budgets and rising interest rates, the EU managed to extinguish the most acute manifestations of the energy crisis. However, prices currently remain at levels significantly higher than before the pandemic, at the beginning of December, about $500 per thousand cubic meters.

Protecting consumers from high energy prices will become more difficult next year. Thus, in Germany, no such funds will be allocated from the budget in 2024. Climate changes, namely abnormally warm weather in the autumn-winter period in Europe over the past two years, have not created problems, aside from price-related, with the supply of natural gas to the household sector. But there is another explanation for this.

According to the International Energy Agency (IEA), from August 2022 to August 2023, natural gas imports in European OECD countries decreased by 20%, and domestic production by 11%. The price for rejecting Russian gas supplies to Europe was the forced curtailment of key gas-intensive industries, which affected economic growth and de facto created a threat of their relocation to the USA and Asia.

The paradox of the situation is that the EU countries, which abandoned pipeline gas under the slogan of reducing dependence on Russia, continue to work for Putin, this time becoming dependent on the import of nitrogen fertilizers of Russian origin. The volume of supplies of these fertilizers, which are not subject to European sanctions, increased several times last year.

According to the IEA’s optimistic forecast, the energy crisis will soon end and natural gas prices will return to comfortable levels. This will happen after new gas liquefaction plants start operating in Qatar and the USA, starting in 2025. However, at the same time, the IEA itself is actively subversive against these gas projects, calling for restrictions on investments in “transitional” fuels with a long payback period. European and Asian suppliers, with the exception of China, refuse to sign long-term contracts with LNG plants, thereby depriving them of the opportunity to raise debt capital.

In conclusion, we will evaluate the statements of the EC, according to which the rejection of Russian gas, despite all the disadvantages of such a hasty cancellation, was fully justified by the requirements of the green agenda, the need to abandon all types of fossil fuels. However, this did not bring a breakthrough in reducing emissions; de facto, greenhouse gas emissions continued to grow in 2022. The reason being that the withdrawal of natural gas from the energy balance had to be partially compensated by a return to coal.

From an environmental standpoint, Europe lost not only because of this, but also because of the very replacement of pipeline gas with liquefied gas. According to the latest study by scientists at Cornell University in the US, published in October this year, methane emissions throughout the production, distribution, and consumption chain of LNG produced in the USA and transported to Europe are almost three times higher than greenhouse gas emissions arising from the combustion of coal in thermal power plants. Moreover, the main emissions occur in the process of releasing methane to reduce pressure in the tanks of gas carriers. Cornell University certainly cannot be accused of propaganda in the interests of Putin and Gazprom.

Previously, Gazprom, in environmental reports for 2019, indicated that gas exports to Europe via Nord Stream and Turkish Stream are more environmentally friendly than LNG supplies from the US – several times as much due to the absence of boiled out gas emissions, among other things. Thus, the carbon intensity of Nord Stream is 6.3 CO₂ equivalent per 1 megajoule, Turkish Stream is 7.3, and the indicator for LNG delivery from the USA is 22.3. Methane emissions throughout the entire production chain, as stated by Gazprom, are close to zero: in 2019, during production they amounted to 0.02% of the volume of produced gas, during transportation they are 0.29% of the volume of transported gas, and during underground storage they are 0.03% of gas storage volume.

Observing from the outside the victories in the fight against the molecules of “unfreedom” in Russia, one can only state that instead of using the benefits of the gas union, Europe is confidently moving along the path of undermining the foundations of its own well-being.

Zuhreddin Zuhreddinov

Independent Expert Oil & Gas (Uzbekistan)