Russia in the European energy sector

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Sources of European natural gas, 2010–2017. Russia (dark brown) was the source of 35% of total EU natural gas consumption in 2017.
Gas Balance Russian Federation.svg

Russia supplies a significant volume of fossil fuels to other European countries. In 2021 it was the largest exporter of oil and natural gas to the European Union,[1] and 40% of gas consumed in the EU came from Russia.[2]

In 2017, energy products accounted for around 60% of the EU's total imports from Russia.[3] According to Eurostat, 30% of the EU's petroleum oil imports and 39% of total gas imports came from Russia in 2017. For Estonia, Poland, Slovakia and Finland, more than 75% of their imports of petroleum oils originated in Russia.[3]

The Russian state-owned company Gazprom exports natural gas to Europe. It also controls many subsidiaries, including various infrastructure assets. According to a study published by the Research Centre for East European Studies, the liberalization of the EU gas market has driven Gazprom's expansion in Europe by increasing its share in the European downstream market. It has established sale subsidiaries in many of its export markets, and has also invested in access to industrial and power generation sectors in Western and Central Europe. In addition, Gazprom has established joint ventures to build natural gas pipelines and storage depots in a number of European countries.[4]

The dependency on Russian fossil fuels poses energy security risks for Europe.[5] In a number of disputes Russia used pipeline shutdowns, which motivated the European Union to diversify its energy sources.[6] The rapid expansion of renewables in the European energy market would allow for less imports. As a reaction, Russia is expanding its export abilities towards China, as it has only one pipeline.[7][5] In response to the invasion of Ukraine by Russia, the European Commission presented a plan to reduce gas imports from Russia by two thirds within a year, and completely by 2030.[8]

History[edit]

In the early 1980s there were American efforts, led by the Reagan administration, to convince European countries, through which a proposed Soviet gas pipeline was to be built, to deny firms responsible for construction the ability to purchase supplies and parts for the pipeline and associated facilities. Ronald Reagan feared that a Kremlin-controlled European natural gas pipeline infrastructure would increase the USSR's influence not only in Eastern Europe, but also in Western Europe. For this reason, during his first term in office, he attempted – unsuccessfully – to stop the first natural gas pipeline from being built between the USSR and Germany. The pipeline was built despite these protests and the rise of large Russian gas firms such as Gazprom as well as increased Russian fossil fuel production has facilitated a large expansion in the quantity of gas supplied to the European market since the 1990s.[9]

Since the 2000s, natural gas pricing in Europe has gradually shifted from fairly stable long-term contract pricing largely linked to the oil price, which supported the large-scale investments in developing gas fields and pipelines, to competitive market based pricing. This change was driven by EU regulation, moving from a 30% market price share in 2010 to 80% in 2020, saving EU countries an estimated $70 billion over the 2010s largely driven by the development of cheap U.S. shale gas. However, due to the 2021 global energy crisis, the International Energy Agency estimated the total cost of EU gas imports in 2021 will be about $30 billion higher that year than it would have been under the previous pricing regime.[10][11]

In September 2012, the European Commission opened formal proceedings to investigate whether Gazprom was hindering competition in Central and Eastern European gas markets, in breach of EU competition law. In particular, the Commission looked into Gazprom's usage of 'no resale' clauses in supply contracts, alleged prevention of diversification of gas supplies, and imposition of unfair pricing by linking oil and gas prices in long-term contracts.[12] The Russian Federation responded by issuing blocking legislation, which introduced a default rule prohibiting Russian strategic firms, including Gazprom, to comply with any foreign measures or requests.[13] Compliance is subject to prior permission granted by the Russian government.

Gas for northern Europe largely came from the Nadym Pur Taz (NPT) region in Western Siberia, but these large fields are now in decline due to depletion. Since the early 2010s Gazprom has been developing replacement gas fields in the Yamal Peninsula area of the Russian Arctic. As of 2020, Yamal produces over 20% of Russia's gas, which is expected to increase to 40% by 2030. The shortest pipeline routes from Yamal to the northern EU countries are the Yamal–Europe pipeline through Poland and Nord Stream to Germany. During the winter peak Gazprom does not have the capacity to redirect flows to the central pipeline corridor through Ukraine, built for the NPT gas flow. Gazprom intends to decommission some pipelines, over forty years old with high maintenance costs, in the central corridor as NPT production declines.[14]

Natural gas deliveries[edit]

See also: Nord Stream, South Stream, and TurkStream
Major existing and planned natural gas pipelines supplying Russian gas to Europe

In 2021, 45% of the European Union's natural gas total imports originated in Russia.[2] As of 2009, Russian natural gas was delivered to Europe through 12 pipelines, of which three were direct pipelines (to Finland, Estonia and Latvia), four through Belarus (to Lithuania and Poland) and five through Ukraine (to Slovakia, Romania, Hungary and Poland).[15] In 2011, an additional pipeline, Nord Stream (directly to Germany through the Baltic Sea), opened.[16]

The largest importers of Russian gas in the European Union are Germany and Italy, accounting together for almost half of the EU's gas imports from Russia. Other larger Russian gas importers in the European Union are France, Hungary, the Czech Republic, Poland, Austria and Slovakia.[17][18] The largest non-EU importers of Russian natural gas are Turkey and Belarus.[17]

Since 2017, Russia has become one of the main liquefied natural gas (LNG) suppliers to Europe, mostly from Yamal LNG which started operations in 2017, in addition to pipeline supplies. In 2018 about 6% of Russian gas supply to Europe was as LNG.[14]

Disputes and diversification efforts[edit]

See also: 2004 Russia–Belarus energy dispute, 2007 Russia–Belarus energy dispute, Countering America's Adversaries Through Sanctions Act, Russia–Ukraine gas disputes, and Orlen Lietuva
Angela Merkel criticized the United States's sanctions against Russia that target EU–Russia energy projects.[19]

On the eve of the 2006 Riga summit, Senator Richard Lugar, head of the U.S. Senate's Foreign Relations Committee, declared that "the most likely source of armed conflict in the European theatre and the surrounding regions will be energy scarcity and manipulation."[20] Since then, the variety of national policies and stances of larger exporters versus larger dependents of Russian natural gas, together with the segmentation of the European natural gas market, has become a prominent issue in European politics toward Russia, with significant geopolitical implications for economic and political ties between the EU and Russia.[21]

These ties have occasionally led to calls for greater European energy diversity, although such efforts are complicated by the fact that many European customers have long term legal contracts for gas deliveries despite the disputes, most of which stretch beyond 2025–2030.[21] The EU's failure to successfully advance a common energy policy can be further exemplified by the building of the Nord Stream pipeline, which embodies the divisions between the center and the periphery of the EU—between Old and New Europe.[clarification needed][citation needed]

Natural gas presented as an instrument of Russian state power

A number of disputes over the natural gas prices in which Russia was using pipeline shutdowns in what was described as "tool for intimidation and blackmail"[22] caused the European Union to significantly increase efforts to diversify its energy sources.[6] Some have even argued that Russia has developed "the capacity to use unilateral economic sanctions in the form of natural gas pricing and gas disruptions against many European North Atlantic Treaty Organization (NATO) member states".[9] During an anti-trust investigation initiated in 2011 against Gazprom, a number of internal company documents were seized that documented a number of "abusive practices" in an attempt to "segment the internal [EU] market along national borders" and impose "unfair pricing".[23]

Part of the aim of the Energy Union is to diversify the EU’s gas supplies away from Russia, which has already proved to be an unreliable partner, first in 2006 and then in 2009, and which threatened to become one again at the outbreak of the conflict in Ukraine in 2013–2014.

— European Council of Foreign Relations, 2015

The Nord Stream 2 gas pipeline from Russia to Germany was opposed by former Ukrainian President Petro Poroshenko, Polish Prime Minister Mateusz Morawiecki, former U.S. President Donald Trump and then British Foreign Secretary and later prime minister Boris Johnson.[24][25] The United States has been encouraging European countries to diversify Russian-dominated energy supplies, with Qatar as possible alternative supplier.[26]

The goal of the Southern Gas Corridor, which connects the giant Shah Deniz gas field in Azerbaijan to Europe, is to reduce Europe's dependency on Russian natural gas.

To compare with alternative sources, Germany produced 10.5% of its electricity from natural gas in 2019 and 8.6% (44 TWh) from renewable biomass, largely biogas.[27] As only 13% of Germany's gas use was for power production,[28] this replaced just above 1 percent of its overall gas consumption.

In January 2020 Russia temporarily halted oil deliveries to Belarus over another price dispute.[29]

As part of Poland's plans to become fully energy independent from Russia within the next years, Piotr Wozniak, president of state-controlled oil and gas company PGNiG, stated in February 2019: "The strategy of the company is just to forget about Eastern suppliers and especially about Gazprom."[30] In 2020, the Stockholm Arbitral Tribunal ruled that PGNiG's long-term contract gas price with Gazprom linked to oil prices should be changed to approximate the Western European gas market price, backdated to 1 November 2014 when PGNiG requested a price review under the contract.[31][32]

Gazprom had to refund about $1.5 billion to PGNiG. The 1996 Yamal pipeline related contract is for up to 10.2 billion cubic metres of gas per year until it expires in 2022, with a minimum annual amount of 8.7 billion cubic metres.[33][34] Following the 2021 global energy crisis, PGNiG made a further price review request on 28 October 2021. PGNiG stated the recent extraordinary increases in natural gas prices "provides a basis for renegotiating the price terms on which we purchase gas under the Yamal Contract."[35][36]

The price of natural gas in the European Union

Due to a combination of unfavourable conditions, which involved soaring demand of gas, less power generation by alternative sources, and cold winter that left European and Russian reserves depleted, Europe faced steep increases in gas prices in 2021.[37] In August 2021 Russia reduced volumes of gas sent to European Union,[38][39] which was seen by some analysts and politicians as an attempt to "support its case in starting flows via Nord Stream 2".[40] The record-high prices in Europe were driven by a global surge in demand as the world quit the economic recession caused by COVID-19, particularly due to strong energy demand in Asia,[41][42] as well as lowered supplies of natural gas from Russia to the European Union.[43]

Russia has fully supplied on all long-term contracts, but has not supplied additional gas on the spot market.[44] In October 2021, the Economist Intelligence Unit reported that Russia had limited extra gas export capacity because of high domestic requirements with production near its peak.[44][45] In January–June Gazprom supplied about 22% more gas to Europe (including Turkey) in 2021 than the same months in 2020, and almost the same amount as in 2019. Algeria also increased supplies in 2021H1, but other countries supplied less than in 2020H1.[14]

In September 2021 Russia announced that "rapid" start up of the newly completed Nord Stream 2 pipeline that has been for long contested by various EU countries would resolve the problems.[46] These statements were interpreted by some analysts as "blackmail" attempt.[47] 40 members of European Parliament requested a legal inquiry into the Gazprom practices.[48][49] In October 2021, Russian President Putin said that one of the factors influencing the prices was the termination of long-term supply contracts in favour of the spot market,[50] while Gazprom has announced it's accumulating "record" reserves of 72.6 billions m3 and continues record production at 847.9 millions m3 per day.[51] On 27 October 2021, Putin ordered Gazprom to start pumping natural gas into European gas storage sites once Russia finishes filling its own gas storage sites, by about 8 November.[52][53]

The former Lithuanian Prime Minister Andrius Kubilius, who is European Parliament's rapporteur on relations with Russia, said it is "impossible" to have good relations with Russia and called for the EU to phase out its imports of oil and natural gas from Russia.[54] A group of five EU member countries have called for joint action, such as group purchases.[55]

On 17 November 2021 Belarus has stopped oil supplies over the Druzhba pipeline to Western Europe for "unscheduled maintenance"[56][57] which happened amidst the Belarus border crisis[58] and one day after Germany suspended certification of the Nord Stream 2 pipeline.[59]

Nuclear fuel supplies[edit]

Sergey Kiriyenko, the head of state-owned nuclear corporation Rosatom from 2005 to 2016

Ukraine has been traditionally sourcing fuel for its nuclear power plants from Russia, although with the outbreak of Russian military intervention in Donbass it saw an urgent need to at least diversify supplies of fuel and started talks with a number of Western suppliers, most notably Westinghouse branch in Sweden. In response, Russia started an intimidation campaign which included supplying deliberately incorrect technical specifications of the existing fuel supplies, alluding to "second Chernobyl" and staging protests in Kyiv. In spite of these efforts, Ukraine secured a number of framework contracts with numerous suppliers, eventually supplying 50% of the fuel from Russia and 50% from Sweden.[60]

See also[edit]

References[edit]

  1. ^ "EU imports of energy products - recent developments". ec.europa.eu. Retrieved 5 March 2022.
  2. ^ a b "How Europe can cut natural gas imports from Russia significantly within a year - News". IEA. Retrieved 5 March 2022.
  3. ^ a b "EU imports of energy products - recent developments" (PDF). Eurostat. 4 July 2018. pp. 3–4. Retrieved 11 August 2018.
  4. ^ Koszalin, Andreas Heinrich (5 February 2008). "Gazprom's Expansion Strategy in Europe and the Liberalization of EU Energy Markets" (PDF). Russian Analytical Digest. Research Centre for East European Studies (34 Russian Business Expansion). Archived from the original (PDF) on 6 July 2011. Retrieved 23 February 2008.
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  7. ^ Birnbaum, Michael; Mufson, Steven (24 February 2022). "E.U. will unveil a strategy to break free from Russian gas, after decades of dependence". Washington Post. ISSN 0190-8286. Retrieved 26 February 2022.
  8. ^ Weise, Zia (8 March 2022). "Commission plans to get EU off Russian gas before 2030". POLITICO.
  9. ^ a b Iftimie, Ion (22 January 2015). Natural Gas as an Instrument of Russian State Power (Second edition, fully revised and updated ed.). Washington, D.C.: Westphalia Press. p. 74. ISBN 9781633911390. OCLC 908407323.
  10. ^ Marson, James; Wallace, Joe (27 October 2021). "Europe's Push to Loosen Russian Influence on Gas Prices Bites Back". Wall Street Journal. Retrieved 1 November 2021.
  11. ^ Zeniewski, Peter (22 October 2021). "Despite short-term pain, the EU's liberalised gas markets have brought long-term financial gains". International Energy Agency. Retrieved 1 November 2021.
  12. ^ European Commission, Antitrust: Commission Opens Proceedings Against Gazprom, IP/12/937
  13. ^ Marek Martyniszyn, Legislation Blocking Antitrust Investigations and the September 2012 Russian Executive Order, 37(1) World Competition 103 (2014)
  14. ^ a b c Yermakov, Vitaly (September 2021). Big Bounce: Russian gas amid market tightness (PDF) (Report). Oxford Institute for Energy Studies. Retrieved 1 November 2021.
  15. ^ "Commission staff working document–Accompanying document to the Proposal for a Regulation of the European Parliament and of the Council concerning measures to safeguard security of gas supply and repealing Directive 2004/67/EC. Assessment report of directive 2004/67/EC on security of gas supply {COM(2009) 363}". European Commission. 16 July 2009: 33, 56, 63–76. Retrieved 30 January 2010. {{cite journal}}: Cite journal requires |journal= (help)
  16. ^ Juergen Baetz (8 November 2011). "Merkel, Medvedev inaugurate new gas pipeline". Associated Press. Retrieved 15 November 2011.
  17. ^ a b "Country analysis briefs: Russia" (PDF). Energy Information Administration. May 2008: 11. Archived from the original (PDF) on 7 June 2010. Retrieved 30 January 2010. {{cite journal}}: Cite journal requires |journal= (help)
  18. ^ Noël, Pierre (May 2009). "A Market Between Us: Reducing the Political Cost of Europe's Dependence on Russian Gas" (PDF). EPRG Working Paper Series. University of Cambridge Electricity Policy Research Group: 2; 38. EPRG0916. Retrieved 30 January 2010. {{cite journal}}: Cite journal requires |journal= (help)
  19. ^ "Germany's Angela Merkel slams planned US sanctions on Russia". Deutsche Welle. 16 June 2017.
  20. ^ Energy security challenges for the 21st century : a reference handbook. Luft, Gal., Korin, Anne. Santa Barbara, Calif.: Praeger Security International. 2009. ISBN 9780275999988. OCLC 522747390.{{cite book}}: CS1 maint: others (link)
  21. ^ a b Simon Pirani; Jonathan Stern; Katja Yafimava (February 2009). The Russo-Ukrainian gas dispute of January 2009: a comprehensive assessment (PDF). Vol. NG 27. Oxford Institute for Energy Studies. p. 59. ISBN 978-1-901795-85-1. Archived from the original (PDF) on 16 November 2009. Retrieved 13 October 2009.
  22. ^ Kramer, Andrew E. (27 October 2006). "Lithuania suspects Russian oil grab". International Herald Tribune. Retrieved 17 March 2016.
  23. ^ "EU documents lay bare Russian energy abuse". Retrieved 16 April 2018.
  24. ^ "Germany and Russia gas links: Trump is not only one to ask questions". The Guardian. 11 July 2018.
  25. ^ "Trump barrels into Europe's pipeline politics". Politico. 11 July 2018.
  26. ^ "U.S. wants Qatar to challenge Russian natural gas in Europe -U.S. official". Reuters. 14 January 2019.
  27. ^ Der deutsche Strommix: Stromerzeugung in Deutschland https://strom-report.de/strom/ Retrieved 7 September 2020
  28. ^ Anteil der Verbrauchergruppen am Erdgasabsatz in Deutschland in den Jahren 2009 und 2019 https://de.statista.com/statistik/daten/studie/37985/umfrage/verbrauch-von-erdgas-in-deutschland-nach-abnehmergruppen-2009/ Retrieved 7 September 2020
  29. ^ "Russia turns off oil taps supplying Belarus". Al Jazeera. Retrieved 2 February 2020.
  30. ^ Reed, Stanley (26 February 2019). "Burned by Russia, Poland Turns to U.S. for Natural Gas and Energy Security". The New York Times. ISSN 0362-4331.
  31. ^ Barteczko, Agnieszka (31 March 2020). "Poland's PGNiG to take immediate steps to receive $1.5 billion from Gazprom". Reuters.
  32. ^ "Victory for PGNiG: the Arbitral Tribunal in Stockholm rules to lower the price of the gas sold by Gazprom to PGNiG". PGNiG (Press release). 20 March 2020.
  33. ^ Barteczko, Agnieszka (31 March 2020). "Poland's PGNiG to take immediate steps to receive $1.5 billion from Gazprom". Reuters.
  34. ^ "Victory for PGNiG: the Arbitral Tribunal in Stockholm rules to lower the price of the gas sold by Gazprom to PGNiG". PGNiG (Press release). 20 March 2020.
  35. ^ "Polish PGNiG asks Gazprom to reduce gas prices under Yamal contract". TASS. Moscow. 28 October 2021.
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  54. ^ "EU Parliament touts Russia oil, gas import phase-out". Argus Media. 16 September 2021.
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  57. ^ "Belarus Stopped Supplying Oil Via "Druzhba" To Poland". charter97.org. Retrieved 17 November 2021.
  58. ^ Anonym. "Belarus blocks oil transit to Poland | txtreport.com". www.txtreport.com. Retrieved 17 November 2021.
  59. ^ "Nord Stream 2: Gas prices soar after setback for Russian pipeline". BBC News. 16 November 2021. Retrieved 17 November 2021.
  60. ^ "Kärnfrågan". Fokus (in Swedish). 6 February 2015. Retrieved 8 June 2020.
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