Will Russia Become EU’s Top Natural Gas Supplier Once Again?*

*Editor’s Note: On March 4, Russia enacted a law that criminalizes public opposition to, or independent news reporting about, the war in Ukraine. The law makes it a crime to call the war a “war” rather than a “special military operation” on social media on in a news article or broadcast. The law is understood to penalize any language that “discredits” Russia’s use of its military in Ukraine, calls for sanctions or protests Russia’s invasion of Ukraine. It punishes anyone found to spread “false information” about the invasion with up to 15 years in prison.

Analyst Irina Kezik speaks on how the U.S. can help Russia regain its leadership in the EU natural gas market

This year, Washington’s dream came true: It finally managed to force Russia out of the EU natural gas market, and now the U.S. trying to enter it to sell as much liquefied natural gas as possible. In 2022, following Norway and Russia, the U.S. became one of the three largest natural gas suppliers in Europe. According to S&P Global, from January to October alone, Europe, including Britain and Turkey, received 64 billion cubic meters of natural gas from overseas, while for the whole of last year it was only half as much – about 30 bcm. This year, Norway expects to deliver 122 bcm to the EU, while Russia, approximately 100 bcm. It is clear that the EU has increased its purchases of American LNG to replace Russian supplies, which have dropped sharply due to decreased natural gas transit through Ukraine, sanctions against the Polish section of the Yamal-Europe gas pipeline and Nord Stream explosions.

It would seem that Europe had already found a way to mitigate supply shortages. Moreover, it has managed to prepare for winter and fill its underground natural gas storages. But it’s not that simple. The worst is yet to come. First of all, the EU has drastically reduced its wind power generation capacity. This has led to rising spot prices and additional natural gas withdrawals from underground storage facilities. According to some estimates, electricity prices could go up 12 to 15 times by the end of the year. Amid all this, American companies are now benefiting from the current energy crisis.

In the fall, Europeans started asking their overseas partners to lower natural gas prices. German authorities were among the first to be alarmed by Washington’s desire to profit. German Vice Chancellor Robert Habeck expressed his regret at the astronomical natural gas prices demanded by German allies, primarily the U.S. His disappointment is completely understandable given that overseas supplies were supposed to replace Russian ones.

Then, French Minister of the Economy and Finance Bruno Le Maire said that Washington, as a token of friendship, should lower LNG prices to preserve the relationship with Europe in the long run. At the same time, French President Emmanuel Macron urged EU countries to show solidarity to bring down European natural gas and energy prices.

This is needed to help the poor, as they say. Russia has always been willing to offer good deals to its European partners because, first of all, it counted on long-term, mutually beneficial relations, and secondly, more than 50% of Gazprom’s shares belong to the state. However, overseas partners are not concerned with European problems. Private companies have their own interests, which put profit above all else.

The situation will only get worse next year. While in the first half of 2022, Russia supplied the EU in full and played a significant role in the overall natural gas supply system, today Brussels officials are already openly saying that the EU will face a supply shortage in the coming year. According to European Commission President Ursula von der Leyen, the shortage may amount to about 30 bcm. At the same time, the U.S. has already warned its partners that it will not be able to increase LNG production and supplies.

The U.S. is not just unable to increase production; it also struggles to keep LNG shipments at the same rate. Freeport LNG, a Texas export facility with a capacity of 15 million tons per year, which used to account for about 20% of American LNG exports, stopped shipments after the explosion on June 8, causing a spike in global natural gas prices. Therefore, according to Fatih Birol, executive director of the International Energy Agency, ensuring energy security without Russian natural gas supplies will cost the EU an addition $106 billion next winter.

However, on top of that, Washington has managed to create more problems for the EU. Today, everyone in Europe is concerned about the Inflation Reduction Act, which will go into effect on Jan. 1, 2023. The IRA is a $430 billion bill designed to reduce health care costs, invest in domestic energy production, lower carbon emissions, increase taxes for corporations and reduce budget deficits. In other words, under the IRA, manufacturers who use clean energy sources and work in the U.S. will receive generous government subsidies.

European Commission President von der Leyen has stated that the EU fears the consequences of the IRA. According to her, the new bill could lead to unfair competition, disrupted supply chains and market closures.

“The Inflation Reduction Act should make us reflect on how we can improve our state-aid frameworks, and adapt them to a new global environment,” von der Leyen said, adding that the IRA could lead to an outflow of investment across the Atlantic.

Many Europeans are worried about the deindustrialization of their economy. The European Parliament even called on the EU to file a complaint with the World Trade Organization over the recent U.S. bill because Washington seems to provide subsidies with no regard to its European allies, pursuing its own interests.

Given the risk of a new trade war between the EU and the U.S., an increasing number of Western experts believe that the EU may once again choose Russia as its main supplier of natural gas. That was the opinion of nearly half (40%) of respondents surveyed at an industry gathering organized by the Oxford Institute for Energy Studies. It is plausible, given that Europe is already turning to Russian suppliers now, paying no attention to geopolitics. However, the EU is buying Russian LNG instead of pipeline natural gas.

From January to October, the EU increased Russian imports by 42% compared to last year (up to 17.8 bcm), spending a record $13.3 billion — five times more than in 2021.

It is possible that there will be ways to restore the supply of pipeline gas as well. It is not just the deindustrialization of Europe that is at stake, but virtually the EU’s entire economy and integrity. Therefore, Russia could once again become the EU’s top natural gas supplier, to say the least. Finally, America, as always, is trying to manipulate others, but beware, Uncle Sam: You might become a victim of your own scheming.

The author is an expert at the Intersectoral Expert and Analytical Center of the Union of Oil & Gas Producers of Russia and a Tekface Project manager.

The author’s opinion may not coincide with that of the editors.