Last month, Gazprom cut deliveries to Germany by 60%, citing alleged technical problems with the Nord Stream pipeline and sanctions imposed by the EU over Russia’s invasion of Ukraine. Meanwhile, its partner Siemens Energy had sent equipment to Canada for overhaul, but could not return it due to sanctions. The Canadian government agreed to allow delivery of a gas turbine to Germany, citing the impact on the German economy.
This re-nationalisation has also led to concerns about the state of Russian energy security. The Russian government wants to regain monopoly status in the gas industry and Gazprom’s power. It does not want to be dependent on the commercial activities of businessmen in the gas industry, and sees this as an opportunity to consolidate its power and wealth. This will also enable Russia to better control foreign officials.
The re-start of gas supplies is dependent on restoring the supply. The interruption in gas supplies from Gazprom to Europe via Ukraine is likely to continue beyond the date outlined in the pipeline agreement. However, Gazprom has already slashed its supply through the NS1 pipeline in June, citing a blockage of gas turbines installed at a Canadian compressor station.
The EU is now forced to find an alternative route for gas. Ukraine currently handles about 8% of Russian gas exports. But the Ukrainian corridor sends gas to Austria, Italy, Slovakia and other eastern European countries. However, the disruption is likely to cause little impact on gas prices in Europe. So, how can the EU ensure a secure supply of gas? By diversifying its gas export routes and increasing its infrastructure, Gazprom is avoiding this problem.
It’s important to remember that Gazprom owns the unified system of gas supply. Because of this, it has a larger voice in the boardroom than any other company in the world. This means it has a greater share in foreign ventures than other companies. Gazprom has an incredible amount of power, as well as the government’s backing.
The Russian energy policy is very important for the EU and other European consumers. The aim is to expand the economic instrument of the Russian state, to set prices in regional gas markets, and to gain political leverage from the control of its energy source. The EU will be able to benefit from this monopoly position and the political backing it can command. But how can it do this effectively?
The European Commission is trying to organise a response to this crisis without adopting a beggar-thy-neighbour policy. It has decided to publish a plan to solve the energy crisis in the EU on July 20th. This plan will be presented at a ministerial energy security meeting later this month. The European Commission is also looking at ways to reduce the risk of beggar-thy-neighbour policies.
The new sanctions are counterproductive as they look to be counter-productive. In addition to hurting European economies, the sanctions may lead to the use of a gas weapon when the weather turns colder. In that case, Mr Putin may use it against Europeans. There is no certainty but European member states should prepare for the worst. This winter, a gas war could break out, and Europeans should be prepared for the worst scenario.