Is Europe vulnerable to Russian gas cuts?

The EU relies heavily on imports to meet its demand for natural gas. About 23% of the gas burned by EU member states is produced on Russian gas fields. As Ukraine remains the main transit route for Russian gas destined to European clients, increasing tensions between Kiev and Moscow inevitably bring back memories of the 2009 gas crisis. But the picture is different in 2014 and the 2009 scenario is unlikely to be reproduced.

Today, Europe is much better prepared for potential short-term supply disruptions than it was five years ago. First of all, Europe is coming out of a comparatively mild winter where lower heating demand has left gas storage levels around Europe at just below 50%. Moreover, the EU has learned its lesson in the aftermath of the 2009 crisis. Today, the EU’s internal gas market is more integrated and better equipped to face external shocks. More importantly, the role of Ukraine as a transit country for Russian gas exports has been declining over the past decade. In 2009 some 80% of Russian gas flowing into EU transited Ukraine; today this share is down to less than 50%.

But consider the worst-case scenario: could Europe sustain longer cuts in gas supplies from Russia, voluntarily as part of EU sanctions or forced as a Russian retaliation against EU sanctions? In the short term, Russian gas could at least partly be replaced with increased imports of piped gas from Norway and with LNG shipments (re)directed to EU terminals. Moreover, coal could be a substitute for gas in power generation, although only temporarily for environmental reasons. In the longer run, imports of US LNG could become a geopolitical game changer.

More importantly, President Putin cannot afford to use gas as a political weapon. Russia is a petro-state. Gazprom’s gas exports to the EU are worth more than EUR 17 billion. Contrary to oil, gas is not a global commodity and is mainly shipped by pipelines. The bulk of Russia’s export capacities for gas is targeted at the EU market. As major export routes to Asia are non-existent, a redirection of Russian gas to other markets in the short to medium term is impossible. This may give the EU an economic lever over Russia which could be used should relations with Russia deteriorate further. 

More information in a CEPS Commenary on the issue, available here.