Russia’s invasion of Ukraine has amplified the importance of national-security considerations in Western countries’ energy policies. But both the geopolitical and environmental goals are urgent and should be evaluated together. With Russia’s invasion of Ukraine prompting the West to devise energy policies that are geopolitically robust, Western governments are continuing to focus on reducing environmental damage – in particular, on cutting greenhouse-gas emissions. After all, in the long run, it might be better for everyone if the fossil-fuel sector were to shrink worldwide. These two objectives are not necessarily in conflict, as some believe.
The most obvious steps, especially for the European Union, are sanctions that reduce demand for imports of fossil fuels from Russia. As Daniel Gross writes in a recent Project Syndicate commentary, in a matter of months, the European Union has reduced its dependence on Russian oil so much that it is now ready to impose an embargo. But for these measures to have a meaningful impact on Russia’s budget, Europe must also end its dependency on Russian gas, which will prove much more difficult to achieve. Since the early ages of hydrocarbons, when oil companies discovered gas, this resource has gained a relevant — and sometimes even geopolitical — role in the energy arena and it currently provides a quarter of Europe’s energy needs.
As Massimo Lombardini reminds, when considering the geopolitical role of gas, the 2009 spat between Russia and Ukraine — which halted gas supplies from Russia to the EU through Ukraine — automatically comes to mind. After the crisis, the EU acted swiftly by constructing new inter-connectors allowing gas to circulate freely among all member states. To further diversify supply routes, new liquified natural gas terminals were built to source gas from the global market. Today, the EU counts over 30 Liquefied natural gas (LNG) import terminals, member states are fully interconnected, and Europe is much better equipped to cope with possible supply disruptions than in 2009. Moreover, in the past years, the paradigm around gas supplies changed as massive quantities of LNG became available on a global scale, including from the US, Australia, Mozambique, Qatar and possibly Iran.
In this context, Russia’s bargaining power is somewhat reduced, though it still remains the EU’s largest gas supplier. Unlike oil, cutting Europe’s dependence on Russian gas is a much more complicated process. Europe needs natural gas to provide heat in winter and to serve as feedstock for the world’s largest chemical industry, which accounts for a significant share of EU exports. And certain features of the natural-gas market will make it far more difficult and costlier to find alternatives to Russian supplies than it has been for oil. Nervous European energy ministers have recently visited various global gas producers, like Qatar, in the hope of convincing them to increase production. And while major gas producers are happy to oblige, they warn that it takes years to launch new projects, and doing so makes commercial sense only if the customer is willing to sign a 20-year contract.
All of this means that, in the short run, the natural-gas supply is close to fixed. So, the only way to make up for a shortfall of Russian gas is through a combination of energy savings and increased imports. Here, Europe will confront another challenge: natural gas is costly to transport and difficult to store. LNG, which can be shipped, offers the main alternative to piped Russian gas, though it raises challenges of its own, notably the need for constructing re-gasification facilities. Floating LNG terminals are also an option, and countries like Germany, France, and Italy are already taking advantage of it, ensuring that they can offload LNG when it arrives. These flexible gasification facilities, together with a dense network of pipelines connecting most of the EU providers, offer some protection against Russian attempts to pick off individual countries. Still, if Europe wants to end its dependence on Russian gas, it must vastly increase these LNG imports. If Europe is willing to pay the price of expensive LNG imports, it could thus severely undermine Russia’s ability to earn hard currency via gas exports. And, in terms of geopolitics, that would put a real dent in Vladimir Putin’s war budget.
