After vetoing Moscow’s oil, everyone is looking at gas: the Russian roulette of the energy cut | Economy | The USA Print

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European Commission President Ursula von der Leyen and European Council President Charles Michel on Tuesday.
European Commission President Ursula von der Leyen and European Council President Charles Michel on Tuesday.OLIVIER HOSLET (EFE)

It is the bullet in the chamber of the European Union sanctions against Russia. But also the most painful to shoot, because of the self-damage it would inflict. After agreeing to the Russian coal embargo in April and then enacting a partial import ban on Moscow’s oil this week, all roads now lead to the button of last resort: the gas flowing into the EU from Russia. Some partners, led by the Baltic belligerents, are already calling for their inclusion in a seventh package. France does not exclude it. But Germany recognizes that it would not be ready until 2023. And in Brussels they are aware that there is hardly any room for negotiation between the capitals, so they ask for calm: a high-ranking community source assures that for now it is convenient to work progressively to disconnect from Russian gas, rather than its inclusion in the next package.

The roadmap, acknowledges this source, should follow the paths of the so-called Repower EU, the program of initiatives proposed at the end of May by the European Commission to drastically reduce the Kremlin’s energy dependence. The declared objective is to progressively reduce up to two thirds of the 155,000 million cubic meters of gas from Moscow that the EU consumes before the end of the year. How? With a combination of formulas that range from the increase in imports of liquefied natural gas (LNG) from countries such as the United States or Qatar; increased transfer of gas by pipeline from Azerbaijan; or the accelerated change from gas boilers to heat pumps to heat homes when the cold season begins. However, with such little time frame —under normal conditions, this roadmap would take years (and not months) to unfold—, there are many doubts looming in Brussels and in the rest of the continent’s capitals.

Thierry Bros., renowned energy analyst and professor at the Science Po School of International Affairs (Paris), sees it differently: it is Putin, he says, who with his supply cuts to various member states —Poland, Bulgaria, Finland, Denmark and the the Netherlands — has taken the lead and begun the EU’s move away from Russian gas by cutting off supply to five members of the bloc. According to his calculations, these restrictions, together with the commitment of the Baltic countries to put an end to the purchase of Russian gas, will cause a 40% reduction in Russian gas consumption by the end of 2022.

Going further, however, will be difficult: the remaining amount, about 95,000 million cubic meters, are contracts in force with the Russian state gas company Gazprom, some very long-term, which expire until they drop to zero in the year 2040. But in general, Bros adds, it is about agreements that require paying for the contracted gas whether it is consumed or not. “The Commission’s idea of ​​reducing by two thirds is stupid. The only correct formula is to go for an embargo. Either this or let the Russians decide.”

After this week’s summit, European moods are divided. “We cannot exclude anything because nobody knows how the war will evolve,” replied the French president, Emmanuel Macron, when questioned last Tuesday about a hypothetical seventh package of sanctions that includes gas. The German Chancellor, Olaf Scholz, explained that Germany is preparing in terms of infrastructure to replace the Russian dependency: “Some of these investments will happen very quickly, so we expect to see a significant change by the end of the year. But some things will take longer.”

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A few prime ministers, like the Estonian Kaja Kallas, asked to go further: “I think that gas has to be in the seventh package, but I am also a realist. I don’t think it’s there.” Others, including Belgian Alexander de Croo and Austrian Chancellor Karl Nehammer, stood up. “Let’s stop for now,” said the first. “Natural gas has a different role in energy supply than oil,” replied the second. “Alternative to Russian oil can be found much easier […] but gas is a different story and therefore the embargo will not be a topic of discussion”.

As the economic tourniquet around the Vladimir Putin regime tightens further, the next step becomes more complex. The latest round of retaliation, formally adopted this Friday, with the oil embargo at the center of the target, has been the most expensive to negotiate to date. With Hungary entrenched and at the head of a block of reticent countries due to its extremely high dependence on Moscow crude, community unity has walked alongside the abyss. Its approval has required almost a month of discussions between the capitals and a high-level meeting in Brussels to unblock everything at the last minute, in true community style. The balanced solution, diluted, arrived at the stroke of midnight on Monday in the form of an embargo of 90% of Russian crude at the end of the year. A day later the question was another: and when the gas?

Desire and pragmatism run, like so many other times, on divergent lanes. Few things would please a good number of European authorities more than to cut to the chase also with gas, the second largest source of financing for the Kremlin. But the cold bath of realism prevails: after years promoting dependence on Moscow, ignoring the many voices of those who warned of the danger that this entailed, the EU cannot afford it. The only way to stop buying gas from Russia in the very short term would be to implement a strict rationing plan that would plunge the bloc into a horse recession. A cost, economic and political, that nobody wants to assume.

Why oil yes and gas no? The answer is twofold: availability and logistics. Both the US and Qatar – the world’s biggest gas powers, along with Australia – have pledged to double their gas shipments to Europe in exchange for long-term contracts. But in the most immediate, simply, the numbers do not give. Especially when Europe needs to fill its deposits to get to the next winter with a security cushion against the ups and downs of Putin.

Oil, by its very nature, can be easily transported: it is extracted, put on a ship and unloaded at any port minimally prepared to receive it. That process, on the other hand, is much more complicated in the case of its younger brother: it must be subjected to a liquefaction process —turning it from gas to liquid—; A methane tanker capable of transporting it at very low temperatures is required —and there are not many in the world: about 700—; and it also requires a regasification plant in the port of destination that returns the fuel to its natural state. Three bottlenecks difficult to overcome, especially in the current circumstances: half the world is fighting for LNG distribution contracts.

Dependency is especially serious in Italy and Central Europe: the Czech Republic, Austria… and Germany. With all hopes pinned on Nord Stream 1 —active— and Nord Stream 2 —sentenced before even going into operation—, the two pipes called to fill all its gas needs, the German country came to the crisis with Russia : not even in the wildest of nightmares did anyone in Berlin think that a situation like this would come about. And that, coming from the first European power —a quarter of the community’s GDP—, is saying a lot: if Germany stops, the entire EU puts on the brakes.

According to the calculations of Bros, of Science Po, if it is Putin who hits and closes the handle, the EU could eventually allow Russia to cut off the supply of half of the 95,000 million cubic meters of gas that in principle will continue to flow to throughout this year to the EU. “The other half is not replaceable,” ditch. Especially, if the cuts affect Germany: “This country is the systemic risk of the EU. Our German friends have weakened us and we have to live with this.” Whether or not it will happen is hard to tell. “Putin is already playing hard and we will be weaker in the winter. If he wants to harm us, he will not do it between July and August, but at the beginning of September”, he warns. For Bros, the energy sector meets the parameters of a war economy: “It no longer functions as a market.”

Oil has been and is the main source of money into Russia since time immemorial. However, the accelerated growth in the price of natural gas —even stronger than that of crude oil— has narrowed the gap between the two. According to him counter of the thinktank environmentalist CREATES, Moscow has received almost 31.2 billion euros from oil sales to the EU since the beginning of the invasion of Ukraine. In the case of gas, the figure rises to almost 26,400 million. The conclusion is crystal clear: the crude oil ban will squeeze the Russian economy without suffocating it. But the Twenty-Seven cannot afford to go one step further without drowning themselves as well. Not yet.

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