As tensions over Ukraine continue to rise, here’s a look at the reasons behind Europe’s gas crisis.

Europe’s energy security has taken centre stage amid the crisis on Ukraine’s border, where Russia has amassed more than 100,000 soldiers in what Western officials fear is a precursor to invasion. 

The European Union, including the economic powerhouse Germany, imports around one-third of its gas from Russia. 

There are concerns that Moscow could turn off the tap if conflict broke out and Western allies retaliated with financial sanctions on Russian President Vladimir Putin’s government. 

But Russia says it hasn’t used natural gas as a geopolitical lever. Supporting its claim, Moscow points out that it has met all its contractual obligations related to gas export. 

Experts say there’s no evidence to suggest that Russia has deliberately reduced gas supply to Europe where consumers saw a 100 percent rise in their energy bills last year. 

“Europe will continue to depend on Russia [for gas] to some extent. I don’t think either side is going to do anything to jeopardise that,” said John Bowlus, an Istanbul-based energy analyst. 

So what happened last year? 

Russia has been Europe’s biggest and most reliable gas supplier for years. The debate around the issue of Europe’s energy security fired up last year when a sharp rise in energy bills hit consumers. 

That was because of a sudden surge in demand as factories and businesses opened up after a months-long shutdown during the pandemic. 

An unusually long cold spell that lasted well into May 2021 exacerbated the shortage as European energy companies had to draw reserves from underground storage tanks, said Graham Freedman, a principal analyst at Wood Mackenzie. 

Russia exports gas to Europe via several routes, including the Nord Stream 1 pipeline, which crosses the Baltic Sea to arrive in Germany. 

But European gas utilities store some of that gas in tanks as a buffer against shortages. Those reserves have depleted fast. 

On February 12, gas tanks in Europe were filled to only 33 percent of the capacity, according to GIE, an association of European gas utilities that keeps track of the data. 

Freedman said that like other European countries, Russia experienced a prolonged wave of cold weather last year, which left it struggling to fill up its own energy reservoirs. 

As the gas price rose, companies put off the decision to refill the tanks. 

“The summer prices were very high,” said Freedman. “What generally happens is that summer prices tend to be lower than winter prices. So the companies put the gas into storage when prices are cheap and take it out when prices are high.” 

Gazprom, the Russian state-run energy behemoth, owns underground storage tanks in European countries such as Germany and Austria. 

After the shortages and price hike hit last summer, Gazprom promised to refill its storage tanks in Europe later in the year, during the October-December period. 

“That just didn’t happen,” said Freedman. 

Locking the long term supply

Russia has also been reluctant to sell spare gas on the spot market, where one-time gas cargoes can be easily bought at a relatively higher price. 

 “Gazprom has been consistently selling spare gas on a regular basis for the last 3-4 years. In the second half of last year it stopped doing that,” said Freedman. 

Gazprom said it didn’t have spare capacity, but Western officials argue that it was Moscow’s ploy to exacerbate the energy crisis and show who has the upper hand. 

“The question of whether Gazprom was deliberately withholding gas from the market is quite difficult to work out,” said Freedman. 

It was late last year when tensions over Ukraine escalated as Russia opposed the inclusion of a former Soviet republic into the fold of the NATO alliance.

The Ukraine crisis has overshadowed the Nord Stream 2 pipeline, which seeks to deliver additional gas to Europe. The pipeline, which is opposed by the US, was completed in September. It awaits the German government’s approval. 

Like other pipelines, Nord Stream 2 will likely supply gas under take-or-pay long-term contracts, which lock in supplies for a period of 10-15 years at a price based on a fixed formula. 

Russian officials have openly stated their preference for long-term contracts over spot contracts. A long-term deal ensures Gazprom has customers who will have to pay for its gas. This mechanism allows the company to recoup the investment that has gone into producing that gas. 

Countering Russia with liquified natural gas? 

In recent weeks, US officials including Secretary Antony Blinken have tried to mobilise alternate sources of gas supply for Europe. This includes the option of liquified natural gas (LNG) - the super-chilled fuel transported on ships. 

 While LNG is an option, it is costlier than gas supplied via pipelines.

In the past five years, the EU has become one of the biggest buyers of LNG from the US.  But overall, LNG still meets a small chunk of the EU's gas requirement when compared with pipelines. 

“I don’t think LNG can meet Europe’s demand. There aren’t enough loading facilities or shipments to replace Russian gas,” said Bowlus. 

Source: TRT World