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European Energy Policy in a Trap of its Own Making

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The fast-approaching winter in the face of the ever more real possibility of a complete cut-off of gas supply from Russia is pushing the EU tighter into a trap of its own making. The current gas crisis should be a wake-up call for Europe to initialize the gradual phase-out of Russian gas, which has shown to be heavily unreliable amidst the war in Ukraine.

Moreover, Europe should also show a firm stance on its internal ‘solidarity’ arrangements, largely theoretical until recently, but a strong potential tool to counteract Russia’s gas blackmail.

Figure 1. Security of Natural Gas Imports in Selected Regions

Source: CSD's Energy and Climate Security Risk Index.

Note: The higher the index score, the higher the risk level. Security of natural gas imports take into account diversity of supply and the geopolitical risk associated with each source of supply, as well as the overall reliance on imports for meeting domestic demand.

Europe started forming its own trap long ago when it believed Kremlin’s blatant dishonesty after the Crimea incursion of 2014. This led to sleepwalking into a growing over-reliance on Russian gas, severely eroding the energy security of the EU. Germany and Italy led the way, undermining European Commission efforts at diversification and market liberalization (see Figure 1). The endorsement of Kremlin’s pincer strategy geopolitical projects Nord Stream and Turk Stream, or the abandonment of Europe’s Nabucco pipeline, are just a few examples.

Asymmetric positions

The risk of complete cut-off of gas supply from Russia to the EU may very well materialize at any time now, especially with the upcoming winter, the season during which gas demand is highest. Russia has the ability to manipulate gas supply by route, delivery point, and counterparty. This ability has been demonstrated to induce asymmetric positions of EU member states on EU-level solidarity. Members differ in responses to the use of Russian gasfor political and economic divisions and gains.

Thus, the effect of collective EU sanctions on Russia is diminished and the EU starts suffering from two major issues: gas shortages and lack of solidarity. These lead to higher gas prices that reverberate throughout the economy by pushing up overall energy prices and inducing inflation, causing depressions and eroding real incomes. There is a serious political effect as well: the promotion of destructive, egoistic behavior by interested parties who seek short-term populist gains.

The recent initiative by the European Commission “Save gas for safe winter” (to voluntarily reduce gas consumption by 15%, with cuts becoming mandatory in an emergency), also showcases a worrisome lack of solidarity. The main issue is the physical outlay of the infrastructure, currently unable to support the transportation of gas between different regions.  The infrastructure bottleneck between the Iberian Peninsula, where most LNG regasification terminals are located, and the rest of Europe, is a case in point. In addition to physical infrastructure constraints, Europe also lacks sufficient control over regional gas flows without the capacity to carry out system monitoring and modelling in real time, unlike Russia.[1]

Gazprom unhinged

Gazprom has the ability to model, control, and forecast the operational parameters of its system in near real-time mode. Russia’s Ministry of Oil Industry created a Central Dispatch Unit as far back as 1985. Initially, it was in charge of operational issues, and its area of expertise has been expanding ever since. The EU is, hence, in a position to know less than Russia about gas supply and flows, hindering its ability to make timely and informed decisions and making it vulnerable to manipulations. This asymmetry leads to plenty of temptations for Russia to influence various parties, as no one really knows where, when and to what extent gas supply could be impacted by Russia. For Europe, information asymmetry leads to unclear strategy against harmful Russian politics and preference of tools aimed at gas demand over supply, as there is more information about the former.

The risk of starving Europe of energy (or at least spooking the economy into believing this crisis is inevitable), is a very clear and present danger. The EU needs to act immediately on filling its governance gaps and on robustly countering the increasingly blatant lies and misinformation tricks. The plan will not be effective in ensuring European energy security unless gas supply is also targeted and looks like nothing more than a decision made in a state of political panic, instead of the clear, thought-through and mutual strategy it should have been.

[1] Nitzov, B. and Rangelova, K., How to Deal with Kremlin’s Desire to Starve Europe of Energy The Case of Nord Stream 1 and Beyond, CSD Working Paper, August 2022.

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