Russian energy giant Gazprom has slowly but steadily reduced the amount of gas flowing to Europe over the last few days. Originally, they blamed the shortfall on technical problems, but after gas flows failed to pick up last week, various European leaders have accused the Russians of playing politics with their gas supplies. So in this article we're going to be taking a look at the recent developments, whether Russia might cut off gas completely and how Europe might respond.
So to properly understand this story, we need a bit of context. As you probably already know, Europe is pretty reliant on Russia for its energy imports. Historically, Russia has supplied about 40 percent of the EU's imported natural gas and about 25 percent of its imported oil. The greater reliance on gas is because most gas is transported via pipelines from Russia into Europe, where oil is often transported in barrels. So, while Europe could replace its European oil supply by just buying barrels of oil from somewhere else, if it wants to divest away from Russian gas, it'll have to either create new pipelines from other countries, which will take time and money, or buy liquefied natural gas on the international markets, which is significantly more expensive and requires special port facilities. The United Kingdom and the Baltic States have taken steps away from Russian gas and have complete embargoes on Russian energy, but the European Union has not taken such drastic steps and currently has a plan to divest from Russian oil imports, not gas.
This means that despite some countries moving away from Russian energy, Russia still represents at least 20 percent of Europe's total imports at the moment. Anyway, this gas flows into Europe via four main pipeline systems; Nordstream, sometimes called Nordstrom one, which runs through the Baltic Sea straight to Germany; Yamal Europe, which runs via Belarus into Poland and then Germany; the Ukraine Transit System, which refers to a web of pipelines running through Ukraine and into Central Europe; and Turkstream, which runs through the Black Sea into Turkey. The largest of these is Nordstrom, which has a maximum capacity of about 170 million cubic meters per day. In 2021, Nordstream basically pumped at full capacity year round. For context, the entire UK transit route came in at a daily average of about 115mcm, Yamaha Europe about 80 and Turkish Stream about 35.
All these pipelines then branch out further into Europe, allowing Russian gas to flow all the way to western European countries like France, Italy, and even Portugal. Anyway, throughout the war, gas has continued to flow relatively freely. There have been some hiccups. Russia basically shut off Yamal Europe in April after Poland and Bulgaria refused to pay in rubles, and there was some war-related supply disruption to the Ukrainian system back in early May. However, Nordstream and Turkstream have been pumping at full flow for most of the war, and Europe is actually sending Russia more gas money than ever before. Astonishingly, Russia is still paying Ukraine about 3 million dollars per day in transit fees. Yup, you heard that right. Despite being at war with one another, Russia is still paying Ukraine to transmit gas through its territory into Europe. However, this apparently changed last week.
On Tuesday, Gazprom, the company responsible for the vast majority of gas flows into Europe, announced that sanctions had prevented it from acquiring a turbine required for gas transmission and that flow via Nordstrom would therefore be reduced from 160mcm a day to about 90. At first, this sounded plausible; sanctions had indeed prevented the export of turbines in Canada to Gazprom. However, on Wednesday, Gazprom said that Nord Stream flows would be even further reduced from 90 mcm per day to just 68, citing yet another turbine issue. When combined with the other related disruptions to Yamal Europe and the Ukrainian system, this means that Russia's total gas flows into Europe are only about a third of what they were last year. At this point, people started getting suspicious. While sanctions had indeed impeded turbine exports, it's unlikely to be a coincidence that Gazprom decided to start maintenance on another turbine at the same time.
So, what is Russia's apparent decision to reduce gas flows?we see it, there are three possible reasons; first and most obviously, it's to punish the west for supporting Ukraine and possibly to deter it from continuing to do so; second, Russia probably wants to put pressure on sanctions. Gazprom cited related sanctions, and its CEO even suggested that Germany reopen Nordstrom 2 and 3. Finally, it's to prevent Europe from storing up enough gas to last through the winter. European countries have been warily stockpiling gas in anticipation of a Russian stoppage this winter, when gas demand is at its highest.
If Russia can prevent European countries from accumulating sufficient stockpiles, then it'll have more leverage when winter comes around, so what happens next? As you'd expect, European gas prices jumped about 60 percent last week on the news to about 150 euros per megawatt-hour. That is, despite reduced flows, Gazprom is still making the same amount of money as before.'s energy brinkmanship might speed up renewable investment in the medium term, in the immediate future, Germany says they'll reopen their coal plants to reduce reliance on gas and help them continue stockpiling for the winter, and Israel and Egypt said they'd increase gas supplies to Europe. Europe will probably also have to increase international liquefied natural gas imports to make up the shortfall.
Which are already at all-time highs. While this might be expensive for us Europeans, it could be catastrophic for the rest of the world. High energy prices have pushed much of the developing world, and especially Southeast Asia, into a fuel crisis. Sri Lanka recently declared a two-week school shutdown to conserve fuel, and the Sri Lankan army had to open fire on protesters to contain fuel-related unrest. Pakistan is in a similarly tough spot. Parts of the country are experiencing total blackouts, and the government has trimmed its work week to conserve fuel. Ultimately, Russia's decision to cut off the gas isn't just bad news for Europe; it's pretty terrible news for the rest of the world as well.