Europe fears its dependency on Russian natural gas as U.S, EU sanctions near

McClatchy Foreign StaffMarch 16, 2014 

Russia Ukraine

A monument to Ukrainian poet and writer Taras Shevchenko is silhouetted against an apartment building with a sign advertising Russia's natural gas giant Gazprom, in Moscow, Russia

ALEXANDER ZEMLIANICHENKO — ASSOCIATED PRESS

— With the Crimea crisis souring relations between Russia and the European Union, many European nations are increasingly concerned about their heavy reliance on Russia for natural gas.

Many European countries get a significant part -- and in some cases all -- of their natural gas, a key source of energy, from Russia, and fear that as relations deteriorate over Ukraine, it could be just a matter of time before the supply is affected, either through disruptions to the supply routes that run through Ukraine or, as is considered more likely, the result of political moves from Moscow.

With the results of Sunday’s referendum unsurprisingly endorsing by an overwhelming margin Russia’s annexation of Crimea, the EU and the United States are expected to announce the first round of sanctions on Monday.

According to the German newspaper Bild, the EU already has drawn up a list of high level Russians who could be hit with travel bans and asset freezes. That list includes the CEOs of Russia’s largest energy companies.

The fear is that Russia will respond by disrupting the flow of natural gas to its clients in Europe.

European leaders have been warning of their vulnerability for weeks. Last week, Poland’s prime minister, Donald Tusk, told a news conference that the dependence on Russian gas supplies would seriously hamper Europe’s ability to respond if Russia moved beyond Crimea.

“We will not be able to efficiently fend off potential aggressive steps by Russia in the future, if so many European countries are dependent on Russian gas deliveries or wade into such dependence,” he said.

Bulgaria’s prime minister told his Parliament earlier this month that this country had enough natural gas for the next two months, but that natural gas use must be carefully managed in case of disruptions to their supply lines.

“Russia uses natural gas as one of its main trump cards in its foreign policy toolkit.” said Amanda Paul, a foreign policy analyst at the European Policy Centre, a Brussels-based independent think tank. “It is able to raise or drop prices as it feels like it, depending on its foreign policy needs, or cut out supplies altogether.”

Earlier this month, the ambassador’s of Slovakia, Poland, Hungary and the Czech Republic sent a letter to the U.S. Congress urging the United States to do more to permit the export of liquefied natural gas (LNG) to Europe. Each of the four countries currently buys between 70 per cent and 100 per cent of their gas from the Russia.

“Energy security is not only a day-to-day issue for millions of citizens in our region, but it is one of the most important security challenges that America’s allies face in central and eastern Europe today,” the ambassadors’ wrote.

But congressional action would be of little value in the current standoff. The United States is not expected to be capable of shipping substantial amounts of LNG for at least two more years.

There is precedent for Russia using natural gas exports to get its way. Five years ago it halted gas supplies to Ukraine in a dispute over pricing. That led to a domino effect on economies that relied on gas piped through Ukraine. In 2006 a similar row led to gas shortages across several EU countries.

While some nations have been able to diversify their imports, many European countries still consider themselves far too reliant on Russian energy. Last year, Gazprom, Russia’s largest gas company, exported a record 162 billion cubic meters of gas to the EU and Turkey.

“For gas we have total dependence on Russia,” said Zilvinas Silenas, president of the Lithuanian Free Market Institute, an independent think tank based in Vilnius.

Over the last few years Lithuania has been constructing a liquefied natural gas terminal on the Baltic Sea, which could bring in gas supplies from overseas, but it is not due to go into operation until the end of 2014.

“In domestic politics the LNG terminal has long been talked about as the solution to our dependency on Gazprom,” Silenas said. “It does cost a lot. Whether it will be economically feasible we shall see in a few year’s time.”

In the meantime Lithuania’s energy minister has called for faster progress to be made on energy power links between the Baltic States and the rest of the EU. Other nations are similarly trying to diversify.

It is not just the threat of gas supplies being cut off that worries Europeans, but that long-term prices could be raised on the pure basis of political relations with Russia.

At the conclusion of a trade agreement with Russia in December, Ukraine was initially offered a heavy discount on its gas prices, as well as a loan to help cover debts to Gazprom. There is now a widespread consensus that these favorable rates will be canceled as retaliation against the ousting of pro-Russian President Viktor Yanukovych.

Politicians and analysts in Lithuania believe their country is currently paying a 25 percent more for Russian gas than some of their European neighbors do, despite being geographically closer to Russia -- a result, they say, of Lithuania’s attempts to investigate Gazprom for possible monopoly abuses.

“Lithuania is already paying one of the highest prices for gas in Europe, and there is a widespread understanding that this is a political situation,” says Ramūnas Vilpisauskas, the director of the Institute of International Relations and Political Science at Vilnius University.

One upside to a pending natural gas war is that the current crisis is coming to boil as winter is ending. Temperatures are starting to rise across Europe, and there is less demand for heating. That’s different from the last set of gas restrictions in 2009, when Russia cut off Ukraine on Jan. 1.

Many also believe that Russia would be making a long term mistake if it once again used gas supplies as a political weapon.

“Every time you use it you lose your reputation as a reputable supply, and long term this leads countries away from Russia,” said Ian Bond, director of foreign policy at the Centre for European Reform, a London-based think tank.

When Russia cut gas supplies to Ukraine in 2009 it caused economic damage to its own country, coming at a time of global recession.

“In 2009 they hurt themselves economically, and maybe this time they will be more reluctant than in the past,” said the European Policy Centre’s Paul.

However, few would bet against Russia making use of one of its main geopolitical tools once again if tensions with the EU continue to increase in relation to events in the Crimea.

“Russia has used this weapon in the past, and it is entirely predictable they will do it again,” said Bond, of the Centre for European Reform.

Gillet is a McClatchy special correspondent.

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