Moniek de Jong / May 2023
Following the Russian invasion of Ukraine Russian gas flows to the European Union (EU) were reduced: deliveries through the Nord Stream pipeline were initially decreased due to purported "technical" issues and subsequently ceased entirely, and the Yamal pipeline was terminated flows after recipient countries refused to make payments in roubles. This resulted in potential gas shortages. Fortunately, these were averted by an uncharacteristically mild winter, partly attributable to climate change, reduced gas consumption (caused by high gas prices) and an influx of LNG and gas through other pipelines. However, scant attention has been given to non-Russian gas suppliers and their geopolitical risks.
New portfolio, same risks?
The EU’s new gas import portfolio saw a significant shift as Norwegian gas imports surpassed Russian in 2022. Nonetheless, Russian gas holds the number two spot, as the EU is still importing Russian gas via LNG and pipelines (the Brotherhood pipeline and the TurkStream route). The reasons for this are varied. Some countries cannot switch to non-Russian imports without making costly and time-consuming structural changes to their gas systems. In the specific case of Zeebrugge LNG, Russian imports were driven by unique circumstances. Still, the continued Russian imports are an eyesore for the EU, which entails transfers of billions of euros to the Kremlin and concurrently spending billions on aid to Ukraine.
Norway emerged as the largest suppliers of natural gas to the EU in 2022. The stable and democratic Nordic country has been a staple in the EU’s gas portfolio for decades and is connected to the EU via multiple pipelines. Unfortunately for the EU, Norway is one of the few friendly gas producing countries and the sole one in such close proximity. Australia and the US are other examples of democratic and developed countries which export their gas in liquid form to the EU. However, geographical considerations result in a majority of Australia's gas exports being directed toward the Asian market rather than Europe. While the US is our ally, the country has become internally divided in recent years and the Reduction Inflation Act has been poorly received in the EU, complicating the relation between the EU and the US.
Besides gas from a select “safe” countries, the EU receives large volumes of gas from authoritarian regimes with questionable track records when it comes to political stability and human rights. Peru, a smaller LNG supplier to the EU, has been suffering from civil unrest since late last year, while Mozambique’s LNG development was delayed by internal turmoil. Nigeria and Algeria do not exemplify human rights, as corruption and inequality remains widespread. Workers’ rights in Qatar came under criticism in the run-up to the FIFA World Cup in the Middle Eastern country. Not to forget, Qatar has only openly threatened to cut LNG supplies to the EU during the Qatargate investigation.
Notably, the gas importers to the EU are not only beset by internal issues but also face external conflicts. Azerbaijan and Armenia have a longstanding dispute on Nagorno Karabakh, which in recent years has flared up again. The EU’s involvement, even if it is neutral, is not appreciated by Baku. The relation between Morocco and Algeria has also soured and resulted in Algerian gas no longer transiting Morocco on its way to Spain.
In addition to internal and external challenges, transit risks associated with gas transport through pipelines and LNG shipping routes are applicable to all imports.
It becomes clear that the gas imports remains a risky business. While a distinction exists between risks and actual disruptions, the European Union (EU) should take further measures to mitigate unnecessary exposure to such risks. More EU cooperation is needed when it comes to gas imports. The existing joint purchasing mechanism, which is being hailed a success already, should be expanded and deepened. Priority should be given to gas suppliers regarded as safe or comparatively safer, and diversification of the EU's gas portfolio remains a crucial aspect of the solution.
Most importantly, the EU should strive to minimize the need for gas imports all together. This can be done through the rapid roll-out of renewables, and increased energy efficiency and electrification. Admittedly, renewables come with their own set of risks, but insulating buildings and reducing waste energy are a durable and risk-free alternative to gas.