Among Vladimir Putin’s many miscalculations was his expectation before the invasion of Ukraine that Europe’s dependence on Russian energy was so great that its response would be silent, limited to more than just protests. This is hardly proven, as even Germany is now sending weapons to Ukraine. This week, Putin tried to use Russian energy directly, cutting off gas to Poland and Bulgaria because they would not play his ruble game. The attempt has failed. Both countries have sufficient alternatives. However, it serves as a warning that Moscow may seek to use its energy weapon against the rest of Europe. The President of Russia believes that he has this ability. A “replacement” for Russian gas, he said this month, “simply does not exist.” Instead of trying to figure out if that’s going to happen, Europe needs to be prepared for that. However, whatever Putin does in the coming months, the energy weapon will turn into a boomerang. Because the ultimate goal will be Russia itself. For half a century, Russia has trumpeted its brand as a credible supplier – regardless of political tensions, its energy would flow to Europe without interruption. The war has pulverized this signal. Europe no longer trusts Russian energy and does not want it. Russia may further manipulate supplies as the battle intensifies in Ukraine. But the permanent cessation of Russian energy will not come from Kremlin action. It will come from Europe, determined to disconnect from its main supplier. As the war intensifies, the timetable shrinks. The Biden government’s initial package of “huge” sanctions ruled out the biggest thing of all – Russia’s $ 250 billion in oil and gas exports – to the Kremlin each year. This reflected Europe’s concerns that, without these supplies, its economy would be so disrupted, prices would be so high as to undermine governments and their commitment to the West. But the shock of Russia’s war sparked an unexpected process of self-sanctioning by Western companies to avoid touching Russian oil. What makes the difference now is the coordination between key European governments and the oil and gas industry, which actually manages the flow of energy. This has led to a much deeper, more up-to-date understanding of energy flows and supply chains – and choices. Make no mistake: cutting the energy cable with Russia will be difficult. About 2 million barrels of crude oil need to be replaced. However, banning Russian crude imports is immediately on the EU’s agenda. Western countries are marketing about 1.3 million barrels a day from their strategic reserves, and China’s lockdown on Covid has reduced economic activity and travel. , releasing extra oil. Just weeks ago, Berlin said it would take a year or two to stop using Russian oil. But a few days ago, Finance Minister Robert Hubeck said something remarkable – if needed, a solution could be found in “days”. As such, German oil imports from Germany fell from 35 percent to 12 percent of total consumption. More difficult to extract are refined products, such as diesel and gasoline, of which Russia is a major supplier. Diesel supplies are limited worldwide, in part due to the closure of refineries. The most difficult thing to get rid of altogether is Russian pipeline gas, which accounts for 25% to 35% of Europe’s supplies. But note that it means that 65 per cent to 75 per cent of Europe’s gas comes from somewhere else. There are alternatives to Russian gas. The bulk of US liquefied natural gas, which used to go to Asia, is now coming to Europe. US supplies will increase this year. However, it appears that only about a third of Russian gas can be easily replaced by existing alternative sources. There are other ways to replace gas imports from the east. But that requires realism – a recognition that short-term expediency is needed in times of war, without abandoning the long-term goals of the energy transition. Floating LNG terminals may arrive in Germany and other countries by the end of the year. The giant Groningen gas field in the Netherlands, which was virtually closed for environmental reasons, may be shut down again. More coal can be burned in electricity generation, thus giving priority to gas for heating and industrial processes. Europe’s exit from Russian gas will remove Putin from its most important market. Gas will be boosted, no longer generating revenue. Fixed pipelines cannot be dug, placed in tankers and shipped elsewhere. Western sanctions on technology will prevent the expansion of the Russian Arctic LNG. Total oil and gas production will be reduced. Putin announced his response – construction of new pipelines to China. But that will take years. And in terms of price, the Chinese will benefit, as they did when they negotiated the Power of Siberia gas deal in 2014 following Russia’s annexation of Crimea and subsequent Western sanctions. No one knows better than Putin what this will mean for the Kremlin in terms of reduced revenue. As he said after the 2014 agreement: “Our Chinese friends are making a very tough deal as negotiators.”
