Natural gas could now be rationed across the EU until the spring of 2023, according to a European Commission plan announced this week, as the continent experiences what a number of economists are calling its worst energy crisis ever. For decades, Europe has depended on Russia for much of its natural gas, but Vladimir Putin drastically reduced exports to the EU after it imposed harsh sanctions on Moscow for invading Ukraine. Discussing the rationing proposal, European Commission President Ursula von der Leyen said, “Russia is blackmailing us. Russia is using energy as a weapon.” The human costs of the natural-gas shortage are already apparent, as some housing cooperatives in Germany are limiting hot-water usage by residents. Utility bills for some Europeans are up 500 percent from last year, contributing to steeply rising inflation that’s provoked labor strikes in several European countries. And even as the record heat wave in much of Europe severely strains the union’s power grids, the prospects for the winter are even worse, as most EU homes and businesses rely on natural gas for heating—and Putin could still further decrease supplies. How bad could this crisis get?
Samantha Gross is the director of the Energy Security and Climate Initiative at the Brookings Institution in Washington. In her view, European countries don’t have any easy solutions to the emergency. They can’t just switch to another energy source to power their homes and businesses, and they can’t buy up enough natural gas elsewhere to make up for the Russian shortfall. EU states are trying to stock up as much gas as possible now for the winter months, and they’ll try to cut back on gas usage wherever possible—including asking citizens to conserve at home. But, Gross says, rationing gas could easily push the continent into a recession, as turning off the power needed for industry would cost many workers their jobs. As she sees it, the next stage of the crisis will largely depend on the winter’s weather and Putin’s actions—both highly unknowable. Putin could completely shut off Russia’s gas pipelines to Europe, because oil is more important than gas to his state’s overall revenue—and because maintaining that revenue is important for continuing his war in Ukraine. On the other hand, Gross says, Putin wouldn’t be able to ship that gas anywhere else, and the country’s gas fields could be permanently damaged by halting production even temporarily.
Michael Bluhm: Why is natural gas so expensive in Europe?
Samantha Gross: The natural-gas market is fundamentally different from the oil market. Oil is relatively easy to transport; you can put it in tankers and move it around. But for a long time, natural gas only moved through pipelines. The relationship between producers and consumers connected by pipelines was like a long-term marriage.
This has changed with liquefied natural gas, or LNG. As more LNG is produced, more gas can move between markets, so you get more price similarity in natural-gas markets than you could before. That said, Europe is still very dependent on pipeline gas from Russia. It gets about 40 percent of its supply from Russia. Certain countries—especially Germany—are even more dependent than that.
Russia has been using its gas supply to Europe as a weapon. Europeans and other Western countries are not buying Russian oil, to try to punish Russia. But Russia is trying to punish Europe by sending less gas. They have cut off supply completely to Poland and Bulgaria. They’ve cut way back on shipments to Germany through Nord Stream 1, the direct gas pipeline from Russia to Germany.
This energy weapon works both ways. The West is using it against Russia, and Russians are using it against the West. In Europe, there’s not enough other gas available to replace the Russian pipeline gas. There’s not enough liquefied natural gas. That’s why you’re seeing natural gas prices so high in Europe: They’re losing so much of their most important supply, and there’s not enough available in other places to make up for it.