Analysis | E.U. energy security in the crosshairs
Theresa Sabonis-Helf
The impacts of the Russian invasion on Ukraine have been immediate and far-reaching: half a million Ukrainians have fled to neighboring countries, the United States and European Union have hit Russia with a raft of harsh sanctions, and Russia’s nuclear deterrence unit is now on high alert. Energy prices around the world have also shot up, but nowhere have the shocks been felt more acutely than in the neighboring European Union. Following the invasion, natural gas spot market prices shot up 70%, leaving many European states in crisis. Meanwhile, oil soared as well, rising above $105 per barrel. Make no mistake; these shocks are by design. Disrupting E.U. efforts towards transformation of their energy relationship with Russia is a core objective of this invasion.
The European Union was already experiencing a gas crunch and an all-time high in natural gas prices before the Russian invasion, the rejection of Nord Stream 2, and the threat of sanctions affecting potential energy production. As prices rose in the fall of 2021 markets began reflecting the fear that supply would be insufficient, and the European Union found itself paying an unexpected price for its years-long effort to reduce its dependency on Russian gas.
For decades, the European Union relied on pipelines with long-term contracts to deliver natural gas from Russia. In the last decade however, the European Union has been trying to reduce its dependence on Russian supply, ever since a 2009 crisis between Russia and Ukraine caused a 21-day interruption of natural gas to Europe. Since, the European Union has focused on building interconnectors — pipelines that make it possible for European states to supply each other with gas in crisis– while also expanding Liquified Natural Gas (LNG) facilities. They also began moving away from long-term gas contracts using the Russian pipelines, focusing instead on purchasing from gas spot markets to meet their short-term demand. Russia, favoring the long-term contracts, and wanting to emphasize the importance of Nord Stream 2’s completion, chose not to send gas to the European spot market this fall — not even as prices rose. Meanwhile, the LNG facilities did little to ease the discomfort, as LNG gas is significantly more expensive than pipeline gas.
A long history of Russian energy reliance
The truth is that the European Union’s energy reliance on Russia is deep and not easily severed– and it was actually designed that way. The European Coal and Steel Community, which existed from 1952–2002, had sought to build peace on the continent through regional economic integration. As coal and steel were each essential for munitions, the members agreed to establish a common market for those two goods, with free market prices, free movement of products and no imposition of customs duties or taxes. The idea was that a fluid market in these two essential goods could “make war not only unthinkable but materially impossible.” This idea of a common market serving as the basis for a durable peace became both the premise underlying the European Union, and the basis upon which European actors decided that the Soviet Union could be made into a reliable trade partner in energy.
The 1973 and 1979 oil shocks hit Europe particularly hard, and led states to consider embracing imported natural gas as an alternative fuel. Despite U.S. objections and equipment embargoes, a large natural gas pipeline connecting Siberia to Europe was completed in 1984. The European Union found real advantages to natural gas, including lower pollution and a relatively stable price, and began to shift its dependence significantly. The Soviet Union proved to be a reliable supplier to European countries that paid full price, and gas trade persisted even in periods of high Cold War tension. Relatively stable provision of energy resources to Europe continued successfully for more than ten years after the collapse of the USSR.
Over time, however, Russia’s relationship with its key transit state (Ukraine) deteriorated, while at the same time, the European Union transformed, expanding in 2004 to include East European states with high levels of dependence on Russian supply and long histories of tolerating politicization of energy.
Ukraine: An obstacle to Russian energy dominance
Both physically and metaphorically, Ukraine stood between Russia and the European Union — its territory serving as a supply corridor for the majority of Russia’s natural gas. As Russia-Ukraine relations deteriorated in the face of Ukraine’s turn towards the west, the European Union began to experience acute supply interruptions. In response, Brussels sought to bring Ukraine’s energy laws closer in line with those of the European Union’s, while Russia sought to create new routes to Europe that avoided Ukraine altogether.
In the midst of the Donbas war in 2015, Russia announced that it would no longer use Ukraine as a transit state after existing contracts expired in 2019. Russia pursued construction of alternate routes (including the Nord Stream 2), while allies of Ukraine sought to delay those routes so that a new contract with Ukraine would be necessary. A new contract was eventually signed in December 2019. While it ensured that Russia would continue to use Ukraine routes through 2024, the contracted volume dropped by more than half. When Nord Stream 2 progressed more slowly than expected, Russia simply sent less gas to the European Union, rather than increasing flow across Ukraine.
The European assumption that economic interdependence would lead to durable peace did not hold for the state in the middle. Over time, Ukraine found itself increasingly trapped in a clash of economic approaches, as Russia attempted to use energy as a hard-power tool in its toolkit, while Europe sought to tame Russia by enmeshing it in European rules. Slowly, over the past decade, this clash has escalated to all-out conflict.
Simmering tensions erupt in conflict
When Russia annexed Crimea in 2014, Ukraine lost access to an estimated 80% of its offshore natural gas deposits. The development of those deposits, which had already been underway, would have significantly reduced Ukraine’s energy dependence on Russia. The invasion was also likely a response to Ukraine’s attempts to reshape its energy laws, markets and practices to align with the European Energy Community Treaty (and reduce Russian leverage).
Among other effects, European rules made it impossible for Russia to gain control of Ukraine’s massive natural gas storage facilities, which Russia had long coveted. Ukraine’s history of managing the facility poorly (resulting in the disappearance of shocking quantities of gas) had led Russia to believe that it could obtain control of the facility in debt-for-equity negotiations. Instead, Ukraine turned towards the European Union to assist in management of the facility. These underground caves, which can hold approximately 32 billion cubic meters (more than half of the total annual throughput of the Nord Stream 1 pipeline), are the third largest in the world and are critical to managing the European Union’s fluctuating demand. They make the growing spot market for natural gas possible, by offering a location where large natural gas volumes can be stored or reclaimed, balancing demand.
In short, Ukraine was beginning to turn some of its energy weaknesses into strengths, making itself useful to Europe as a more powerful and more law-abiding transit state. This western shift in Ukraine’s energy orientation threatened the Kremlin’s longstanding practice of using energy as a key instrument of its power. In the crises and conflicts that have unfolded since 2014, Ukraine’s role in energy has served as a source of grievance for Russia, and has made it a target. There is little question that by invading Ukraine, Russia hopes to recapture key energy transit and storage assets– and pull Ukraine back, not only from NATO but also from its supporting role in European energy security.
Cheap gas from Russia was an irresistible temptation for many years. It will be an expensive and difficult habit to change. Sanctions, even if they continue to deepen, are likely to retain cut-outs for energy, as a cutoff of Russian oil and gas to the European Union would cause considerable damage. If a cutoff were to occur, it would be possible (at high cost) to replace supply for Northern Europe with LNG. It is not clear, however, if it would be possible to bring in sufficient gas to supply Northern Europe and push gas, through the interconnector network, to the eastern European states which are more reliant on Russia, have less LNG capacity, and will experience greater problems absorbing high prices. Last in the natural gas pipelines, and most difficult to supply at a reasonable price, would be Ukraine. It may become a test of Europe’s willingness to ensure this aspect of Ukrainian security — and it is a test that Putin expects Europe to fail.
Theresa Sabonis-Helf is the Inaugural Chair of the Science, Technology and International Affairs concentration in the Master’s Degree program at Georgetown University’s School of Foreign Service. She has lived and worked in seven countries of the Former USSR, has assisted two nations with the development of their first National Security Strategies, and has co-edited two volumes on Central Asia’s political and economic transition. She has also published and lectured extensively on energy security, climate change policies, post-Soviet energy and environmental issues, regional water politics, regional trade and transit, and the politics of electricity. She is a frequent advisor to the U.S. Department of State and USAID and is also a member of the Council on Foreign Relations.
