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Pipeline Politics
Gazprom Gloats over Captive European Market

The state-owned natural gas supplier Gazprom has long enjoyed throwing its weight around in the European market, but that narrative seemed to be shift somewhat in recent years as countries like Poland started actively working to circumvent Russian supplies and the continent began looking hopefully westward as the United States assembled liquified natural gas (LNG) export infrastructure. But LNG hasn’t (yet) saved Europe from Gazprom’s clutches, and as Bloomberg reports, 2017 is shaping up to be a return to form for the Russian company:

A “conservative estimate” by the world’s biggest exporter is that Europe’s demand may increase by about 5 percent this year, [Gazprom] Deputy Chief Executive Officer Alexander Medvedev said Thursday in an interview in Hong Kong. The state-run company, which supplied record volumes to Europe last year and met more than a third of consumption, sees its 2017 shipments of “no less than in 2016,” he said.

The European Union’s gas demand increased in 2015 after four years of declines. After the coldest January in seven years and plunging output at domestic fields, the region is getting increasingly dependent on foreign supplies of the fuel mainly used in heating. And the low storage levels aren’t lost on Medvedev.

“We see a renaissance now, so the 5 percent growth is a realistic figure,” Medvedev said. “Meanwhile, the production is falling and will fall further.”

This is, in many respects, a problem of Europe’s making. Many European countries have snubbed their own domestic reserves of shale gas after being swayed by the cries of environmental activists. Europe has also been slow to avail itself of the rapidly growing global (LNG) market, though import terminals are coming online that will give the continent access to gas supplies from virtually anywhere in the world.

LNG imports could take on increased significance if Russia were to once again use its comfortable position as a major neighboring natural gas supplier as economic and geopolitical leverage. Europe should therefore make it a top priority to bulk up its capacity to buy LNG supplies from suppliers like the shale-rich United States, or Australia, or Qatar, to name just a few LNG heavyweights. That would help to loosen Gazprom’s leverage.

In the meantime, as long as Europe’s appetite for gas continues to grow and its recalcitrance to drill the cleanest burning fossil fuel out there persists, Russia is going to enjoy pushing around its hundreds of millions of captive customers.

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  • CaliforniaStark

    The Yanks are on the way. Europe is seeking to diversity its supply, and its become economically feasible to ship U.S;. gas to Europe.

    Question whether Bloomberg is a reliable source for information on energy issues; often its reporting seems superficial and appears to reflect an an ideological bias.

  • Andrew Allison

    Just another price to pay for the search for the elusive alternative energy Unicorn!

  • demboj

    The American Interest is being alarmist. The fact that Europe is buying more natural gas from Russia is immaterial to the political situation, except that it somewhat improves Russia’s financial condition. The political situation is controlled by the fact that Europe now has alternative sources of natural gas (the US) and that Russia can no longer use natural gas as a lever to influence Europe politically. Even Europe’s un-tapped resources of shale gas & oil bears on this. The Russians know that the Europeans have these resources and can develop them very quickly if pushed too hard. Therefore Russia cannot push too hard on Europe if they want to keep selling natural gas and oil to the Europeans. Natural gas is a buyer’s market right now.

    • Makaden

      It seems to me that shutting off a critical supply of energy if one wanted to engage in an act of aggression could manifestly do quite a bit of damage, since Europeans have not been investing in the infrastructures required to tap their own reserves. What am I missing?

      • demboj

        Makaden: You are missing quite a lot. Cutting off Russia’s oil and gas exports to Europe would hurt Russia more than Europe. Indeed, the Eastern European countries are basing their national security on their ability to do shut down the Russian pipelines that cross their territory if need be. The fact is that Europe is Russia’s largest market for oil and gas exports and the Russian government earns a majority of its income from the sales of oil and gas. Russia’s government would collapse tomorrow if the money stops coming in. On the other hand, Europe could obtain gas and oil from numerous other sources if the Russians decided to use that weapon. I can imagine them using that weapon only in an existential crisis, not simply to manipulate European politics in some manner. In addition to that, the Russians don’t want to end up like the Arab oil producers, who have cut production in order to push prices higher only to see the American shale producers jump back into the market and take the majority of market share of the withheld production, leaving the Arabs with a smaller market share, and not much higher prices.

        • Makaden

          If the interests are aligned as you described, why doesn’t Europe force Russia to withdraw from Crimea tomorrow, “since [Russia] would collapse tomorrow if the money stops coming in?”

          I’m no where near as informed as I could be about Europe’s energy security, but something about the scenario you outlined doesn’t pass the smell-test for me.

          • demboj

            Makaden: You shouldn’t have to use a smell test. This issue has been extant since the 1950s when the Europeans first began buying Soviet oil and gas. Then it was because the Eropeans didn’t want to rely totally on OPEC. It wanted to diversify supplies that could not be torpedoes at sea. It kept buying Russian oil and gas right up to the collapse of the Soviet Union and has since kept buying oil and gas from Russia. The Soviets invaded Afghanistan but Europe kept buying Soviet oil and gas. Russia invaded Georgia and Ukraine, but Europe kept buying Russian oil and gas. The plain fact is that Europe doesn’t want to cause the collapse of the Russian government any more than it wanted the Soviet Union to collapse. The Europeans even opposed American attempts to defeat the Soviets. The oil and gas trade is an interest that ties Europe and Russia together and neither side wants to destroy it. If you are looking for a motive, just imagine the wave of refugees that would flee to Europe if Russia collapsed economically. It might be many times larger than the number now fleeing the Middle East and Africa. The plain fact is that Europe is trying to prop up the Russian regime to make sure that it remains stable and secure enough to want to keep the peace. At the same time, it doesn’t want to have to buy all its oil from OPEC. Europe could find alternate suppliers much easier than the Russians could find alternate markets but they don’t want to have to do it. Europe is in serious financial difficulties, itself, and a shut off of oil and gas would cause a financial crisis throughout Europe. I can imagine that Russia might cut off gas supplies to Europe but only if the government was in immediate danger of collapse due to civil war or foreign invasion. They would not use it simply to affect a relatively minor change in European politics. By the same token, the Europeans would not boycott Russian oil and gas, except if they feared an imminent Russian military threat. We are not in that kind of a situation . . . yet.

  • Eurydice

    It’s possible the Russians are gloating, but there’s no evidence of that in the Bloomberg article cited.

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