The Economist: Will EU choose Russian gas for economic relief?

A recent article by the Economist discusses the complex and evolving energy situation in Europe, particularly the potential return of Russian natural gas supplies, which has become a topic of increasing debate as the first full winter in three years reignites energy concerns. 

The author explains that with frigid temperatures and fierce competition for energy supplies from Asian markets, the gas price at the Dutch Transfer Title Facility (TTF), a major European trading hub, surged to its highest in two years. This has raised alarms among European officials who are now considering the possibility of resuming Russian gas imports to alleviate the economic pressure caused by rising energy costs.

The piece highlights that, in light of the energy crisis, some European officials are now openly eyeing the return of Russian gas to Europe. These officials believe that cheaper gas could help boost European industries, stimulate economic growth, and lower energy bills for households, particularly in light of projections that European GDP could rise by 0.5% if Russian gas were to flow again. Countries like Hungary and Slovakia are pushing for such a deal, while others, like Friedrich Merz (likely to become Germany's chancellor), have not fully ruled out the possibility of re-engaging with Russian energy sources in the future.

The article goes on to explore the shifting dynamics within the European Union, particularly the European Commission’s stance on reducing dependence on Russian energy. The EU had previously committed to weaning itself off Russian gas and oil by 2027, and after Russia shut down key pipelines in 2022, the EU’s reliance on Russian gas plummeted from 45% in 2021 to just 10% in 2023. However, despite these efforts, the European energy market remains vulnerable to supply shortages, particularly in the face of high prices and limited supply options, which are exacerbated by competition with Asian markets for liquefied natural gas (LNG).

A major concern for European officials is the EU's current storage levels, which are lower than usual, given the harsh winter and the ongoing supply disruptions. The EU requires that gas storage be 90% full by November 1st every year, but with lower-than-expected reserves, countries are worried about being able to meet these targets, especially with competing demands for LNG.

Some countries are even suggesting that the EU relax its storage targets or provide subsidies to encourage greater storage of gas. In addition, the price disparity between summer and winter gas prices this year makes it unprofitable for companies to store gas for the colder months, further complicating the situation.

Meanwhile, countries like Hungary and Slovakia, which still receive some Russian gas via pipelines, are advocating for a renewal of Russian gas flows through Ukraine to alleviate their energy shortages and lower prices across Europe. This would help reduce competition for supplies and make gas more affordable for industries that have already scaled back production due to high prices. The author notes that even a modest increase in gas deliveries through Ukraine could reduce gas prices by as much as a third, which would have a significant impact on European economies.

While Ukraine is strongly opposed to renewing gas deals with Russia, some workarounds are being explored. Slovakia’s gas company is working on establishing a subsidiary in Ukraine that could facilitate the resumption of gas shipments from Russia.

The article also discusses the possibility of reviving the Nord Stream 1 pipeline, which was once a major conduit for Russian gas to Europe, though this option faces substantial logistical and geopolitical challenges. Germany, for example, is wary of further reliance on Russian energy after the previous fallout with Russia over the invasion of Ukraine, and repairing the damaged Nord Stream pipelines would require significant investment.

Lastly, the author touches on the influence of former US President Donald Trump’s statements about starting peace negotiations between Russia and Ukraine. Trump’s comments, which suggest that an end to the war in Ukraine could lead to the resumption of Russian gas supplies, have been taken seriously by financial markets.

The article suggests that Trump may be motivated by a desire for a Nobel Peace Prize, but his proposal could have serious implications for global energy markets. If Russian gas were to flow freely again, it could significantly lower prices worldwide, making it difficult for American LNG producers to compete. This, in turn, could undermine the profitability of LNG projects and investments in the United States.

By Tamilla Hasanova