Title: Russia’s gas pipeline strategy and Europe’s alternatives – European Council on Foreign Relations
Headings: Russia’s gas pipeline strategy and Europe’s alternatives
Russia’s gas pipeline strategy and Europe’s alternatives
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Content: Europe without Russian gas through Ukraine (ca. 70 billion cubic metres per year) is tantamount to Northeast Asia without Japan’s entire nuclear power fleet. However, such a shock might not impact European prices in the same way as it did in Northeast Asia because we are entering a ‘buyers’ market’. Indeed, the demand in Asia is lower than anticipated and developments in liquefied natural gas (LNG) capacities globally favour gas consumers. But, the recent slump in oil prices means that some of the LNG production capacities may never materialise, while the low price environment would also encourage more gas demand. Thus, markets are self-correcting the imbalances and eliminating the potential surplus. What could really constrain the long-term upward pressure on prices, should such a supply shock materialise and persist, is Europe’s willingness to pay for gas, which is relatively low. This is perhaps thanks to German, Spanish and Italian taxpayers who contributed to financing renewables, making electricity markets in Europe not only ‘greener’ but also to strategically counterbalance the market power of gas suppliers such as Russia or Qatar. Still, a price increase in relative terms could be rather sharp in the short-term, should we witness the removal of Russian gas volumes through Ukraine. Even if the commercial side of the transit question is resolved, a ‘transit–avoidance’ policy is deeply rooted in the minds of Gazprom’s masters in Kremlin
Thus, the desired positive development is some sort of reconciliation between Russia and Ukraine, possibly through the containment of the conflict in the Donbas.