europe energy
Why Europe is vulnerable to surging energy costs
02:50 - Source: CNNBusiness

Editor’s Note: David A. Andelman, a contributor to CNN, two-time winner of the Deadline Club Award, and executive director of The Red Lines Project, is the author of “A Red Line in the Sand: Diplomacy, Strategy, and the History of Wars That Might Still Happen” and host of its Evergreen podcast. He formerly was a correspondent for The New York Times and CBS News in Europe and Asia. Follow him on Twitter @DavidAndelman. The views expressed in this commentary belong solely to the author. View more opinion at CNN.

CNN  — 

The warning was hardly veiled. Vladimir Chizhov, Russian President Vladimir Putin’s tough-minded representative to the European Union, recently said that if Europe wants to resolve any future issues with its supply of natural gas quickly, treating Russia as a “partner,” not an “adversary,” will help.

David Andelman

It’s not the first signal that Russia is prepared to hold Europe hostage to natural gas prices, which are escalating dramatically. But with Europe currently facing an energy crunch, the context and timing are significant – on both sides of the Atlantic. It’s quite clear that both Washington and Brussels need to mind what’s on the mind of Chizhov – and especially Putin.

For Europe, the price of not cozying up to Russia could be debilitating gas shortages this winter, not to mention exploding gas prices. Since natural gas is the primary heating fuel for Europe, this is a potentially existential threat. And lately, prices have shown a tendency to swing widely, often on the whim of, or prompted by, off-hand remarks uttered by one man: Vladimir Putin.

On October 6, for example, prices surged early in the day, reaching a level 10 times their level at the start of the year, as the Financial Times reports. Within hours, however, Putin observed, “Let’s think through possibly increasing supply in the market, only we need to do it carefully. Settle with Gazprom and talk it over.” (In other words, I can flip a switch and your economies and society can be turned on their head.) Within hours, prices saw a sharp reversal, the paper notes.

This kind of hardly subtle pressure comes at a most sensitive moment for Europe.

Germany is still trying to cobble together a coalition governmen – and identify a successor to Angela Merkel as chancellor – following an election in which no clear leader emerged. With French President Emmanuel Macron on the cusp of launching his own reelection campaign, rising gas prices heading into winter could harm his standing.

Europe could be at an inflection point in its energy-driven vulnerability to Russia, for two reasons.

A new pipeline from Russia’s gas fields to Germany – dubbed Nord Stream 2 – is moving ahead. It figures to shore up Europe’s access to gas, but also to grant Russia even more control over that access, something the US has pointed out as it opposed the project. (Recently, the Biden administration waived sanctions related to it, giving an effective green light, despite its concerns.)

At the same time, Europe is forging ahead with a transition away from fossil fuels and toward clean, renewable energy sources. But that transition hasn’t happened yet. As Europe looks for a bridge from dirtier sources like oil and coal, relatively clean natural gas is seen as a good fit.

And for gas, Europe relies on imports – particularly from Russia.

France, for instance, imports virtually all its natural gas. France is among the global leaders in nuclear technology, but Macron has previously pledged to rely on it less heavily. (Amid high energy prices and his looming reelection campaign, he has reneged on that a bit, promising swift new investments in nuclear, but nonetheless, it remains the case that Macron has committed that by 2035, France will rely on nuclear for no more than 50% of its power. That stands to boost the importance of gas.) Germany, too, is turning away from nuclear and is doing so even more quickly: Merkel’s government has pledged to shutter all of Germany’s nuclear plants by the end of next year.

As Germany and France seek to reduce their reliance on nuclear energy, they’ll likely turn to natural gas, at least until more wind and solar projects can be brought online.

Putin, one might guess, is probably viewing this as a rare opportunity to exercise important politico-economic leverage. With Nord Stream 2 still in the works, Russia is already Europe’s main gas supplier, accounting for 41% of its imports. A turn to gas by Europe, and a new pipeline to Russia to get it, only stands to boost Putin’s power.

Putin has already been quietly demonstrating just what life could be like for a continent that has become deeply, perhaps existentially, reliant on the Kremlin to supply its most critical energy needs. Russia is moving only limited quantities through the current pipeline system that transits Ukraine, and its state gas producer, Gazprom, is filling domestic stocks before replenishing storage sites in Europe.

With energy prices rising and the global economy struggling to move forward after its post-2020 rebound, short gas supplies are already putting parts of Europe at risk of energy-driven stagflation. These pressures could very well intensify, providing a possible foretaste of what could be on the near-term horizon, until Europe manages a credible and sustainable transition to renewable energy.

Putin would clearly see a completed EU transition away from gas, and toward renewables, as a looming threat to his influence. It’s yet another reason for Putin to look to Nord Stream 2 to reap as much profit (financial and geopolitical) as possible before the EU can pull off its green conversion.

The US may not like the pipeline – former Secretary of State Mike Pompeo called it a tool of Russian “coercion” – but Washington probably can’t do much about it. Having already irritated so many forces in Western Europe over a host of issues, including the US and NATO withdrawal from Afghanistan and the secretively crafted US-UK-Australia security partnership, the Biden administration must tread very carefully indeed.

The US may have non-geopolitical reasons for opposing Nord Stream 2 – and it might have reason to see American-supplied natural gas as a possible answer for Europe. The United States remains the largest single supplier to Europe of liquefied natural gas, which can be shipped via tankers.

Still, LNG is more expensive, relies on long-distance supply, and must be converted from liquid to gas on arrival. And there’s already heavy competition from other regions, especially China, for LNG. Nord Stream 2 would result in a guaranteed supply of natural gas to Europe, presuming EU member states approve it in the next several months. So for Europe, it remains an appealing option.

From the Russian perspective, there’s another beauty to Nord Stream 2, beyond serving as a potentially cheaper competitor to American LNG: It could allow Russia to scale back dramatically its natural-gas shipments through the existing pipeline that passes through Ukraine and from which Kiev now receives transit fees. That could give Putin even freer rein in his rivalry with the determinedly pro-Western government of Ukrainian President Volodymyr Zelensky, who just this summer labeled Nord Stream 2 “a dangerous geopolitical weapon.”

Russia’s warnings to Europe could also be seen as a caution to the US to back off its determined opposition to Nord Stream 2 – and its opposition to Russia’s broader efforts to form more binding ties to western Europe. Nord Stream is effectively a fait accompli. Still, the perceived American hostility to it could drive yet another wedge between Europe and America, at time when the Trump and now Biden administrations have done enough to degrade transatlantic ties.

In that sense, the US should back off and let the pipeline proceed without much complaint. Until Europe breaks its reliance on fossil fuels and effects a green transition in full, Putin will keep an upper hand.