The EU’s energy system is facing instability and potential shortages of natural gas, according to senior managers from Russian energy giant Gazprom. Last year, Gazprom significantly reduced its exports to the EU following Western sanctions and the deliberate damage caused to the Nord Stream pipelines.
The Nord Stream 1 pipeline, which transported natural gas from Russia to the EU under the Baltic Sea, as well as the newly constructed Nord Stream 2, were rendered inoperable due to underwater explosions in September of last year. This disruption has had a lasting impact on the EU’s energy security. In an in-house magazine, Gazprom managers Sergey Komlev and Aleksandr Shapin explained that the persistent shortage of natural gas is evidenced by the higher price levels in 2023 compared to pre-Covid years, as well as the stable contango in the natural gas market.
Contango is a market structure in which the futures price of a commodity is higher than the spot price, encouraging traders to store the commodity for more profitable resale in the future. This pricing behavior indicates that the energy security system in Europe, which is intended to handle emergencies, is unstable and facing new challenges.
Gazprom’s reduced exports and the resulting shortage of natural gas have forced the EU to find alternative sources of energy. Last year, the EU replaced its reliance on Russian energy by increasing imports of liquefied natural gas (LNG) from countries including the United States, which became the bloc’s primary source of gas, accounting for up to 35% of total imports. However, Gazprom executives argue that the shift to LNG has weakened the EU’s energy security, as LNG is considered to be “less reliable” compared to pipeline gas supplied under long-term contracts.
Critics of the EU’s shift to LNG have raised concerns about its higher cost and less environment-friendly nature. Some Western economists and politicians have even labeled the sabotage of the Nord Stream pipelines as an act of “economic war” against the entire EU. The disruption caused by the intentional damage to the pipelines has revealed the vulnerabilities of the EU’s energy system, highlighting the need for a more diversified and secure energy supply.
Before the Ukraine conflict, Russia supplied approximately 155 billion cubic meters (bcm) of natural gas to the EU primarily through pipelines. However, in 2022, Russian pipeline gas supplies to the EU dropped to 60 bcm, and it is expected that this flow will decrease further to 20 bcm. This reduction in supply puts additional strain on the EU’s energy system and underscores the urgency in finding alternative solutions.
In conclusion, senior managers from Gazprom have warned that the EU’s energy system is unstable and could face shortages of natural gas. The deliberate damage to the Nord Stream pipelines and the subsequent reduction in Russian gas exports have led to weaker energy security in the EU. The increased reliance on LNG imports and the higher price levels in the natural gas market indicate the need for a more stable and diversified energy supply in the EU.