By Christopher Coates | –
As Ukraine continues its slide towards…. the potential impact of a halt in Russian gas reserves to Europe continues to concern governments across the region. Although both Russian actions and international sanctions have avoided direct threats to the natural gas trade, which amounts to about 30 percent of European demand, the threat remains real and worrisome in the eyes of many.
Since confronting the effects of a halt in Russian gas through Ukraine in 2009, amid a pricing dispute, Europe has made a concerted effort to diversify its natural gas supply options. Efforts have included increasing cooperation with North African producers, increasing renewable alternatives, modest domestic exploration and infrastructure investment to close transport deficits between member states.
However, despite lowering its dependence on Russian gas from 45 to 30 percent, Europe’s push has been limited by a series of setbacks on all fronts, not least the impact of instability across North Africa on hydrocarbon production and output.
Europe’s limited progress was highlighted at a gathering of G7 ministers in Rome this week, concluding that despite the region’s recent focus on diversification, Europe remains years away from being able to close the door on Russian gas reserves.
“I don’t know anyone in the world who could tell us how Europe’s dependency on importing Russian gas can be changed in the short term,” German Economy and Energy Minister Sigmar Gabriel told reporters, according to a Voice of America report.
Ministers highlighted that Europe’s push to reduce Russian dependence had fallen short of expectations and that alternatives were limited. Continued unrest and political uncertainty in producing countries like Libya and Algeria had reduced reliable output, while calls for increased imports from the United States remained hampered by issues of infrastructure and approval from Washington.
Despite a lack of direct actions related to the natural gas imports into Europe, there were lingering concerns that Russia might soon respond to increased international pressure and further sanctions by restricting gas deliveries or halting them completely. However, should the Kremlin act, they will run the risk of further damage to the Russian economy. For European customers, Russia provides a significant contribution to its energy needs, but for Moscow, EU consumers provide about $100 million a day to Russian coffers, accounting for about 3% of the country’s overall economic output. Furthermore, a broader threat to Russia’s gas imports, which have already fallen in recent years, would likely lend more support to alternative projects.
The Potential Of Energy Sanctions
The U.S. and European response to Russia’s actions in Ukraine have stopped short of focusing on energy firms as a whole, leaving existing production and export agreements in places. However, sanctions have targeted individuals with links to Russia’s oil and gas sector, including Rosneft’s Igor Sechin, creating what the New York Times called a “delicate dance” of foreign firms and individuals with shares in Russian energy firms. According to a New York Times report, “American investors will most likely be able to continue to own shares in a company with a chief executive who is subject to sanctions”, though they could face restrictions if the a target of sanctions is a majority shareholder in the company.
So far, both the US and Europe have taken a more cautious approach to focusing on companies or sectors as a whole, though Energy Secretary Ernest Moniz suggested that the G7 could “move forward, as they have agreed, in terms of elevating sanctions, particularly, at some point, moving towards sectoral sanctions”, should the situation in Ukraine continue to escalate.
Christopher Coates writes about energy and policy issues facing the Mediterranean region.