Since the Russian invasion of Ukraine, Europe’s supply of natural gas has been one of Moscow’s biggest bargaining chips. Lithuania is the only country to stop importing the fuel from Russia, on April 3, with the rest of the continent torn between its energy needs and not wanting to put money in Russian coffers.
Days before Lithuania took its stand, Russian president Vladimir Putin warned he could cut off gas supplies to other countries if they don’t start to pay their bill in rubles. But the design and physics of the European gas market favor the status quo: Most European countries will struggle to follow Lithuania’s lead, and Putin is likely bluffing. Russia can’t turn off the taps or re-route its supplies so easily.
Russia needs gas customers in Europe
Russia reaps $400 million per day from its gas, according to Rystad Energy. If a few European countries decide to stop imports, Russia will benefit: scarcity will force prices up, and offset the lost revenue, said Sindre Knutsson, Rystad’s vice president for gas.
But if Europe as a bloc suddenly ceased imports, Russia would be in trouble, because it has no way to reach enough alternative customers. In the last two decades it has built an expensive gas delivery network to serve Europe.
Russia supplies some gas to China, but from eastern fields. There’s no way for gas from the west, where most of Europe’s comes from, to reach China. One option is to ship it in liquid form from Siberia once the winter sea ice melts, but that terminal is already running over capacity, Knutsson said. A route through the Suez Canal is also possible, but is so long that it would only be attractive to buyers at a steep discount.
Moreover, shutting down pipelines can cause damage to “upstream” drilling infrastructure. Once Russia fills its own gas storage tanks (which, after the winter, do have space to spare), it would need to start shutting off gas wells, which is expensive and can damage the equipment when they are turned back on.
Putin’s threat was political, Knutsson said: “The goal from the Russian side is to create uncertainty, and that’s been accomplished.”
Europe can’t easily replace Russian gas
Europe, meanwhile, is in a bind.
It can cut Russian gas imports by two-thirds this year, according to a March 8 report by the European Commission. But to do so will require major changes. Lithuania and Poland are two countries that import relatively little Russian gas and have LNG import terminal capacity to spare, Knutsson said. They’ll have an easier time finding alternatives than those who use a lot of Russian gas and lack spare LNG infrastructure to source alternatives, mostly from the Middle East, Scandinavia, and the US.
That may change in the future: Since the invasion, at least 12 new LNG import terminals have been approved around Europe, compared to zero before. Still, most European gas contracts with Russia are 15 or 20 years long; escaping them won’t be straightforward, legally or politically.