There are many unknowns in the Russia-Ukraine situation.
Will Russia invade? Will it stop short of invasion while taking other steps to destabilise Ukraine? Will it face European or American sanctions? What form would those sanctions take? And so on.
But perhaps chief among the unknowns is what might happen to Europe’s energy supply.
This is no trivial question – indeed, there’s an argument that it’s the most important underlying question of all. Many parts of Europe – especially Germany – are so reliant on Russian gas that there’s a strong argument that this reliance is what’s really guiding diplomacy.
This brings us to another question: what would happen if Russia switched off the supply of gas to Europe? Would continental Europe have enough energy to power its grid and heat its homes? What about the UK; would it run short?
It is worth underlining at the outset that few people either in the energy markets or indeed in diplomatic circles expect this worse-case scenario, even in the event of a Russian invasion of Ukraine. Much more likely, in such an eventuality, would be a smaller fall in Russian gas imports to Europe.
Perhaps Russia might face sanctions which could curtail its ability to process payments for gas. Perhaps there would be disruptions to gas transiting Ukraine, one of the main routes from Russia to Europe (though not the main route, as it was a decade ago). Such scenarios might see the amount of Russian gas coming into Europe falling by some tens of billions of cubic metres.
A complete cessation of flows via its pipelines across the Baltic and across Ukraine would be highly unlikely, not least because it would cause a permanent switch in European energy trends, which, in the long run, would be disastrous for Russia and its gas producer Gazprom.
Simple matters of infrastructure
Still: it’s worth asking the question, in part because while highly unlikely it is at least possible and in part because such exercises help us better understand the nature of our energy system. And because much of this comes down to simple matters of infrastructure – how many pipelines are there, how much capacity is there for getting gas in from other places and how do these factors interact with domestic demand – we can actually come to some conclusions. And they turn out to be somewhat surprising.
But let’s start at the start, by reminding ourselves where continental Europe gets its gas (there is some produced in the Dutch North Sea and a few other small amounts of domestic production, but the vast majority is imported). By far the biggest source is Russia, accounting for about 47% of imports last year.
The next biggest chunk comes from Norway, still a big net exporter of gas. Some 12% comes from North Africa through pipelines that run under the Mediterranean to Italy and Spain and a smaller chunk comes from pipelines from Azerbaijan which arrive in Greece and Italy.
Once upon a time pipelines were the only way of getting large quantities of gas but these days there is also a substantial amount of gas shipped in vast liquefied natural gas containers. Most of these come into Europe in Spain and the UK, but there are also some terminals in France, Belgium and the Netherlands. The two biggest producers of LNG are Qatar and the US.
The relevance of all of this becomes apparent when we start to think about what Europe (and we’re talking here primarily about countries in central and Eastern Europe – especially Germany) could do in the event of Russia stopping pipeline flows. Much of the below relies on the work of Mike Fulwood and Jack Sharples at the Oxford Institute for Energy Studies (OIES).
As of January there was just over 200 million cubic metres a day of gas flowing through the three main pipeline routes from Russia into Europe (the Nord Stream 1, the Yamal-Europe and the pipes across Ukraine). This was actually a little lower than normal demand, which tends to be closer to 270 million. Let’s imagine that stopped overnight. That leaves a roughly 270 million cubic metres per day hole to fill.
What are Europe’s options?
There would be broadly four avenues for Europe.
1. The first would be to try to produce more gas itself. The Netherlands, for instance, has announced plans to raise annual production at its old but mighty field Groningen from 3.9 billion cubic metres to 7.6bn cubic metres. This might help a bit, but a) it’s not likely to be finalised until April, by which time who knows where we’ll be and b) even once approved it won’t make more than a slight dent in that shortfall: perhaps about 14 million cubic metres a day (or roughly 0.07% of the shortfall). Elsewhere in the North Sea there is not much evidence that production can be increased dramatically.
2. The second avenue is for Europe to rely on the gas it has in storage. But here we run into another problem, which is that its stockpiles are at the lowest level for this time of year since 2011. Indeed, if it were to carry on running down these stores at recent rates, the stockpiles would be exhausted by mid-April. So in the absence of Russian gas it could run down the stockpiles faster, but this would mean potentially exhausting them by mid ton late March – still in the European winter. While this could potentially fill the gap, at least until the storage was empty, refilling the storage again would be very problematic.
3. The third option is to curtail energy use. In practice this means forcing or persuading factories and industrial gas users to suspend their energy intensive activities until the end of the winter. Clearly there is only so much one can reduce demand without causing serious economic harm. And no-one is seriously contemplating rationing energy to households (remember much of Europe’s gas is used to heat homes in the winter). Modelling by the OIES suggests that demand could be reduced by nearly 100 million cubic metres a day, though not without some significant industrial pain.
4. The final option is to try to get more gas from elsewhere. But where? The easiest option would be more gas through the pipelines from Norway, Azerbaijan and Iran, but here you run into problem: it’s not obvious they could produce that much gas. North African imports are already at close to record levels. There is an entirely separate diplomatic issue, which is that Algeria has broken off diplomatic relations with Morocco, so is not sending its gas there, which in turn means pipeline supply into Spain is lower than it would otherwise be. Pipeline supplies from Azerbaijan are effectively at full capacity already, while pipeline supplies from Norway – the best non-Russia avenue for more pipeline supply – are also unusually high. Indeed, the pipelines running from Norway into Europe were already about 83% capacity utilisation in mid-January.
That brings us to perhaps the best option to try to fill that 270 mmcmd gap: liquefied natural gas. The US is producing record amounts of LNG at the moment and while demand from Asia is high, Europe has a logistical trump card: a ship sailing from the US east coast to Europe has about half the distance to travel as it would to Asia, meaning such trips are doubly attractive (since you can do two in the time it takes to do a single round trip to Asia).
Britain’s role in supplying Europe
But there is another question: how would one get enough LNG into Europe to fill that gap left by Russian gas? Here we run into some complications, the first of which is that getting gas from Spain, Europe’s biggest LNG importer, to Germany, is actually quite complicated, since the pipelines between the Iberian peninsula and the rest of Europe can only carry limited amounts of gas.
How about the LNG terminals in the north of continental Europe – at Dunkerque, Zeebrugge and Rotterdam? Given these are plugged into the right part of the network, they could help bolster supplies, filling perhaps 30 mmcmd of that supply no longer coming from Russia. But that still leaves a big hole to fill. How to fill that gap?
That bring us to perhaps the most unexpected answer. That hole could be filled by Britain. The UK could send North Sea gas directly to Europe, through its pipelines, and then replenish its own gas network with LNG imported from the US, Qatar or other suppliers. There are a couple of important reasons why the UK would end up as a supplier (or rather the pipeline) of last resort.
The first is that while Norwegian pipelines are very full at the moment, running at about 83% full, the UK pipelines, exporting to Europe, have plenty of capacity left. Over the past month or so only about 17% of their capacity was being used. The second is that the UK has considerably more LNG terminal capacity – around 35 million tonnes a year, compared with about 25 million in north Europe.
Put those things together and it seems plausible that the UK would be the crucial link in what OIES calls a “land bridge” of gas to mainland Europe. And because we’re talking here about an integrated market which responds to price cues, the reality is that this could happen swiftly and automatically without any government interference.
This comes down to a deeper point: even though the UK has left the EU and no longer has any legal obligation to provide gas to its European neighbours (or right to claim it off them if it ran short) the single market in gas is as integrated as it was before Brexit, and the UK remains a part of it.