Russia (Washington Insider Magazine) -A global surge in gas prices is being felt most acutely in Europe, with costs spiralling upwards almost 500% from a year ago.
The price hike stems from a combination of factors. Decarbonization policies have shuttered coal plants while several EU states are phasing out nuclear power. Problems also persist in the storage technology for renewables.
In addition, the decline of natural gas prices during the Covid pandemic forced many gas companies to cut back production, leading to a shortage. A cooler than usual spring depleted gas inventories earlier this year, followed by a rise in demand as European economies bounced back and reopened during the summer.
Yet the crisis also stems from Europe’s reliance on Russian gas. Even after attempts to reduce Russia’s gas dominance after the Ukraine crisis in 2014, the opening of the TurkStream pipeline in 2020 and the upcoming Nord Stream II pipeline have further complemented the Kremlin’s efforts to restrict other gas suppliers’ access to Europe.
Russia maintains significant control over Central Asia’s gas infrastructure for example, while their pipeline networks largely travel through Russia first as well. Russia’s aid to Syrian President Bashar al-Assad has meanwhile allowed the Kremlin to dictate Middle Eastern gas flows through Syria to Europe.
The US lacks the pipeline network to deliver gas to Europe, while Germany, the continent’s largest gas market, has no Liquefied Natural Gas (LNG) terminals. That leaves Algeria and Norway, whose influence in Europe will soon be undercut when Nord Stream II officially opens.
While the EU deals with the impending departure of German Chancellor Angela Merkel, Russia has been quick to strike with its divide and conquer approach. It signed a 15-year deal with Hungary last week that will give the Central European country some of the cheapest gas in Europe.
Perhaps most worrying for Europe is that Russia is no longer dependent on the continent for revenue. Over the last decade, China has become Russia’s most valuable gas recipient and is also outbidding Europe for shipments of Russian LNG.
Additionally, the Kremlin is looking to grow its Japanese and South Korean imports and promote LNG imports to India.
The rapid increase in natural gas prices have also had ripple effects across the global economy. Industries reliant on natural gas have suffered and oil prices are at three-year highs. Fuel cuts and energy restrictions have been put in place from China to the UK.
As the weather continues to cool, Russia will maintain the upper hand in Europe as gas demand spikes. Whether it can exploit it globally is another question.
