Europe is facing an energy crisis. Electricity prices have increased 200 percent compared with the average in 2019. Crude oil prices are higher than they have been in several years. European gas prices are suffering from daily swings of up to 40 percent. Meanwhile, the wholesale price of natural gas in Europe has jumped 250 percent since January.
Several factors have contributed to the skyrocketing costs of energy in Europe. There is higher global demand for commodities such as oil and gas as economies in Asia bounce back from the global pandemic. Production has been disrupted in some places due to natural disasters. Russia has also reduced the amount of gas it sends to Europe via its pipeline through Ukraine, according to the Ukrainian state-run gas transit operator.
In the European context, Russia most benefits from the current situation. Never one to pass up an opportunity to turn a geopolitical crisis to his advantage, President Vladimir Putin has used the shortage of natural gas to make the case on why Europeans need to get Nord Stream 2 fully functioning as quickly as possible. He has even suggested that the existing pipeline sending Russian gas to Europe via Ukraine “could burst” at any moment. Some in Ukraine have taken this comment as a threat.
Nord Stream 2 is a Russian gas pipeline that will connect Russia directly to Germany through the Baltic Sea. Russia prefers this method because it removes Ukraine from the transit route to European markets, making the country less important to Europeans and, therefore, more vulnerable to Russia. Germany likes the pipeline because it allows it to consolidate even more power across much of Europe. Most European countries, especially from Eastern Europe, are concerned about Russian dominance in the continent’s energy market.
Europe already depends on Russian natural gas for 40 percent of its needs. In total, almost 200 billion cubic meters of natural gas are now imported from the country annually due to declining European production and rising demand. Construction of the Nord Stream 2 pipeline is complete. However, before it can start shipping gas, the pipeline must receive technical certification to ensure it is safe to operate, regularity certification to ensure it complies with EU law, and insurance. The process to complete these three important steps could take months. Putin does not want to wait and has used the energy crisis to pressure Germany to act faster.
In the meantime, Europe needs to do a better job at diversifying its energy resources away from Russia. This can be done by looking south instead of east for new sources of energy.
For example, the Southern Gas Corridor connects gas from the Caspian Sea to southern Europe and has the potential to supply 60 billion cubic meters per annum of natural gas to European markets. Right now, the Southern Gas Corridor is delivering only 10 billion cubic meters per annum. There is also talk of finally building a trans-Caspian pipeline to bring natural gas from Central Asia to Europe, bypassing Russia. This pipeline would connect to the Southern Gas Corridor.
A pipeline is the only economically viable way to move natural gas across the Caspian Sea. This means that right now there is no profitable way to get Central Asia’s gas to Europe without going through Russia or Iran. Europe should take a leading role in making the proposed trans-Caspian pipeline a reality.
In addition, Europe’s energy security can be bolstered by the Three Seas Initiative. Launched in 2016 to facilitate the development of energy and infrastructure ties among 12 nations in eastern, central and southern Europe, the initiative aims to strengthen trade, infrastructure, energy and political cooperation among countries bordering the Adriatic, Baltic and Black seas. As a vestige of the Cold War, most infrastructure in the region runs east to west, stymying greater regional interconnectedness. Developing north-south interconnections and pipelines will boost Europe’s energy security.
It is important to point out that Nord Stream 2 is neither economically necessary nor geopolitically prudent. Rather, it is a political project led by German financial interests and Russian geopolitical machinations to greatly increase European dependence on Russian gas, magnify Moscow’s ability to use its European energy dominance as a political trump card, and specifically to undermine eastern and central Europe.
Russia has a track record of using energy as a tool of aggression. As Nord Stream 2 gets closer to being fully operational and as winter approaches, do not expect Russia to help Europeans solve their energy crisis. Each barrel of oil and cubic meter of gas that Europe can buy from sources other than Russia will make it more secure.
The sooner Europeans realize this, the better.
- Luke Coffey is the director of the Douglas and Sarah Allison Center for Foreign Policy at the Heritage Foundation. Twitter: @LukeDCoffey
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