In early December, according to Ukraine’s military assessment, Russia troops massed over 100,000 near the Ukraine border. U.S. President Joe Biden has warned that if Vladimir Putin chooses to invade Ukraine, there will be severe consequences of economic sanctions including halting the certificate of Nord Stream 2. The United States and the European Union (EU) may believe having the leverage of pipeline will deter Russia’s aggression; in reality, it does not present a real threat to Putin; even worse, a disaster for Europe’s current energy crisis.
It was not too long ago, Putin had conducted the same raid in 2014 when Biden was the Vice President of the U.S. The West simply failed to stop Russia annexing Ukraine’s Crimean Peninsula despite all kinds of warning and sanctions, and 14,000 people have died in Eastern Ukraine from the conflict.
Broadly speaking, Russia has simply cornered the EU energy market starting from the last few decades. Gazprom, Russia’ state controlled gas company which controlled over 20% of world gas reserves, began exporting to countries in Europe in early 2000; and over the next decade, it has signed deals with over 25 nations in Europe, and built diversified gas routes to individual nations, according to a study from Research Centre for East European Studies.
Russia continued to serve as the biggest suppliers of natural gas, crude oil as well as other solid fuels to EU’s market in recent years. According to Eurostat; in 2019, EU’s 47 percent of solid fuels, 41% of natural gas imports and 27 percent of crude oil imports came from Russia. Heading into the first half of 2021, EU’s energy dependency on Russia have only increased. Though petroleum imports from Russia have decreased slightly in comparison to 2019; Russia expand its natural gas market share in EU from 41% to 47%. Despite EU’s effort to decrease reliance on Russian energy, it failed to achieve for the past two decades.
One major factor contributed over reliance on foreign energy is the radical climate policies as well as regulations of EU that have put the continent in an energy crunch this year. Gross consumption in EU according to Eurostat have dropped below the peak in 2002, but it has since rebounded from the low point in 2011. Demand on natural gas in Europe continued to trend up despite the effect of the pandemic. At the same time, production have fallen dramatically since the early 2000. In the beginning of 21st century, approximately 243 billion cubic meters were produced across EU; but by 2020, less than 50 billion cubic meters were produced excluding UK’s exit from EU. This sharp contrast over demand versus supply have set up a perfect storm for energy crisis this year.
In early October, Dutch TTF natural gas price (Europe’s benchmark natural gas price) surged above €100 per kWh for the first time, which reflected about a 500% increase since same month last year. Prices have more than doubled since the beginning of the last decade, while prices dropped briefly from warmer weather in November and a possible approval of the Nord Stream 2, it has swung up in recent weeks, topping €100 per kWh again.
Situation have only gotten worse with the delay of the Russia pipeline, EU’s natural gas storage was oversupplied just a year ago, it was now significantly below the 5-year average. Europe’s economic situations have also gotten worse after surging of inflation and rising energy costs. Around 31 million Europeans were living in energy poverty in 2021 cited by Eurostat figures, experts warned that number could gone up to 80 million due to soaring heating prices in the winter season.
To shut down Nord Stream, Europe would face a real urgency of energy shortages. Prior to building Nord stream 2, over 80 present of Russia natural gas export would come through Ukraine, according to an article published by U.S. Energy information administration(EIA) in 2014. Even by 2014, after opening other transits, Ukraine transits still account some 15% to 30% of Russian total exports. Despite Russia invasion of Crimea, a conflict involving Ukraine ’s delayed payment to Gazprom, Europe didn’t have any resolution towards sanction on Russian’s energy exports.
In fact, in April, 2014, Putin declared in an open letter to European leaders that Europe would face a severe supply crisis if Moscow decided to cut gas supplies to Ukraine, some 86 billion cubic meters (bcm) of the gas exported to Europe passing through Ukraine’s pipeline network would be halted. Fearing of energy shortages occurring again like previously happened in 2009, Europe reopened negotiations in the latter part of the year, and brokered a deal that ensuring that Ukraine will meet energy prepayment to Russia’ energy suppliers. In addition, some money to pay Ukraine’s outstanding debt would come from EU and IMF, according to an BBC report in 2014.
This represented another failure from Europe’s side to deter Russia’s aggression over Crimea; instead, Russia have used energy as a weapon to negotiate with EU on their preferred terms. This is the reason why Nord Stream 2 is not a leverage on the western side over Ukraine crisis.
By shutting exports to Europe through NordStream, and possible Ukraine transits, it only accelerate the current energy crisis Europe faces, which has the potential to ravage Europe’s economy combined with Rising Covid cases and surge of inflation. EU’s energy market as well as its economy would once again fallen into the manipulation of Russia. Earlier on in October, Russia have warned the energy crisis would gone worse in Europe. Moscow refused a request to increase natural gas exports unless NordStream 2 was approved by regulators.