Gazprom cannot move its gas – POLITICO

Amy Myers Jaffe is Managing Director of the Climate Policy Lab and Research Professor at the Fletcher School at Tufts University. Joe Webster is a senior researcher at the Atlantic Council, contributor to SupChina and editor of the China-Russia Report. This article represents their own personal opinions.

With European energy prices at exorbitant levels, it may seem that Russia holds all the cards when it comes to natural gas.

But as policymakers craft temporary measures to weather what could be a brutal winter from an energy security perspective, they must also consider the broader context. Because while Russia is in a strong position in the short term, the long term for Gazprom, Russia’s state-controlled natural gas champion, is tough.

Unlike oil, which has a more fungible transport, Gazprom is struggling to divert its Siberian gas elsewhere – and the numbers tell a clear story. Russia is poised to send 16 billion cubic meters (bcm) a year to China through its Siberian pipeline alone, compared to the roughly 200 bcm a year it would normally sell to Europe, if the conflict had not not take place.

The Russia-China gas pipeline, called Power of Siberia, will eventually be able to ship 38 billion cubic meters per year when the pipeline is fully operational in 2025. However, Sino-Russian plans on any additional pipeline connectivity currently seem remote and commercially daunting. And while Mongolia has claimed that a new Russia-China gas pipeline will be inaugurated in 2024 and enter service around 2030, this claim should be viewed with skepticism. The terms of the existing pipeline between Russia and China are not public, but the deal may have been a financial loser for both sides.

Moreover, since the initial gas pipeline agreement in 2014, the dynamics of natural gas have changed for China: renewables, and even hydrogen, are increasingly viable alternatives to natural gas. Thus, Gazprom could end up with a blocked asset in the end.

Even the most optimistic projections put the export capacity of Russian pipelines to China at 128 billion m3 per year by 2030, which is still considerably lower than historical sales to Europe.

In sum, by 2030, Gazprom has few options beyond Europe.

Moreover, even though Russia sent an additional 3.2 billion cubic meters of liquefied natural gas (LNG) to China in the first half of this year as well, China’s revealed preference is to buy LNG from United States – not from the onshore gas pipeline from Russia. Indeed, Chinese buyers have already contracted about a third of the approximately 160 billion cubic meters of the next wave of current or planned US LNG export capacity.

On the other hand, its immediate vulnerability aside, Europe has now opened up the possibility of zeroing Russian imports by 2030, if not sooner. The future ability to do without Russian gas is in itself a form of leverage, and Europe must redouble its ambition and transparency in its efforts.

The European natural gas market was already expected to contract before the escalation of the conflict with Russia this year, but it could now do so more quickly. The latest policies adopted by European Union countries set a renewable energy target of 63% of electricity generation by 2030, up from 55% previously. Major countries are also pushing to accelerate demand reduction, including through the deployment of heat pumps.

These are strong interventions, especially when combined with the strategic mandatory reductions in the use of natural gas in Europe this fall, which will come into effect in the event of a crisis. But there are still other ways to increase the pressure on Gazprom.

Europe and the United States should look for ways to stimulate the production and deployment of floating short-cycle LNG facilities and small modular nuclear reactors, while accelerating the development of LNG terminals under construction – as the United States United have done this by allowing rapid development at the Golden Pass Terminal.

The United States should also consider using its trade agencies to help with short-term financing for natural gas projects and fast-track financing for clean energy projects. In the meantime, Europe could look more systematically at the role that funding for energy efficiency technologies and batteries could play in suppressing demand more permanently.

The current listing of Gazprom shares seems to assume that exports to Europe will continue. And for now, high prices have shielded the company from falling export levels. However, if it becomes clearer that Gazprom’s most important export channel is closing permanently, the gas giant could be largely decapitalized by investors, making it harder for Gazprom to subsidize Russia’s domestic gas market. and contribute to the Russian GDP.

President Vladimir Putin understands energy markets, so he could well bet that rising energy prices and economic angst will sufficiently support populists neighboring the Kremlin in Western elections, improving his position in his confrontation. ongoing strategy with constitutional democracy. His hope may be to restore more compliant energy customers in Europe for Gazprom. After all, the company has already had to shut down production – as it did during the COVID-19 shutdowns – and with little trouble. He thinks maybe he will just have to wait for a winter outside of Europe.

But without immediate access to Western LNG expertise and equipment, and in the face of melting permafrost under Gazprom’s pipelines, this is a high-risk proposition. And if Europe can get through this first round, Gazprom and Putin risk losing the long game.