Why Europe no longer fears the Russian gasman

A MILD winter and robust European Union policy have blunted the edge of what was once Vladimir Putin’s most effective foreign-policy weapon: the politicised export of gas. Contrary to some expectations, Russian gas has been flowing to Europe across all four main export pipelines this winter, while the Kremlin’s flagship new pipeline project, South Stream, has come to a mysterious and embarrassing end. Now the focus is on the EU to see if it will push ahead with the prosecution of Gazprom, Russia’s main gas exporter, for years of anti-competitive practices. Why has Russia lost its hold on European gas?

European policymakers still remember the shocks of 2006 and 2009, when Russia cut gas supplies to Ukraine amid a row about prices and debts, leading to heating crises and factory closures in countries such as Slovakia and Hungary, and making western European countries such as Germany scramble to find alternative supplies. Europe gets a third of its gas from Russia, half of it from pipelines across Ukraine. Politicians decided that Russia’s grip on gas supplies to countries in the east of Europe gave the Kremlin an alarming political leverage.

Since then the EU has made some big changes. It pushed through a controversial but effective liberalisation of the gas market, known as the Third Energy Package: Russia cannot now both own and control pipelines on EU territory. The EU has has also made the supply system a lot more resilient, putting taxpayers’ money into new interconnectors between countries dependent on Russian gas imports. This rewrites the rules. If supplies from the east are interrupted, the countries affected can import gas from elsewhere. As of December, Lithuania, once 100% dependent on Russian gas, is importing liquefied natural gas (LNG) from Norway. Ukraine’s gas imports from the west are rocketing. The EU has also brokered a deal on debts and prices between Ukraine and Russia, which should keep the gas flowing at least for the first quarter of 2015. Moreover, a mild winter means Europe’s gas consumption is low and storage is high for the time of year. Even if Russia did try to interrupt supplies, the effect would be modest.

In fact, Russia has other worries. The low oil price is straining the Kremlin’s coffers. In December, Mr Putin abruptly cancelled the $40 billion South Stream pipeline to central Europe via the Black Sea and Balkans after it ran into trouble. The EU is likely to put pressure on Croatia to open an import pipeline and LNG terminal on the Adriatic coast. And the EU has yet to fire its biggest weapon against Russia: a colossal “complaint” based on a multi-year investigation into discriminatory pricing and other market abuse dating back to 2004. That could lead to legally mandated changes in Gazprom’s business model and whopping fines. The investigation was masterminded by the previous competition commissioner, Joaquín Almunia, but postponed last year for political reasons (amid war in Ukraine, the EU feared worsening ties with Russia). Now the fate of the Abominable Gasman lies with Mr Almunia’s successor, Margrethe Vestager.

economist