Putin Has Lost His Energy War With Europe

Russia’s fortunes may wax and wane on the battlefield, but the Kremlin has suffered a big defeat on the energy front. In one year, President Putin has blown up 50 years of work to render Europe dependent on Russian oil and gas.Wielding energy as a weapon, Mr. Putin shut off gas supplies, causing price spikes. Mysterious underwater explosions blew up three of the four Russia-Germany trans-Baltic Sea gas lines. The market chaos forced the European Union to radically diversify from Russian gas.Imports of ship-borne liquified natural gas nearly doubled. In an extraordinary feat of engineering, Germany built and commissioned in nine months three liquefied natural gas landing terminals. Solar capacity jumped by 25 percent. Coal and nuclear power were given reprieves.With Europe’s winter half over, gas reservoirs are at historic highs, and consumption is down. Gas prices are lower than before the war. In 2021, Russia supplied 46 percent of the EU’s gas imports. In December, that figure had dropped to 9 percent.“The fundamental nature of the shifts that have taken place over the past 12 months mean Russia now has little hope of returning to its formerly dominant position in Europe’s energy markets,” energy analyst Aura Sabadus wrote last week in an Atlantic Council report that was headlined: “Russia is losing the energy war as Putin’s winter gas attack backfires.”After Soviet gas first flowed into Austria in 1968, Moscow’s rulers methodically built a reputation as a reliable provider of cheap gas to Europe. Hundreds of billions of dollars were invested in developing pipelines and gas fields in Yamal and Eastern Siberia. Geography dictated that this gas flow west, to Europe.The Nord Stream I and II pipelines represented 25 years of work and $27 billion in investments. Four months ago, explosions ruptured three of the four pipelines. With salt water contaminating the specialized steel, the broken lines now represent expensive scrap metal buried in the Baltic seabed, stretching 767 miles from Russia to Germany.Russia-EU energy co-dependency cut both ways. In 2021, 83 percent of Russia’s gas exports went to Europe. China and LNG will not save the day. Last year, Russia exported 16.5 billion cubic meters of gas to China last year — 8 percent of Russia’s total pipeline exports. It would take a decade and tens of billions of dollars to build pipelines to redirect Russian gas to China from Europe.Liquefied natural gas exports amounted to only 40 billion cubic meters in 2021 — the equivalent of 20 percent of Russia’s exports of pipeline gas. Due to sanctions on Russia, Western companies do not want to provide Russia with the technology to complete new LNG projects.A freeze on Western technology also contributes to gas production dropping in Russia. Last year, Russia’s total gas output fell 12 percent, to the lowest level since 1990. State-owned Gazprom, the nation’s sole legal exporter, saw its production fall by 20 percent in 2022 over the prior year, the largest annual drop since the state-owned company was founded in 1989.Last September, Mr. Putin publicly berated top energy official Alexander Novak for saying that gas production was down. “Gazprom’s production isn’t falling. You’re just scaring everyone. It’s going up,” Mr. Putin told Mr. Novak, a deputy prime minister for fuel and energy. But in January, Mr. Putin acknowledged that gas production indeed dropped by 12 percent.Mr. Putin’s sensitivity over gas production stems from the fact that gas and oil export receipts pay for half of Russia’s government budget. Oil is faring no better than gas. While the 2023 budget anticipated an export price of $70 a barrel, Russian oil is selling at around $44 per barrel — the break-even cost of production. After a roller coaster year, Brent oil now sells for $80 a barrel — the same level as before the war.Under G-7 sanctions adopted in December, a $60 a barrel price cap is set on seaborne exports of Russian oil that use Western insurance and financing. Taking advantage of weak demand, China, India and Turkey are believed to be buying Russian oil at discounts between 30 percent and 40 percent. This Sunday, an EU ban on imports of Russian diesel takes effect. Europe, once a major importer of Russian oil, has cut imports to 15 percent of total imports. This price cap and ban on imports of refined products could cost Russia $280 million a day. In December, tax revenues on oil and gas production fell by 41 percent from the prior year, reports The Bell, a Russian language business site.Coal, Russia’s third energy export commodity, also has radically fallen out of favor in Europe. According to Eurostat, Russia’s share of EU coal imports is now less than 15 percent today, down from 45 percent before the war. With alternatives in place, Mr. Putin’s attempt to blackmail Europe on oil, gas and coal has failed.“Thanks to an unseasonably warm winter in Europe, Putin’s moment of maximum leverage has passed uneventfully,” Jeffrey Sonnenfeld and Steven Tian write in a Foreign Policy essay titled: “The World Economy No Longer Needs Russia.” The authors conclude that “Putin’s natural gas leverage is now nonexistent, as the world—and, most importantly, Europe—no longer needs Russian gas.”Bloomberg energy analyst Julian Lee concurs. “Putin’s war in Ukraine has cost Russia its European energy market,” he wrote last week in an opinion piece titled: ‘Russia Can’t Replace the Energy Market Putin Broke.’ “It won’t be easy to replace. Whatever rapprochement Moscow and Europe may eventually reach, Russians will be counting the cost of the war for generations to come.”

Putin Has Lost His Energy War With Europe

More from the New York Sun

Alyssa Thomas Reveals Death Threats Amid Sinister Turn in Caitlin Clark ‘Targeting’ Drama

Catholic Arch-Conservatives Defy Pope Leo and Consecrate Bishops as Crisis Grows at Vatican

Outgoing Starmer Clashes With Conservatives Over Defense Spending Plan

More from the New York Sun

Alyssa Thomas Reveals Death Threats Amid Sinister Turn in Caitlin Clark ‘Targeting’ Drama

Catholic Arch-Conservatives Defy Pope Leo and Consecrate Bishops as Crisis Grows at Vatican

Outgoing Starmer Clashes With Conservatives Over Defense Spending Plan

Congressman Moves to Ban Pregnant Foreigners After Supreme Court Upholds Birthright Citizenship

Justice Department Reaches Settlement With Egg Producers To End ‘Unlawful Coordinated Manipulation’

House Conservatives Lock Up Chamber Floor in Protest Over SAVE America Act

German Intelligence Service Warning of Growing Threat From Extremists on Both Left and Right

Professor Reaches $1.9 Million Settlement After Being Fired Over Post About Charlie Kirk’s Assassination