Scholz

Photo Credit – Xinhua

Summary. “There is an active phase of energy war unfolding in the European theatre affecting the whole world. None of the the belligerents seems to choose to blink first. Russia with its enormous gas reserves & a firm hold on the whole market wages the gas war on cash rich, technologically advanced EU. Learn who might eventually win this battle “

Energy security is the key for a country’s sovereignty in the 21st century. When you are a political block as the European Union, energy plays an unrivaled role to its defense. The war in Ukraine has transitioned  into a war between  two distinct global  systems. One led  by the USA,NATO , EU – the collective west & the other led by the Russian Federation, China & the Global south. In this ever complex & dicey context , the one controlling the flow of energy seems to be the one writing the fate of the future world.

In retrospect to the G7 nations announcing a price cap for Russian oil, the Russian federation openly showed its willingness to dice with death. The Nord Stream 1 that connects the Russian gas fields with Germany by a pipeline running under the  baltic Sea was stopped indefinitely. Europe is already in a perilous situation with an  exorbitant gas price surge & a shortage. What does this mean for Europe & the rest of the world ? Is its energy security dead as a doornail ?

With a fluctuating demand the EU uses around an average of 394 billion cubic meters of gas an year. A staggering 45 % or 155 billion cubic meters of that comes from Russia. While countries such as Bosnia & Herzegovina , North Macedonia & Moldova depend 100 % on Russian gas the most troubling part is the German dependency. Germans source  55 % of their gas supply from Russia. Being the Eu’s biggest economy & the industrial powerhouse that surely is a troubled sign for the whole union. The numbers reveal the stranglehold Russian federation got on the EU & Germany in particular. 

Russian gas is cheap, readily available & faster in getting through the pipelines. Gas from Russia is not a new discovery for the EU. From the Soviet times even as rivals , the EU has used gas produced in what was the former USSR. The dependency on one partner carries a huge risk outweighing the benefits of the sweet deals one can enjoy. This is exactly what is unraveling today.

With an immediate threat to heating & daily lives,  the Gas shortages & the price increases  could completely cripple economies. It works as a domino. With high gas prices comes high electricity prices which in turn affect the cost of production. That affects the profits forcing the industries to slash their production or completely go out of business if not suitable. That could cause a steep rise in unemployment.  The cost of fertilizer has soared to record levels which has made the cost of food unbearably high. Inflation rises like a tidal wave that might engulf the entire European union. None of these are good news & especially bad for the less fortunate people or communities living in challenging economic conditions.

Europe needs a short term fix & a long term solution for this crisis. The news of storages reaching its optimal capacity before the schedule is indeed uplifting. But it does not mean they are out of woods. 

The EU will not be able to source cheap gas from anywhere now. That is a fact they need to come to terms with.  It has become a sellers market & every supplier will demand a pound of flesh. It is time to make a kill.  Importing as much as LNG is an expensive but viable option. There are challenges to this method. First & foremost Europe does not have enough capacity in terms of LNG terminals & it takes time to build. Even if that can be sorted eventually there are only an x number of LNG carriers in the world which are already running at high capacities fulfilling promised contracts. Then the production. The production incarse can not be done overnight & it is a process. Unless a guaranteed market is promised no producer is keen on increasing the production based on short term demand. That is exactly why Qatar & other LNG producers are demanding long term contracts. The long term contacts at fixed prices are bad news for the gas business model in Europe which uses the spot sales.

Another solution will be for alternative pipelines to that of the  Russians. There are three such possibilities in discussion & planning . First would be the Trans Saharan Pipeline followed by the East Med Pipeline Line  & finally the Trans Caspian pipeline.Lets have a very brief look into each.

Trans Saharan Pipeline – The idea is to connect Nigeria, Niger & Algeria to Europe through Italy & Spain. This pipeline has the capacity to bring 30 billion cubic meters an year covering 10 % of EUs gas demands. This would be a significant boost. The challenges to this long proposed project are many. The region is a hot bed of conflicts & the divisions among the member states are high. This is bad news for any serious investor. Besides, part of Algeria’s already existing connection to the EU needs a complete overhaul & could question the viability of the project . Then the active presence of Russian PMC Wagner groups in these countries , speaks volumes about the Russian hold on the political theater of Nigher & Nigeria. Not to forget that Nigeria’s Nigaz is a joint venture between Gazprom Russia & Nigerian National Petroleum Corporation. The west kept ridiculing the political correctness of this name but now they have to worry more than its branding. So this pipeline is anything but promising.

East Med pipeline is bringing the Gas from Israel’s Levintan & Cyprus’s Aphrodite gas fields to Europe via Greece & Italy. The capacity is 12 billion cubic meters an year amounting to 4% of the Eu gas needs. Although this could be a small but a significant contribution there are major issues. For one thing Israel & Lebanon will have to overcome their overlapping  claims for gas fields & sea borders as soon as possible. Then the field in Cyprus has to be developed. This will be one of the longest & deepest layered pipelines that might need 10 years for completion. Even if everything goes well then there is a stumbling block. Turkey with its Maritime Boundary Treaty with Libya has established  an Exclusive economic zone that overlaps the claims of Cyprus. Under pressure from Turkey , the USA withdrew its political support from the project citing the economic viability of the pipeline. East med looks dead on arrival.

Trans Caspian – The third pipeline that would connect Turkmenistan , Kazakhstan & Azeribaiajni gas to Europe via Turkey has a potential capacity of 30 billion cubic meters a year counting to a 10% of the Eu gas needs. This volume is a greater number. Gas from Azerbaijan already flows to Europe via the southern gas corridor. This section will have to be upgraded to facilitate the new capacity. Could it go ahead though? According to the 2018 legal convection on the Caspian sea, Russia holds the final say to any new pipeline across this inland sea. When Putin has the final say we do not need to go further on even looking for more reasons. In addition to Russia , Iran is vehemently opposing this new pipeline. 

As much as the difficulty of finding cheaper gas is a foregone reality , the EU has to agree with the fact that Russian gas could not be totally replaced under any realistic circumstances. But that is not the worst of all news.

The biggest challenge to the European Union’s energy security is none of the above. We only need to know who holds the biggest proven gas reserves of the world. The first , second & the third biggest gas reserves in the world goes to Russia, Iran & Qatar. They have a well structured organization that goes as GECF or “Gas Exporting Countries Forum”. This is a collection of 19 countries amounting to 71% of the entire global gas reserves. The ultimate objective of the forum is to form a cartel as OPEC to control the production, prices, transportation to the entirety of natural gas. Russia & Iran are 100 % onboard this while Qatar is having second thoughts with its relations with the west. But remembering its friends  & foes during the Gulf states embargo on Qatar, I guess they would budge down eventually. Now imagine the power  a cartel with a  representation of 71% of the world’s proven reserves, an ongoing  capacity of 42% of market production, 55% of LNG exports and 53% of pipeline trade cou;d wield across the globe. Natural gas will play the single most significant role in energy for the next 40 to 50 years until the world reaches its transition to renewable energy in full. For four decades to come , this kind of cartel could just sit on their respective capitals & control the whole world as they please. If GECF becomes what it aspires to be & realize its optimal potential , needless to say that the EU is doomed to lose in the great gas war both in the short term & in the long term. Pushed to the wall, it will be the moment of truth for 447.7 million Europeans. Time will tell.

By Dhanuka Dickwella

Graduated from the university of Colombo with a masters in International Relations. Have worked in a number of fields including travel, event management & political campaign management. Contributed to social welfare , youth upbringing & education through my own social foundation. Was a self made - grassroot politician. Held the position of a deputy chair of a political caucus , the chair of the graduates association of the Sri Lanka Freedom Party in the District of Kegalle. Served the people of Kegalle District as a council member. Passionate writer, blogger & political analyst. Currently working as a strategist for a global digital health initiative. A father of a loving daughter. Above all - a proud & a patriotic Sri Lankan.

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