I

European leaders
should not argue
themselves out of
tougher actions to stop
Putins military
adventurism in
Europes east
September 1, 2014 5:46 pm
Call Putins bluff he will not cut off Europes gas
By Matthew Bryza
The EU could weather the winter without importing Russian energy, says Matthew Bryza
n Hans Christian Andersens classic tale, two tailors promise to make an emperor a suit that
is invisible to unwise people. When the emperor greets his subjects in his new clothes, only a
boy has the good sense to cry out: But, he isnt wearing anything at all! Such plain-spoken
truth is urgently needed to dispel a myth that hobbles European strategic thinking: that Europe
is too dependent on Russian natural gas to risk a serious row with Russia over its escalating war
against Ukraine.
As Moscow prepares to instigate a crisis over this winters natural gas supplies, Europe can
secure its interests by remembering that Russia is dependent on Europe as its primary gas export market and by preparing to weather
the winter without buying Russian gas.
This spring, while Russian-backed separatists in eastern Ukraine were gearing up for action, President Vladimir Putin tried to intimidate
European leaders by suggesting that the Kremlin might redirect natural gas from Europe to China in retaliation for any EU sanctions.
On May 21, Mr Putin suddenly reversed a decade of resistance and caved in to Chinese demands for a lower gas price, accepting $350
per thousand cubic metres. That is 42 per cent less than the price Lithuania pays so low that it risks depressing natural gas prices
throughout the Far East, including for future Russian sales to Japan. Moreover, Moscow will have to borrow $50bn to pay for new
pipelines and other infrastructure, costs that must be repaid out of the paltry revenues.
Mr Putin was willing to accept such poor economics because his main goal was political: to intimidate Europe. But behind the
grandstanding, the Russian president knows that Europe is the only viable market for Russian natural gas, and that it will continue to be
so for decades.
Russia sends four times as much gas to the EU as it will eventually pipe into China under the new deal. By the time those exports reach
their peak, an expanded Nordstream pipeline under the Baltic sea and a new South Stream pipeline under the Black Sea will increase
exports to Europe by more than 50 per cent. Finally, the gasfields that will supply China are located in eastern Siberia too far from
Europe to serve EU customers.
Russia will nevertheless threaten to stop supplying Ukraine and the EU over the winter. Three practical steps would neutralise that
threat.
First, the European Commission should ensure that all natural gas storage facilities in EU member states are
full. This could provide a reserve of 85bn cu m, more than half the 163bn cu m that Russia supplied Europe in
2013.
Second, the commission should identify suppliers of liquefied natural gas to cover the remaining 78bn cu m
the continent needs, and import it through Europes underused LNG terminals. The EU has enough capacity
to import 104bn cu m of LNG. But the bloc imported less than a quarter of that amount in 2013 because so
much of Europes demand is met by Gazprom. By buying an additional 78bn cu m of LNG and using storage
facilities at full capacity, the EU could weather the coming winter without importing a single molecule of
Russian gas.
The third step for the commission is to establish a facility to finance such purchases. A 20bn fund would suffice. It would operate
through bonds issued by the European Central Bank and guaranteed by EU member states, similar to the much larger European
Financial Stability Facility a 440bn fund created at the height of the eurozone crisis to provide assistance to troubled states.
Such a fund would serve as a deterrent, demonstrating Europes resolve to resist the cutting off of Russian natural gas. It would place the
Kremlin in the untenable position of threatening a purportedly hostile act that would in fact do Europe no harm, but would cut the
Kremlin out of gas revenues that account for 10 to 15 per cent of Russias federal budget.
Russia would also be jeopardising its long-term position as Europes principal gas supplier, by allowing the US, Australia and
Mozambique to gain a foothold in this lucrative market. Moreover, Russia cannot cut off natural gas flows to Europe without doing
permanent damage to its own natural gas reservoirs.
In short, Europe can do without Russian gas; it is Moscow that cannot afford to carry through its threat. European leaders should not
argue themselves out of tougher actions to stop Mr Putins military adventurism in Europes east.
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Someone needs to point out that the emperor has no clothes. Germany will not say so; it stood by while Russian companies purchased
much of Germanys gas storage capacity this year. Perhaps the Netherlands, which has shelved plans to extend the Russian-German
Nordstream pipeline into its territory following the deaths of 193 of its citizens aboard Malaysia Airlines flight MH17, will do so. Dutch
resistance to Russias blackmail would be a fitting tribute to those innocent victims.
The writer is director of the International Centre for Defence Studies in Tallinn and a former US ambassador to Azerbaijan
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