Three years ago, Russia was the world’s biggest exporter of natural gas and Europe was its top customer. For the continent’s leaders, access to all that cheap Russian energy outweighed any misgivings over doing business with President Vladimir Putin.
Then Russia launched its full-scale invasion of Ukraine, and this overwhelming reliance on a single supplier suddenly looked like a threat to the region’s economic and political security.
Fear that Putin would cut off deliveries of gas, coal and oil to punish European nations for supporting Ukraine prompted a frantic scramble in search of alternative energy sources. The shift was formalized by sanctions on Moscow aimed at de-funding Putin’s war machine.
Today, European leaders are hailing an energy supply revolution. Many gas, oil and coal importers dropped Russia in favor of alternative sources. Consumers found ways to use less energy, reducing demand. In the end, the lights stayed on and most factories kept humming. But Europeans are now paying more for their energy, and some of its more power-hungry industries are struggling to remain globally competitive.
What many aren’t aware of is that Russia remains one of the continent’s most important energy suppliers, and the European Union’s goal to end its dependence on Russian fossil fuels by 2027 is looking hard to achieve.
How did Europe get so hooked on Russian energy?
It started more than half a century ago. The Soviet Union needed money and equipment to develop newly discovered giant gas fields in Siberia amid tensions with China and the US. West Germany was hunting for cheap energy to support its fast-growing manufacturing sector.
In 1970, the USSR and West Germany signed a “pipes for gas” deal in which German factories supplied thousands of miles of pipes to carry Russian gas to western Europe. Energy flows grew steadily in the following decades until Germany found it was buying more than half of its gas from Russia, along with about a third of all its oil.
Germany and other European countries began to shift into wind and solar energy in recent years. But piped Russian gas remained a convenient, affordable option for generating the baseload power needed when the wind wasn’t blowing and the sun wasn’t shining.
How is Europe still using Russian energy?
Imports of Russian fossil fuels to the European Union stood at around $1 billion per month at the end of 2023, down from a high of $16 billion per month in early 2022, according to the Bruegel think tank in Brussels.
Most of those remaining imports were natural gas. Russia still accounted for 15% of the EU’s total gas imports in 2023, behind Norway and the US at 30% and 19% respectively, and ahead of North African countries at 14%, according to data from the European Commission.
Much of that Russian gas arrives in pipelines crossing Ukraine and Turkey. Among the biggest buyers are Austria, Slovakia and Hungary, whose economies are heavily reliant on the fuel.
Big energy consumers including Spain, France, Belgium and the Netherlands are also still importing Russian liquefied natural gas on tankers. Some of it ends up being mixed with other gas sources in Europe’s pipeline network, meaning it potentially goes to Germany, despite that country’s pledge to avoid Russian gas.
Why aren’t all Russian gas contracts being scrapped?
Russia’s European customers were often locked into iron-clad, long-term contracts that weren’t easy to wriggle out of.
And making the switch can be costly as available supplies in the global gas market are expected to remain tight for at least another year, until a new wave of supply emerges from exporting nations such as the US and Qatar. A good part of the gas available for import into Europe is being soaked up by countries that closed their coal-fired and nuclear power stations in recent years.
Key buyers, including Slovakia and Hungary, have said they are looking for alternative sources. But industries in these landlocked countries were built to run on energy from the east, and would pay more if they bought non-Russian gas arriving at new LNG terminals being built in western Europe.
Major companies from those countries are pushing for a deal that will allow the continued transit of gas through Ukraine in 2025, after the current agreement expires between Moscow and Kyiv. The talks have been going on for months, with buyers lately stepping up pressure and the discussions intensifying.
There is no Europe-wide ban on Russian gas for now, although some countries such as the UK, Germany and the Baltic states decided to stop imports of the fuel. Some of the biggest and oldest customers of Russian state-run gas giant Gazprom, such as German utility Uniper SE and Austrian energy firm OMV AG, have terminated their contracts.
Other large European corporations still have long-standing investments in Russian energy that they are reluctant to abandon. France’s TotalEnergies SE remains a shareholder in the giant Yamal LNG project in Russia’s Arctic. Spanish utility Naturgy Energy Group SA holds a 20-year contract to purchase liquefied fuel from Yamal until 2038.
How else is Russian energy finding its way through?
Pipeline imports of Russian crude oil and land deliveries of some unsanctioned petroleum products have continued, though in far smaller volumes than previously. There’s still no ban on oil products made at refineries outside Europe using Russian oil, such as in Turkey. Sales from those refineries into the EU brought Russia an estimated €1.1 billion ($1.2 billion) in tax revenue in 2023, according to Global Witness.
It’s likely that some Russian crude oil finds its way to Europe after being bought by middlemen in other countries and mixed with supplies from other origins.
Tracing Russian crude and LNG to its destination has become harder since Moscow deployed a large tanker “shadow fleet” to skirt the impact of international sanctions.
Some of the shadow fleet has been sanctioned by the UK, the EU and their allies, and there’s been no evidence of direct deliveries to Europe. But it’s hard to monitor all re-sales across the globe.
What’s the state of play now?
Russia accounted for less than 10% of Europe’s gas consumption in 2023, down from more than a third before 2022. Norway has supplanted Russia as the continent’s biggest provider of pipeline gas. Thanks partly to the new facilities built to offload LNG from alternative exporting nations, the US has become Europe’s top supplier of the liquefied fuel.
On top of that, Europe has been consuming less fossil fuels, in part because some industries struggling with high energy bills have cut back production or shifted to making less energy-intensive goods, and also because of energy savings and record installations of renewable power.
The 2022 crisis made European governments more determined to accelerate the adoption of cleaner energy. As a result, gas and coal power generation has fallen by a record amount, according to London-based energy research firm Ember.
In 2023, wind for the first time produced more power than gas. European gas demand was 20% below the pre-crisis average in the January-August period, according to UBS Group AG.
How is Europe coping with higher energy prices?
Energy prices surged in 2022, at times more than 20-fold compared to their historic norms. Some European factories were forced to shutter their operations or reduce output, and many small businesses closed.
Prices have fallen since then, but remain above their pre-crisis levels, making Europe’s most energy-hungry industries less competitive. While subdued demand abroad is now the main challenge for many German manufacturers, costly energy remains one reason why companies such as Volkswagen AG and BASF SE are struggling.
Households hit by surging energy bills have found ways to lower their consumption. But for many, the additional cost is causing real hardship. Almost 11% of EU citizens were unable to keep their homes warm enough in 2023, according to the European Commission.
