The statements, opinions and data contained in the content published in Global Gas Perspectives are solely those of the individual authors and contributors and not of the publisher and the editor(s) of Natural Gas World.

This is an excerpt of an article by the Carnegie Europe on July 12, 2017.

Like it or not, Europe needs Russian energy. Maybe not oil, but certainly gas. What is more, Europe depends on Russian gas. Only, its dependence is not as absolute and unavoidable as before.

Any temptation to spurn Russian gas would be badly advised, because substituting a source that represents on average one-third of European imports is impossible for some countries, and extremely expensive for others. Thousands of miles of pipelines link Europe to Russian energy giant Gazprom’s fields, while thousands more are being built or planned. And Europeans have contractual obligations to buy Russian gas—albeit not as strictly as in the past, because recent renegotiations have led to more favorable terms.

This is the point: when it comes to discussing supply with Gazprom (or anyone else), Europe is no longer weak. European grids are better interconnected, and there is more regasification capacity. And there’s a lot of gas that can be freely, easily, and cheaply bought on spot markets, in the form of LNG. That is in good part thanks to U.S. shale, but not only. Competition is finally here, and Europe has just started to benefit. Many long-term contracts with traditional suppliers expire in five to six years, and Europeans will no longer be price-takers.

Kristine BerzinaSenior fellow at the German Marshall Fund of the United States

Europe’s dependence on Russia for natural gas is a concern not principally because of volumes sold or prices charged but because of political entanglements in the current energy relationship. Europe has for decades been unable to form a single market for gas, and Russia has been able to use this disunity in its favor. Russia has pitched sweetheart deals to individual EU member states and built flashy pipelines that undermine European cohesion.

Put simply: Europe’s energy relationship with Russia is often a hindrance to the European project. This year’s conflict among Europeans over the proposed Nord Stream 2 pipeline, which would link Russia to Germanyunder the Baltic Sea, is a testament to the disruptive effect of the EU-Russia gas relationship.

Europe’s largest neighbor is rich in gas and poor in cash. This could be a perfect deal for Europe if Europeans manage to import Russia’s gas but not its political influence. Europe should complete its ambitious energy union and depoliticize the question of Russian gas. With adequate pipeline interconnections, new LNG terminals, and better oversight of natural gas supply contracts, a close energy relationship with Russia should not be an issue. And the prospect of U.S. gas entering the European market should make Russia more likely to play well with its European neighbors.

Krzysztof BledowskiCouncil director and senior economist at the Manufacturers Alliance for Productivity and Innovation

Europe has depended on Russian energy for a long time. For Central and Eastern Europe, it forms part of a legacy supply chain. However, as Russia is increasingly becoming a dangerous adversary, the commercial convenience of geography yields to strategic considerations. Looking forward, Europe is too dependent on Russian energy.

Europe has alternative sources to Russian gas. Between Norway and the Caspian Sea and adding LNG, there is no shortage of supplies. What is missing is strategic thinking about the long-term consequences of Russian dependence. When it comes to energy, European nations focus on their domestic markets at the expense of Europe-wide strategy.

Russia is exploiting this cleavage by signing up national partners to a web of bilateral supply routes that increase the EU’s overall vulnerability. It is telling that the EU’s energy commissioner plays a secondary role to the Russian government when it comes to negotiating new supply deals.

The EU is not equipped to act strategically on a global stage. It is missing a political mandate to tax and spend that supports a pan-European guarantee for security. A single military doctrine would then include energy security as its natural component. How to get there is the difficult question.

Erik BrattbergDirector of the Europe Program and fellow at the Carnegie Endowment for International Peace

Unfortunately, yes. The European Commission has on multiple occasions recognized this fact. It has sought to promote diversification of energy supplies and increased connections among EU member states as part of its energy union package. Although these efforts have yielded some positive results, Russian energy giant Gazprom’s position on the European gas market remains dominant, leaving some European countries potentially exposed to political and economic pressure from Moscow.

Accordingly, more is needed to strengthen the European energy market and reduce dependence on Russia. But the Nord Stream 2 pipeline Gazprom seeks to build with Germany under the Baltic Sea by 2019 would have the opposite effect. The link would increase Moscow’s influence over Western Europe, leave other countries in Central and Eastern Europe more vulnerable to Russian blackmail, and threaten to undermine the geopolitical situation in Ukraine. Berlin’s unwillingness to cave on the issue, primarily due to domestic economic considerations, could also reinforce internal divisions in Europe, which Russian President Vladimir Putin could exploit.

The notion that “Europe’s energy supply is a matter for Europe, and not for the United States,” as German Foreign Minister Sigmar Gabriel said in June, is incorrect. European energy security is a transatlantic issue. Perhaps the administration of U.S. President Donald Trump will intervene to try to prevent Nord Stream 2 from going forward, if for no other reason than to protect American LNG exporters, who would otherwise become less competitive in Europe.

Sijbren de JongStrategic analyst at the Hague Centre for Strategic Studies and lecturer in geoeconomics at Leiden University

The situation differs greatly by country. Some countries are 100 percent reliant on Russian gas, whereas in others this dependence is negligible. There is more than enough gas in world markets, so the trick is to have a diversified portfolio of suppliers. The EU energy union sets out to do exactly that. In this respect, the planned Nord Stream 2 pipeline, which would transport Russian gas to Germany under the Black Sea, is problematic and runs counter to this idea.

Contrary to what Nord Stream 2 officials claim, the project is a diversionary pipeline that increases Russian energy giant Gazprom’s market share and reduces existing transit routes. It would concentrate 80 percent of Russian gas supplies to Europe in a single route. Any military planner would agree this is a liability and strengthens Russian state actors at a time of a tense standoff with the West.

The new round of U.S. sanctions that explicitly mention companies supporting Russian export pipelines sends a clear message to the organizations involved from Germany, Austria, and elsewhere. The measures effectively raise the risk premium for companies participating in the project. Germany, as one of the custodians of the Minsk II ceasefire accord for eastern Ukraine, ought to know better than to serve the Kremlin’s divisive agenda.

Richard KauzlarichCo-director of the Center for Energy Science and Policy at George Mason University

A better question is: Are certain countries in Europe too dependent on Russian gas? Oil is a global commodity, so Russian oil competes on a global market for European customers. Gas, despite the growing importance of LNG exports, is still tied to European markets directly connected by pipeline from Russia to a specific storage facility in consuming or transit countries.

The Baltics, Central and Eastern EU member states, and the Western Balkans are the most vulnerable to Russian disruptions of gas supplies. That’s why they are opposed to Nord Stream 2, a planned pipeline that would bring Russian gas to northern Germany under the Baltic Sea, and to some extent Turkish Stream, which would link southern Russia to Turkey under the Black Sea.

The Three Seas Initiative is a reaction to that dependence. U.S. President Donald Trump’s presence at the Three Seas summit on July 6 encouraged these vulnerable states to believe that the United States will use LNG exports to reduce their dependence on Russian gas. That will not happen overnight and will depend on market conditions, such as whether U.S. LNG can compete with low-cost Russian pipeline gas.

Expect the Russians to defend their market share by cutting prices further. Other EU countries with non-Russian sources for gas or that rely increasingly on renewable sources are less affected than the participants in the Three Seas Initiative.

R. Andreas KraemerSenior fellow at the Institute for Advanced Sustainability Studies in Potsdam and founder and director emeritus of the Ecologic Institute

Europe needs gas from Russia less than Russia needs to sell it. After Russia’s aggression against Ukraine, Europe and some neighbors started reconfiguring the gas network so that Europe’s East could be supplied from the West, obviating the need for Russian gas.

Some in the United States are salivating at the prospect of taking Russia’s gas market share in Europe through LNG imports. Russia and the United States think there is a market in Europe. This may disappear, however. The large potential for gas saving—and energy saving more generally—has not yet been tapped; Europe could live without gas from Russia or the United States.

Why then Nord Stream 2, a proposed pipeline that would bring gas from Russia to Germany? It is not needed. It is unlikely ever to recover the investment cost. It is making Germany’s partners nervous, dividing Europe. For Russia, continued support for the project appears to be a test of gangland loyalty, and some German politicians dutifully comply. For Germany, it is about stabilizing business relations with Russia and maintaining trust and mutual dependency. Germany wants to be the sole broker of Russian gas in Europe.

Nord Stream 2 is about avoiding a rapid destabilization and possible collapse of Russia as the fossil-fuel age ends, and managing Russia’s decline without triggering more military aggression.

David LivingstonAssociate fellow in Carnegie’s Energy and Climate Program

Russian gas accounts for roughly one-third of EU imports and shows no signs of changing anytime soon. Russian gas has low production costs, and Gazprom can lower prices to beat almost anything other than the cheapest Qatari supplies. This should benefit European consumers. The challenge, however, is that some countries still lack the options, and thus the leverage, needed to negotiate these lower prices and better terms.

There is much room for improvement in Central and Eastern Europe, though progress is under way. New pipeline gas from Azerbaijan via the southern energy corridor, combined with LNG arriving at new terminals in Lithuania, Poland, and possibly Croatia, points to a much-improved position for the region by 2025.

This doesn’t necessarily mean lower Russian imports, but instead better terms. €100 million ($114 billion) was spent to build the Klaipėda LNG terminal in Lithuania, and although it initially saw only 30 percent capacityuse, Vilnius now enjoys prices that are both closer to the European average and set by market forces, rather than indexed to oil prices.

The EU should continue to embrace competitive markets and capitalize on the exuberance of countries, from Norway to Qatar to the United States, eager to supply them.

Edward LucasSenior editor at the Economist

The excellent work of the European Commission has blunted Russia’s energy weapon. The commission has changed Russian energy giant Gazprom’s legal environment, by ending country-by-country pricing, and altered the physical environment with new interconnectors and better storage.

But Russia can still make mischief using the rents created by transit pipelines. In one sense, Nord Stream 2, which would bring Russian gas to Germany under the Baltic Sea, would be good news for Central and Eastern European countries, as Russia wouldn’t cut off Germany in times of crisis. Yet the project’s acceptance in Germany illustrates a shocking disregard in Berlin for the security concerns of the country’s Eastern neighbors. The fact that neither the commission nor German Chancellor Angela Merkel can stop this project demonstrates that Europe has won the gas battle but not the war.

Alan RileySenior fellow at the Institute for Statecraft

Let’s first define our terms. Europe uses a lot of Russian coal and oil. However, these products are internationally traded and priced and are available easily from diverse sources. The real issue is pipeline natural gas, principally in Central and Eastern Europe and the Baltic states, as EU energy security stress tests have indicated. Market dominance, a lack of alternatives, and legacy contracts give Russian energy giant Gazprom significant leverage.

As a consequence, Russian gas in those states is not reliable. As a major 2006 study pointed out, Central and Eastern Europe and the Baltic states suffered over 40 politically motivated cutoffs between 1991 and 2004. More recently, Gazprom sought to reduce gas supplies to Central and Eastern European states in 2014 and 2015.

So the answer is that Central and Eastern European and Baltic states are too dependent on Russian gas. For them, Nord Stream 2, a proposed pipeline that would link Russia to Germany, is a betrayal by some Western European states of their security interests: a project that increases Russian leverage and results in increased prices. So for those states, U.S. sanctions against Nord Stream 2 and the prospect of U.S. LNG are welcome.

Gianni RiottaMember of the Council on Foreign Relations

Yes: Europe is a gas junkie, and Russia is a crusty pusher.

In 2016, Gazprom, Russian President Vladimir Putin’s energy giant, set a record for the amount of gas provided to the EU. According to BP’s chief economist for Russia, “Russia will for sure remain Europe’s largest gas supplier for at least two more decades.” The Kremlin knows this, as do German Chancellor Angela Merkel and French President Emmanuel Macron, so the sophisticated political shadow boxing will continue while the gas flows. U.S. President Donald Trump offered Europe U.S. gas during his July 6 visit to Poland, but geography, signed contracts, and existing pipelines make the proposal just a political gimmick at least in the near future.

France may be considering a total ban on fossil fuel–propelled vehicles by 2040, and Volvo may plan to launch a totally electric fleet by 2019, but the harsh memories of the cold winters of 2006 and 2009 are stark reminders of a truly obsessive addiction. In the meantime, France, Germany, Italy, Scotland, and a few other European areas have banned fracking for shale gas. The future can wait; the present is Putin’s gas.

Marco SiddiSenior researcher at the Finnish Institute of International Affairs

Energy trade between Russia and Europe started during the Cold War and has expanded significantly during the last five decades. The EU’s reliance on Russian energy, particularly gas, has raised political concerns about the bloc’s vulnerability to supply disruptions.

However, Russia is at least as dependent on this energy trade as the EU is. Approximately two-thirds of Russia’s export revenues originate in energy sales abroad, most of which occur in the European market. Without this income, the Russian state would lack the money to provide basic services to its population. Due to existing path dependencies (pipelines and contracts), Russia cannot easily shift its energy sales toward other markets, such as China: large infrastructure investments would be necessary, which are difficult to make at a time of low oil prices and financial sanctions.

Moreover, the EU has an increasing range of options to buy energy from other exporters, including numerous underused LNG import terminals. The EU’s energy market is more and more interconnected. These factors mitigate the risks related to the import of Russian energy. As Russian pipeline gas tends to be cheaper than LNG, it will most likely remain an important component of the EU’s energy mix in the foreseeable future.

Stephen SzaboResident senior fellow at the American Institute for Contemporary German Studies

The issue is not dependence but resilience. Europe benefits from access to Russian energy and has an interest in keeping Russia dependent on European markets and therefore in providing it with an incentive for a stable Europe. Leverage is a two-way street, and some interdependence gives Europe some leverage over Russia as well as vice versa. It is certainly not in Europe’s interest to destabilize the Russian economy through a rapid shift in Russian energy policies.

The key for Europe is to ensure that there are alternatives to Russian energy through diversification and interconnection of pipelines. All this requires a European policy rather than national freelancing like the proposed Nord Stream 2 pipeline to bring Russian gas to Germany under the Baltic Sea.

In addition, there is the environmental dimension to dependence on Russian energy, as this means continued reliance on fossil fuels and dirty energy. Volvo’s announcement that it will stop producing gas-fueled vehicles and Europe’s move toward renewable sources are signs of what is to come and indications that Russia’s energy leverage will decline over the next decade.

Sissi Bellomo

The statements, opinions and data contained in the content published in Global Gas Perspectives are solely those of the individual authors and contributors and not of the publisher and the editor(s) of Natural Gas World.