After two years of war, Europe emerging from shadow of Russian gas

Two years since Russia launched its full-scale invasion of Ukraine -- helping to trigger arguably the most serious gas crisis in Europe’s history -- market dynamics are much changed, with supply sources and routes majorly altered.

With the majority of Russian pipeline deliveries halted, only a handful of countries still import piped gas from Russia’s Gazprom, among them Austria, Slovakia, Hungary and non-EU Serbia.

And although Russian LNG supplies to Europe remain relatively robust, they still account for only a small share of Europe’s overall gas imports.

Now, with the EU giving member states the right to restrict Russian imports at the national level and Austria looking to speed up an exit from Russian gas, the remaining Russian volumes in Europe face an uncertain future.

The EU has already seen its Russian gas and LNG imports plummet, falling from 155 Bcm in 2021 to 80 Bcm in 2022 and to 43 Bcm last year, according to European Commission data.

In its place, Europe is importing significantly more LNG, while traditional pipeline suppliers -- such as Norway, Algeria and Azerbaijan -- are doing their best to maintain high levels of exports.

Norway’s pipeline exports to Europe hit a new record monthly high in December last year.

EC efforts

The EU’s energy commissioner Kadri Simson acknowledged Feb. 15 that Russia’s invasion of Ukraine had created the worst energy crisis "in decades" for the EU.

"But two years later, we can say that [Russian President Vladimir] Putin’s attempt to divide and blackmail us on energy has failed," Simson said.

The EC claims much of the success in responding to Russia’s weaponization of energy, upping its diplomatic efforts to secure alternative supplies, introducing mandatory storage filling and encouraging 15% demand reductions.

In reality, market signals and the weather played as big a part in ensuring supply was able to meet demand through 2022, 2023 and into 2024.

Related feature: Russia defiant two years into war reshaping global energy

Prices rose sufficiently high through 2022 -- hitting new record levels in August that year -- to price out some demand, to attract increased LNG cargoes and to incentivize maxed out Norwegian supply.

Mild winters in both 2022/23 and 2023/24 also meant gas stocks remained at historically high levels, keeping a lid on prices.

On Feb. 23, Platts -- part of S&P Global Commodity Insights -- assessed the TTF front-month price at just Eur23.30/MWh, a far cry from its record high of almost Eur320/MWh in August 2022.

But analysts are still cautious.

"Two years on from the Russian invasion and benchmark prices are back to ‘normal’ levels. But we have not reached a new steady state," according to Michael Stoppard, global Gas Strategy lead at S&P Global Commodity Insights.

"While higher LNG imports from the US and elsewhere have covered for almost half of lost Russian pipeline gas, a bigger factor is sharply lower European demand," Stoppard said. "Some gas demand has gone forever through factory closures or more efficient processes, but most will return. The market may be under-estimating how much demand will come back," he said.

Russian future

Question marks also remain about whether Russian gas could regain its lost market share at some point in the future.

Gas analyst Jonathan Stern from the Oxford Institute for Energy Studies is doubtful.

"The era of 30+% share of Russian gas is over and will not return, whatever the outcome of the war and whoever presides in the Kremlin," Stern said.

"Individual countries may continue to import gas from Russia, but Europe’s gas and energy map has changed fundamentally," he said.

Stern added that the major unresolved gas question concerned the remaining long-term Russian gas contracts with European buyers.

These, he said, "cannot be wished away by politicians" and remain a legal and contractual "elephant in the room".

European gas traders, meanwhile, see consumption trends as key to the future of Russian gas in Europe.

"It’s all about the demand -- if gas demand destruction continues we can avoid Russian gas," a Switzerland-based trader said.

A Netherlands-based trader said that with industrial demand being particularly price-sensitive, the loss of "cheap" Russian pipeline gas would continue to impact consumption. "The bottom line is that the need for gas comes from the price we get it at," the trader said.

Alternative options

Russia itself has limited options for diverting its gas, with the majority of the volumes that used to be piped to Europe now thought to be shut in.

Currently Russian pipeline gas to Europe is restricted to flows entering Ukraine at the Sudzha interconnection point and deliveries via the European string of TurkStream.

A total of around 80 million cu m/d currently flows into Europe by pipeline, but half of this could be lost when Russia and Ukraine’s transit deal expires at the end of 2024.

Russian Deputy Prime Minister Alexander Novak said in January that Russia was ready to continue supplying gas to Europe via any available route, including through Ukraine. But, he said, Moscow had yet to see any desire from its counterparties for talks on the issue, while Kyiv has repeatedly ruled out engaging with Russia on talks over transit.

Putin also repeated his claim in his interview with Tucker Carlson earlier this month that Russia was still ready to supply gas to Europe via the undamaged Nord Stream 2 string.

However, the pipeline operator was never certified by the German authorities and so the line cannot flow gas.

In the meantime, Gazprom is looking to raise exports to China and planning to lock in long-term supply deals with its Central Asian neighbors, such as Kyrgyzstan, Kazakhstan, and Uzbekistan.

But these supplies would not be able to offset the lost European deliveries.

And what seems certain in Europe is that -- at least at the political level -- there is very little desire to see Russian gas come back in any significant way to the market.