Most of the dramatic energy developments in recent years have been in the realm of natural gas. It has been framed as a “bridge fuel” necessary for a smooth global energy transition and at the same time large newly discovered reserves can guarantee the world’s energy security for centuries to come. Huge quantities of unconventional US shale gas have become commercially viable opening the door for other countries in Europe and Asia to explore their own shale gas potential. One of these latest developments was the Russia-Ukraine conflict in Europe which turned natural gas into a political tool that can be weaponized by producers or importers.

These developments have been reverberating around the globe, causing shifts in patterns of trade, putting pressure on longstanding arrangements, and may lead to strategic shifts. Many of these shifts can be recognized in the current European energy crisis.

The European Dilemma

As the European Union is walking a tightrope between its huge energy needs and its environmental pledges, Natural gas stands as the fuel of choice for the old continent.

The EU is the biggest importer of natural gas in the world. According to European Commission, natural gas represents around a quarter of the EU’s overall energy consumption. About 26% of that gas used in Europe is directed to the power generation sector and around 23% in industry. Most of the rest is used in the residential and services sectors, mainly for heat in buildings.

The EU’s gas demand is around 400 billion cubic meters (bcm) and, based on current policies, is projected to remain relatively stable in the coming years. Domestic gas production is expected to decline, which is likely to have an impact on gas imports, while policies designed to contribute to achieving the 2030 energy and climate targets, such as energy efficiency improvements in heating and industry, may result in a drop in overall gas usage across the EU, according to the EU Commission.

According to 2021 data, around 10% of the EU’s gas needs are currently met by domestic production. The rest is imported, mainly from Russia (41%), Norway (24%), and Algeria (11%), beyond LNG sources.

However, the Russian military operation that was launched against Ukraine in February has shattered the energy security in the continent, which was under threat of cutting the Russian Supplies at any time.

In response to EU sanctions, Russia has taken several measures, including asking for paying for its gas in rubles. It also cut gas supplies on more than one occasion, sometimes for alleged contract violations or for pipe maintenance, which increased the European worries about the desire of Russia to weaponize its gas supplies.

Although the war in Ukraine is not about energy, it is altering European energy politics. Since the beginning of the war, security jumped to the top of the EU’s agenda. Since the beginning of the conflict, the European Union and its allies have pondered an answer to one of the toughest questions they have ever faced; how to reduce dependence on Russian oil and gas.

The plan for dealing with it involves a gradual but radical reduction of the Russian oil and gas trade and an acceleration of the green transition. The Union’s members were urged to increase gas storage, find alternative sources, and accelerate the transition to renewable energy, and energy efficiency. However, none of these measures were enough to quench the European thirst for Russian gas.

Finding New Routes

Diversification of supply sources has become paramount both for energy security as well as for competitiveness. At this point, liquefied natural gas (LNG) stood as the answer to the European quest for enhancing the diversity of gas supply and improving energy security in the EU.

Ensuring that all EU countries have access to liquid gas markets has become a key objective of the EU’s energy union strategy. Today, countries in Europe that have access to LNG import terminals and liquid gas markets are far more resilient to possible supply interruptions than those that are dependent on a single gas supplier. So, the continent has witnessed a boom in LNG infrastructure.

Cargoes of LNG are available from a wide variety of different supplier countries worldwide, and the global LNG market is undergoing a dynamic development with the entrance of new suppliers.

To ensure this diversity, EU leaders have engaged in talks and agreements with several new suppliers including the East Mediterranean Gas Forum, Algeria, Qatar, and Nigeria.

Following the Russia-Ukraine conflict and the energy crisis in Europe, US President Joe Biden stated that natural gas has become a valuable geopolitical asset, noting that it could be used to “take the burden off of European countries that are now totally dependent on Russia.”

Making Climate Objectives Feasible

Despite the complications surrounding natural gas supplies to Europe, natural gas remains an important enabler to achieve its climate targets. Hence, European Union lawmakers didn’t hesitate to vote in favor of a decision calling natural gas and nuclear power “green” or “sustainable” sources of energy, backing a proposal from the European Commission despite criticism from some scientists and environmental advocates who still frame natural gas as a polluting fossil fuel.

The new rules could unlock billions of dollars of private investment and state subsidies for natural gas and nuclear projects.

The European Commission has argued that natural gas plays a key role in transitioning to renewable energy. It also cites the fact that Natural gas typically emits less carbon dioxide than coal and oil.

The EU argument is supported by Fatih Birol, International Energy Agency (IEA) Executive Director, who indicates that natural gas is one of the mainstays of global energy. Where it replaces more polluting fuels, it improves air quality and limits emissions of carbon dioxide.

Given the time it takes to build up new renewables and to implement energy efficiency improvements, switching to natural gas represents a potential quick win for emissions reductions. According to the IEA, there is potential in today’s power sector to reduce up to 1.2 gigatonnes of CO2 emissions by switching from coal to existing gas-fired plants if relative prices and regulation support this potential.

Unlike oil, natural gas trade is more difficult to transport and store, and for this reason, expensive infrastructure and long-term contracts often tie customers and suppliers together, thus natural gas market and geopolitics were seen as regional rather than global. However, a new boom in global LNG supply is beginning to globalize the natural gas trade, which may alter many of the current market dynamics.