How Europe plans to cope as Russia cuts off the gas

IN 2021 RUSSIA supplied 40% of Europe’s gas. Since the invasion of Ukraine, the picture has changed rapidly. On May 31st Gazprom, Russia’s state-owned energy giant, announced that it would stop supplying GasTerra, a Dutch firm, and Orsted, a Danish one, after they refused to pay for gas in roubles. Shell’s supply to Germany was also cut off. The decision looked like retaliation: the previous day the EU had announced a ban on Russian oil, covering 75% of imports from the country and 90% by the end of the year. Russia had already cut off gas companies in Bulgaria, Finland and Poland.

To wean themselves off Russian supplies, many European countries are turning to liquefied natural gas (LNG) imported from America and Asia. LNG imports increased by 47.7% year-on-year in April, and by 19.9% compared with March. This liquid supply must be returned to its gaseous state before it is sent to end users. Until recently Europe appeared to have plenty of processing facilities. It can in theory handle enough LNG to replace nearly two-thirds of Russian piped gas. The continent’s import terminals ran at just 45% of capacity in 2021, according to Energy Intelligence, an industry publisher.

But as Russia starts to turn off the tap, the shortfall in processing facilities and pipelines for further transport is becoming apparent. Most of Europe’s regasification capacity is in the south and west; Britain and Spain have around half. Landlocked countries in the east, which have the most exposure to Russian energy, are struggling. The infrastructure to send the gas to where it is needed is lacking. In recent months, the two pipelines through which Britain sends gas to Europe have been running flat out. With LNG shipments pouring in, and nowhere to put it, spot gas prices in Britain collapsed.

Germany is a special case. It has been hit particularly hard, as it is dependent on gas for its industrial economy, but still has no working LNG terminals. Before the war, it got 55% of its gas from Russia, a cheap supplier. The government has rushed to change that. On May 19th the German parliament passed a law to speed up the approval and construction of terminals, doing away with some environmental checks. But building onshore facilities takes time. One quick solution is to lease floating storage and regasification units (FSRUs), ships that convert the liquid fuel back into gas. Germany’s government plans to install four in the near future, at a cost of nearly €3bn ($3.2bn). The first project, at Wilhelmshaven on the North Sea, may begin operation within months and will have a capacity of 7.5bn cubic metres per year, equivalent to around 8.5% of Germany’s gas demand.

Other countries are following suit. Poland, which relied on Russia for around half of its gas (although around 70% of its energy comes from coal), plans to bring forward the opening of an FSRU to 2025 and is considering installing another, allowing it to sell more gas to the land-locked Czech Republic and Slovakia. France and Italy have begun the process of acquiring their own; on May 30th SNAM, an Italian energy firm, reached a $350m deal to buy a vessel. In the long term, more onshore terminals are planned. Germany is pressing ahead with two that, combined with the FSRUs, would give it an import capacity of 53bn cubic metres per year, more than it bought from Russia in 2021. A third is planned. Environmental groups grumble that costly investments in fossil fuels fly in the face of Europe’s goals to reduce emissions. But for now, reducing reliance on Russian energy is the continent’s priority. ■

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