Without Russia, millions of Germans would be out in the cold. There are also other European countries that intensively use Russian gas to generate electricity. Gas is relatively climate-friendly, and less expensive per unit of energy than oil. If a disruption in the supply of gas forced Germany or other countries to substantially reduce their production of electric power, this would also have a significant negative impact on neighboring states.
Russia supplies 70% of Europe's gas imports, and the production of natural gas west of Russia is declining because deposits in the North Sea have been intensively exploited since extraction began 25 years ago. Demand for natural gas will rise, however, by at least 50% by 2030. In fact, demand is increasing so rapidly that Gazprom, despite growing exports to the EU, will not be able to completely meet Europe's needs. Suppliers from Africa and Central Asia will consequently gain in importance, and the Russian share of gas imports will drop to around 50% by 2030. Gazprom's deliveries can, must and will in the future be complemented by non-European suppliers. This will do nothing to change the fact that imports from Russia will remain indispensable in the foreseeable future.
Russia is also dependent on Europe. It needs the exports that currently – and in the future – primarily go to European countries in the EU. The energy sector generates 50% of the country's state revenues and 20% of its economic performance. We need the gas, Russia needs the money. There also exist long-term contracts that offer security.
But would this stop Russia from cutting off the supply to achieve its political objectives? The country has considerable financial reserves that could compensate for lost export revenues for up to two years. By contrast, Germany's reserves could only replace Russian gas for a few months. Other countries are even more vulnerable, as millions of shivering people in the Balkans experienced in January 2009, when the gas transit via Ukraine was interrupted for two weeks. In contrast to the Gulf States, Russia cannot be pressured militarily. Doesn't this lead to a latent indulgence towards the Kremlin, without it even having to hint at its potential for coercion? – This notion simply doesn't hold water:
- Most of Russia's financial assets are in the West, and access to them could be blocked.
- All Russian energy companies are listed on European and North American stock exchanges. In order to pursue the development of new gas fields, they have to raise considerable financial capital, which they usually generate in cooperation with Western banks, and a large number of their stockholders come from the OECD territory. Russia's energy companies have opened themselves far more to Western influences than companies from the Gulf region. It has always been in their best interest to do so. Any indication that they were striving to use energy exports to achieve political goals could jeopardize revenues, causing shares in Russian energy companies to plummet and threatening their creditworthiness, profitability and even their very existence.
- No buyers assume that Russia has even a theoretical potential to blackmail its customers. Otherwise they would insist on a significant price reduction for Russian gas to compensate for the costly measures that would be necessary to forestall any possible interruption in supply. Importers would also work round-the-clock to develop other reliable sources of energy. Potential new customers, like China or Israel, which Russia would like to supply, would never even have expressed an interest in doing business in the first place. None of this is the case, however. Even the Baltic States, which have repeatedly warned against Russia's influence, have made no effort to reduce their 100% dependency because this would be absurd from an economic point of view, and it is not an essential element of their security policies.
What can we deduce from this? There are good reasons to diversify our supply sources, and in view of the rapidly rising demand for imports, such a move is necessary. In addition, German and European interests with regard to supply routes and access to natural resources are by no means identical. Heated warnings against Russia's control of energy are inappropriate, however, and even detrimental to German and European interests. It makes good sense, for instance, to complete the Nabucco pipeline, which will circumvent Russia to carry gas from the Caspian region to Europe, if backers manage to conclude a sufficient number of supply contracts with producers. But this has not been possible, despite years of efforts – and even if it did succeed, Nabucco would only cover roughly 10% of European import demand. This has not stopped some of its supporters from creating the impression that the pipeline could replace Russia's deliveries, which is by no means the case. These individuals seek to create an atmosphere that primarily favors their own economic and political interests, and they are invoking threats that have no substance.
Russia views all this with a skeptical eye. The country is dependent on reliable customers and growing exports. Gazprom will be able to continue to meet its delivery obligations in the future, but it may find itself increasingly in a position where it has to reluctantly turn towards East Asian customers and offer them discount prices. There are currently significant signs of such a development. Meeting the common interests of suppliers and customers provides the most secure guarantee of long-term dependable energy relations. This means that Russia should increasingly open its market to Western energy companies, and Germany and the EU should take a similar approach with Russian companies.
Author: Christian Wipperfürth
