Finnish nature enthusiast, Ari Lane, was out hiking when she spotted a fireball rising into the sky on the other side of the border with Russia. That was over a month ago, but the flames are still flickering above the Portovaya gas compressor station, just outside St. Petersburg, as workers “burn off” £8 million of excess gas every day that they can no longer sell to the West.
Meanwhile, across the continent, European nations are bracing for a winter crisis with plans in place to ration energy use in the wake of Vladimir Putin’s invasion of Ukraine. Sanctions on Russian fossil fuels and Moscow’s decision to squeeze supplies have driven up prices and left reserves at historic lows, with fears of shortages as colder months loom.
On Friday, EU energy ministers met in Brussels to discuss proposals for a price cap on Russian gas that would effectively force Moscow to sell its resources at a fixed rate. While the country has shipped less gas overall since the start of the war, the sharp spike in prices over the last few months means the trade is still a lucrative one. According to pressure group, Europe Beyond Coal, the bloc has paid more than €36 billion for gas alone in the six months since Putin announced the start of the so-called “special military operation.”
“We have to send a clear signal that we would do whatever it takes to support our households, our economies,” Czech Industry Minister, Jozef Síkela, declared on the fringes of the talks. “We are in an energy war with Russia.”
However, with Moscow threatening to stop exports if they are no longer profitable, member states were split on the proposal to keep prices down. “The plan that would impose a price cap exclusively on Russian gas coming via pipelines is entirely against European and Hungarian interests,” Budapest’s foreign minister, Peter Szijjarto, announced on Friday.
Without a plan in place, Europe’s economic offensive against Moscow appears to have been delayed. But, in the meantime, it seems that Brussels has already blunted Putin’s weaponisation of energy as the winter looms. Earlier this month, Germany’s Economy Minister, Robert Habeck, played down the chances of that nightmare scenario, revealing that “reservoirs are filling up faster than expected,” and the target of storing 85% of capacity by October would be achieved within days.
Six months on from the start of Russia’s all-out war, alternative providers are stepping up, with countries like Norway, Libya and Azerbaijan increasing their output of oil and gas to meet the shortfall. At the same time, Texas-based liquefied natural gas (LNG) exporter Freeport is preparing to resume shipments to Europe in November. Before an explosion took it offline last month, the plant had provided around 10% of the continent’s LNG, and its shuttering helped drive up prices.
French energy company, Engie, has also sought to reassure consumers it won’t encounter major problems after Russian state firm, Gazprom, said it would turn off its taps following a contentious contractual dispute. According to the Paris-based provider, it has diversified its sources of gas so much that it can withstand being totally disconnected from Moscow’s network.
Demand has been brought down by energy-saving measures imposed in countries like Germany, where rooms in public buildings will be heated to just 19°C, illuminations have been banned and shops will be required to keep their doors closed. Spain, which did not import large quantities of Russian gas anyway, is even capitalising on the crisis to save cash by setting air conditioning restrictions and boosting insulation.
Warm temperatures across Europe have meant that households and businesses are using less gas and electricity for heating, relieving pressure on supplies. Now, with European gas stores more than 80 per cent full and the possibility of a mild winter after a historic heatwave, the worst case scenario of blackouts and economic chaos appears to have been eliminated.
In theory, greater supply should also drive down prices, including for the UK, where the government is preparing to spend up to £150 billion to protect consumers. However, given providers are generally locked into many of their contracts ahead of time, bills are unlikely to nosedive straight away. “Is the benefit going to be huge? No,” says Tom Haddon, a senior economist with European consultancy giant Arcadis, “but are we moving past a peak in energy prices? I think so.”
According to Haddon, the UK has relatively robust supplies from its own offshore gas fields – Truss has already sought to capitalise on this by committing to ramping up North Sea exploration – and Britain can keep energy flowing even if there are shortages elsewhere. “There will be plenty of gas coming in, especially LNG, but if I can’t turn my boiler on, that means nothing. The question is whether people can afford to burn it.”
If the West makes it through the winter without a total collapse, Putin’s most powerful leverage over Europe will have disappeared, just at the very moment his country needs its massive energy revenues the most. Replenishing Russia’s battered armed forces and paying large salaries to convince its citizens to join the fight in Ukraine is a major economic undertaking, and one it can ill-afford at present.
As the flames over the Portovaya facility show, Moscow is evidently struggling to get its gas to customers, and is being forced to burn off supplies. Like his flagship exports, Putin’s ambitions to carve up Ukraine, and his hopes of keeping Europe in line, now seem to be going up in smoke.
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