The Green Gas Bridge: What Caused Europe’s Energy Crunch and What to do About it

Europeans will soon switch on their radiators as colder temperatures set this winter. If they were paying attention to the news, they would probably know that their heating bills are about to shatter the roof, leaving Santa without a landing strip for his sled this Christmas. Europe is undergoing a natural gas supply crunch, which in economic terms means a period of low production amid high demand. As a result, the price of gas has skyrocketed, moving some countries to opt for dirtier fuel sources to power their electricity grids. An overreliance on Russian gas and intermittent renewables has put European energy security in question. This winter will be cold, but it also will be a wake-up call for Europeans to better source and transport their natural gas supplies.

What is causing the gas crisis in Europe?

At the most basic level, low production and transport from Russia, the EU’s largest supplier, either discretionarily or not, low inventories in the EU due to low demand during the pandemic, and current higher demand as people reemerge from lockdowns have caused the gas squeeze in Europe.

Many observers blame Russian President Vladamir Putin for creating the crunch as a way to expedite the certification of the controversial Nord Stream 2 pipeline, which would greatly increase Russia’s gas supply to Germany. But the subsea project currently faces regulatory hurdles under EU law and needs inspection by Germany’s independent regulator along with that of Poland, perhaps Nord Stream 2’s most stentorian opponent. The crisis has given Putin god-like powers over European supply. His message to the EU – uncharacteristically accurate in this case –  is twofold: Europe needs Nord Stream 2 and Europe’s flexible spot-priced markets have failed. Others would look at the fundamentals, taking Putin’s word that Gazprom, Russia’s state-run gas producer, has been fulfilling its contractual obligations but does not physically have the spare capacity to balance Europe’s spike in demand. At the same time, in further acts of superhuman puppetry, Putin has occasionally hinted that Gazprom could help ease prices. And when Putin speaks, the spot market pirouettes. This complicates national governments’ ability to secure energy affordability, a key tenet of energy security.

Other EU suppliers such as Norway have also cut production in recent years, though current demand is acutely reversing that trend. Further, liquified natural gas (LNG) cargoes, which can be supplied to most countries in Europe by the United States and Qatar, have been redirected to Asia where buyers are willing to pay a higher price. Last, renewable sources such as wind are underperforming this year. Taken together, these factors will ultimately increase the cost of living this winter for end-users who rely on natural gas for heating their homes and ammonia for agricultural production. 

But the planet is the ultimate victim

The crunch comes in a year when countless reports by international climate authorities portend an extremely grim outlook for the future. It also comes in a year when climate change was supposed to be center stage in the United States’ and other major emitters’ foreign policies, culminating at this month’s much-anticipated COP26 summit in Glasgow. But the energy crisis is complicating things. 

At the end of the day, people depend on their governments to keep the lights on. That is why U.S. President Joe Biden made a controversial plea to the Organization of the Petroleum Exporting Countries (OPEC) to boost production. In another case, the International Energy Agency (IEA) reached out to Russia to send more gas to Europe. And in Europe, several governments have stepped in to pay off end-users’ gas bills. What will European leaders say when they step up to the podium at COP26, expected to make ambitious, fresh pledges to cut emissions? What example is to be set as developing countries yearn for the same prosperity that hydrocarbons have afforded to the West?

Natural gas is one part problem and another part solution

It is a common refrain that gas is a bridge fuel from coal to renewables. How wide that bridge spans depends on the political will of governments and market forces at the time. While gas is by no means a clean fuel source, it is leagues ahead of the cheaper sources to which countries have come to resort. Like COVID-19, the gas crisis has exposed the worst tendencies of national governments to prioritize parochial interests over global consciousness. It has also exposed the need for a reliable, and relatively clean, baseload power source for when renewables underperform or where nuclear is not available, such as in Germany. Gas should continue to fulfill this role, but sourcing needs to change to accommodate Europe’s greening crusade. Though moving away from Russian gas has been a priority of most, but not all, European countries, it is easier to do so now because of developments in LNG regasification plants at Europe’s many ports. This enables a highly liquid market for importing gas from friendlier trading partners. LNG demand will grow by between 25 and 50 percent by 2030, which, if upstream production also increases, will bring the cost down for European buyers. 

Greening the bridge

The widening of the gas bridge in Europe will most likely be unpopular, especially during what was supposed to be Europe's green moment. But just as gas complements renewables, it can do the same in the LNG business. Alternative fuels such as hydrogen, or LNG itself, could power the future fleet of LNG carriers. Similarly, liquefaction and regasification plants on both sides of the equation can be greenified using alternative sources. Both will ultimately bring the price of LNG down, as the energy to actually transport the molecules is a major cost in the supply chain. 

Bucking Russian piped gas has long been a priority of European countries, less Germany, Europe’s largest importer of Russian gas. Berlin’s insistence on maintaining the security of gas supply for industry runs counter to its Eastern neighbor’s energy preferences and EU initiatives to lessen dependency. Nord Stream 2 has stood at the center of this clash. But blaming the gas crunch on Russia and Gazprom’s possibly losing market share, in combination with a new German coalition that includes the anti-Nord Stream 2 Green party, may finally steer Germany away. 

Unfortunately, the gas crunch has revealed that Europe is not yet technologically ready for all-out green energy. But it is important to realize that natural gas will play an important role during and even beyond the transition. While the gas bridge may be wider than desired, it does not mean that the cable suspension holding it up cannot be green in color.