The recent record-high gas prices have triggered legitimate concerns regarding the EU’s energy security, especially with dependence on natural gas from Russia. This brief discusses the historical and current risks associated with Russian gas imports. Researchers from the Stockholm Institute of Transition Economics Chloé Le Coq and Elena Paltseva argue that decreasing the reliance on Russian gas may not be feasible in the short-to-mid-run, especially with the EU’s goals of green transition and the electrification of the economy. To ensure the security of natural gas supply from Russia, the EU has to adopt the (long-proclaimed) coordinated energy policy strategy.

How Europe has become so dependent on Russian gas?

In the last six months, Europe has been hit by a natural gas crisis with a severe surge in prices. Politicians, industry representatives, and end-energy users voiced their discontent after a more than seven-fold price increase between May and December 2021 (see Figure 1). Even if gas prices somewhat stabilized this month (partly due to unusually warm weather), today, gas is four times as expensive as it was a year ago. This has already translated into an increase in electricity prices, and as a result, is also likely to have dramatic consequences for the cost and price of manufacturing goods.

 

These ever-high gas prices have triggered legitimate concerns regarding the security of gas supply to Europe, specifically, driven by the dependency on Russian gas imports. Around 90% of EU natural gas is imported from outside the EU, and Russia is the largest supplier. In 2020, Russia provided nearly 44% of all EU gas imports, more than twice the second-largest supplier, Norway (19.9%, see Eurostat). The concern about Russian gas dependency was exacerbated by the new underwater gas route project connecting Russia and the EU – Nord Stream 2. The opponents to this new route argued that it will not only increase the EU’s gas dependency but also Russia’s political influence in the EU and its bargaining power against Ukraine (see, e.g., FT). Former President of the European Council Donald Tusk stated that “from the perspective of EU interests, Nord Stream 2 is a bad project.”.

However, neither dependency nor controversial gas route projects are a new phenomenon, and the EU has implemented some measures to tackle these issues in the past. This brief looks at the current security of Russian gas supply through the lens of these historical developments. Chloé Le Coq and Elena Paltseva provide a snapshot of the risks associated with Russian gas imports faced by the EU a decade ago. They then discuss whether different factors affecting the EU gas supply security have changed since (and to which extent it may have contributed to the current situation) and if decreasing dependence on Russian gas is feasible and cost-effective. They conclude the brief by addressing the policy implications.

Read the full policy brief to learn more about this topic >>

Contact the authors:

Chloé Le Coq, (Chloe.LeCoq@hhs.se)
Professor of Economics at Université Paris 2 Panthéon-Assas (CRED) and Research Fellow at the Stockholm School of Economics (SSE) and Stockholm Institute of Transition Economics (SITE).

Elena Paltseva (Elena.Paltseva@hhs.se)
Associate Professor at Stockholm Institute of Transition Economics (SITE), Stockholm School of Economics and a Visiting Professor at New Economic School.

Contact:
Dominick Nilsson

E-mail:
Dominick.Nilsson@hhs.se

Digital Communication Manager,
Stockholm Institute of Transition Economics