Ukraine-Russia war: Vladimir Putin’s secret weapon in Europe has fizzled

Vladimir Putin’s secret weapon has fizzed. He turned off the taps. He blew up his own pipelines. But gas prices in midwinter Europe have fallen to pre-war levels.

“We will not supply anything at all if it is contrary to our interests,” he warned in September. “No gas, no oil, no coal, no fuel oil, nothing.”

But the Russian President’s “special gas operation” turned out to be just more hot air.

“The plan has failed. Germans are not freezing in their homes; they have not been forced to shut down their factories. Politicians in Berlin are no longer afraid that Moscow could take revenge on Germany and bring the country to a standstill,” argues analyst Andrey Gurkov.

“Germany is starting 2023 without Russian gas, and with no need to worry about the loss. This is precisely the Kremlin’s defeat: Russian natural gas is no longer an effective weapon.”

It’s a far cry from Putin’s loudly proclaimed war plans.

He vowed to “freeze” Europe if it imposed sanctions on Russia’s energy exports.

But, in less than a year, Europe has switched from Russian piped natural gas to liquefied natural gas (LNG) shipped from the US, west Africa, Qatar and Australia.

It’s emerging from winter in a solid position to weather the year ahead.

But it’s not over yet.

“Next winter, however, a perfect storm of unfavourable weather and a resurgence of Chinese energy demand could make prices even higher and more volatile for all gas and power users,” warns Oxford Institute for Energy Studies senior researcher Adi Imsirovic.

Russian President Vladimir Putin’s plan to strangle Germany via natural gas supplies has failed.

Fossil fuel blackmail

Putin’s shadow war on Europe’s economy began well before his tanks crossed into Ukraine in February 2022. As early as 2019, the oil and gas companies controlled by his oligarchs began manipulating fossil fuel prices and supply.

They were in an ideal position to do so. More than half of Europe’s supplies were sourced from Russia.

By the time the Russian leader’s “special operation” was launched, Europe’s gas reserves were well below normal. “Accidents” and “maintenance” in the Russian supply chain had failed to refill the tanks sufficiently to last another winter.

Putin’s plan was to make life miserable for everyday Europeans.

He expected this would lead to political division, public unrest – and a collapse in support for Ukraine’s resistance.

The European Union, however, was playing a different game.

It imposed sanctions on Russian energy supplies and key political figures.

“This is yet another stupidity, another non-market decision that has no future. All administrative restrictions in global trade only lead to disproportions and higher prices,” Putin said in response.

He was correct. At least partially.

Global gas prices exploded as the EU desperately switched from piped Russian gas to liquefied natural gas (LNG) supplies. The fallout is still being felt in Australia.

At the height of shortages, wholesale prices soared above $550 per megawatt hour. That’s more than 10 times higher than it had been in 2021.

Europe moved quickly to cut gas demand and find alternative energy supplies. Decommissioned nuclear and coal power plants were reactivated. Renewable energy projects were accelerated. Construction began on new shipping terminals capable of handling LNG. Regulations were introduced in preparation for rationing.

But rolling power outages amid subzero winter temperatures remained a real threat.

Russia exploded its own supply of gas on the Nord Stream 2 gas pipeline, in the Swedish economic zone in the Baltic Sea. Photo / Swedish Coast Guard

Putin’s bad case of gas

Europe weathered its winter of discontent better than any expectation.

Climate change is delivering unusually mild weather. And LNG supplies have been able to outstrip demand – soaring from 83 billion cubic metres (bcm) in 2021 to 141 bcm last year.

That offset about three-quarters of Russia’s choked supply.

The remainder came at a price: Europe’s energy-intensive industries have had to cut production by almost 15 per cent to offset costs.

Russia used to supply more than 40 per cent of the European Union’s gas imports. By the beginning of the year, this had fallen to just 9 per cent.

“In other words, Germans have been living without gas from the supposedly indispensable Russian pipeline for five months now – and Europe’s largest economy appears to be coping well,” Gurkov says. “Yes, a recession is still anticipated; that would not be surprising, given the collapse of decades-old supply chains and the explosion of energy prices. But indicators increasingly show that the downturn will probably be fairly mild.”

Europe’s gas tanks, mid-January, remain about 82 per cent full. And that gives it a substantial buffer against further economic or climate shocks.

Putin, meanwhile, isn’t reaping his anticipated windfall from high fossil fuel prices.

Gas prices have plummeted to about $100 per megawatt hour. That’s still well above the average of recent years, but dramatically below the heights of last year. And China – a significant beneficiary of Russia’s cut-price attempt to find new markets – has been consuming less than usual under its Covid-induced economic slowdown.

Combined with sanctions, the Ukraine war is now costing Moscow some $250 million a day in lost energy exports. But its total take is still 30 per cent higher than in 2021.

As the global energy market stabilises, this is likely to evaporate.

Future shock

The worst may be over. But global energy supplies remain uncertain.

The Association of German Gas and Hydrogen Storage Operators reports the fill level would be 65 per cent at the end of winter – barring the onset of unexpectedly cold weather.

This means all tanks could be refilled before September under existing supply arrangements.

“In other words, industry experts are assuring German businesses and households that they need not expect any problems with gas reserves either this winter or next – provided the current heavy reductions in consumption are maintained,” Gurkov says.

“How hard it will be will depend on the weather, Chinese demand and LNG availability,” Dr Imsirovic adds.

Once China emerges from its post-lockdown Covid crisis, its enormous industrial sector will gear up to meet several years’ worth of backlog in markets ranging from the car industry to medicines. It will have to compete with the rest of the world to secure gas supplies. That could send prices higher and induce fresh shortages.

But Russia, again, also may be forced into a self-defeating strategy.

Analysts say that, starved of traditional European markets, Putin may be faced with no alternative but to flood China with cheap gas to keep cash flowing into his country.

And then there’s the delicate balance of global economics.

“Energy users may not only have to worry about Putin and extreme weather events in 2023, but also about increasingly assertive government policies potentially causing energy shortages,” Dr Imsirovic writes in The Conversation.

“Subsidies, retail price caps and tax reductions are being applied across the world in order to shelter consumers from high energy prices. But such actions only really support the rich (who consume disproportionately more energy) and support the continued use of damaging fossil fuels. This is bad news for innovators looking for better and cleaner ways to produce energy. It also subsidises the Russian war in Ukraine.”