(Let’s ignore for a second whether this is a good political weapon—as in, do you think Putin will pull rethink the war if Europe stops buying Russian gas? I doubt it).
Let’s just focus on numbers.
Europe imports around 400 bcm each year (using an expansive definition of “Europe”). Russia supplies around 175 to 200 bcm.
The basic question is: can Europe find another 175-200 bcm in alternative gas supplies and/or reduced gas use?
tl;dr: It's very tough.
European LNG import capacity is ~240 bcm. But a lot of that capacity is in Spain (disconnected from the rest of Europe). In some places, LNG capacity is enough to offset the Russian gas; in most places, it is not.
In Europe imported 108 bcm of LNG in 2021. Even if you ignore the Spain angle, you have about 130 bcm of spare LNG capacity. Not enough to offset ~175 bcm in Russian exports. And European LNG imports were already ~16 bcm in Jan (12 mmtons). The system is at near full speed.
Europe is a small part of the LNG market, but the LNG market is not very big. If you wanted, say, 100 bcm of extra LNG for Europe, that's hard to find. China could forgo *all* LNG imports for a year and that wouldn't be enough to cover what Europe needs to replace Russia.
Let's talk demand. Super rough, EU gas demand is 1/3 buildings, 1/3 industry, 1/3 power. Each sector has different response systems—alternative fuels, conservation, etc. Could you pay industry to shut down? Sure. Could people buckle up? Sure. Fire up coal? Yes. But it's not easy.
Now add seasonality. Being able to live without Russian gas in April or June says very little. That's not when you need gas. You need gas in January. Deliverability in January is what matters.
To meet demand in the winter you need storage. Lots of it. And you need it to be full (aka not a repeat of 2021). Annual averages are almost meaningless when it comes to European gas security. What really matters is winter demand. So that's the math.
Remember that revenues from gas are a small part of the Russian foreign balance. Even if you hit *all* energy exports, Russia has enough non-energy exports to cover most of their import needs—before dipping into reserves. You're not inflicting *that* much pain.
Final thought. We can sanction Russia up the wazoo. I doubt it will be enough to turn them around. For more on that, I recommend this piece by my former professor and colleague @EliotACohen: theatlantic.com/ideas/archive/…
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Μύθος: Τα ελληνικά νοικοκυριά πληρώνουν τις υψηλότερες τιμές στην Ευρώπη
Τα στοιχεία της Eurostat δείχνουν ότι οι τιμές ρεύματος για τα νοικοκυριά είναι διαχρονικά χαμηλότερες από τον ευρωπαϊκό μέσο όρο. (Το ίδιο δείχνουν και τα δεδομένα του Household Energy Price Index.)
Μύθος: Η ελληνική βιομηχανία χωλαίνει λόγω του υψηλού κόστους ενέργειας
Ο δείκτης μεταποίησης, που έπεσε 30% στα χρόνια της οικονομικής κρίσης, έχει σχεδόν ανακτήσει όλο το χαμένο έδαφος, με μια σημαντική επιτάχυνση μετά το 2021.
On December 19, the energy ministers of the European Union agreed on a Market Correction Mechanism for natural gas. Why do we need such a mechanism? What might it accomplish?
A thread.
The starting point for the intervention is a diagnosis of market failure in European gas:
✅ Prices untethered from fundamentals
✅ Manipulation by a dominant player
✅ Sharp drops in liquidity
✅ Extreme volatility
In this context, the question is *how* to intervene, not if.
The parameters of the intervention were laid out in Article 23 of a proposed Council Regulation published on October 18.
The objectives:
✅ Do not jeopardize supply
✅ Ensure demand keeps falling
✅ Protect gas flows within Europe
✅ Do not trigger added financial stress
The @IEA WEO is always a delight to read—full of beautiful graphs and penetrating insights, a roadmap for building the energy system of the future.
This year, I want to highlight a few charts that really underscore Europe’s energy security predicament. 🧵
The increase in energy prices represents a *massive* macro-economic shock. The global trade in natural gas is usually $200 to $400 bn. This year it might reach $800 bn. Europe accounts for most of this increase on the import side. This is a shock whose ripple effects will last.
I never tire of this chart because 1 ½ years since gas prices started to get out of control this graph can still surprise me. Versus Sept 2020, TTF went up almost 25 times. 25x. Yes it then fell, but it's still hard to fathom what this means. Our systems are not built for this.
The European discourse on energy often conflates two distinct ideas: market forces and market design.
Market forces say that Europe must pay more for energy. But market design can determine how much more.
We cannot escape market forces. But we can design markets differently. 🧵
The European gas market suffers from two market failures. First, a dominant player can easily manipulate prices to serve their political ends.
No government would let a domestic market operate untouched under such duress. Why should Europe?
Second, liquidity is low.
Look at TTF (on August 26). In a few hours, prices swung by €60/MWh. That’s about $100 per barrel of oil equivalent. The “market” changed its view by $100/b in a few hours!
These swings happen often. Yet these limited trades set prices for everyone.
Instant takes can be dangerous in a rapidly evolving situation. We are learning more every hour.
But I’ve appreciated the chance to think out loud before on this platform. So here are some ideas swirling in my head about Russia cutting gas to Poland and Bulgaria.
1/ I wonder if we are tripping over a technicality. European firms are paying in hard currency. The fact that Russia is converting these euros into rubles seems irrelevant to me. (I’ve read plenty on the specifics of the scheme; I am still baffled by it.)
We sanctioned the Russian Central Bank largely to freeze its assets. We have not sanctioned Russian energy. If Europe wants to sanction Russian energy, fine; but we cannot let the mechanics of a financial transaction trigger a policy shift of this magnitude.