Putin has another gas shock in store for us: the deindustrialization of Europe

Putin has another gas shock in store for us: the deindustrialization of Europe

“Putin knows exactly what he is doing. It targets electrical substations and step-up transformers that are difficult to replace,” said Professor Alan Riley, energy expert at the Atlantic Council and adviser for Ukraine.

“He has a full view of every target because he has detailed plans dating back to the Soviet Union. This is an energy war against Ukraine and Europe at the same time,” he said.

Helima Croft expects Russia to continue to escalate through the winter with undeniable gas pipeline sabotage. We have to assume that nothing is off limits, given that Putin has already destroyed his own Nord Stream pipelines in the Baltic.

“The infrastructure is vulnerable wherever the FSB [Russian intelligence] is present. The Italians have diversified their gas supplies to Libya, Algeria and Azerbaijan, and the FSB operates in all of them,” she said.

The new Norwegian gas pipeline to Poland is a prime target. The same is true for Norwegian gas and electricity connections to the UK. A clear attack on this infrastructure would trigger NATO’s Article 5 clause on alliance solidarity, probably too much of a risk even for this bad czar.

Darker cases of disruption are another matter. There is no shortage of nervous EU states that would try to block the escalation of Article 5. Estonia was denied such support when its critical infrastructure came under attack. A Russian strike on North African terminals carrying gas to Italy could be blamed on jihadists, muddiing the waters enough to blunt any response. It is the soft underbelly of the integrated European gas link.

The hot weather gave us a false comfort. The same goes for the displacement effect of Beijing’s zero Covid policies. China resells its contractual deliveries of LNG to Europe to exploit the arbitrage margin. The country will again become the biggest buyer in the world as soon as it reopens.

This reprieve allowed Europe to fill the gas storage to 96%. Germany hit 99.9% earlier this month. LNG shipments have been anchored offshore because there is nowhere to store the gas. The average winter price of benchmark TTF futures fell to €132 MWh from €350 during the August panic. Unfortunately, it was the calm before the next storm.

“We absorbed the shock only because Putin did not completely cut off the gas flows. Some 24 BCM (billion cubic meters) continued to flow through Ukraine and Turkey because Putin wanted to play his tricks and divide Europe,” said Thierry Bros, France’s former energy security official.

Even that is drying up now. On Tuesday, the Kremlin began cutting off remaining gas flows to southern Europe via Moldova.

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