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The EU faces a difficult choice when it comes to possible sanctions on Russian gas in case of an escalation of a Russia-Ukraine conflict.

Russia’s Gazprom supplied an estimated 146 billion cubic meters (bcm) of gas to the EU in 2021, making up about 35% of natural gas that the EU consumes annually. The dependence on Russian gas is expected to increase further if and when the Nord Stream 2 pipeline becomes operational.

“At the same time, the planned inclusion of natural gas in the EU Taxonomy reflects its role as a crucial transition fuel in the EU’s shift to a low-carbon economy. The EU’s reliance on imported gas is therefore likely to further increase over the medium-term, as the use of coal and nuclear energy, in some countries, are gradually phased out, and domestic gas production continues to fall,” says Eiko Sievert, analyst at Scope Ratings.

Current geopolitical dynamics underline the need for a closely coordinated EU-wide energy strategy to improve longer-term energy security and sustainability.

“Prioritising and accelerating such efforts would also signal to Russia that an escalation of the Russian-Ukrainian conflict would ultimately damage rather than enhance European demand for Russia’s energy exports. These remain the cornerstone of the Russian economy with exports of oil and gas products to the European market generating over EUR 90bn over the last year,” says Levon Kameryan, analyst at Scope.

Reliance on gas, Russia energy exports differs widely across the EU

Source: Eurostat, Scope Ratings GmbH. Interval information is provided by Eurostat to avoid revealing confidential figures. The redistribution of imports among the Member States after import into the EU is not considered.

In the near term, the EU would likely be capable of enduring a large-scale disruption to Russian gas supplies until the summer, through a combination of higher liquefied natural gas (LNG) imports, such as from the US and Qatar, usage of cushion gas in storages and demand cuts. However, a prolonged halt of Russian gas supplies, depending on weather conditions, could rapidly deplete current gas reserves in some countries. Under such a scenario, the impact would vary across the EU, depending on the level of exposure to Russian gas and the energy mix.

Countries such as Germany, Hungary, and Slovakia have a high proportion of natural gas in the mix of energy they consume and are heavily reliant on gas imports from Russia. In contrast, France and Spain, two of the largest LNG importers in the EU, are much less reliant on natural gas supplies from Russia.

Such vulnerabilities are compounded by currently low gas storage levels in the EU. Total European gas storage fell to 37.7% of capacity on January 31, 2022, compared with 51.7% at the same time last year.

“Judging by this, Germany, Austria, Hungary and Slovakia appear more vulnerable to such a severe scenario. The impact, however, could be mitigated to some degree depending on how well the interconnected EU energy market is able to redistribute supplies across countries. Longer-term, labelling nuclear power as a ‘green’ energy source under the EU taxonomy could improve the EU's energy independence and reduce transition risks,” says Sievert.