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Summary
In this September 2022 Baker Institute presentation, Gabriel Collins, Anna Mikulska and Steven R. Miles argue that gas geoeconomics is a prerequisite for victory in Ukraine and for U.S. credibility in Asia. Russia withheld about 30 billion cubic meters of gas from Europe in 2021, roughly 5% of European consumption, a disruption they compare with the 1973–74 Arab oil embargo, which cut supply by about 7% of global consumption. Europe had added more than 100 bcm a year of Russian import capacity despite warning signs, LNG terminals built from 2013 to 2022 could offset only about a sixth of Russian pipeline capacity, and storage was being refilled at the expense of industrial gas use. The authors call for NATO defense-industrial mobilization on a scale not seen since the 1980s, new pipeline links and LNG supply, a 25-year forward horizon for gas in Europe, and public investment comparable to the roughly $25 billion in military aid pledged to Ukraine to unlock private capital.
Full text of the slides (from the PDF)
Slide 1. Gabriel Collins, J.D.
Baker Botts Fellow for Energy & Environmental Regulatory Affairs
Baker Institute for Public Policy, Rice University
Please cite as: Gabriel Collins, Anna Mikulska, and Steven Miles, “Gas Geoeconomics Essential to Win the ‘Long War’ In Ukraine—And Asia,” Baker Institute Research Presentation, September 2022
Gas Geoeconomics Essential to Win the “Long War” In Ukraine—And Asia
Anna Mikulska, Ph.D.
Nonresident Fellow in Energy Studies
Baker Institute for Public Policy, Rice University
Steven R. Miles, J.D.
Fellow in Global Natural Gas
Baker Institute for Public Policy, Rice University; Sr. Counsel, Baker Botts, LLP
Slide 2. Disclaimer & Disclosure
This analysis reflects our personal opinions and assessments only. It is designed solely to be illustrative and stimulate broader thought, with the objective of elevating the conversation in the energy and water space. It IS NOT an investment analysis or investment advice. It is also NOT offering any legal opinions or advice and does not create an attorney-client relationship with any reader or consumer of the information presented herein. Readers rely on the information in this analysis at their own risk. Neither the authors nor the Baker
Institute for Public Policy are liable for any loss or damage caused by a reader’s reliance on information contained in any of the charts, data series, opinions, or other information presented herein. The information and opinions contained in, and expressed by this analysis, are based on sources deemed reliable. However, there is no warranty, assurance, or guarantee, express or implied, about the completeness, reliability, or accuracy of this content. The views expressed herein reflect our interpretations as of the date the report is published and are subject to change without notice.
Slide 3. Executive Summary
• Gas geoeconomics is an essential prerequisite for victory in Ukraine, U.S. credibility in Asia, and should be one of Washington’s top national security priorities.
• Russia’s invasion of Ukraine credibly reflects reveals a desire to re-establish Moscow-centric imperium through force of arms, potentially along the approximate territorial parameters of the mid-19th Century Russian Empire in Europe.
• Rolling back the Kremlin’s existing war of conquest and deterring future depredations will require a level of NATO defense-industrial mobilization not seen since the 1980s. Present sanctions efforts, even if deepened, cannot compensate for NATO’s undersized munitions stockpiles and insufficient ability to recapitalize forces and potentially, timely replace combat losses—three elements critical for deterrence.
• Energy insecurity corrodes the economic and political foundations needed to sustain defense-industrial mobilization. Russia is thus intensifying its unprecedented efforts dating from early 2021 to use gas as an instrument to coerce and destabilize prime customers in Western Europe. Unless Europe adopts proactive, war footing gas security policies, “General Time” will be on Russia’s side.
• EU/NATO member states can build in resilience through Gas Geoeconomics policies. These would facilitate physical supply fungibility via expanded pipeline linkages within Europe and increased seaborne LNG supplies. Gas Geoeconomics would also aim to reform markets where needed and reset the investment environment by clearly communicating to the global gas value chain that gas has a 25-year forward time horizon on the Continent given its scale, superior emissions profile, capacity to yield hydrogen, and ability to facilitate wind and solar expansion.
• Public capital investments in Gas Geoeconomics by NATO member states approximating the roughly $25 billion in military assistance pledged to Ukraine thus far would powerfully accelerate gas supply diversification efforts and would likely unlock a substantially larger amount of private capital.
Slide 4. What is “Geoeconomics?”
…“using economic instruments to produce beneficial geopolitical results.” (Blackwill, 2016)
Slide 5. Russia Is Deploying The Gas Weapon Against Europe…
Pipeline Gas To Europe—Only Russia Cut Volumes in 2021 Natural Gas Prices in Europe, US, and East Asia, $/mmbtu
Source: EIA, FRED St. Louis, IMF, Authors’ Analysis
Russia throttling pipeline supplies to Europe sparked intense bidding for LNG supplies
Source: ENTSOG, Authors’ Analysis
Slide 6. …Causing A Scale of Energy Disruption Not Seen Since 1973 and 1990
• Gazprom’s pre-COVID supply levels to Europe suggest it withheld approximately 30 billion cubic meters (BCM) of gas, equal to about
5% of Europe’s actual gas consumption in 2021 (with the figure of actual gas withheld by Russia in 2022 dramatically higher).
• While 5% may not seem significant at first glance, it is.
• The 1973-1974 Arab Oil Embargo reduced crude oil supplies by an amount equal to about 7% of global consumption and caused oil prices to rapidly quadruple—like gas prices in Europe over the past 18 months.
Russian Pipeline Gas Supplies to Europe, Million Cubic Meters/Day
Source: ENTSOG, GASUNIE, Author’s Analysis
Slide 7. …And Capitalizing on a Vulnerability
Decades in the Making
Russia Invested in Its War Machine While Europe Largely Failed to Diversify Its Gas Supplies
Source: BP Statistical Yearbook of World Energy, SIPRI, Authors’ Analysis
Slide 8. …A Product of Anti-Gas Policies That Hindered Supply Diversification…
Europe Increased Russian Import Capacity by Over 100 BCM/yr Despite Major Geopolitical Warning Signs
Europe Gas Import Capacity by Source, Billion M^3/YrEurope LNG Terminals & Gas Pipelines Built: 2013-2022
LNG terminals added between 2013 and 2022 could only offset about 1/6 of inbound Russian pipeline gas capacity
Slide 9. …And Now Force Europe to Sacrifice Industrial and Power Sector Gas Use
European Gas Storage Levels Track the 5-Yr Average… …But Have Been Built at Expense of Industrial Gas Use
Source: GIE, Authors’ Analysis
Source: ENTSOG, Authors’ Analysis
*This is not a Europe-wide picture, but still constitutes a material indicator that includes gas flows to industrial consumers in Belgium, part of France (Terega), Part of Germany (ONTRAS), Italy, Luxembourg, the Netherlands, and the UK
10^6 Cubic Meters/day
Sacrificing industrial gas consumption to fill storage is not a sustainable strategy and cannot cope with the multi-year gas security challenges ahead.
Slide 10. …With Significant Economic and Social Consequences
US and Eurozone Consumer Confidence Now at Its
Lowest Point in at Least 60 Years
Economic Uncertainty in Europe Now Nearing Brexit Levels
Baker, Scott R., Bloom, Nick and Davis, Stephen J., Economic Policy Uncertainty Index for Europe [EUEPUINDXM], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/EUEPUINDXM, September 1, 2022.
Organization for Economic Co-operation and Development, Consumer Opinion Surveys: Confidence Indicators:
Composite Indicators: OECD Indicator for the Euro Area [CSCICP03EZM665S], retrieved from FRED, Federal
Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CSCICP03EZM665S, September 1, 2022.
Slide 11. War is a test of wills. Dynamic, yearslong, interplay between economic heft, industrial capacity, and political resilience determines victory and defeat when Great Powers clash.
This process is now well-underway in Ukraine. Energy security will play a pivotal role in efforts to hold the line.
Slide 12. Europe’s Energy Insecurity Will, If Unaddressed, Enable Russia’s
Imperial Ambitions
Slide 13. Russian Territorial Ambitions Likely Extend Beyond Ukraine
Russian Empire Circa 1856 (red) vs.
Modern Europe (gray borders)
Approximate current extent of Russian-Occupied Ukraine
Slide 14. Putin Draws Historical Analogy to Tsar Peter’s 20-Year Northern War
“You might think he was fighting with Sweden, seizing their lands. But he seized nothing; he reclaimed it! It seems it has fallen to us, too, to reclaim and strengthen…”—RF President Vladimir Putin, 10 June 2022
Sources: BBC; Louis Caravaque (1684-1754) – http://artclassic.edu.ru/catalog.asp?cat_ob_no=18027&resource_type=12243, Public Domain, https://commons.wikimedia.org/w/index.php?curid=6576548
Slide 15. Russian Forces Have Suffered Tremendous Losses Thus Far…
• Perspective: Russia has already lost more than 1/3 as many tanks and roughly 1/3 as many infantry fighting vehicles as US has in its own active-duty inventory
• Source: IISS 2021 Military Balance
Russian and Ukrainian Equipment Losses (10 Aug. 2022 Confirmed)
Source: Oryxspionkop, Author’s Analysis
Slide 16. …As (And Because)
Ukraine’s
Partners Have
Ramped Up
Arms Supplies
Equipment Committed and/or Delivered, Units
Red shading = especially critical in next phases of war
Anti-Ship Missiles Deliveries Unknown
Anti-Radiation Missiles Deliveries Unknown
Electronic Warfare Equipment Deliveries Unknown
GPS-Guided 227mm Rockets Deliveries Unknown
Sources: US Defense Department, https://www.nytimes.com/2022/04/19/world
/europe/us-ukraine-weaponry.html, https://www.oryxspioenkop.com/2022/04/an swering-call-heavy-weaponry-supplied.html
Slide 17. But Most Supplies to Date Are From Stockpile Drawdowns…
• Multiple NATO militaries now face urgent requirements to backfill arms transferred to Ukraine and in many cases, expand their defense platform base to deter a Russian threat who relevance the Ukraine invasion graphically proves.
Country System Type System Name % of National Inventory Transferred
Norway artillery M109A3 92%
Poland armor T-72 70%
Czech Republic armor T-72 34%
Poland artillery Krab 32%
UK artillery L118/L119 32%
USA ATGM Javelin 28%
France artillery CAESAR 24%
UK artillery M270 17%
Netherlands artillery Pzh-2000 14%
USA artillery M777 13%
Australia artillery M777 11%
Canada artillery M777 11%
UK air defense Stormer 10%
Germany artillery Pzh-2000 8%
Germany artillery MARS 7%
Australia MRAP Bushmaster 6%
USA armor M113 4%
USA artillery HIMARS 4%
Source: Oryxspionkop, IISS Military Balance 2021
Slide 18. …And Restoring Ukraine Pre-2014 Borders Will Require Massive and Sustained Additional Supplies of Platforms and Munitions
• Ukraine will need to recover roughly
120,000 km^2 of occupied territories: roughly the area of Pennsylvania, but stretched out along a frontline approximately 1,000 km long—roughly the distance from New York to Charlotte, NC
• It is likely that Kyiv will seek to use precision munitions to degrade Russian defenses in advance of attacks in order to preserve its soldiers.
• Cumulative shot count is going to be high
• Depending on campaign length, existing
US stockpiles could be depleted. Industrial spool-up is urgently needed and is starting in earnest in the United States.
Potential Cumulative GMLRS Rocket Consumption, Units
Assumptions
Number of launcher units 20
Rounds fired Daily/Launcher (Low) 3
Rounds fired Daily/Launcher (Base) 6
Rounds fired Daily/Launcher (High) 12
Slide 19. Perhaps Unsurprisingly, Russia Using Gas to Derail NATO Industrial Mobilization
Many Commodity Prices Spiked in 2021-2022, But Only
European Gas Prices Have Exceeded Historical Bounds…
Index, January 1990 =1
Source: EIA, FRED St. Louis
…And German Industrial Production Now Lags
Manufacturing Orders
Organization for Economic Co-operation and Development, Orders: Manufacturing: Total orders: Volume for Germany [DEUODMNTO01IXOBSAM], retrieved from FRED, Federal Reserve
Bank of St. Louis; https://fred.stlouisfed.org/series/DEUODMNTO01IXOBSAM, September 6,
Slide 20. Short-Term is Grim, Gas Geoeconomics Essential to Close Supply Gap
Five key items to resolve:
1. Maximizing the potential of existing LNG terminals in the Iberian Peninsula that are underutilized but stranded from other European markets by insufficient pipeline linkages;
2. Finding ways to bring more LNG into Northern
Europe (especially Germany) and the Balkans;
3. Expanding interconnectors between markets to facilitate the shuttling of supplies;
4. Promoting greater market liberalization, including a slow and systematic liberalization of gas storage to reflect market principles rather than regulatory targets set by diktat; and
5. Reforming EU and US policy to assure project developers and sponsors that gas has a long-term future, including by supporting decarbonization goals through displacing coal globally and thereby encouraging investment in the full gas value chain worldwide.
Sources: Gastrade, RWE, Uniper, Upstream Online, authors’ analysis
If Europe moves decisively to end Russian gas use, it may need 15-20
FSRUs in coming years…For 20 vessels, the price tag would likely be in the $7 billion range…the effective equivalent of a “breakup fee” to cut loose from Russia.
Slide 21. Key Gas Geoeconomics Investment Corridors
Slide 22. Gas Geoeconomics Can Help Contain a Global Axis of Autocracy
• Gas security is a global issue. Were conflict to erupt in East Asia (whether in China, North Korea, or both), Russia would almost certainly seek to capitalize on the diversion of American strategic focus to the Asian contingency. Indeed, preparing for (and hopefully, deterring) war in Asia already increasingly dominates thinking and spending in Washington. This makes sense because China now marshals economic power equal to all of its regional neighbors combined, making US participation irreplaceable to ensure a free and open Indo-Pacific.
• Yet Europe is also a core security interest, and deep US participation is essential to bridge significant divisions between Eastern and Western European countries over how to handle Russian revanchism. Gas security will beget economic security and ease the path of diplomacy.
• Russia’s attack on Ukraine now directly threatens the world’s second most important economic region, right as China doubles down its efforts to establish hegemonic control over the single most important economic area. The threat is global and responses must be commensurate. As our
Russian counterparts might put it, “Всё переплетено” (“it’s all intertwined”).
• Gas geoeconomics is an essential prerequisite for victory in Ukraine and US credibility in Asia— and should be one of Washington’s top national security priorities.
Slide 23. History Shows the Terrible Price of Insufficient Action
“It is the last territorial demand which I intend to make in Europe, but it is the demand which I will not abandon and which will, God willing, be fulfilled!”—
Adolf Hitler, 26 September 1938
• Constructive negotiations with a revisionist foe requires a decisive and sustained military campaign to contain the aggression and roll back the conquests to antebellum status.
• Russia likely seeks to “freeze” the war but would only use the pause to solidify its hold on forcibly acquired territories, rebuild forces, and gear up for additional conquest.
• Frozen conflict would hinder Ukraine’s re-construction and likely ultimately cost Europe and NATO more than it would to invest in Ukrainian restoration of full territorial sovereignty as rapidly as possible. Accepting sacrifices for 2-3 years to achieve this end offers a far more positive path ahead than would alternating cycles of war and pause established on Moscow’s timetable and to Europe and the United States’ consistent detriment.
• Now is the time for the U.S. and Europe to buckle down, accept a degree of sacrifice, and gird for providing the industrial support Ukraine needs to prevail.
• Gas geoeconomics can help fortify the foundation of this vital industrial mobilization.
Chamberlain and Hitler, Munich, 1938
Slide 24. American Resource Abundance Has Helped Allies Face
Down Revisionist Aggression Before
• “Contrary to the general impression, our main exports to Europe have not been the weapons of war…The explanation for our great increase in exports is found rather in the group we call food, especially in breadstuffs.”—Edwin Clapp, 1915*
• “..agriculture is one segment of our economy already geared to meet any emergency challenge, already offering us fully productive resources to meet any threat of Soviet economic warfare throughout the world.”—
United States Senate, Committee on Agriculture and Forestry, 1958**
First It Was Food… …Now It’s About Energy
*ECONOMIC ASPECTS OF THE WAR: NEUTRAL RIGHTS, BELLIGERENT CLAIMS AND AMERICAN COMMERCE IN THE YEARS
1914-1915, https://net.lib.byu.edu/estu/wwi/comment/Clapp/ClappTC.htm#TC ; **”Food and fiber as a force for freedom: report by Senator Hubert H. Humphrey to the Committee on Agriculture and Forestry, United States Senate on policies and operations under the agricultural trade development and assistance act (Public Law 480, 83d Cong.) and its relationship to foreign policy”, Senate Committee on Agriculture and Forestry,” 21 April 1958, https://books.google.com/books?id=ll1-xQEACAAJ&printsec=frontcover#v=onepage&q=economic%20warfare&f=false Source: EIA, Authors’ Analysis
Slide 25. Thank You!
Questions, comments, and hate mail can all be sent to gbc3@rice.edu
Slide 26. Bibliography
● Gabriel Collins, Anna Mikulska, and Steven R. Miles, “Winning the Long War in Ukraine Requires Gas Geoeconomics,” 25 August 2022, Baker Institute Research
Paper, https://www.bakerinstitute.org/research/winning-long-war-ukraine-requires-gas-geoeconomics-0
● Steven R. Miles, Gabriel Collins, Anna Mikulska, “US Needs LNG to Fight a Two-Front Gas War,” Baker Institute Policy Report, 18 August 2022, https://www.bakerinstitute.org/research/us-needs-lng-fight-two-front-gas-war
● Gabriel Collins and Anna Mikulska, “Nord Stream is Russia’s latest tool for coercion and control in Europe,” The Hill, 21 July 2022, https://thehill.com/opinion/energy-environment/3567769-nord-stream-is-russias-latest-tool-for-coercion-and-control-in-europe/ ● Gabriel Collins and Steven R. Miles, “A Bridge Over Troubled Water: LNG FSRUs Can Enhance European Energy Security,” Baker Institute Issue Brief, 29
March 2022, https://www.bakerinstitute.org/media/files/files/7961aa90/bi-brief-032922-ces-troubled-water.pdf
● Gabriel Collins, Kenneth B. Medlock III, Steven R. Miles, Anna Mikulska, “Strategic Response Options If Russia Cuts Gas Supplies to Europe,” Baker Institute for Public Policy, 11 February 2022, https://www.bakerinstitute.org/media/files/files/185d955f/ces-pub-strategic-options-022122.pdf
● Anna Mikulska and Gabriel Collins, “Waived sanctions on Russian pipeline are more about China than Russia,” The Hill, 28 May 2021, https://thehill.com/opinion/international/555909-waived-sanctions-on-russian-pipeline-are-more-about-china-than-russia
● Gabriel Collins and Anna Mikulska, “Gas Geoeconomics: A Strategy to Harden European Partners Against Russian Energy Coercion,” Policy Brief, 12 February
2021, Rice University’s Baker Institute for Public Policy, Houston, Texas, https://doi.org/10.25613/Q2AV-M072
● Gabriel Collins and Anna Mikulska, “Trans-Atlantic Gas Diplomacy 2.0: Molecule-indifferent Gas Geoeconomics, Not Energy Sanctions, are the Best Option to Harden Europe Against Russian Gas Coercion,” Baker Institute Paper, October 2020, https://www.bakerinstitute.org/media/files/files/441a118e/ces-pubgasgeoeconeurope-100120-3.pdf
● Gabriel Collins and Anna Mikulska, “Gas Geoeconomics in Europe: Using Strategic Investments to Promote Market Liberalization, Counterbalance Russian
Revanchism, and Enhance European Energy Security,” BIPP Paper, 1 June 2018, Baker Institute for Public Policy, https://www.bakerinstitute.org/research/gasgeoeconomics-europe/ ● Gabriel Collins, “Russia’s Use of the “Energy Weapon” in Europe,” Issue brief no. 07.18.17. Baker Institute for Public Policy, Houston, Texas. https://www.bakerinstitute.org/research/russias-use-energy-weapon-europe/
•Gas geoeconomics is an essential prerequisite for victory in Ukraine, U.S. credibility in Asia, and should be one of Washington’s top national security priorities.
•Russia’s invasion of Ukraine credibly reflects reveals a desire to re-establish Moscow-centric imperium through force of arms, potentially along the approximate territorial parameters of the mid-19th Century Russian Empire in Europe.
•Rolling back the Kremlin’s existing war of conquest and deterring future depredations will require a level of NATO defense-industrial mobilization not seen since the 1980s. Present sanctions efforts, even if deepened, cannot compensate for NATO’s undersized munitions stockpiles and insufficient ability to recapitalize forces and potentially, timely replace combat losses—three elements critical for deterrence.
•Energy insecurity corrodes the economic and political foundations needed to sustain defense-industrial mobilization. Russia is thus intensifying its unprecedented efforts dating from early 2021 to use gas as an instrument to coerce and destabilize prime customers in Western Europe. Unless Europe adopts proactive, war footing gas security policies, “General Time” will be on Russia’s side.
Suggested Citation:
Gabriel Collins, Anna Mikulska, and Steven Miles, “Gas Geoeconomics Essential to Win the ‘Long War’ In Ukraine—And Asia,” Baker Institute Research Presentation, September 2022
Frequently asked questions
Why does natural gas matter for the war in Ukraine?
Gas matters because energy insecurity corrodes the economic and political foundations Europe needs to sustain defense-industrial mobilization. Gabriel Collins, Anna Mikulska, and Steven Miles argue that Russia has used gas since early 2021 to coerce and destabilize Western European customers, which makes gas geoeconomics an essential prerequisite for victory in Ukraine.
How is Russia using gas as a weapon against Europe?
Russia is using gas as an instrument to coerce and destabilize its prime customers in Western Europe. The authors describe these efforts, which date from early 2021, as unprecedented and intensifying. They warn that unless Europe adopts proactive, war-footing gas security policies, this pressure will leave time on Russia’s side.
Are sanctions on Russia enough to win the war in Ukraine?
No, according to the authors, present sanctions, even if deepened, cannot compensate for NATO’s military shortfalls. They cite undersized munitions stockpiles, insufficient ability to recapitalize forces, and limited capacity to replace combat losses in time, three elements they call critical for deterrence. They call for NATO mobilization not seen since the 1980s.
What does Russia want to achieve by invading Ukraine?
The authors argue Russia’s invasion reflects a desire to re-establish a Moscow-centric imperium through force of arms. They suggest this could potentially follow the approximate territorial parameters of the mid-19th century Russian Empire in Europe. Rolling back that war and deterring future aggression, they conclude, requires sustained Western defense-industrial mobilization.
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