Key takeaways
- Russia’s partial gas blockade of Europe shows that $250 billion per year worth of gas can imperil a $20 trillion continental economy.
- Gabriel Collins argues that Russia has destroyed 40-year-old gas customer relationships in Europe and is years away from shipping gas to Asia at similar scale.
- No country before Russia has, to Collins’s knowledge, both abandoned its export customers and sabotaged its own export infrastructure.
- Collins advises bracing for at least two winters of energy tension in Europe, if not outright crisis, with stress possibly lasting much longer.
- Collins warns that policymakers’ words in documents and speeches will shape markets’ ability to supply the gas molecules needed in Europe and Asia.
Gabriel Collins, J.D., Center for Energy Studies LNG Roundtable Remarks, 29 September 2022. Thank you to my colleague Steven Miles for hosting a superb event and inviting me to be a panelist!
Good, bad, and interesting things tend to come in groups of 3
Theme #1: Russia’s partial gas blockade of Europe reminds us that with all due apologies to the tech sector, molecules are still the foundational king of human economic and social activity.
Physical commodities are to the economy what a concrete slab foundation is to a house: only 1-3% of the cost but jeopardizes the entire structure if compromised. Similarly, unfolding events in Europe demonstrate that $250 billion per year worth of gas can imperil a $20 trillion continental economy. Markets adjust over time but absent dramatic geoeconomic intervention, may not do so quickly enough to prevent “General Gas” and “General Time” from splitting the current anti-Russian coalition. Russia is now doubling down on its bet.
Theme #2: Russia has “burned its gas boats on the Baltic beach”—and it is years away from having a gas ship capable of sailing to Asia at similar scale.
Imagine if Saudi Arabia reduced its oil exports to prime customers by 3 million bpd over a 12-month span, launched a bloody and unprovoked invasion of Qatar, reduced oil exports further, announced it would export 5 million fewer bpd over the next 3 years, and then to accentuate the point, blew up two of its oil pipelines feeding the Ras al-Tanura export facility. Sounds crazy, right? It is…but this is essentially exactly what Russia has done thus far with natural gas exports and its war on Ukraine.
Destroying 40-year-old customer relationships and consummating the act by sabotaging physical infrastructure is unprecedented in the global energy markets. Exporters have embargoed customers (OPEC in 1973) and countries have tried to destroy others’ export capacity (Iran/Iraq and Iraq vs Kuwait in 1991) but to my knowledge, no country has inflicted both wounds upon itself. More Russian gas coercion awaits—watch the supply corridor through Ukraine in coming days and weeks.
Theme #3: We’re in for a Long War.
Brace for at least two winters of energy tension, if not outright crisis. Stress could endure much longer if policymakers fail to realize that the words they put on paper and in speeches will influence markets’ ability to supply the molecules needed not just in Europe but Asia too. The world has now entered a new phase of “Blood, Iron, and Silicon” competition—and energy underpins all those national power dimensions. We’re in uncharted waters.
Related Publication: Miles, Steven R., Gabriel Collins, and Anna Mikulska. 2022. US Needs LNG to Fight a Two-Front Gas War. Policy report no. 08.18.22. Rice University’s Baker Institute for Public Policy, Houston, Texas.
Frequently asked questions
How did Russia’s gas cuts affect Europe’s economy?
Russia’s partial gas blockade showed that a relatively small commodity flow can endanger a far larger economy. Collins notes that $250 billion per year worth of gas can imperil a $20 trillion continental economy, much as a concrete slab is only 1-3% of a house’s cost yet jeopardizes the whole structure if compromised.
Is Russia’s gas strategy toward Europe unprecedented?
Collins argues it is unprecedented for an exporter to both destroy long-standing customer relationships and sabotage its own export infrastructure. OPEC embargoed customers in 1973, and Iran/Iraq and Iraq vs Kuwait in 1991 saw attempts to destroy others’ export capacity, but to his knowledge no country has inflicted both wounds upon itself.
Can Russia redirect its gas exports from Europe to Asia?
Not quickly, in Collins’s view. He writes that Russia has “burned its gas boats on the Baltic beach” and is years away from being able to send gas to Asia at similar scale, after destroying 40-year-old customer relationships in Europe and sabotaging physical gas infrastructure.
How long could the European energy crisis last?
Collins advises bracing for at least two winters of energy tension, if not outright crisis. Stress could last much longer if policymakers fail to recognize that the words they put on paper and in speeches shape markets’ ability to supply the molecules needed in both Europe and Asia.
What does Collins mean by “General Gas” and “General Time”?
Collins uses the terms for the combined pressure of gas shortages and elapsed time that could split the anti-Russian coalition. Markets adjust over time, he writes, but absent dramatic geoeconomic intervention they may not adjust quickly enough to prevent that split, and Russia is now doubling down on its bet.
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