Putin Could Send Europe Scrambling For Energy Sources

As Russian President Putin threatens to disrupt Europe's natural gas supplies, energy expert Jonathan Stern tells NPR's Rachel Martin that the continent has no short-term alternative to Russian gas.

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RACHEL MARTIN, HOST:

European Union officials held talks about the crisis in Ukraine this past week. But the focus in the meetings wasn't Russian boots on the ground, but rather Russia's threats to cut supplies of natural gas to Ukraine. This has implications for Europe, since it gets about 15 percent of its gas from Russia through Ukraine. With us now is Jonathan Stern. He's a fellow at the Oxford Institute of Energy Studies. We have him on the line from the studios of the BBC in London. Mr. Stern, thanks so much for being with us.

JONATHAN STERN: Thank you.

MARTIN: As we've said, Russia is threatening to cut off supplies. Is this just about punishing Ukraine?

STERN: It's about the fact that Ukraine owes Gazprom more than $2 billion for gas that it's already delivered, and that isn't disputed by the Ukrainian side. And what the Russians are saying is you owe us this money, you need to pay, otherwise, we're not going to send you anymore gas.

MARTIN: Is it convenient for Russia that there will be implications for Europe?

STERN: This is - becomes more complicated because the Ukrainian's could continue to flow Russian gas to Europe. But what we fear is that, as in previous times in 2009 and 2006, once the Russians cut off supplies to Ukraine, Ukraine will either cut off or take gas it destined for Europe. And that will, in fact, occasion a complete cutoff of Russian gas supplies through the Ukraine to European customers.

MARTIN: So what are Europe's options for energy outside of Russia?

STERN: There are a number of options, but none of them are immediate. Lots of people are suggesting all kind of things like importing LNG from the United States and renewables and all sorts of things. But you're looking at an immediate potential crisis and remedies that are only effective in a five to ten year period

MARTIN: So you're saying that Europe's energy future is intrinsically linked for the foreseeable future to Russia's natural gas supplies?

STERN: I would say that Europe's natural gas future - I wouldn't say its energy future - but its natural gas future is intrinsically linked to Russian energy supplies. It's linked through very long-term contracts of a type that you're not familiar with in the United States because you phased all that out about 20 or 30 years ago. But the way we do business in Europe is through 15 to 35 year contracts. A lot of Russian gas contracts last until the mid 2020s, some last until the mid 2030s. These are not contracts that can be broken without massive payments of damages. So it's not simply that we depend on Russian gas, but we are contractually linked to the Russians for a very long time.

MARTIN: What about any natural gas supplies coming out of the Middle East? Is this an option for Europe at all?

STERN: Well, indeed, it is an option, and we do import some Middle East gas. But we import it in the form of liquefied natural gas or LNG, and the problem here is that LNG is more of a global market. So if other countries are prepared to pay more than Europe, they get the LNG supplies. And this is what has happened, particularly post-2011 and the Fukushima nuclear accident in Japan. That Asia has been short of LNG and been prepared to pay far higher prices than Europe. And most of our LNG has disappeared into Asia since 2011.

MARTIN: So again, just to reiterate, that means that Europe's position with Russia, when there is a crisis like this of a political nature that we see in Ukraine - energy, gas supplies is always at the forefront?

STERN: I would put it a different way. This is a political crisis. It is very desirable that we do not turn this into an energy crisis. Now the Russians are essentially saying pay us what you owe us, and they're also saying parenthetically to Europe, you have taken on Ukraine as your political ally. So it is now your responsibility to make sure this country pays its debts. We cannot continue to supply this country with gas without some kind of assurance we're going to get paid. We already have a huge unpaid bill. We're not going to allow that bill to grow.

MARTIN: Jonathan Stern is a fellow at the Oxford Institute of Energy Studies. He joined us from the BBC Studios in London. Thanks so much for talking with us, Jonathan.

STERN: You're welcome.

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