Russian Gas Crisis Seeps into Europe

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The time lag is already leaving some consumers in the deep freeze: Thousands of households in Bulgaria went without central heating on Jan. 6 as utilities converted power plants to alternative fuels held in reserve.

The need to switch quickly to other fuels is less acute in Western Europe, where utilities are digging into gas reserves held in domestic storage facilities. That's particularly true for Germany and Italy, which are the two largest importers of Russian gas in Europe and together account for 40% of Gazprom's total annual profit. Analysts don't expect either country to be greatly affected by the current crisis because, thanks to other sources, imported gas accounts for only 10% to 15% of their total energy mix.

The bigger questions posed by the crisis of 2009 concern Russia's perceived reliability as a supplier and the dependability of Ukraine for gas transit. Throughout the latest standoff, Gazprom has tried to portray Ukraine as untrustworthy—Russia's stated reason for cutting off exports to the EU on Jan. 6 was that Ukraine was siphoning off gas for its own use—while the Ukrainians have blamed Russia for making gas imports into a political issue. That debate will continue, but the need for new transit routes that avoid Eastern Europe entirely grows more paramount, particularly the controversial Nord Stream project that would transport Russian gas under the Baltic Sea to Germany.

The dispute has also created volatility in European gas markets. Spot prices from London to Prague have all jumped by at least 10% since the crisis began. Traders say both the Russian standoff and freezing temperatures underlie the price spike.

Long-Term Solutions

Beyond the current situation, which could be resolved in a matter of days, policymakers are calling for renewed efforts to improve Europe's energy security. After the 2006 standoff the European Union outlined a three-point plan to boost its energy independence: building more domestic gas storage; creating a unified gas pipeline network across the continent; and adopting a united negotiating stance toward Russia.

Analysts say only the goal of increased domestic gas storage has been met, most notably in Italy and Spain. But plans for a more efficient continentwide gas network remain on the drawing board. And instead of a common negotiating position, individual countries, specifically Germany, have continued to strike separate deals with Russia, undermining the EU's ability to speak for the bloc. "At a European level, no one has wanted to talk in a unified way," says Colette Lewiner, global energy, utilities, and chemicals leader at consultancy Capgemini (CAPP.PA). "Europe didn't get organized to face the problem."

That might finally change in the wake of the latest gas crunch. The Russian-wary Czechs currently hold the six-month rotating presidency of the EU and have made energy security a top priority. The economic crisis could also force the issue, with money from the multibillion-dollar European government stimulus packages being poured into energy infrastructure investments. "The current environment creates more pressure for change in the system," says Mark Spelman, Accenture's global head of strategy.

He may be right in the long run. The problem now is getting the heat turned back on quickly, before Europeans suffer any more—or the economy takes another blow from tumultuous geopolitics.

Scott is a reporter in BusinessWeek's London bureau .