For over 50 years, Russia had been a reliable natural gas supplier to Europe, fulfilling its contractual obligations even at the height of the Cold War. Moscow's reputation played a major role in fueling Germany's addiction to Russian gas, as Europe's economic engine gave shape to a business model based on exports and cheap energy.

That's until the first Russian tanks rolled into Ukrainian territory on February 24, 2022. Russia's invasion was followed by a series of unprecedented Western sanctions on Moscow. Natural gas has been exempted from any formal sanctions, unlike Russian oil and coal, even as Germany — which relied on Russia for over 50% of its supply before the war — and others race to diversify away from Russian gas.

Moscow responded to the EU's unequivocal support for Ukraine by weaponizing its gas supplies to the bloc, which sourced more than a third of its gas needs from Russia before the invasion. State-owned Gazprom arbitrarily cut flows via Nord Stream 1, Russia's largest gas pipeline to Europe, before closing the pipeline indefinitely a year ago allegedly over an engine oil leak in a gas turbine at a key Russian compressor station.

Four weeks later, both Nord Stream 1 and the parallel Nord Stream 2 pipelines were severely damaged by explosions that remain unexplained to this day.

The gas shortfall cast a chill in Europe amid fears of blackouts and energy rationing in winter. Gas prices in Europe soared to a record high above €343 ($371) per megawatt-hour in late August last year, driving up inflation to historic levels.

The worst fears didn't come to fruition and Europe avoided a full-blown energy crisis thanks to a milder-than-normal winter, reduced gas consumption and more liquefied natural gas (LNG) imports from around the world.

"The whole Russian strategy has been self destructive, a complete failure," Simone Tagliapietra, an energy expert at the Bruegel think tank in Brussels. "The Kremlin thought that by weaponizing gas against the EU, the bloc would be forced to immediately scale back its support for Ukraine, and that proved to be completely wrong."

Germany's economic model in question

The upheaval in the gas markets did, however, compel energy-intensive industries like chemical, fertilizer and paper to shutter factories or curtail production. In Germany, production in energy-intensive sectors slumped almost 20% from pre-war levels between late 2021 and late 2022.

High energy prices have hurt Germany's international competitiveness. According to a recent report by the German Chamber of Commerce and Industry, almost a third of German manufacturers are considering or are implementing plans to relocate production abroad amid high energy costs at home. 

While gas prices have fallen drastically in the past year, trading at €35 per megawatt-hour on Monday, they still remain well above levels seen in previous years.

Europe's natural gas reserves are over 90% full, well ahead of the EU's November 1 goal. The region has replaced much of the lost Russian supplies with gas from the US, Norway and Qatar.

Gas demand remains subdued amid a slowdown in the manufacturing sector, keeping prices in check. Still, the gas market remains vulnerable as freezing temperatures this winter and therefore higher demand for heating could deplete the inventories swiftly. 

Russia no longer a major global gas player

For Russia, which shipped two-thirds of its gas exports to Europe, the decision to close Nord Stream was an own goal, experts say.

Russia's market share in the EU has fallen drastically to around 10% even as it struggles to reroute the spare gas. Russian gas exports via pipeline to Europe fell nearly 60% to 62 billion cubic meters (bcm) in 2022, prompting Gazprom to cut production by a fifth. They are expected to fall further this year with only 10bcm delivered via the remaining Ukrainian and Turkstream pipelines in the first five months.

"Russia has lost its position as a major international gas exporter, and it has lost it forever," Tagliapietra told DW.

Natural gas, in comparison to oil, which Moscow has rather successfully managed to reroute to the likes of China and India although at steep discounts, is less fungible. It is more difficult to transport and needs massive investments in pipelines and liquefaction and regasification plants.

With most of its gas exporting infrastructure designed to cater to European buyers, Russia is finding it challenging to reroute its gas to China and other customers in the East.

Gas revenues fell almost 45% to 710 billion rubles (€6.8 billion, $7.4 billion) in the first five months of 2023 compared to the same period last year, news agency Bloomberg reported, citing Russian finance ministry data. On Tuesday, Gazprom posted a loss of 18.6 billion rubles in the second quarter due to reduced flows to Europe.

Russia is looking to tap former Soviet states like Kazakhstan and Uzbekistan to sell its gas, boost its LNG exports and expand its domestic gas network to keep its gas flowing. It is also banking on Russia as an alternative route to Europe, but details remain vague.

Moscow sees China as an alternative to the massive European market. But, that would require building new pipelines to supplement the existing Power of Siberia pipeline.

"If [Russian President Vladimir] Putin plans to build pipelines to China with the same capacity as the pipelines that go into Europe, he will have to wait for a couple of decades," Russian energy analyst Mikhail Krutikhin told DW, adding that Beijing seems reluctant to buy more Russian gas for now.

European binge on Russian LNG

The continued deliveries of Russian gas, even though a small fraction of what the EU bought earlier, have led to calls to phase out LNG imports, which increased 37% to 22 bcm last year. Belgium, France and Spain purchased record volumes from Russia in 2022.

While higher LNG imports undermine the bloc's plan to become independent from all Russian fossil fuels by 2027, they also help contribute billions of euros in revenue to the Kremlin.

Earlier this year, the EU's energy commissioner Kadri Simson urged EU companies to refrain from signing new contracts with Russian LNG suppliers.

Those that continue to buy Russian gas cite potential legal troubles in the absence of any EU-wide measures, inflation risks and, in the case of landlocked Austria and Hungary, a lack of alternatives to quickly diversify supplies.

Countries like the Netherlands and Spain are taking steps to stop buying Russian LNG, but in the absence of any sanctions ditching Russian gas for good could take a while.

As for Moscow, its gas war, which has led to the EU finding new suppliers and speeding up its green transition, has permanently damaged its status as Europe's foremost gas supplier.

"Even though Russia can offer gas at very low prices in the future, Europeans would remember that it can break the contract any time for political reasons," Krutikhin said. "It's not possible to rely on signatures and contracts made by Russian officials. Russia is not to be trusted."

This piece was updated on August 31 to include figures on Gazprom's second-quarter loss and to include a reference to the unexplained explosions at the Nord Stream pipelines.

Edited by: Uwe Hessler