Natural Gas Prices Are Soaring on Russian Supply Cuts. The West Is Holding Firm.

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Stymied for the moment on Ukraine’s battlefield, Vladimir Putin is escalating his energy war on Kyiv’s European backers. Russia has cut European Union–bound natural-gas exports to 20% of last year’s level, citing pipeline maintenance and other excuses.

Markets have noticed. EU gas futures have more than tripled since mid-June, soaring past the spike they saw when Putin launched his invasion in February.

But Western powers show little sign of blinking—that is, rolling back sanctions on Russia—and the vertical rise is starting to look like panic. “Speculators are pricing in as much bad news as we could possibly have: no Russian gas, no LNG [liquefied natural gas], and a really cold winter,” says Jonathan Stern, founder of the Gas Research Program at the Oxford Institute for Energy Studies.

What traders aren’t focusing on is the Western democracies’ resourceful response to Putin’s noose-tightening. EU gas storage tanks have kept right on schedule with LNG and extra supply from Norway, and will likely reach their 80% capacity target by Nov. 1, predicts Marko Papic, chief strategist at the Clocktower Group. “Europe is filling storage at exactly the same rate as last year,” he says. “Russia didn’t count on this happening.”

The gas squeeze is pushing demand destruction. Europe’s use of the fuel has already contracted by 11% this year, and a looming recession could cut it by another 10%, Stern estimates. Analysts predict that Moscow will keep dribbling in some supply, too, to stoke market uncertainty and keep a few bridges unburned for the postwar environment.

“Russia does expect to sell more gas to Europe in the future,” says Jacob Mandel, who follows the industry for Aurora Energy Research. Moscow earns $55 billion a year on average from EU gas sales, Papic estimates.

Not that this won’t be a tough winter in Europe. Governments can almost certainly keep citizens’ heat on. Now they are scrambling for ways to cushion the costs. Industrial rationing is more likely. Top gas importer Germany, among others, seems to be procrastinating over the specifics. “Germany hasn’t really laid out who loses, though the process seems inevitable,” Mandel says.

The next few winters promise little respite, given the pace of LNG development. The world’s biggest new project, Qatar’s North Field Expansion, is slated to boost global liquefied gas output 10% by 2027.

Exxon Mobil

(ticker: XOM),

Shell

(SHEL),

TotalEnergies

(TTE.France), and

ConocoPhillips

(COP) all reportedly signed on this summer as partners.

Privately held Venture Global LNG announced it has lined up $13 billion for a new complex in Louisiana, on a similar schedule. Other investors worry that green-minded Europe will be beyond gas by the time such megaprojects hit their stride. The EU lately increased its already ambitious 2030 solar-energy target by half. “There’s a big disconnect between industry realities and a Europe that wants to accelerate out of fossil fuels,” Mandel says.

The worst-case scenario Stern outlined could also pan out, leaving Europe with empty gas tanks by February or March. The more likely outlook is for more glowering from Moscow, and costly muddle-through in the West.

The alliance against Russia should hold at least until Ukraine tries its promised counterattack on the southern front. Putin strengthens it with every new bombing of a civilian target—and he has announced an increase in active-service duty members starting next year.

“Suggesting a relaxation in sanctions would be political suicide in any country in Europe,” Stern says.