What if Russia turns off the gas? Europe assesses its options amid Ukraine crisis
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On Thursday, January 28, 2021, a worker adjusted a valve in a gas pipeline at Gazprom PJSC Slavyanskaya, Russia’s starting point for the Nord Stream 2 pipeline. Nord Stream 2 is a 1,230-kilometer (764-mile) gas pipeline that will double the capacity of the existing undersea route from Russian fields to Europe — the original Nord Stream — which opened in 2011.
Andrey Rudakov | Bloomberg | Getty Images
The West and Russia are escalating tensions, and lawmakers and energy suppliers scramble to plan for the future. contingency plans.
This comes just as President Joe Biden warned there was a “distinct possibilityRussia may invade Ukraine in the next month, as “little grounds for optimism” following the rejection by the U.S. of its principal demands to end the crisis.
Russia claims it has 100,000 troops close to Ukraine, though they deny any plans to infiltrate the Soviet Union.
Rob Thummel from TortoiseEcofin’s senior portfolio manager said that European natural gas supply is well below its usual norms and inventories. This raises the question of whether Europe has sufficient natural gas stockpiles to sustain itself.
Given that we still have a lot more winter, there could be some scenarios in which it becomes really difficult and inventory could drop to a dangerous level. He said that Europe depends on Russia for energy and it will be difficult to cut supplies to both countries.
Russia has been charged with a variety of crimes for many months. intentionally disrupting gas suppliesIt will be able to capitalize on its position as an important energy supplier to Europe in the midst of an increasing dispute with Ukraine.
Russian gas supplies to Europe were lower than usual for sustained periods, according to analysts. suggestingMoscow deliberately withheld supplies to accelerate the certification process highly contentious Nord Stream 2 pipeline.
Russia’s supposed role in exacerbating Europe’s energy crunchEven the topic of an article. rare public rebukeThe International Energy Agency has called on Russia to improve gas supply to Europe, and to ensure that storage is adequate during periods of high winter demand.
Kremlin repeatedly disputedGazprom claims the government is using gaz as a weapon of geopolitical warfare. Gazprom state-owned says that it has met its contractual obligations.
Now, as Russia-Ukraine tensions reach a fever pitch, energy analysts are deeply concerned about the risk of full supply disruption to the EU — which receives roughly 40% of its gas via Russian pipelines and several of which run through Ukraine.
What is Europe’s response to disruptions in gas flow?
It is possible that a Russian gas supply disruption could have serious economic and health implications, especially since it would occur during winter.
The worst case scenario, Russia cutting off supplies to Europe abruptly, is believed by energy analysts from Eurasia Group. Because such an action would result in huge financial losses for Moscow and simultaneously trigger a coordinated EU effort to reduce Russia’s gas imports.
Eurasia Group analysts stated, “Even though it is highly unlikely that Russia will disrupt its gas exports to Europe completely,”
European utilities, for example, have seen an increase in the shipment of liquefied natural gases cargoes from America and Qatar over Christmas and New Years. These cargoes are mainly coming from the U.S., where there is around 100 expected to arrive in Europe by January. Eurasia Group stated, citing ship tracking data that the increase was approximately 40% compared to March 2021’s previous record.
View of pipes and stoppers at Nord Stream Baltic Sea Pipeline’s gas reception station.
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While these inflows are costly and likely to help western European and Mediterranean areas, it is unlikely to have the same impact on landlocked parts of central or eastern Europe.
Analysts at Eurasia Group stated that in the case of total Russian gas shortage to Europe, the new fleet of LNG from Russia would not be sufficient to supply Europe with enough gas. Gas prices could rise to unprecedented heights.
Eurasia Group analysts suggested that Europe would not only order the most LNG cargoes, but also seek alternative pipelines from Norway, Azerbaijan, Algeria and Azerbaijan to ensure maximum pressure. The EU could then activate all power and heating sources and, if required, request demand curtailments.
On Saturday, January 22, 2022, the oil-and gas terminal at Port of Odessa (Odessa), Ukraine was opened.
Bloomberg | Bloomberg | Getty Images
A partial interruption of Russian gas flow to the EU via Ukraine is more probable as tensions rise.
Analysts at Eurasia Group stated that this would cause economic damage and could lead to heating and power disruptions in some areas, particularly in Southeast Europe which had already experienced similar interruptions in the wake of a Russian gas cut-off through Ukraine in 2008/2009.
They said that Moscow might try to protect its largest customers, Germany, and Italy from any worst effects. However, they noted that U.S. sanctions or EU sanctions wouldn’t target Russia’s gas exports to Europe. This would be too harmful.
Capacity to re-route
Tom Marzec–Manser, European gas analyst at ICIS Energy Consulting, stated that flow will likely continue. He spoke to CNBC via phone.
He said that Gazprom had provided the European Union and its clients in the European Union over many decades with long-term contracts, regardless of any changes between Russia and the West.
Russia will continue to be a major supplier of its core customers in Germany, Italy, and to a lesser degree France and Austria. This is extremely important.”
Marzec-Manser said a scenario in which Russia was unable but willing to deliver gas to European customers — due to economic sanctions or if it is deemed unsafe to deliver piped gas through Ukraine — it would not necessarily result in an abrupt cut-off to supplies.
Marzec-Manser stated that there is certain re-routable market capacity along other routes. He noted volumes currently passing through Ukraine and suggested they could be re-routed to Poland.
According to Reuters, the front-month natural gas price at Dutch TTF hub was up 0.5% to 92.8 euros (or $103.3) per megawatt hour on Friday morning. New York’s Intercontinental Exchange.
TTF-month forward index fell from December’s peak of 113 Euros, but it remains elevated due to ongoing concerns about Russia and escalated tensions with Ukraine.
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