Susanna Twidale & Nora Buli

LONDON/OSLO – If Russia stops exports, Europe’s efforts to increase gas supply and build stock could be thwarted. Analysts warned that this would lead to a halt in Russia’s payments terms. This would put a halt to Europe’s ability for the next winter.

Russia typically provides Europe with around 40% of its gas but the possibility of supply disruption since Moscow’s invasion of Ukraine has increased over the past week, with G7 nations rejecting a demand for payment in roubles.

According to the European Commission gas in storage is typically about 25% of what’s used in Europe during winter months. It is an important heating fuel.

To ensure supplies next winter, it proposed legislation requiring gas storage operators fill their sites at minimum 80% capacity by Nov. 1.

The problem is that the Russian supply of Russian goods makes it extremely challenging to fulfill the requirements of stores which are currently just 25% full.

Jack Sharples (a Research Fellow with the Oxford Institute of Energy Studies) stated, “The goal of 80% by November.1 is possible as long as at minimum some Russian gaz continues to flow.” It’s impossible, I believe, to achieve it without Russian oil.

Germany is Europe’s biggest gas consumer and relies almost half its energy needs on Russia. It has now set a goal to reach 90% in November. Its current gas stock is 26%.

The country also created an unprecedented emergency plan Wednesday that would see power being rationed if Russia’s natural gas supplies were disrupted.

According to the European Commission, immediate supply emergencies will be prioritized over replenishing storage. Targets are not applicable if the Commission declares an EU or regional gas supply crisis. This is possible if two other countries have made their declarations.

Kateryna Filippenko Principal Analyst at Wood Mackenzie, stated that if Russian flow stops tomorrow, and doesn’t resume until the next winter, or the entire year, storage won’t be able fill to the 80 percent level.

Most likely in EU storage, it is going to end up at least half the amount of other countries or around 54%.

Filippenko warned that such a situation could create problems for the industry. Europe, Filippenko explained, would try to safeguard vulnerable consumers by limiting industrial gas usage, perhaps by as much as one fifth.

Gazprom (MCX), Russia’s state-owned gaz company, has taken control of several Northwest European storage sites. There stocks have fallen to their lowest level in 5 years.

Gazprom controls a third German gas storage.

Gazprom may not try to fill all these locations, due to a decreasing demand for Russian supplies, and the lack of interest for Gazprom on spot markets,” Leon Izbicki Associate European at Energy Aspects.

German law gives Trading Hub Europe (THE), which is a hub for gas markets in Germany, the ability to utilize storage facilities with empty levels or less than the prescribed filling level to store its purchases if it faces shortages.

Izbicki claimed that “market managers such as THE” are more likely to seize this space using the principle of ‘use it, or lose it…and then fill it with their expertise.”

The European Commission also suggested that all gas storage facilities should be filled to 90% by November 1, 2023.

EU aims to reduce its dependence on Russian gas by 2/3 this year, and eliminate all Russian fossil fuel imports by 2027.