Russian gas: Europe lacks time to find alternatives

Barely 24 hours after Ukraine cut the flow of natural gas through its territory to Europe, blaming interference by Russian troops, Gazprom suspended supplies through the Yamal-Europe gas pipeline through Poland and stopped sending gas to a distributor in Germany.

Although the volumes involved are small, totaling only a few percent of Europe’s overall gas consumption, each hit to supply underlines the region’s vulnerability – and the urgent need for the European Union to untangle Russia’s vast energy reserves.

“Now we’re starting to see these different issues popping up, it’s an illustration of why Europe shouldn’t take gas supply for granted,” said Simone Tagliapietra, senior researcher at think tank Bruegel. , to CNN Business. “Governments must act now as if they were in an emergency,” he said. added.

Russia on Wednesday imposed sanctions on 31 foreign companies, according to the official RIA Novosti news agency. Gazprom Germania and EuRoPol Gaz, the operator of the Polish section of the Yamal-Europe gas pipeline, were on the list.

“There will be no relations with these companies, they are simply prohibited,” Kremlin spokesman Dmitry Peskov said Thursday.

German Economy Minister Robert Habeck – whose country is a major buyer of Russian gas – said Russia was no longer supplying Gazprom Germania subsidiaries, but alternative supplies had been secured.

Futures prices for Dutch natural gas, Europe’s benchmark, briefly rose 14% on Thursday morning but have since fallen back, according to data from the Intercontinental Exchange.

the the developments show Russia’s growing audacity to disrupt its energy exports to Europe.

Last month, Moscow turned off the taps to Poland and Bulgariakeeping President Vladimir Putin’s promise to stop gas flows to “hostile” countries refusing to pay their bills in rubles, rather than the euros or dollars stated in their contracts.
Russia accounted for around 45% of Europe’s total gas imports in 2021. The European Union is proposing to reduce its consumption of 66% Russian gas by the end of the year, but he has not yet presented a detailed plan on how to achieve this.

Ukraine closes the taps

Even as the war has raged for more than two months, Russian gas continues to flow west, largely through pipelines in Ukraine. But on Tuesday evening, Ukraine’s gas transmission system operator said it had suspended gas shipments through its Sokhranivka transit point, which handles up to 32.6 million cubic meters per day. This represents about a third of Russian gas transiting through Ukraine to Europe.

The Ukrainian operator blamed “the interference of the occupying forces” by announcing the suspension of the road. He accused Russian forces of tampering with the transit point and siphoning off gas. As a result, the operator said that “the stability and safety of the entire Ukrainian gas transport” had been compromised and it had been forced to suspend gas flows.

It was unclear when gas flows through Sokhranivka would resume.

The wider impact has so far been limited. While Ukraine altogether transports about 30% of Russia’s gas supply to Europe, according to the Independent Commodity Intelligence Services, the pipeline in question represents only 2.3% of Europe’s overall gas supply.

The modest market reaction was largely due to healthy gas storage levels, mild weather and a record volume of liquefied natural gas imports into Europe last month, said Tom Marzec-Manser, head of gas analysis at ICIS.

“The market is actually quite well supplied at the moment, all things considered,” he said.

But the shutdown raises the uncomfortable prospect of further disruption to Europe’s gas supply as the fighting continues. The consequences could shake markets and push already high energy prices even higher.

Redirect gas flows

The closure of Sokhranivka creates a shortage of 16 million cubic meters per day, said Kateryna Filippenko, principal analyst for global gas supply at Wood Mackenzie. But “there is enough physical capacity to fully compensate for this disruption,” she told CNN Business.

The Ukrainian gas operator said it could increase gas volumes at another transit point, called Sudzha, which is located further west in territory controlled by the Ukrainian government.

But Gazprom refused to book additional flows along this alternative route, saying it would be “technically impossible”.

Nevertheless, Filippenko said the impact would be slight and Europe should still roughly meet its gas storage targets for the end of this year, she said.

EU gas storage facilities are around 37% full, according to data from Gas Infrastructure Europe. That’s about normal for the time of year, but far from the 80% target the bloc set for November.

Other stops?

Still, with the war raging, further closures of key transit routes cannot be ruled out, analysts say.

Tensions could rise further next week, when more European energy companies are expected to make gas payments to Russia, Tagliapietra told Bruegel.

“We are still waiting for the European Commission to say whether the payment in rubles is a violation of the sanctions or not,” he added. “So over the next couple of weeks we could see potential disruptions happening, we can’t take gas supply for granted.”

Kaushal Ramesh, gas and LNG analyst at Rystad Energy, told CNN Business that the European Union should establish a buyers’ alliance, in which countries would jointly source gas from all suppliers, “as soon as possible” to prevent countries from competing for the same gas supplies and driving up prices .

Central and Eastern European countries would be the most directly affected by the drop in Russian gas flows via Ukraine, according to a research note from consultancy Eurasia Group.

Germany, the bloc’s leading economy, is particularly depends on Russian natural gas, but it is relatively isolated by the latest Sokhranivka shutdown. Most of its gas imported from Russia is transported via the Nord Stream 1 pipeline across the Baltic Sea, Economy Ministry spokeswoman Susanne Ungrad told CNN on Wednesday.

— Benjamin Brown, Nadine Schmidt and Anna Chernova contributed to this article.

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