Russian gas: Europe has little time to look for alternatives

Just 24 hours after Ukraine cut the flow of natural gas through its territory to Europe, blaming it on the intervention of Russian troops, Gazprom suspended supplies through the Yamal-Europe gas pipeline passing through Poland and cut off gas supplies to a distributor in Germany. .

Although the volumes affected are small and collectively represent only a few percent of Europe’s total gas consumption, each supply shock underscores the region’s vulnerability and the urgent need for the European Union to free itself from Russia’s vast energy reserves.

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

Russia imposed sanctions on 31 foreign companies on Wednesday, the state news agency RIA Novosti reported. The list includes Gazprom Germany and EuRoPol Gaz, the operator of the Polish section of the Yamal-Europe gas pipeline.

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

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

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

Events show Russia’s growing courage to cut off energy exports to Europe.

Last month, Moscow turned off the taps Poland and Bulgariafulfilling President Vladimir Putin’s promise to cut off gas supplies to “unfriendly” countries that refuse to pay their bills in rubles rather than the euros or dollars specified in their contracts.
In 2021, Russia accounted for about 45% of all gas imports to Europe. EU proposes to reduce consumption Russian gas by 66% by the end of the year, but he has yet to submit a detailed plan on how to achieve this.

Ukraine turns off taps

Despite the war raging on for more than two months, gas from Russia continued to flow west, mostly through pipelines in Ukraine. But late on Tuesday evening, the Ukrainian gas transmission system operator said that suspended gas shipments through the Sohranivka transshipment point, which processes 32.6 million cubic meters. m per day. This is about a third of the Russian gas that goes through Ukraine to Europe.

The Ukrainian operator blamed “intervention by occupying forces” for the announcement of the suspension of the route. He accused Russian forces of breaking into the transit point and siphoning off the gas. As a result, according to the operator, “the stability and security of the entire Ukrainian gas transport” was threatened, and he was forced to suspend gas flows.

It was not clear when the gas supply through Sokhranivka would resume.

Broader impact has so far been limited. While Ukraine transports a total of about 30% of Russian gas supplies to Europe, according to Independent Commodity Intelligence Services, the affected pipeline accounts for only 2.3% of total gas supplies to Europe.

The modest market reaction was largely driven by good gas storage levels, mild weather and record LNG imports to Europe last month, said Tom Marczek-Manser, head of gas analytics at ICIS.

“The market is actually pretty well-endowed at the moment, all things considered,” he said.

But the shutdown creates the uncomfortable prospect of further disruptions to Europe’s gas supplies as the fighting continues. The repercussions could shock markets and push energy prices even higher.

Redirection of gas flows

The shutdown of Sokhranivka creates a shortage of 16 million cubic meters of gas per day, says Katerina Filippenko, Wood Mackenzie’s chief global gas supply analyst. But “physical capacity is enough to fully compensate for this failure,” she told CNN Business.

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

But Gazprom refused to reserve additional flows on this alternative route, saying it was “technically impossible.”

However, Filippenko said the impact would be negligible and Europe still has to meet its gas storage plans for the end of this year, she said.

According to Gas Infrastructure Europe, EU gas storage facilities are approximately 37% full. This is normal for the time of year, but far from the 80% target set by the block for November.

Further shutdowns?

Nevertheless, according to analysts, in the conditions of a raging war, further closure of key transit routes cannot be ruled out.

Tensions could escalate further next week as more European energy companies have to pay Russia for gas, Bruegel’s Tagliapietra said.

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

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

According to a study by the consulting company Eurasia Group, the most immediate impact on the countries of Central and Eastern Europe will be the reduction in Russian gas flows through Ukraine.

Germany, the bloc’s largest economy, especially dependent on Russian natural gas, but it’s relatively isolated by the last disable of Save. Most of the gas imported from Russia is transported via the Nord Stream 1 pipeline across the Baltic Sea, Economy Ministry spokeswoman Suzanne Ungrad told CNN on Wednesday.

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

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