June 22, 2022

The gas “poker game” between Russia and Europe

The EU is heavily dependent on Russian gas, raising fears that Moscow could use its exports to blackmail the bloc of 27 – Copyright AFP Behrouz MEHRI

Julien MIVIELLE

The drop in Russian gas flows to the European Union has not had a major effect on supplies, but it is increasing pressure on the region to wean itself off energy from Moscow.

Here is an overview of the problem:

– Strong dependence –

The EU is heavily dependent on Russian gas, raising fears that Moscow could use its exports to blackmail the 27-nation bloc.

Last year, the EU received about 155 billion cubic meters of Russian gas, which represents 45% of its fossil fuel imports.

As the EU discusses an embargo on Russian oil, a gas ban is less likely for now as some countries like Germany, the EU’s economic powerhouse, rely heavily on this energy source .

“Of course the Europeans have been pretty bad at this game of poker – they have shown too openly how scared they are of losing Russian gas that now Russia is taking over,” said Swissquote analyst Ipek Ozkardeskaya. Bank.

Ukraine has pleaded with the EU to ban Russian gas, stressing that it is giving Moscow the financial means to continue its war against its neighbor.

In the first two months after the February 24 invasion, Russia reaped 63 billion euros ($65.5 billion) in gas exports, including 44 billion euros from the EU, according to the Center for Energy and Clean Air Research.

– Low gas flows –

Russian gas flows via Ukraine have plummeted this week.

Ukrainian gas pipeline operator GTSOU said it had halted gas transportation at the Sokhranivka transit point from Wednesday because Russian occupation forces, now in control, were interfering with operations.

Ukraine has urged Russian energy company Gazprom to increase supplies through another site, Sudzha, but the company said it was impossible to reroute all supplies through there.

“About a third of total Ukrainian transit goes through the Sokhranivka entry point, while the rest (two-thirds) goes through Sudzha station,” said Ole Hvalbye, commodity analyst at SEB bank.

The loss amounts to 2% of Russian gas consumption in Europe, according to Hvalbye.

“It doesn’t scream crisis, but it is a wake-up call for what’s to come,” he said.

Gazprom also announced on Thursday that it would stop sending natural gas through the Polish section of the Yamal-Europe gas pipeline after Moscow imposed retaliatory sanctions on Western energy companies.

The pipeline can transport up to 33 billion cubic meters of gas from fields on Russia’s Yamal Peninsula and Western Siberia via Belarus and Poland to Germany.

But a market source said the impact was limited because the pipeline had already been carrying low volumes for months.

The move will make “no difference” as long as long-term contracts for Russian gas via other pipelines are fulfilled.

– Russian and Ukrainian intentions –

Some analysts suggest Ukraine deliberately cut off Russian gas flows to Europe, frustrated by the EU’s reluctance to impose an embargo on Russian energy exports.

Carsten Fritsch, an analyst at Commerzbank, said it was “possible” Ukraine, which is heavily dependent on Russian oil, could pressure Hungary to drop its opposition to a European crude embargo.

While the EU has been reluctant to ban petrol, there are fears that Russia could turn off the taps in retaliation for Western sanctions over the war.

Kaushal Ramesh, a senior analyst at research firm Rystad Energy, said “supplies could be halted unilaterally by Gazprom.”

“The odds of that happening are slim, but not zero,” Ramesh said.

EU buyers are “not completely caught off guard”, as storage levels are currently sufficient to last “most of 2022, even if Russian flows were to stop instantly”.

But, he added, “the outlook for winter 2022 supply is now much more pessimistic.”

– Variants –

The EU has set itself the goal of cutting Russian gas imports by two-thirds this year.

Germany says it can make up for the recent drop in Russian deliveries by sourcing gas from Norway and the Netherlands before winter.

Europeans also rely on liquefied natural gas (LNG), which can be transported by ship from other countries such as Qatar or the United States.

Denmark is studying the possibility of increasing its own natural gas production from its North Sea fields, while Romania is considering legislation to encourage gas extraction in the Black Sea.

Experts say the situation is another argument for accelerating the transition away from fossil fuels.

“The deployment of clean energy solutions alone can lead to a reduction of 101 billion m3 (101 billion cubic meters of gas), which is equivalent to two thirds of Russian imports, already by 2025”, according to the E3G climate think tank.

The European Biogas Association is also ready to step in, saying it could almost double its production to 35 billion cubic meters by 2030, equivalent to 20% of Russian gas imports.