What will happen after the reduction of gas from Russia to Europe?

Here are some of the key issues related to the energy game being played in the aftermath of the war in Ukraine:

WHAT HAPPENED?

Russia last week cut gas supplies to five European Union countries, including Germany, the bloc’s largest economy with 27 countries that depend heavily on Moscow gas.

Russian state-owned energy giant Gazprom has cut supplies by 60% through the Nord Stream 1 pipeline, which runs under the Baltic Sea, from Russia to Germany – Europe ‘s main natural gas pipeline. Italy is seeing a halving of its supply. Austria, the Czech Republic and Slovakia have also seen supply cuts.

This comes after the interruption of gas supplies to Poland, Bulgaria, Denmark, Finland, France and the Netherlands in recent weeks. These outages were initially seen as less problematic because Poland, for example, was already gradually removing Russian gas by the end of the year, while others had alternative supplies.

Recent cuts, however, have hit countries that have large economies and use large amounts of Russian natural gas. Germany relies on Russia for 35% of its gas imports; Italy for 40%. For now, gas supplies are sufficient for current needs.

WHY ARE THE SUPPLY DECREASES CONCERN?

Europe is trying to fill its underground gas tank before winter. Gas companies operate at a regular rate, replenishing reserves during the summer – when, they can buy gas cheaper – and then reducing it during the winter as demand for heat increases. Supply cuts will make refilling deposits more expensive and difficult to accomplish.

The move raises the possibility of a complete shutdown of Russian gas supplies, which would make it impossible for Europe to secure the amount it needs for the winter. Natural gas is used by several industries, such as glassmakers and steelmakers, who are already facing higher costs, helping to slow down the European economy.

At present, Europe’s underground deposits are 57% full. The European Commission’s latest proposal is for each country to reach the 80% level by 1 November, while Germany has set the target at 80% by 1 October and 90% by 1 November.

Analysts at the Bruegel Institute in Brussels warn that “Bulgaria, Hungary and Romania will not meet the EU target of 80% if they continue at the current pace”, while Germany, Austria and Slovakia will find it very difficult to meet their deposit facilities if gas supplies from Russia are cut off ”.

WHAT IS HAPPENING?

The EU, which before the war received about 40% of its gas from Russia, has drawn up plans to cut imports by two-thirds by the end of the year and completely eliminate dependence on Russian gas by 2027. The bloc has already said it will block Russian coal, starting in August, and most Russian oil after six months.

The goal is to deny Russia the $ 850 million a day it provides from oil and gas sales to Europe, to prevent funding for its war in Ukraine.

European governments and businesses have bought expensive liquefied natural gas, or LNG, from the United States, which is transported by tanker, compared to gas that comes by pipeline from Russia and is usually cheaper. But the war has boosted energy prices, which are boosting record inflation in Europe and helping keep revenues high for Russia.

Efforts are being made to get more gas from Norway and Azerbaijan, while accelerating the use and conservation of renewable energy is expected to play a smaller role. Germany, which has no import terminals for LNG liquefied natural gas, is bringing in four floating terminals, two of which should be operational this year.

Despite the focus on renewable energy, the crisis is pushing countries to turn to fossil fuels. Germany is rushing to pass a law to reopen coal-fired power plants as a temporary solution, despite plans to give up coal altogether by 2030.

Deputy Chancellor Robert Habeck said it was “bitter” to return to coal, but that “in this situation, it is a necessity.” The government is planning measures to encourage industry and societies to use less natural gas. Mr Habeck also called on the Germans to save energy.

“Gas use needs to be further reduced so that more gas can be stored in storage, otherwise it will be a difficult situation in the winter,” he said.

The Dutch government says it will allow coal-fired power plants to operate again at full capacity to store natural gas.

Gas security in Europe is fragile despite all these measures.

A fire at an export terminal in Freeport, Texas, knocked out one-fifth of US export capacity for months, causing another shock to the gas market. Most of the terminal’s exports went to Europe.

“The situation in the European natural gas market is escalating further,” said commodity analyst Carsten Fritsch at Commerzbank Research, noting the planned explosion and shutdown of Nord Stream 1 pipeline maintenance, which means it will not gas flows through this pipeline from 11-21 July. “Consequently, the urgently needed accumulation of gas reserves for the winter months may decrease” and prices are likely to rise further.

WHAT GAME IS RUSSIA PLAYING?

Gazprom says it had to cut shipments to Europe via the Nord Stream 1 pipeline because Western sanctions blocked a key equipment in Canada, where it had been taken for maintenance. European governments do not believe this explanation and say that reducing gas supplies is a political decision.

Gazprom’s steps have significantly boosted natural gas prices as they had fallen before the start of the winter season. This raises revenues for Russia at a time when it is under pressure from Western economic sanctions and adds stress on Europe, which is giving Ukraine political and military support.

Gazprom’s moves can also be seen as an opposition to Western sanctions and as an obstacle to further sanctions. Larger gas users have been made aware that, like smaller ones, they are not excluded from a possible outage.

Germany and Italy saw their supplies cut short as their leaders joined French President Emmanuel Macron in Kiev to meet with President Volodymyr Zelenskyy and support the status of EU candidate country for Ukraine.

WILL THE EUROPEANS OFF THE LIGHT OR WILL THE FREEZE COLD THIS WINTER?

This is unlikely to happen because EU law requires governments to rationalize gas supplies to industry so that homes, schools and hospitals have sufficient supply. Countries that have gas shortages may also seek help from others, who may be in better shape, although this depends on gas pipeline connections.

The downside of rationing would be industrial cuts and closures, which could cost jobs and slow down economies facing high inflation and fears of a global slowdown as central banks raise interest rates./VOA

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