February 3, 2023

Europe braces for gas crisis as Russia makes first move

4 min read

The move marks a significant escalation in the economic conflict between Russia and the West, and the most serious ever by Moscow on several European sanctions visits announced since Putin ordered an invasion of Ukraine in February. Reaction

European Commission President Arsula van der Leyen said the suspension amounted to “blackmail”. He said EU member states met on Wednesday for emergency talks, and some had begun sending gas to Poland and Bulgaria.

“The era of Russian fossil fuels in Europe will come to an end. Europe is moving forward on energy issues,” he said in a statement.

Poland and Bulgaria may be able to cope, but if Russia cuts supplies to other EU countries, especially Germany and Italy, Europe’s readiness will be put to the test. Both G7 economies have said they intend to continue paying for gas in euros or dollars.

Can Europe compete?

According to the European Commission, the bloc relies on Russia for about 45% of its natural gas imports. According to Gas Infrastructure Europe, EU gas storage facilities are about 32% full. This is well below the 80% target set by the bloc for its member countries by November.

Analysts in Bernberg have predicted that if Russia abruptly cuts off its supplies, Europe will delay its gas before it runs out.

But the bloc has moved faster to find alternative supplies and reduce demand.

In March, EU leaders Pledged to reduce consumption. 66% reduction in the price of Russian gas before the end of this year, and to end the bloc’s dependence on Russian oil and gas by 2027. The bloc also agreed with the United States to increase its import of liquefied natural gas (LNG) this year. Germany is accelerating the construction of LNG terminals, and Italy has signed agreements with Egypt and Algeria this month.

“Russia’s latest offensive is another reminder that we need to work with reliable partners, and promote our energy sovereignty,” Von der Leyen said Wednesday.

Greenpeace workers try to stop a Russian oil tanker bound for Norway.
Poland has also been. Is preparing itself For such a moment. Although Russia’s gas was about 55% of its total imports in 2020, the country Diversify your energy sources In recent years. It has built an LNG terminal and is preparing to open a gas pipeline to Norway later this year.

Poland’s state-owned gas company PGNiG said on Tuesday that its underground gas reserves were about 80 percent full. And the flow of gas along the Yamal pipeline – which Russia has cut off – was already ending.

“[Gas via Yamal] Russia has accounted for less than 2% of Russia’s pipeline shipments to Europe since the beginning of the year, “Carsten Fresh, an analyst at Energy, Agriculture and Precious Metals at Commercebank Research, wrote in a note on Wednesday.

Fritsch added that Poland’s preparations help explain the mild market reaction.

European commodity futures prices rose 24% on Wednesday morning, but have since traded slightly above April’s monthly average of € 100 ($ 106) per megawatt, Independent Commodity Intelligence Services data shows. Is back to

“Poland’s strategy of secession from Russia has been confirmed,” Rystad energy analysts Koshal Ramesh and Nicolein Bromander wrote in a note.

According to EU figures, Bulgaria is increasingly dependent on Russia for about 75% of its gas imports. But his government said Tuesday it had taken steps to find out. Replacement equipment. And it is building a gas pipeline to Greece.

The Bulgarian Ministry of Energy said in a statement that “there are currently no restrictions on the use of gas in Bulgaria.”

What about Germany?

But the biggest concern is the damage that a sudden gas cut could do to Germany.

According to its Ministry of Economy, Europe’s largest economy typically imports about 55% of its gas from Russia. Although it has managed to reduce its share of Russian imports by 40% in recent weeks, a sudden halt would be disastrous for Germany’s heavy industry, which is already in crisis. Rising energy prices And scarcity of raw materials.

A sudden break in its main source of energy could lead to cuts in production and exports and jeopardize the survival of the country’s small and medium-sized manufacturers.

Germany’s central bank said last week that a sudden halt would push the economy into a deeper recession. About 550,000 jobs and 6.5% of annual economic output could be lost this year and next, according to an analysis by the country’s top five. Economic Institutions.

“If we lose Nord Stream 1 in Germany via the Baltic Sea, it will be a big crisis,” Ole Hvalbye, a natural gas analyst at Swedish Bank SEB, told CNN Business.

This is the highest level of German inflation since 1949.
Last month, the German government launched the first one. A three-phase contingency plan That Can lead Gas rationing, in which households and hospitals are preferred over many manufacturers.

Henning Gloustein, director of energy, climate and resources at the Eurasia Group, told CNN Business that, given Russia’s supply shortages, Germany and Italy – which depend on Russia for about 41% of their gas needs. They can avoid rations next winter if they act quickly.

“[Germany and Italy] We need to try to reduce gas consumption structurally by replacing domestic boilers with alternative systems such as water heat pumps and telling households to use less gas for heating or cooling. ”

“European utilities will need to enter the LNG market and order as many tankers as possible in the coming weeks and months,” he added.

Sugam Pokharel, Claire Sebastian, Svetlana Budzac Jones, and Hannah Richie contributed to this report.

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