According to the correspondent of The Moscow Post, Gazprom continues to supply Russian gas for transit through Ukraine in normal mode in accordance with the requests of European consumers, the company's representative said. But investors fear a halt in supplies. Berlin is fueling these fears with plans to stop gas purchases in Russia in the future. This was reported by the German ambassador in Kiev, said the Minister of Economy and Climate Protection of Germany.
Against this background, oil prices also rose to their highest levels over the past seven years. On the London ICE exchange, the cost of futures for Brent oil, delivered in May, came close to $110 per barrel.
Okay, worse or only LNG?
The article "Gas Wars of the Kremlin" was published in the American magazine Foreign Affairs on February 28. Europeans, along with American co-authors, are thinking about how "Europe can protect itself from Russian blackmail" by switching to LNG imports. Among the authors of the article are Georg Zahmann, senior researcher at the Bruegel analytical center in Brussels and his colleague in this center Simon Tagliapietra.
On the same day, the Bruegel center issued a report "Preparing for the first winter without Russian gas." The same authors, the same topic is LNG. The match is not random. The threat of the European Union in the field of sanctions is running high. And the hope for LNG, motivated politically, is also presented in the report of the European Commission "LNG Trade between the EU and the USA."
The International Energy Agency (IEA) is also preparing a crisis response plan to reduce dependence on Gazprom. The Americans did not stand aside. The Washington Post said that Europe could not survive without Russian gas, that the European Union was far from unity and did not want sacrifices for Ukraine, especially on the supply of relatively cheap Russian gas.
Europe supports its hopes with the fact that LNG imports from the United States gradually grew, and in 2021 exceeded 22 billion cubic meters. In just six years of supply, Europe received more than 60 billion cubic meters of American gas. For comparison, the volumes supplied by Gazprom through the Nord Stream-1 pipes in 2021 alone amounted to 59 billion cubic meters.
There are at least three scenarios with the supply of Russian gas. The first - everything will remain, as it was in 2021. The second - gas will become less. The third is that the market will be in critical condition, gas will be expensive, consumption will have to be limited.
It is necessary only to guess and dream
Supply of the Russian natural gas to the world market, including LNG, was said by Vladimir Putin in the greeting on the occasion of opening of the regular summit of the Forum of the Countries — Exporters of Gas (FCEG). It was on February 22. "Are convinced that for the benefit of the international community to provide that power transition didn't turn into means of promoting of political and economic interests of certain players and, especially, I wasn't followed by sanctions or other restrictions" — the president specified. Also I promised that the Russian Federation will increase infrastructure and investments into the gas sector.
But "weather conditions" for the last ten days exchanged to such an extent that to predict a situation even for the next weeks became a thankless job. Europe remains nothing else except how to guess! Anyway, fears that Russia can answer, grow.
Dilemma which is solved by European Commission: whether to fill up the UGS by next winter with expensive gas? In case reciprocal "gas measures" on the anti-Russian sanctions don't follow and Gazprom will continue deliveries in former volumes, operators should endure massive depreciation of that gas which they can buy at the ultrahigh prices of the spot market today and tomorrow. If deliveries of Gazprom are strictly limited to contracts and applications, it is possible to fill UGS by winter and not to be in time.
By estimates of Gazprom, as of February 27 the volume of active gas fell in the European underground storages up to 28.8 billion cubic meters. It for 21.3% (on 7.8 billion cubic meters) is less than indicator of last year and on 0.4 billion cubic meters below historical minimum values for this date. For replenishment of stocks by winter the European Union will need to download "such considerable volumes of gas" which for one summer season never downloaded earlier, the press service of Gazprom claims. Daily limits of downloading are limited to technological capabilities of storages.
The Bruxelles heads call for "diversification of deliveries" and filling of UGS bypassing Russia. Bureaucrats easily ignore the facts and economy. Increase in gas production in the Netherlands can cause seismic activity. Reserves of Algeria and Norway are completely involved. Hopes for Qatar and the USA as suppliers of LNG to Europe can be postponed for about five years. Especially hopes that Japan and South Korea will be able to help due to "excess sea deliveries". Long-term contracts limit "free volumes" even in the conditions of the high prices of gas in Europe.
Moreover, demand for LNG grows in the world approximately for 5% a year. These rates can will remain till 2025, going in step with the growing needs of the Asian countries, consumers for other regions of the world. In other words, the market of LNG can remain same intense, as well as in 2021. The EU, thus, it is necessary to prepare for the prices of natural gas at the level of one-two dollars for cubic meter, maybe above, in the long term.
If Moscow "disconnects gas"
Fear to receive "otvetka" from Russia quite real. In August of last year reported to Bloomberg that Europe can be left without heat or pay for him extremely expensively "thanks to" the politicians opposing "Nord Stream — 2". Forecasts came true, the prices of the spot market were on March 1 at the level of 1.5 dollars for gas cubic meter. The price of the March future on TTF hub in the Netherlands grew by 25%, up to 125 euros for MW · h, up to 1424 dollars for 1 thousand cubic meters against the background of sharpening of tension. For March 2 this indicator grew to 2280 dollars for one thousand cubic meters. Analysts note that this growth is caused by expensive "non-Russian" gas.
All countries of continental Europe buy about 40% of import natural gas in Russia, in Germany this share is higher - 50-55%. At the beginning of this year the European Union began to accept tankers with the American LNG again to cover requirements, to constrain increase in prices. We will remind that last winter was rather warm in Europe. Last year in Germany at this time frosts damaged 30 thousand wind turbines. Millions of solar panels were covered with snow and ice. Parks of wind-driven generators and solar farms didn't work, but needed secure by gas and coal generation.
The deficiency arose after unwillingness of the German authorities to certify already completely ready project "Nord Stream-2". In turn, Gazprom didn't seek to increase volumes of pumping of gas on GTS of Ukraine over contracts. In "gas butting" with Moscow both Washington, and Brussels, and London were noted.
Now, in March 2022, we are talking about the maximum pressure of the West on Russia. It is argued that the EU sends only 5% of its exports to Russia, that the economy of all European countries is much larger than the Russian one, which is "poorly integrated into the world." There can be no fear of potential restrictions on European imports from the Russian Federation, the authors say.
Another thing is energy. Belgium, France and the Netherlands are more or less protected in natural gas imports from Russia. Spain and Portugal do not import gas from the Russian Federation. But Germany relies on Moscow for about 50% of its gas imports, Italy for 40%, Austria, Hungary, Slovenia and Slovakia depend on 60%, and Poland for 80%. Bulgaria is completely dependent.
There are also fears that Russia may compensate for the problems of relations with the EU at the expense of China. But, according to the Bruegel report and an article in Foreign Affairs, it will be difficult for Moscow to replace the export earnings lost in Europe. In 2021, Russia, according to estimates, sold oil and gas to Europe by almost $100 billion.
The conclusion made by the authors of the publications is not comforting: "If Moscow turns off gas, the EU will be able to collectively cope - at least for a while... most states are likely to live to fall 2022 without a serious deficit. " Bulgaria and Poland will experience the greatest difficulties.
Europe's gas shortage could cause Europe's energy prices to "soar to heaven, exacerbating an already ongoing crisis... economic recovery after COVID-19 slowed down "following the sanctions in response to Russia's special military operation.
Rising gas prices in Europe are driving up electricity costs, raising inflation and undermining public purchasing power and business competitiveness. Gas is also used to produce ammonium nitrate and urea. High prices and supply disruptions will affect agriculture and food costs.
The verdict of the authors of the aforementioned materials is harsh: "you can survive the current winter without further Russian imports." But managing the European economy for several years without Russian gas will be much more difficult. Conclusion - a complete replacement of Russian gas will be very expensive and may be physically impossible and economically expensive.
The question is, how to maintain long-term sanctions against Russia? Any countermeasures from Moscow, the authors worry, will hit the interests of all of Europe, which requires Brussels to "comprehensive energy strategy for the entire continent... in exchange for stronger support for the EU sanctions response, "think Brussels.
As part of the preparation of a comprehensive energy strategy, the EU, as the authors of the article and the report of the Bruegel center, think about such measures as:
- Assess in detail the vulnerability of member countries and companies
- analyze options for reducing dependence on Russian gas
- to understand in detail the interests of all EU countries, to define measures for their protection
- find partners in long-term LNG contracts
- Develop measures to encourage gas companies to replenish PCGs
- Encourage the replenishment of PCGs with state support measures
- Invest in renewable sources and energy efficiency.
In five to ten years, these measures can yield results, Europeans conclude.
In the meantime, "the EU should create a special fund to compensate specific countries, regions or sectors for the financial losses caused by sanctions" in order to maintain political unity. If this is not possible, the European Union may face an energy crisis.
Can Russia rely on China?
This issue concerns European analysts no less than European energy security. Indeed, Russia can reorient hydrocarbon exports in the future for 5-10 years. By 2030, Russian natural gas exports to China will definitely exceed 100 billion cubic meters per year only due to existing, approved and proposed projects. As of November 2021, 60% of Russian oil supplies (4.5 million barrels per day, about 230 million tons per year) were to European countries). The share of China is about a third of these volumes and will grow.
To illustrate, on February 28, when an article in the journal Foreign Affairs and the report of the Bruegel analytical center in Brussels were published, Gazprom signed an agreement on the design of a gas pipeline through Mongolia to China with a capacity of 50 billion cubic meters per year. Germany receives so much gas from Russia per year. Is this coincidence or a signal to Europe, which decided to go on an unprecedented aggravation with Moscow?
A package of 16 intergovernmental, interdepartmental and commercial documents, including a joint Russian-Chinese statement on international relations, was adopted as part of the visit of Russian President Vladimir Putin to China in early February. This may remove some of the pressure from Russia from the West. For example, China's readiness to import Russian agricultural products. During the visit, four commercial contracts were concluded. Gazprom - CNPC through the Far Eastern gas pipeline. Rosneft - Huawei on informatization and digitalization and Rosneft - CNPC on the supply of 100 million tons of oil through Kazakhstan. A memorandum on cooperation in the field of low-carbon development was signed.
The European Union, primarily gas market operators, will have to assess not only "how much Russia can rely on China as a trading partner," but how decisively Russia can reorient its trade and economic interests away from Europe.