News

What if Russia cuts off European natural gas?

While Russia massively army and military equipment near its border with Ukraine, parallel tensions have been growing world energy market.

It’s not hard to see why. Natural gas flowing through a network of pipelines from Russia heats homes and power plants across much of Europe. Russia is also one of the continent’s important oil suppliers.

Now Western officials are considering what would happen if Moscow offered a pre-apocalyptic response to the tensions – cutting off oil and gas supplies, in Europe’s winter depths. .

The defeat to Ukraine came at an inopportune time. World energy prices has been elevated as oil and natural gas supplies have slowed the recovery in demand from the pandemic.

In Europe, record high prices are attracting ships carrying natural gas from the United States, Qatar and elsewhere. On Tuesday, White House officials said discussions are underway to get more natural gas to the continent. Whether this is enough to minimize the risk of power cuts remains to be seen.

Here are some of the key issues.

This winter Europe is living through a energy crisis, with the price of natural gas and electricity skyrocketing. It started happening when gas storage levels fell below normal last year.

Natural gas is trading at about five times what it was a year ago. While prices are now about half of their peaks reached late last year, they are almost seven times higher than in the United States. High gas prices raise electricity costs, threaten to massively increase consumer bills, and have forced some energy-consuming plants such as fertilizer plants and metallurgical plants into temporary shutdowns. .

Russia has added to these woes. It exported less gas than usual and kept stockpiles at European gas facilities owned by Gazprom, Russia’s gas monopoly, to a minimum. Such tactics have raised concerns about whether there will be enough gas to weather a cold winter.

“If things really get messy in Ukraine, one can only observe,” said Thane Gustafson, author of “The Bridge,” a study on the natural gas trade between Russia and Europe. that Europe is in a particularly vulnerable position right now.

Russia supplies about a third of Europe’s natural gas, and its popularity as a supplier has grown as the continent’s domestic output has declined.

Output in the Netherlands, once a major gas producer in the European Union, has plummeted as the Dutch government gradually shuts down its giant Groningen field in response to earthquakes caused by gas production. .

Gas has also grown in relative importance as coal-fired power plants shut down in countries like Germany to meet environmental targets and nuclear plants shut down there and in the UK as well.

Despite Europe’s massive investments in renewables such as wind and solar, Europe still needs conventional supplies. Gas-fired power plants are among the few remaining options.

While natural gas flows change and decline of late, about a third of Russia’s gas exports to Europe typically go through Ukraine. Analysts say these pipelines could become collateral damage during the Russian invasion.

President Vladimir V. Putin may cut off all or a large part of Russian gas flows to Europe in response Economic sanctions are yet to be determined which the United States and other Western countries have pledged to impose in the event of an invasion.

“If we try to lock them out of the capital markets, they’re going to go where our pain is,” said Helima Croft, head of commodities at RBC Capital Markets, an investment bank. is energy.

Some observers say Mr Putin would be wary of taking such drastic steps against his most important clients. Doing so puts the main source of revenue at risk.

“While Europe is very dependent on Russian gas, Russia is very dependent on the European market,” said David Goldwyn, special envoy for international energy affairs in the Obama administration. and cannot be easily replaced.

Mr. Goldwyn, now president of consulting firm Goldwyn Global Strategies, added that Mr Putin was trying to strike a balance “between being a reliable supplier like he has been to Germany and reminding us”. Europe how dependent they are on Russian gas. . ”

He said a similar logic would likely govern Putin’s behavior regarding oil, a more important source of revenue than gas. If Russia’s oil exports are cut, consuming nations will expect Saudi Arabia to close the gap, but the worry is that the Organization of the Petroleum Exporting Countries and its allies have already recent lack of commitment to increase production, suggesting that they are close to their ceiling.

In recent months, Russia has put Europe through a tense test, squeezing gas flows in an apparent attempt to force approval of issues like Nord Stream 2, the valuable undersea pipeline. 11 billion USD connecting Russia with Germany is waiting for final approval.

Gazprom said it did not do anything unusual, maintaining it “provides the gas required by consumers and is in full compliance with existing contractual obligations,” a spokeswoman said.

But while inventories remain low and prices high, Europe has not yet run out of fuel.

Market forces are at work, if late. A giant train carrying liquefied natural gas, that is, gas cooled to a liquid form, was attracted by high prices and the lure of the Biden administration. These vessels come from the United States and other countries, and one tanker can hold three times the current daily volume of shipments from Russia through Ukraine.

Substantial increase: In January, the flow of liquefied natural gas to Europe actually exceeded the flow of Russian gas. These shipments, along with the relatively mild winters so far, have at least temporarily eased fears of shortages.

“Less risk of running out of gas,” said Massimo Di Odoardo, vice president of gas at Wood Mackenzie, a market research firm. “The worries about power outages have become less now.”

Mr. Di Odoardo said that another reason why Russian gas flows to Europe decreased in January is because European utility companies, with current high prices, are choosing to sell the gas they have in stock. stock instead of buying from Russia.

Whether liquefied natural gas shipments can make up for Russia’s complete cessation of gas supplies to Europe is in doubt. Liquefied natural gas carriers require special terminals, and Europe probably doesn’t have enough receiving terminals to accommodate such large losses.

“Import capacity in Europe is currently being tested, so the region will struggle to absorb significantly more,” said Laura Page, an analyst at Kpler, a research firm.

Perhaps worse. Trevor Sikorski, an analyst at Energy Aspects, a research firm, said a show of force on the Ukrainian border “will damage them commercially in the market.

Mr. Putin’s behavior most likely casts doubt on Russia’s claim to be a reliable energy supplier and that it could accelerate the transition from fossil fuels to renewable energy, a moves that cause difficulties for the Russian economy.

“This crisis will only increase the geopolitical momentum to get rid of dependence on gas in general and on Russian gas in particular,” Mr. Goldwyn said.

https://www.nytimes.com/2022/01/25/business/energy-environment/russia-europe-natural-gas-ukraine.html What if Russia cuts off European natural gas?

Fry Electronics Team

Fry Electronics.com is an automatic aggregator of the all world’s media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials, please contact us by email – admin@fry-electronics.com. The content will be deleted within 24 hours.

Related Articles

Back to top button