Analysis: Europe braces for gas crisis as Russia cuts off some supplies 2022-04-27 11:01:11

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

European Commission President Ursula von der Leyen said the suspension amounted to “blackmail”. She said EU member states met on Wednesday for emergency talks, and that some had already 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,” it said in a statement.

Poland and Bulgaria may be able to cope, but if Russia cuts off supplies to other EU countries, especially Germany and Italy, Europe’s preparations will be sorely tested. The G7 economies said they intended to continue paying for gas in euros or dollars.

Can Europe cope?

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

Analysts at Berenberg expect Europe to arrive in late autumn before it starts to run out of gas if Russia suddenly cuts supplies.

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

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

“This latest aggressive move by Russia is another reminder that we need to work with reliable partners, and build our energy independence,” von der Leyen said on Wednesday.

Greenpeace activists tried to block a Russian oil tanker bound for Norway
Poland was too bracing herself For a moment like this. Although Russian gas accounted for about 55% of its total imports in 2020, the country did so Diversity of energy sources In the last years. It has built a liquefied natural gas terminal and is preparing to open a gas pipeline to Norway later this year.

PGNiG, Poland’s state gas company, said on Tuesday that its underground gas storage was nearly 80% full. And gas flows along the Yamal pipeline – the delivery route cut by Russia – were already declining.

“[Gas via Yamal] It accounts for less than 2% of Russian pipeline shipments to Europe since the start of the year, Karsten Fritsch, energy, agriculture and precious metals analyst at Commerzbank Research, wrote in a note on Wednesday.

Fritsch added that Poland’s willingness helps explain the market’s modest reaction.

Gas futures prices in Europe jumped 24% early Wednesday morning, but have since fallen back to trade just above the monthly average for April of 100 euros ($106) per megawatt-hour, according to data from the Commodity Intelligence Services. independent.

“Poland’s strategy to move away from Russia has proven correct,” Rystad Energy analysts Kushal Ramesh and Nicolin Brumander wrote in a note.

Bulgaria is more vulnerable, as it relies on Russia for nearly 75% of its gas imports, according to EU data. But her government said Tuesday it had taken steps to find alternative supplies. It is building a gas pipeline to Greece.

“Currently, no restrictive measures have been imposed on gas consumption in Bulgaria,” the Energy Ministry said in a statement.

What about Germany?

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

Europe’s largest economy typically imports about 55% of its gas from Russia, according to the Economy Ministry. Although it has managed to reduce Russia’s share of imports to 40% in recent weeks, an abrupt halt would be disastrous for Germany’s heavy industry, which is already grappling with Energy price hike A shortage of raw materials.

A sudden interruption of the main energy source could reduce production and exports and threaten the survival of many small and medium manufacturers in the country.

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

“If we lose Nord Stream 1 across the Baltic Sea to Germany, it will be a huge crisis,” Ole Hvalby, a natural gas analyst at Sweden’s SEB bank, told CNN Business.

This German inflation measure has reached its highest level since 1949
Last month, the German government began the first a Three-stage contingency plan who – which It can lead to Gas rationing, with households and hospitals prioritizing many manufacturers.

Henning Gloystein, director of energy, climate and resources at Eurasia Group, told CNN Business that under significant Russian supply cuts, Germany and Italy — which depend on Russia for about 41% of their gas needs — could avoid rationing next winter if they act quickly.

“[Germany and Italy] They need to try to reduce gas consumption structurally by replacing domestic boilers with alternative systems such as heat water pumps and requiring 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 Budjak Jones and Hannah Ritchie contributed to this report.

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