Gas: What will happen in Europe if Putin turns off the taps?

The New York Times examines the good, bad and (very) bad scenarios for this year's European winter

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The New York Times examines the good, bad and (very) bad scenarios for this year's European winter

At a time when Russia continues to amass troops and equipment on its border with Ukraine, another field of tensions is emerging in the energy markets,, observe the Times of New York.

And it is not difficult to understand why. The gas, which flows through a network of pipelines starting from Russia, ends up in countless homes and power plants in large parts of Europe. At the same time, Russia is one of the main sources of oil for Europe.

Now, Western officials are forced to work out possible scenarios in the event that Moscow chooses to pull tensions to extremes by shutting off gas taps and cutting off oil supplies in the heart of European winter.

The Ukraine-centric confrontation is coming at a particularly bad time, the American newspaper notes, with energy prices soaring around the world due to increased demand for oil and gas brought about by the gradual recovery of the world economies.

In Europe, record prices are attracting gas tankers from the US, Qatar and other producers. On Tuesday, the White House announced that talks were under way to supply Europe with more US gas. Whether these will be enough to avert the risk of a European blackout remains to be seen.

The following aspects of the problem are of the greatest importance, according to them Times.

Why is Europe facing such big energy problems?

This winter has plunged Europe into an energy crisis, with gas and electricity prices soaring. The problem began when gas reserves plummeted to unusual levels over the past year.

Natural gas is sold at about five times the price compared to a year ago. Although prices have dropped by about half since last year's peak, they remain almost seven times higher than in the US. This increase has also resulted in a surge in energy production costs, and therefore consumer electricity bills. Some factories that require very large amounts of energy, such as those that produce fertilizers, have been forced to temporarily suspend their operation.

Russia has already borne the brunt of Europe. Exports less natural gas than usual, while keeping stocks at its European gas facilities GazProm at the lowest possible levels. Such tactics are raising concerns about whether Europe will have enough gas to get through its icy winter.

"If things get too complicated in Ukraine, one can only notice that Europe is currently in a particularly vulnerable position," said Thein Gustafson, author of The Bridge, a study on gas trade between Russia and Europe.

How important is Russian gas for Europe?

Russia supplies about a third of Europe's gas, and its market share is growing as production on the rest of the continent declines.

The Netherlands was once a major producer within the EU, but that has changed dramatically with the gradual cessation of production from the Groningen field due to seismic activity in the region.

At the same time, the importance of natural gas is growing, as coal-fired power plants are gradually abandoned in the pursuit of green energy, while at the same time across Europe, nuclear power plants are closing one after another.

Despite Europe's large investments in renewable energy sources, such as solar and wind, dependence on conventional sources survives. Gas-fired power plants are one of the few options available.

To what extent can the Ukrainian crisis threaten European gas supplies?

Although flows are fluctuating, about a third of Russian gas reaches Europe via pipelines running through Ukraine. These pipelines could fall victim to a possible Russian invasion, according to some analysts.

Russian President Vladimir Putin could cut off some or all of Russian gas supplies to Europe in response to hitherto undefined sanctions pledged by the United States and other Western nations in the event of an invasion.

"If we try to exclude them from our capital markets, then they will hit our weak point, which is energy," he explains to Times Helima Croft, of RBC Capital Markets, of an investment bank.

How likely is it that Putin will actually turn off the taps?

Some analysts believe Putin would be reluctant to take such drastic action against his most important buyers. Such a move would jeopardize a critical source of revenue.

"Although Europe is heavily dependent on Russian gas, Russia is heavily dependent on the European market - and it can not easily replace it," said David Goldwyn, the Obama administration's special envoy for international energy. talking to Times.

Goldwyn, who is now its president Goldwyn Global Strategies, he added that Putin was trying to strike a delicate balance between "being a reliable supplier to Germany and reminding Europe of its dependence on Russian gas".

According to him, a similar logic is likely to be followed by Putin regarding oil, an even more important source of income for Russia. If Russian oil exports stop, its consuming states will turn to Saudi Arabia to fill the gap. But the recent failure of the Organization of the Petroleum Exporting Countries to increase production to meet international needs shows that they can reach their full potential.

Are there solutions to the possible consequences?

In recent months, Russia has put Europe to the test in a form of stress, they note Times, reducing gas flows in an apparent attempt to blackmail the acceleration of issues such as the operation of the new submarine pipeline NordStream 2, an $ 11 billion investment that will transport Russian gas directly to Germany bypassing Ukraine.

Η Gazprom claims that there is nothing unusual in its moves, insisting that it "delivers gas according to the needs of consumers, in full compliance with its current contractual obligations", according to a company spokesman.

And stocks may remain low and prices high, but Europe has not run out of gas.

Market forces are working - albeit belatedly. A group of giant tankers are transporting liquefied natural gas to Europe, at high prices and at the urging of the Biden government. Ships arrive from the US and other parts of the world, and each tanker has a capacity of three times the current daily volume of gas reaching Europe from Russia.

The increase is significant: in January, the amount of liquefied natural gas that arrived in Europe from the US was higher than that of Russian gas. These transports, combined with the relatively mild winter so far, have allayed some of the concerns.

"The risk of running out of gas has been reduced," said Massimo Di Odoardo, vice president of natural gas. Wood Mackenzie, a financial research company. "Concerns about blackouts are diminishing."

In addition, he notes to Times that another reason for the reduction in gas flows from Russia to Europe during January is due to the fact that European companies, given the increased prices, prefer to sell gas from their stocks, rather than supply new quantities from Russia.

Whether sending liquefied natural gas could save the situation in the event of a complete cessation of Russian flows remains doubtful, Times. Liquefied natural gas requires special terminals, which are not available in sufficient numbers in Europe to compensate for such huge losses.

"Europe's import potential is being tested at the moment, which means that the region would find it difficult to increase them significantly," said Laura Page, an analyst at Kpler.

What impact will the Ukrainian crisis have on Russia's relations with its customers?

Probably bad. Demonstration of power on the Ukrainian border "will cause problems in their presence in the market", says Trevor Sikorski, analyst of Energy Aspects.

Putin's behavior is likely to cast doubt on Russia's claims that it is a reliable supplier of energy, and it is even possible that it will accelerate its move away from fossil fuels and the green transition, a development that would significantly weaken Russia's economy.

"This crisis will accelerate the geopolitical incentives to de-depend on gas in general and Russian gas in particular," Goldwyn said.

Source: New York Times