1. What is driving the redesign?
After Russia invaded Ukraine, the European Union drew up a plan to cut Russian gas imports by two-thirds by the end of 2022. Russia, after suffering punitive sanctions, has fired back, with President Vladimir Putin signing a decree requiring all buyers from “unfriendly” countries to pay in rubles from April. They would have to open special accounts with Russia’s Gazprombank JSC, in foreign currency and rubles, to manage their payments or deal with a supply disruption. Poland and Bulgaria, whose contracts with Russia were due to expire in 2022, were the first to have their gas flow cut off on April 27 for failing to meet Putin’s new terms. Hungary said it had no choice but to accept Moscow’s demands, adding that some other countries in the bloc were doing the same. Austria was confident it could keep the gas flowing, and Germany seemed to be looking for a compromise.
2. How did Russia become so important?
With its vast Siberian deposits, Russia has the largest natural gas reserves in the world. It began exporting to Poland in the 1940s and laid pipelines in the 1960s to deliver fuel to and through satellite states of what was then the Soviet Union. Even at the height of the Cold War, deliveries were steady. But since the breakup of the Soviet Union, Moscow and kyiv have argued over pipelines crossing Ukrainian territory, prompting Russian authorities to find alternative routes.
3. How vulnerable is Europe?
A supply crisis in 2021 provided a sharp insight into Europe’s reliance on gas flows from Russia, with benchmark gas prices more than tripling. Gas stocks in the EU fell to a record low, with heavy maintenance in the North Sea after Covid-induced delays, while liquefied natural gas supplies were redirected to Asia to meet demand growing. In 2022, European LNG terminals were operating at full capacity with the arrival of a record number of discounted supplies, while domestic producers led by Norway promised to keep production as high as possible. EU officials and buyers were tapping into new supplies from Africa to Central Asia, while planning to increase energy efficiency and use more renewables. But Russian volumes were still too large to be fully replaced in the short term.
4. How vulnerable is Germany?
Germany, the powerhouse of the EU, has reduced its use of coal and nuclear power and depends on Russian gas for around 40% of its needs. The country, which lacks LNG facilities, is now rushing to build them and secure super-chilled fuel supplies, and aims to wean itself off Russian gas by mid-2024. It also sends gas to Poland, which Gazprom says is of Russian origin, meaning a possible standoff between Moscow and Berlin would harm several countries at once.
5. Which other countries are exposed?
Russian supplies accounted for around 40% of Italian demand in 2021, but that country is scouring the world for replacements and has struck new deals with suppliers, particularly in North Africa. Some smaller gas buyers like Finland, also very dependent on Russian gas, are considering using floating LNG terminals. Poland, which generates most of its electricity from coal, has invested in a new gas pipeline from Norway, which should start flowing in October, while Bulgaria plans to increase imports of Azeri gas in 2022 with the opening of a branch line from Greece, a country which can also supply LNG. France only depends on Russia for around 17% of its gas consumption and its large nuclear industry means it is less exposed than some other European countries.
6. What role does Ukraine play?
About a third of the Russian gas sent to Europe goes through Ukraine. Even as the crisis in the region escalated into war, analysts said Russia, with a history of supply disruptions due to price disputes, likely wanted to be seen as a reliable supplier. Gazprom’s shipments to Europe and Turkey were around 177 billion cubic meters in 2021, according to calculations by Bloomberg News and BCS Global Markets based on company data. When Ukraine and Russia reached a five-year gas transit agreement in December 2019, guaranteeing supplies until 2024, Ukrainian President Volodymyr Zelenskiy said the nation would earn at least $7 billion from transit charges.
7. How has Russia disrupted the market before?
In 2006 and 2009, disputes with Ukraine over gas pricing and siphoning led to cuts in Russian supplies passing through the country. The second shutdown lasted almost two weeks in the middle of winter. Slovakia and some Balkan countries have had to ration gas, close factories and cut power. Since then, the most vulnerable countries have rushed to lay pipelines, connect networks and build terminals to import LNG shipped from as far away as Qatar and the United States.
8. What are the supply networks?
External supplies, mainly from Russia, Norway and Algeria, account for around 80% of the gas the EU consumes. Germany imports much of its gas via a pipeline under the Baltic Sea called Nord Stream, which has been fully operational since 2012. (That was the supply line that Russia suggested on March 7 could be cut in the as part of its response to the sanctions imposed following the invasion of Ukraine.) Belgium, Spain and Portugal are facing the problem of low storage capacity, as is the United Kingdom, which is no longer part of from the block and closed its only major gas storage site. The continent has a mass of gas pipelines, including Yamal-Europe, which connects Russia with Belarus and Poland before reaching Germany, and TAG, which carries Russian gas to Austria and Italy. Many cross multiple borders, creating many possible choke points.
9. What about the Nord Stream 2 gas pipeline?
It was in this context that Nord Stream 2, a new Russian gas pipeline alongside the first, was completed in late 2021. But it got entangled in politics and a long regulatory process, even before the war in Ukraine got it. place firmly on ice. There had been strong opposition from the United States, which imposed sanctions that delayed construction. Following Moscow’s invasion of Ukraine, Germany suspended its certification process and the EU’s executive arm prepared a revised energy strategy for the bloc to ‘significantly reduce our reliance on Russian gas this year’ “.
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