“Catastrophe for the gas industry”. Who will lose in the gas war between Russia and Europe?
- Victoria Safronova
- BBC Russian Service
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For Russia, the economic struggle with the countries of Europe has become urgent – this is especially noticeable in recent months. Gazprom increased supplies via Nord Stream, and on Wednesday night it suspended supplies altogether. Gas prices are living in most cases, while Europeans are preparing for a cold winter. Does Russia benefit from a gas war with Europe or against a proven paying customer?
This night, Gazprom completely stopped on the Nord Stream – the main main gas pipeline in Europe. The company will resume this with technical work and promises to restore the supply as early as September 2.
These plans for a significant share of the already registered gas prices have risen sharply: on the exchange they have exceeded 3 thousand per thousand dollars of cubic meters.
The Europeans accuse Russia and Gazprom of unleashing a gas war.
“Russia is blackmailing us. Russia is using energy as a weapon,” – announced at the end of the meeting of the commission meeting Ursula von der Leyen. Including the full consumption of Russian consumers.
The gas collision was especially evident in the wanderings of the Nord Stream turbine. The turbine was under repair in Canada, which did not want to return it due to the ban – it fell under the definition of dual-use goods. After lengthy deals involving Germany, the turbine was delivered to Europe, but it still hasn’t made it to Russia, even though German officials said it was ready to ship. Gazprom, as the media wrote, was dissatisfied with the documentation and was not fond of the turbine, a public company enjoyed to the sanctions regime.
The absence of a turbine gives Gazprom the opportunity to explain why it is necessary to limit the flow of gas through Nord Stream. The logic is simple: there is no one turbine because of another country, but it needs to be repaired.
But in Europe it is perceived quite differently. On July 26, EU energy ministers agreed to reduce gas consumption by 15% from August to March. Europeans are already preparing for a cold winter without gas in Russia, for example, in Germany they turn off the lighting of buildings and limit the temperature of air conditioning.
At first glance, Europe is losing the gas war. Inflation is expected in the eurozone reached record 8.9%, and in the Baltic countries – Estonia, Latvia and Lithuania – it exceeded 20%. The reason is precisely the rise in energy prices – they are associated with double-digit values throughout Europe.
Bloomberg Agency informs about the crisis in Europe. And Russian propaganda tellshow, because of the election by the Europeans, they save on the soul and life support devices in hospitals.
However, Russia also consumes the losses from the gas war: the budget is deprived of part of the income, and in the future, most likely, it will lose a reliable solvent buyer of gas. The EU can replace the EU countries and will not be expected from those countries that are ready to take responsibility for Russian gas – first of all, China?
Practically Russia depends on the use of applications?
In 2021, the device received about 40% of all gas consumed via gas pipelines from Russia and another 5% in the form of liquefied gas connection (LNG), wrote independent energy expert Sergei Vakulenko for the Carnegie Endowment website.
Russia’s total export of pipeline gas last year was $55 billion – and most of this amount came from European countries. If Russia stops selling gas to Europe, the budget will be cut by about $40 billion a year, according to Vakulenko.
Experts interviewed by the BBC say Russia will be difficult to replace European buyers. First, they are reliable and solvent buyers who generally do not accumulate debts to Gazprom and pay for the delivery on time. Secondly, Russia often sells gas to “friendly” countries at “political” prices, effectively at market prices.
Arikacapital investment management company Sergey Suverov, for example, believes that more likely coverage in Europe can be measured by other markets no earlier than 2030.
Moreover, the restriction includes restrictions on technology transfer and the loss of the European control market and an increase in the share of gas in Russia. In 2022-2025 If European countries refuse to consume, the reduction in consumption in Russia could amount to about 550 billion cubic meters in three years.
Another likely loss for Russia is the money invested in the Nord Stream 2 gas pipeline. This gas pipeline was supposed to be an alternative to the Nord Stream. It was built in the fall of 2021. The Russian side has repeatedly said that it is ready to launch, but the Europeans are clearly not ready to launch it even if Nord Stream is discovered. The cost of the project is estimated at $11 billion.
“Russia is losing European markets and a reliable source of replenishment of the federal budget. Gazprom’s plans are being reduced, brought to gas, reduced, and this swallows up unemployment, the closure of enterprises – not only Gazprom, but also companies that serve Gazprom. This is an economic disaster . for the gas industry,” describes the consequences for the Russian economy as a whole, oil and gas market analyst Mikhail Krutikhin.
How will it be used to get rid of energy dependence on Russia?
“The future will come rather quickly, in that Russia will not supply anything to Europe. Small volumes remain – 10-15 billion annually – to Southern Europe through the Turkish Stream. “Accordingly, without exporting supply revenues,” he predicts Institute of the President of Energy and Finance Marcel Salikhov.
Step by step, Europe will refuse Russian gas, Suverov agreed. Latvia, Lithuania, Estonia, Finland, Poland and Bulgaria have historically done this.
“To all appearances, in two or three years at the most, Russia will completely lose the ability to supply gas to Europe,” Krutikhin said.
Experts explain that European countries replace Russian gas through the supply of liquefied natural gas (LNG). Liquefied gas is obtained by cooling the gas after purification to -160°C to facilitate its storage and transportation. When liquefying the volume of gas, a decrease of 600 times. Unlike the concentration of gas, liquefied gas is in a liquid state. LNG is transported by sea in special gas carriers.
This year, LNG supplies in Europe increased by 70%, writes Economist. True, such gas costs in Europe, the more expensive it is in Asia. Yes, and in Europe it is possible to build more chances to receive such gas.
The EU has another possible major gas supplier in reserve – Qatar. However, experts say that serious illnesses are coming with him.
“Qatar has a huge, almost bottomless birthplace where you can reach at a higher pace. But Qatar would like to enter into a binding contract – with obligations to enter into certain volumes and a fixed price. Competitive supplies, to refuse long-term contracts,” said Bi- BBC Vakulenko.
In the current conditions of Europe, the consequences for reaching an agreement with Qatar are great, Salikhov said: “Either you will have problems with energy savings, which can lead to a reduction in emissions, or you can make some compromises.”
Another potential alternative is the supply of LNG to the US market. The introduction of a new wave of capacities in the United States is expected in the period 2025-2027. “There will be very large capacities – an additional 50 million tons in the region of the existing 80 million tons of LNG, which in total will give an approximate equivalent of 170 billion cubic meters of gas. This is acceptable with what Europe imports from Russia,” says Vakulenko.
It is expected that by 2045 the transition to alternative energy will be increased in Europe.
“The prices that were formed as a result of the energy blockade in Russia made everything that they wanted to do from environmental reforms, but could not be collected, because it was not justified by the economy,” explains Vakulenko.
Where can Russia reorient the supply?
The key alternative for Russia now is China. However, experts doubt that he will be able to compensate for the falling supplies from the EU countries.
“China does not need as much gas [сколько Европе]. All Chinese program documents do not provide for an increase in the quantitative indicator from Russia, except for Power of Siberia,” says Mikhail Krutikhin.
The Power of Siberia gas pipeline, which supplies gas from Yakutia to the Asia-Pacific region, was launched at the end of 2019. Its throughput capacity is 38 billion cubic meters per year, while the volume of gas transit to Nord Stream in 2021 result 59.2 billion cubic meters.
If Russia loses most of the other buyers, then there may be a profitable negotiated blocking of gas, Vakulenko suggests. Beijing dictates its terms and offers a price that is not favorable for Russia.
Russia will actively engage in the construction of the Power of Siberia-2 pipeline, the expert believes. The “Powers of Siberia – 2” project involves transit between the gas fields of Siberia and China and use with the Chinese West-East gas pipeline. Gazprom announced the start of construction of the pipeline in September 2020. However, the object can be delayed no earlier than 2030.
Another important market for Russia remains. The Turkish offer of approximately 47.5 billion cubic meters per year is a significant amount of exports Sergey Suverov.
Outside of China and Turkey, according to the place of residence in Russia, only the South European direction, says Mikhail Krutikhin. “Nothing else remains – the remaining volumes” [поставок] microscopic”, – he is economic.
The infrastructure currently in Russia does not allow redirecting gas supplies to other countries, Marcel Salikhov says. “You can increase a small flow to Turkey – add small additional volumes. Perhaps higher volumes will go to Central Asia. Volumes are impossible,” Salikhov warns.
Build new infrastructure in a difficult environment. Russia, for example, has built a gas liquefaction plant in the Baltic near the entry point of the Nord Stream 2 pipe into the sea. But equipment for manufacturers in Russia is not found, and a ban on their supply.
Until China and Turkey start buying more US gas, its Gazprom has to count on $10 million a day, according to spending figures from independent research firm Rystad Energy. The gas pipeline next to the Nord Stream compressor station – the gas pipeline is currently not operating, and before that it worked at 20% of its capacity.
German Ambassador to the UK Miguel Berger, in a conversation with the BBC, said that Russia pays for gas because it cannot be sold.
Gazprom did not respond to BBC inquiries about injuries.