What happens if Russia cuts off Europe’s gas supply?
European gas prices have inclined as a result of increased sanctions on Russia over its invasion of Ukraine, in addition to concerns about supply disruptions. It has reignited speculation about the future of European energy, particularly about the natural gas supply. Within a few years, the European Union plans to completely take a step back to Russian supply.
It’s a tall order, given that Russian gas accounts for over a third of the continent’s gas consumption. The proposal calls for a significant increase in purchases of liquefied natural gas from non-Russian producers. However, the extent to which global LNG supply can increase is limited, putting Europe at a disadvantage.
The entrance of Russian forces at two gas compressor stations in eastern Ukraine, poses a threat to European supplies, according to Ukraine’s gas pipeline operator, but there was no early evidence of an impact on flows.
Russia supplied more than 40% of that gas in 2019. Although Germany has stopped the licensing of Nord Stream 2 (ns2), a completed but not yet operational pipeline connecting Russia and Germany, the West has not gone so far as to impose restrictions on Russian gas shipments.
What exactly is Liquified natural gas?
Natural gas is often discovered hundreds or thousands of miles away from the power plants, companies, refineries, and households where it is used. It can be transported quite cheaply overland via pipelines, but only to specific locations. A multibillion-dollar business has arisen over the last six decades to freeze the gas to minus 260 degrees Fahrenheit (minus 162 degrees Celsius), at which point it transforms into a liquid that can be loaded onto refrigerated ships and shipped throughout the world.
According to Russian deputy prime minister, Alexander Novak, replacing the volume of oil received from Russia would take more than a year, and Europe would have to pay much higher rates.
Why is it so difficult to boost LNG supply?
Although a new natural gas well may be put into production in a matter of weeks, obtaining the permissions, land contracts, and billions of dollars in finance required to build a new liquefaction plant or an import terminal to receive LNG and convert it back to gas takes several years.
It takes time and money to build the specialized tankers that are necessary. As a result, the world’s LNG infrastructure is limited for the time being. According to the International Gas Union, it comprises around 400 LNG plants and 150 import terminals spread throughout the globe, with 600 tankers able to transport cargo between them.
How relying on Russian gas in Europe?
About 40% of Europe’s natural gas comes from Russia, with the majority of it being carried by the pipeline. According to Rystad Energy, 52 billion cubic meters (bcm) of gas is sent to Europe each year via Ukraine or neighbouring routes, with total Russian deliveries to Europe ranging from 150 to 190 bcm.
Some pipelines pass through Ukraine, but others, such as Yamal-Europe, which runs through Belarus and Poland to Germany, and Nord Stream 1, which flows beneath the Baltic Sea to Germany, take alternate routes. In recent years, most European countries have reduced their dependency on Russian gas. In 2021, the Ukraine transit corridor was mostly utilized to transport gas from Ukraine to Slovakia, Austria, and Italy.
What is available for purchase in Europe?
Approximately 70% of cargoes on the water are allocated for customers with long-term contracts, while the other 30% is sold on the worldwide spot market, according to weekly traffic. This means that around 136 million tonnes of LNG will be sold to the highest bidder this year. In principle, that’s enough to cover Europe’s natural gas imports from Russia, which total roughly 160 billion cubic meters, or 118 million tonnes of LNG.
Is Europe’s infrastructure capable of receiving so much LNG?
European countries currently import roughly 80 million tonnes of LNG every year. According to Bloomberg Intelligence, they can import a total of 145 million tonnes at maximum capacity, which means there’s room for another 65 million tonnes. LNG imports, even at full capacity, would only cover half of Russian pipeline gas. In order to transport gas from coastal import terminals to demand centers in the interior of the continent, European countries would need to restructure pipeline routes and establish interconnections.
What impact may increased European purchases have on other importers?
A confluence of circumstances dampened demand among traditionally large LNG consumers in the immediate aftermath of the Ukraine incursion, allowing supplies to flow to Europe. North Asia has had a moderate winter, and rains in Brazil have helped the hydroelectric power supply. However, a tug-of-war over cargoes is predicted to continue in the second quarter.
Poorer countries like India and Pakistan, which are less able to pay high costs, may confront energy shortages that put pressure on their economies. Higher pricing and the possibility of shortages imply that utilities in countries like Japan, South Korea, and Pakistan, who rely on imported gas to generate a substantial portion of their energy, may switch to more carbon-intensive options like coal and fuel oil.
Are there any other ways to get rid of a gas supply crunch?
Several countries could aim to replace any energy supply gaps by importing electricity from neighbouring states via interconnectors or increasing power generation from nuclear, renewables, hydropower, or coal. The European Commission announced this week that gas and LNG from the United States and Qatar might replace 60 billion cubic meters (bcm) of Russian gas in Europe this year. Increased use of biomethane and hydrogen by 2030 could also help.
New wind and solar projects could replace 20 billion cubic meters of gas demand this year, while tripling capacity by 2030, adding 480 gigawatts of wind and 420 gigawatts of solar, could save 170 billion cubic metres each year. Turning down thermostats by 1°C this year might save 10 bcm, while replacing gas boilers with 30 million heat pumps by 2030 could save 35 bcm, according to the Commission.
As reactors age, decommission or phase out, nuclear availability is decreasing in Belgium, the United Kingdom, France, and Germany. Europe has been attempting to move away from coal in order to fulfill climate commitments, but due to rising gas prices, several coal facilities have been turned back on since mid-2021.
Has supply to Europe before been interrupted?
Several gas conflicts have occurred between Russia and Ukraine in the past 15 years, most of which have been overpricing. Gazprom suspended supply to Ukraine for one day, in 2006. Difficulties in Russia’s supply reverberated across Europe, in the winter of 2008/2009. After seizing Crimea in 2014, Russia shut off supplies to Kyiv. In November, 2015, Ukraine stopped buying Russian gas and began importing gas from EU countries by reversing the flow in some of its pipes.