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Sep 4, 2022
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Gas shortage will force the EU to change its attitude towards Russia

European leaders vied with each other to declare their intention to abandon Russian gas, and Olaf Scholz even called Moscow an “unreliable” supplier of blue fuel. He also expressed confidence that Germany would “survive the winter” without fuel supplies from Russia. But is it really so? And why might the coming winter change the EU’s political course towards Moscow?

According to the legislative amendments adopted by the German authorities, operators of underground gas storages (UGS) were obliged to fill them by October by 85%, and by November – by 95%. On Saturday, the Association of European Gas Infrastructure Operators GIE reported that the level of occupancy of German UGS facilities was 85.02%. Thus, the country is said to have reached its target for October, despite the shutdown of the Nord Stream 1 gas pipeline.

At the same time, the association claims that Germany’s largest UGS facility, Rehden, which previously belonged to Gazprom through its subsidiaries and in which gas was less than 1% of its volume in April, is currently 69.54% full.

At the same time, German Chancellor Olaf Scholz, in an interview with the ZDF television channel, said that “Russia is no longer a reliable gas supplier.” He added that Germany in December will completely abandon Russian gas and even “survive the winter.” In addition, the German chancellor promised to cap electricity prices “as soon as possible”.

Deputy Chairman of the Security Council of Russia Dmitry Medvedev responded to Olaf Scholz’s statement. He quoted an old childhood joke, noting that Berlin was acting like an enemy of Russia. According to Medvedev, “Germany, an unfriendly country that has imposed sanctions against the entire Russian economy and its citizens, supplies Ukraine with lethal weapons against our Armed Forces.”

“In other words, Germany has declared a hybrid war on Russia. Consequently, Germany acts as an enemy of Russia. And this uncle is surprised that the Germans have some minor problems with gas. Just like in a children’s joke: “And they still swear that I was picking my nose …” – he wrote in his Telegram channel.

At the same time, Britain announced a panic within the country and in the EU against the background of the gas crisis. Angela Knight, former executive director of the trade association Energy UK, believes that Russia allegedly unleashed an economic war. In a Bloomberg commentary, she said that Russian President Vladimir Putin “plunged the UK into a panic” by blocking one of Europe’s main gas pipelines, Nord Stream.

Knight accused the authorities of her country of creating dependence on the issue of energy supplies from different countries, not always “friendly”. “We have had the wrong energy policy for a long time. <...> It’s a really nasty shock,” she added.

In turn, Deputy Prime Minister of Russia Alexander Novak said that the collapse in the energy markets of Europe is not the limit, a winter full of unpredictability is ahead, when exchange gas prices can continue to grow. “Short-sighted policy leads to the fact that we are seeing a collapse in the energy markets of Europe. And this is not the limit, because we are still in the warm season, we have winter ahead, and there are a lot of unpredictable things,” Novak said in an interview with Pavel Zarubin in the Moscow. Kremlin. Putin.”

“September and October are always quite a quiet period for Europeans in terms of energy. Intense heat subsides, against this background, air conditioning costs are reduced, the work of hydropower and nuclear power plants is resumed in the previous mode. Based on this, in the short term, the price per thousand cubic meters may fall below two thousand dollars,” said Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation and the National Energy Security Fund.

However, according to the expert, problems with the transit of Russian gas are a serious threat to the European heating season. “It is not entirely clear how exactly the transit will be carried out, since of the four gas pipelines that can deliver Russian gas to Europe, only one is currently operating normally – this is the Turkish Stream,” he said.

“At the same time, Turkish Stream is now loaded to the maximum. One part of it is used for the needs of Turkey itself, and the second part is used for such countries in southeastern Europe as Serbia, Hungary, Romania, North Macedonia, and Greece. In total, in annual terms, this is about 15 billion cubic meters, so it will not work to transfer the missing volumes here,” the source continued.

“The Yamal-Europe gas pipeline is not working after Russia’s retaliatory sanctions against Poland, which imposed restrictions against Gazprom and Novatek. Transit through Ukraine is significantly limited, which for a long time does not accept fuel through the Sokhranivka station. Currently, only 42 million cubic meters of Russian gas is delivered to Europe through Ukrainian territory, while the contract is for 109 million,” Yushkov added.

“To resolve the situation with Nord Stream, Gazprom requires written assurances that the turbines are not subject to sanctions from three jurisdictions: the UK, Canada and the European Union. But since they are in no hurry to give such guarantees, the situation does not change,” the expert noted. Thus, according to Yushkov, there is every reason to say that “the countries of North-Western Europe, in particular Germany, Belgium, Holland and others, will experience a very large shortage of energy resources this heating season.”

“Moreover, Gazprom has no reason to turn a blind eye to turbine failures. Previously, the company was interested in maintaining its share in the European market, so it met the Europeans halfway on many issues. Now this strategy has become irrelevant, since the Europeans themselves say that in a couple of years they will completely abandon Russian gas, ”the source believes.

“In conditions when you have a long-term contract, this means that the Europeans will simply break it and will not pay a penalty. That is why, as I see it, Gazprom is behaving as harshly as possible, has switched to the tactics of maximizing the price and is using any clue for this,” he notes.

The expert also explained, on the basis of which the standard for the filling of underground storage facilities was adopted. “They deduced the indicator of 80% as follows: they calculated the long-term average at which heating seasons normally passed, and based on this they adopted a standard,” he said.

“However, all this was on the condition that stable gas supplies were coming from Russia. Now even 90% fullness of storage facilities does not give Europe guarantees to survive the winter without any problems. The most critical moment will begin in the second half of the heating season, since by this time a lot of gas will be taken from the storage facilities, and the less it remains, the less can be taken daily,” Yushkov suggests.

“Thus, it is quite probable that the Europeans will still have to disconnect someone from energy resources this winter. In addition, I think prices will be consistently high throughout the season. We can see five or six thousand dollars per thousand cubic meters. Besides,

the upcoming heating season has every chance of becoming the most critical in the history of modern Europe,”

he is sure. Speaking about the idea of ​​the European Commission to impose a price cap on Russian gas, the expert noted that “the pricing formula is written in the contract,” so “if Europe, as a buyer of gas, pays at a lower price, then Gazprom will regard this as non-compliance with the contract, namely, non-payment , and just stop deliveries.”

“Of course, to say that if we stop gas supplies to the EU, we will not lose money, this is absurd. With the stoppage of gas supplies, Russia will not gain anything. However, our official position is that we are ready to continue supplying gas to the EU, but we cannot do this for reasons beyond our control,” Yushkov concluded.

“Russia, of course, will lose income if it leaves the European market. But at a time when European politicians themselves declare that they do not need gas cooperation with Russia, we have no choice,” said Stanislav Mitrakhovich, a leading expert of the National Energy Security Fund, a researcher at the Financial University under the Government of the Russian Federation.

“Of course, we will have to reduce production and redirect exports to other markets. We will focus on cooperation with China, as well as on the development of liquefied natural gas exports. But this, of course, will take years,” the source said.

At the same time, for Europe, “a lot in this heating season will depend on weather conditions.” “If the winter is warm, then Europe has a chance to survive it relatively painlessly. At the same time, cold weather will significantly complicate the life of Europeans. Up to the fact that there will be a request from citizens of European countries to adjust the political course towards Russia, which can be expressed in rallies and protest actions. We already see something similar not only in the Czech Republic, but also in other countries, including Germany,” Mitrahovich added.

“Rejection of Russian supplies will cost Europe dearly: it will have to spend more on purchasing energy sources elsewhere, be more dependent on changing market conditions, spend less on the development of alternative energy (the extra money will go to ensure current supplies). Just getting a pack of euros or pounds out of the nightstand will no longer work: too much has already been taken out during the coronavirus, ”says Sergey Poletaev, one of the creators of the Vatfor project, in this regard.

“Decades of Soviet, and then Russian, deliveries to Europe are not a whim or someone’s good will. This is a fundamental economic factor. Europe was looking for a cheap and reliable source of resources – and found us. Last winter, your author had a conversation with a person from the German energy industry. “Thank God we have long-term (long-term contracts) with Gazprom,” he said. Then, if anyone remembers, there were also spot fluctuations, ridiculous against the background of the current ones,” he recalled.

“Therefore, the question is not how Europe will winter. The question is what Europe will do next winter, and then the next after it. Conflicts end, and fundamental economic factors always operate,” the analyst concluded.

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