Here are some basic things to know about the state of gas in Europe:
What did Russia do?
State-controlled Russian energy giant Gazprom has said it is cutting off Poland and Bulgaria for refusing to pay in Russian rubles, as demanded by President Vladimir Putin. European leaders say gas contracts set out to pay in euros or dollars, and that cannot be changed suddenly. Poland has taken long-term measures to isolate itself from an outage, such as the construction of a liquefied natural gas import terminal by ship, and had planned to cancel the import agreement with Gazprom at the end of the year anyway. Bulgaria says it has enough gas at the moment. However, open questions about what the change could mean have sent shockwaves through the energy markets, raising uncertainty about whether gas could be cut off in other European countries and hit the economy hard. “President Putin’s decree that gas payments from ‘unfriendly’ countries must be denominated in rubles runs the risk of being cut off to other European countries when payments are made in the coming weeks,” said Capital’s Edward Gardner. Economics. report. The Kremlin has warned of the possibility of countries failing to pay for energy supplies in rubles. But Russia also relies on oil and gas sales to fund its government, as sanctions have tightened its financial system. Under the new payment system, the Kremlin said importers would have to set up a dollar or euro account at Russia’s third-largest bank, Gazprombank, and then a second ruble account. The importer paid the gas bill in euros or dollars and instructed the bank to exchange the money for rubles. European Commission President Ursula von der Leyen said on Wednesday that the payment in rubles violates European Union sanctions and that companies with contracts “must not comply with Russian requirements”.
What is Putin looking for?
Because Putin’s mandate for payments in rubles is aimed at “unfriendly countries,” it could be seen as retaliation for sanctions imposed by many Russian banks on international financial transactions that led some Western companies to abandon their operations in Russia. “Gazprom’s decision to suspend deliveries to Poland and Bulgaria from today due to their refusal to pay for Russian gas in rubles marks an escalation in Russia’s use of natural gas as political leverage,” Gardner wrote. The financial incentives for the ruble demand are unclear, as Gazprom already has to sell 80% of its foreign ruble profits, so the boost in the Russian currency could be minimal. One motive could be political, to show the country’s public that Putin can dictate the terms of gas exports. And by requiring payments through Gazprombank, the move could discourage further sanctions against that bank. If Putin was looking for a pretext to cut off the countries that supported Ukraine, this could serve this function. Russia continues to supply gas to Hungary – whose populist Prime Minister Viktor Orban has agreed to pay Putin’s payment – on the same pipeline system. “The Russian move is almost certainly a response to rising levels of Western support for Ukraine,” said analysts at Eurasia Group, a political risk advisory firm. “It signals that Putin is now willing to push revenue to the limit amid the expansion of NATO military aid to Ukraine and amid stronger US statements that they are helping Ukraine win the war.” Simone Tagliapietra, an energy expert and senior fellow at the Bruegel think tank in Brussels, said: “In this way, Russia is taking advantage of the fragmentation of the EU – it is a divisive and reigning strategy … so we need a coordinated EU response “.
What is the state of gas supply in Europe?
Coordinated US and European Union sanctions exempt oil and gas payments. This is a concession from the White House to Europe’s energy-dependent European allies, which supply 40 percent of Europe’s gas and 25 percent of its $ 850 million a day oil. Many are unhappy that European utilities continue to buy energy from Russia, which on average received 43% of its annual revenue from oil and gas sales between 2011 and 2020, according to the Energy Information Administration. USA. Russia’s decision to cut gas sales outside of long-term pre-war contracts, contributing to a rising winter energy crisis, served as a wake-up call that left Europe dependent on Russian energy vulnerable. The war marked a rapid reassessment of decades of energy policy in which cheap gas from Russia backed Europe’s economy. MoneyWatch: Europe’s dependence on Russian energy helps finance war in Ukraine 04:25 But shutting down Europe’s gas does not benefit Russia either. As for oil, Russia could theoretically transport oil by tanker elsewhere, such as to India and China, countries that are hungry for energy and do not participate in sanctions. But gas is another matter. The system of gas pipelines from the large deposits on the Yamal Peninsula of northern Russia to Europe is not connected to the pipeline leading to China. And Russia has only limited facilities for exporting liquefied natural gas by ship.
Could Europe survive a complete gas cut?
Europe’s economy would be in trouble without Russian gas, although the impact would vary depending on how much countries use. Economists’ estimates vary widely about the missed growth for the European economy as a whole. Moody’s analysts said in a recent study that a complete shutdown of energy – gas and oil – would plunge Europe into recession. Germany, the continent’s largest economy, is heavily dependent on Russian energy. The central bank said a total cut could mean 5 percentage points of economic output loss and higher inflation. Inflation is already at record highs, making everything from groceries to raw materials more expensive due to the rapid rise in energy prices. The Bruegel think tank estimated that Europe would be 10% to 15% lower than normal demand to spend the next winter heating season, which means that emergency measures would have to be taken to reduce gas consumption.
What is Europe doing to reduce its dependence on Russian gas?
European leaders have said they could not afford the consequences of an immediate boycott. Instead, they plan to reduce their use of Russian gas as quickly as possible. They order more liquefied natural gas, which comes by ship. seeking more gas from pipelines from places such as Norway and Azerbaijan; accelerating the development of wind and solar energy; and promoting conservation measures. The goal is to reduce the use of Russian gas by two thirds by the end of the year and fully by 2027. It remains to be seen whether this goal can be achieved in practice. There is a limit to liquefied gas supplies, with exhaust terminals operating at capacity. Germany, which does not have an import terminal, wants to build two – but that will take years. Italy, which receives 40 percent of its gas from Russia, has agreed to replace half of its supply from Algeria, Azerbaijan, Angola and Congo and is seeking to increase imports from Qatar. And Europe is under pressure to replenish its underground reserves in time for demand for heating next winter. The situation is so serious that Germany has issued an early warning for an energy emergency, the first of three stages.
