Analysis: Can Europe get by without Russian gas?
The move marks a significant escalation in the economic conflict between Russia and the West, and the most serious response yet by Moscow to several rounds of European sanctions announced since Putin ordered the invasion of Ukraine in February.
European Commission President Ursula von der Leyen said the suspension was tantamount to “blackmail.” She said that EU member states met for emergency talks Wednesday, and that some have already started sending gas to Poland and Bulgaria.
“The era of Russian fossil fuels in Europe will come to an end. Europe is moving forward on energy issues,” she said in a statement.
Poland and Bulgaria may be able to cope, but if Russia cuts supplies to other EU countries, and in particular Germany and Italy, Europe’s preparations will be sorely tested. Both G7 economies have said they intend to continue to pay for gas in euros or dollars.
Can Europe cope?
According to the European Commission, the bloc relies on Russia for about 45% of its natural gas imports. EU gas storage facilities are about 32% full, according to Gas Infrastructure Europe. That’s well short of the 80% target the bloc has set for its member states to hit by November.
Analysts at Berenberg predict that Europe will make it to late fall before it starts to run out of gas if Russia were to abruptly cut off its supplies.
But the bloc has moved quickly to find alternate supplies and cut demand.
“This latest aggressive move by Russia is another reminder that we need to work with reliable partners, and build our energy independence,” von der Leyen said on Wednesday.
PGNiG, the Polish state gas company, said Tuesday that its underground gas storage was nearly 80% full. And gas flows along the Yamal pipeline — the delivery route Russia has cut off — were already winding down.
“[Gas via Yamal] accounted for less than 2% of Russia’s pipeline deliveries to Europe since the beginning of the year,” Carsten Fritsch, analyst for energy, agriculture and precious metals at Commerzbank Research, wrote in a note on Wednesday.
Poland’s preparedness helps explain the modest market reaction, Fritsch added.
Prices for European gas futures jumped by 24% early Wednesday morning, but have since fallen back down to trade slightly above April’s monthly average of €100 ($106) per megawatt hour, data from the Independent Commodity Intelligence Services shows.
“Poland’s strategy to move away from Russia has been vindicated,” Rystad Energy analysts Kaushal Ramesh and Nikoline Bromander wrote in a note.
“At present, no restrictive measures have been imposed on gas consumption in Bulgaria,” its energy ministry said in a statement.
What about Germany?
But the damage a sudden gas cut-off could wreak on Germany is the cause for greatest concern.
A sudden break with its main energy source could lead to a cut in production and exports and threaten the survival of many of the country’s small and medium-sized manufacturers.
“If we lost Nord Stream 1 through the Baltic Sea into Germany, that will be a major crisis,” Ole Hvalbye, natural gas analyst at the Swedish bank SEB, told CNN Business.
Henning Gloystein, director of energy, climate and resources at Eurasia Group, told CNN Business that, under a major Russian supply cut, Germany and Italy — which relies on Russia for about 41% of its gas needs — could avoid rationing next winter if they act quickly.
“[Germany and Italy] need to try to structurally reduce gas consumption by replacing household boilers with alternative systems like water heat pumps and asking households to use less gas for heating or cooling,” he said.
“European utilities will need to go into the LNG market and order as many tankers as possible in the coming weeks and months,” he added.
— Sugam Pokharel, Clare Sebastian, Svitlana Budzhak-Jones, and Hannah Ritchie contributed to this report.
