Europe races to find alternative supplies if Russia turns off gas taps

Illustration photo: Reuters

Russia has cut 40% of the pipeline’s capacity, a move that is seen as pushing up gas prices in the UK and Europe. Benchmark contracts are trading 350-400% higher than this time last year. Ukraine also halted gas transit to Europe in May, citing Russian interference.

Main routes transporting gas from Russia to Europe

Russia supplies 40% of Europe’s natural gas, mostly through pipelines. Last year, 155 billion cubic meters of gas were shipped from Russia to Europe. The Ukrainian route mainly supplies gas to Austria, Italy, Slovakia and other Eastern European countries. Ukraine has shut down the Sokhranovka pipeline, which runs through Russian-controlled areas in the east of the country.

European countries are now looking to reduce their dependence on Russian gas. Some have already reduced their reliance on Russian supplies after Moscow demanded payment in rubles. Others, including Germany, still need Russian gas and are trying to fill depleted storage facilities.

Other shipping routes to Europe that do not pass through Ukraine include the Yamal-Europe pipeline, which runs through Belarus and Poland to Germany, and the Nord Stream 1 pipeline that runs through the Baltic Sea to Germany.

The Yamal-Europe pipeline has a capacity of 33 billion cubic meters, accounting for one-sixth of gas exports to Europe. Gas has been flowing eastward via the pipeline from Germany to Poland since the beginning of this year.

Russia has imposed sanctions on the owner of the Yamal-Europe pipeline, which runs through Poland and carries gas from Russia to Europe. However, Poland can manage without reversing the flow of gas through the Yamal pipeline, its climate minister said.

Meanwhile, Austria, Germany, Italy, Slovakia and the Czech Republic are receiving less gas transported via the Nord Stream 1 pipeline.

What is going on?

Russian gas flows to Europe have fallen in the first half of 2022, with flows through three main pipelines down 50% compared to the first half of 2021. Gas flows through the Nord Stream pipeline and Ukraine fell last year and further in March after Russia launched a military operation in Ukraine.

This year, Moscow has cut gas deliveries to Bulgaria, Finland, Poland, Denmark's Orsted, and the Dutch company Gasterra and Shell, which supply gas to Germany, after they refused the Kremlin's demands to pay in rubles.

Some companies, such as Germany's Uniper and RWE, along with Italy's Eni, have paid under Russia's new scheme and continued to receive gas. However, many companies, including Uniper and RWE, have seen supplies restricted after Russia reduced the capacity of the Nord Stream 1 pipeline.

Meanwhile, Italian Prime Minister Mario Draghi accused Moscow of using gas for political reasons, while Russia said the supply cut was necessary because equipment taken for maintenance had not been returned.

German Economy Minister Robert Habeck also accused Moscow of continuing to stop gas flows through the pipeline not due to maintenance but as an attempt to destabilize Europe.

The cut in Nord Stream gas supplies has pushed up gas prices in the UK and Europe, and analysts say prices could rise further if supplies are not restored after maintenance work on the pipeline, which is due to end on July 21.

Where can Europe look for alternative supplies?

Some countries already have alternatives and Europe's gas networks are closely interconnected and can therefore share, although global gas markets were tight even before the Ukraine crisis.

Germany, Russia's biggest European customer, which has suspended the Nord Stream 2 gas pipeline due to the war in Ukraine, can import gas from Britain, Denmark, Norway and the Netherlands via pipelines.

Britain's Centrica has signed a deal with Norway's Equinor to supply extra gas to Britain over the next three winters. Britain is not dependent on Russia for gas and can also export it to Europe via pipelines.

Southern Europe could receive gas from Azerbaijan via the Trans Adriatic pipeline to Italy and the Trans-Anatolian Natural Gas Pipeline (TANAP) via Türkiye.

The United States said it could supply 15 billion cubic meters of liquefied natural gas (LNG) to the European Union this year.

US LNG plants are producing at full capacity, but an explosion last month at a major LNG export terminal in Texas has forced it to shut down until September and will only be able to resume partial production by late 2022.

Europe’s LNG terminals are also limited in their ability to increase exports, although some European countries have said they are looking to expand imports and storage. Germany is among those looking to build new LNG terminals, with plans to build two in just two years.

Poland, which meets about 50% of its gas consumption, about 10 billion cubic meters, said it could receive gas through the two pipelines along with Germany.

Next October, the pipeline with a capacity of 10 billion cubic meters of gas per year, passing through Poland and Norway, will begin operation./.