After the German Minister of Economy on Wednesday he said: even Russian gas supplies could come to a complete halt, so worst-case scenarios need to be in place, and the Polish prime minister calls for a full embargoalso a spokesman for the American White House he swayedthat the Western community is very open to sanctions against the Russian energy sector, including oil and gas supplies, and the effects of this are currently being considered.
In the wake of all this, because of the drastic increase in transport risks Western oil and gas traders have already begun to curb or eliminate Russian oil and gas purchases so as not to put themselves at risk of reputational or financial sanctions. In addition, some Russian banks from the SWIFT system exclusion is complicates / slows down the payment of Russian energy supplies, as well as the technical insurance risks of shipments in the Black Sea, the Baltic Sea and the Barents Sea.
In practice, therefore, the sanctions imposed and lifted together have already led to a significant reduction in Western demand for Russian oil and gas, enabling the Russians to sell less and less energy.
European / Western energy traders are more likely to look for alternatives to the already scarce supply of oil and gas, and this means that the Russians, for example, have now reserved only 20% of transit capacity on the Yamal-Europe gas pipeline. So, due to falling Western gas demand due to fears, the Russians are sending less and less gas, thus alleviating the loss of declining volume for them through drastically rising gas prices, while the cost of purchasing for European countries / traders is skyrocketing. See today for that our feed.
As the situation in Ukraine continues to escalate, it is clear that the situation could reach the point where Western countries will keep their Russian oil and gas purchases to a minimum.
The possible minimum is influenced by several factors and can change dynamically due to weather, financial and technical reasons:
- Short term. To what extent can Russian gas be disconnected in the short term without jeopardizing the gas supply of EU Member States, without having to cut industrial / institutional use drastically. This has now become a central issue in many EU Member States, with an important clue that Gazprom sold around 153 billion cubic meters of gas in the EU under contract in 2020, up from around 15-20% in 2021 and 2022. It could have been (would have been) more, so the average monthly transport is 13-14 billion cubic meters. If it went out completely, as soon as one in our previous analysis we derived: in the short term, Europe could only replace up to 2-3 billion cubic meters by “moving” other sources From Qatar, From Japan, a small further increase in near-maximum capacity pipeline shipments from Algeria, Norway).
- As the war broke out, with possibly even stronger Western cooperation, this could result in more than 2-3 billion in replacements, but it is certain that full replacement of Russian deliveries will not be possible in the short or medium term. That’s why Europe has no interest at all in the complete cessation of Russian supplies, at most in part and the same may be true of the Russians for financial (war financing) or technical-technical reasons. The latter stems from the fact that the gas extraction and transmission infrastructure is designed for continuous operation with at least some volume, because some pressure is required in the pipelines and the extraction of the gas fields cannot be completely and for a long time suppressed without serious damage.
- European gas storage facilities together charge currently 28.6%, which is about 14 percentage points lower than usual (10-year average), but approx. is the same as in 2017. Towards the end of the winter heating season, therefore, “only” assuming a partial shutdown of Russian transport more and more securethat we are past the most difficult / dangerous period: by the end of the winter, therefore, it is likely to be able to pull out without major gas restrictions.
- In Hungary, in addition to the current filling of gas storage facilities (23%) and Hungarian production (which is about 20% of annual consumption) we can already pull it out at home by the end of the winter without any significant restrictions on the gas marketthis is the Energy Agency fresh indications also constantly emphasized.
- As Hungary has one of the highest gas storage capacities in the entire continent, the occupancy rate in relation to annual Hungarian gas consumption was still around 17% in mid-February, which was one of the highest in the EU. However, some Member States appear to be already in the danger zone with rates below 10%such as the Germans, the French, and the Poles, as we pointed out in another of our summaries.
- The 15-year Russian-Hungarian gas contract covers 4.5 billion cubic meters per year, covering half of the total retail demand and half of the national annual demand. the Russians will certainly strive to perform except in extreme scenarios (pipeline hits, countries “capturing” transit gas, etc.), the big question is whether a treaty with a single Western sanctions package (e.g., a gas embargo) can be fulfilled.
- Medium and long term. In the short term, rather than a complete shutdown, a partial shutdown could be a real threat, but it also entails the serious medium-term risk of recharging Europe’s now very depleted gas storage facilities to a high level without leading to the next heating crisis. season for more serious problems. That’s why In the current tense gas market situation, Europe is forced to turn to the Russian gas market opportunities as soon as possible, as evidenced by we see too partly on the basis of intensive negotiations and partly on the idea of pushing / boosting the operation of coal and nuclear power plants.
- The Germans, for example, directly sold non-Russian LNG for 1.5 billion euros they buy in addition to legally obliging private gas storage facilities to be fully filled by October. In addition, at least 1-2 LNG storage / reception facilities will be built, as many other countries are considering, and where possible, own gas and even shale gas extraction is worth considering (e.g. the progress towards depletion of the Groningen gas fields in the Netherlands and technical hazards limit these efforts). In addition, the Italians announced the other day: an increase in the capacity of the gas pipeline from Algeria is needed, as is the Hungarian government. indicatedthat the connection of Azerbaijani gas fields to the European pipeline system has also become an important goal.
- In addition, of course, Americans, LNG extraction of Cathars it will surely run up due to persistently severe European demand (Americans shipped around 10 billion cubic meters to Europe for the third month in a row in February, a record-breaking volume for them), but for industry-technical reasons it will be a slow process. Only one US LNG terminal was built yesterday, handed over, and no new project is underway. The Cathars have also vowed to expand production in the coming years, but this is also time-consuming, with about 90% of their current sales paid for by long-term buyers and unwilling to resent them for breach of contract.
So overall in the short run much depends on the extent to which Western sanctions, or the fear of them, will collapse Russian gas supplies, because if more than 3-4 billion of Russia’s 13-14 billion cubic meters a month fall out, it will no longer collapse. / is difficult to replace in the short term, so in addition to the rapid depletion of storage facilities, supply constraints may arise in some EU Member States. In the medium and long term and there is obviously a race to go as soon as possible to build up as much non-Russian gas supply as possible for Europe (receiving infrastructure) and for potential exporters (sending infrastructure). What is certain, however, is that disconnection from Russian gas will not be easy and will be a particularly painful process in terms of prices, which, moreover, will take at least a few more years.
Cover image source: Getty Images
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