Gas problem

In the context that tension between Russia and the West over Ukraine has not been completely resolved, the European Union (EU) is “busy” finding other gas supplies, in case of a conflict outbreak and Moscow cutting off Europe’s supply.

The Pipeline Inspection Gauge (PIG) receiving station is the Nord Stream 2 part of the landfall area in Lubmin, Germany (Photo: VNA)
The Pipeline Inspection Gauge (PIG) receiving station is the Nord Stream 2 part of the landfall area in Lubmin, Germany (Photo: VNA)

Depending largely on gas supply from Russia, the EU is trying to find an alternative source, in the event that Moscow shuts off the valve for the gas pipeline to Europe, in the context of cold weather and the increasing demand of businesses and people. In the first six months of 2021 alone, Russia provided 46.8% of the total gas imports to Europe.

However, analysts say that the possibility of Russia's Gazprom energy group cutting gas deliveries to Europe is low, because many of the agreements between the EU and Moscow, are long-term contracts that must be implemented.

Russia earned 62 billion EUR thanks to gas exports to Europe, and Moscow still needs this foreign currency revenue. In case of necessity, EU countries can cut gas consumption or restart nuclear and coal power plants to produce electricity. Catherine MacGregor, Chief Executive Officer of French power group Engie, said that Paris can solve the problem of supply shortages in the short term, thanks to its meagre but available reserves.

It is necessary for the EU to find another supply source other than Russia at this time, because Europe understands that gas is essential for production, business and daily life of the European people.

German Vice Chancellor Robert Habeck acknowledged that the tense geopolitical situation has forced the EU to consider other possibilities, to ensure sufficient gas imports and diversify its supply. The European gas market is now more stable than in 2009, when supply from Russia to Europe was stalled for 13 days, due to the Ukraine crisis, causing gas from Moscow to Europe, via Ukraine, to suddenly cut down by 70%, making it difficult for production activities and people's lives.

In addition, some provisions in the contract prohibiting the resale of gas have been abolished, thus the pipeline system is better connected. Europe also has conditions to import more gas from Norway, Azerbaijan, and Algeria. Strategic gas reserves also allow the EU to hold out for a few more months.

However, if supply is cut off suddenly, the consequences will be huge, especially for countries like Austria, Slovakia and parts of Italy. Germany will also be severely affected, because of its complete dependence on Russian gas, given the fact that Berlin closed all nuclear power plants.

The world's second largest traditional supplier of liquefied natural gas (LNG), has recently received a request for support from the US. LNG transported by specialised tankers, which currently account for half of the world's gas demand, is a much more flexible solution, than transporting by fixed pipelines. Many large fleets are not bound by long-term contracts, so they can be easily switched between journeys, if there are customers who offer more attractive prices.

Qatar is considering the possibility of asking some customers, mainly in Asia, to accept cuts in gas imports to transfer to Europe. In the past few weeks, the US has mobilised its entire diplomatic system, to find ways to increase LNG supplies to Europe. In late January 2022, US President Joe Biden and European Commission President Ursula von der Leyen, discussed coordinated measures to ensure more gas supplies for the EU, to avoid falling into an emergency situation, if supply from Russia is cut off.

Thanks to the shale revolution, the US has risen to become a major exporter of liquefied petroleum gas throughout the world, helping the amount of the US’s European LNG exports to increase day by day. In particular, when gas prices in Europe quadrupled over a short period in 2021, US LNG prices became more competitive.

In addition to the US, a number of other countries can also provide certain support to the EU. At the EU's request, Japan has begun to divert LNG supplies to Europe from its own dedicated delivery source. However, this supply is very limited and is mainly symbolic, because Japan is also dependent on imported LNG from other countries.

Political analysts hope that the tension surrounding Ukraine will not get out of control, helping the region to maintain security and stability, in the context that the whole world is both worried about dealing with the COVID-19 pandemic and trying to restore economic growth.