Europe seeks alternatives as Russia shuts gas supply


Europe is set to focus on importing more gas from other countries, while accelerating the expansion of renewable energy sources, as Russian energy company Gazprom shuts off the continent’s gas supply through the pipeline NordStream 1.

The Nord Stream, which passes under the Baltic Sea to supply Germany and other countries, was due to resume operations on Saturday after a three-day hiatus for maintenance.

But Gazprom said it could no longer provide a time frame to restart deliveries after discovering an oil leak that meant a pipeline turbine could not operate safely.

“Gas transport through the Nord Stream pipeline has been completely stopped until malfunctions in the equipment are eliminated,” Gazprom said on Friday.

Europe is heavily dependent on Russian gas supplies.

In 2021, EU members imported 155 billion cubic meters (bcm) of natural gas from Russia, which accounted for around 45% of the bloc‘s gas imports and nearly 40% of its total gas consumption, figures compiled by the International Energy Agency. To display.

Europe is “preparing for a dark winter ahead” as Russia continues to tighten the noose on natural gas flows to the continent amid the Ukraine conflict, S&P Global Ratings said in a report this week. .

“Italy and Germany are the two major European countries most vulnerable to a gas supply shock given their high consumption of natural gas and their high dependence on Russia,” said he declared.

In Germany, natural gas provides 26% of global energy needs, and about 15% of electricity production depends on this resource.

In 2020, around 60% of the country’s natural gas supply came from Russia, much of it under long-term contracts.

The Italian economy is also dependent on gas, which provides just over 40% of its total gross energy supply and produces half of its electricity.

The country has, however, made more progress than Germany in diversifying its sources, with more than three-fifths of its gas now coming from non-Russian sources, mainly Algeria.

Earlier this year, Italy signed a deal with Algeria for 9 billion cubic meters of natural gas to reduce its dependence on Moscow for energy imports.

“Russia has already cut off the majority of its gas supply to Europe and even before yesterday’s news we were only at 20% of usual capacity,” said Ipek Ozkardeskaya, senior analyst at Swissquote. Bank.

“The continent is bracing for a complete shutdown of supplies, although losing the last 20 percent is another blow before winter.”

In July, Gazprom reduced gas flows through Nord Stream 1 to 20% of its total capacity, citing problems with the operation of a gas turbine.

Europe will seek to “increase LNG imports from the United States and Qatar, and accelerate the transition to alternative energy sources”, to deal with the crisis, but “the transition takes time and is expensive,” she said.

The loss of Russian gas will cost Germany around 260 billion euros by 2030, she added.

Azerbaijan is an alternative for Europe’s gas needs.

Energy Minister Parviz Shahbazov told the World Utilities Congress in Abu Dhabi in May that Azerbaijan was focusing on upgrading its energy infrastructure to export more gas to Europe.

“We are now working very intensively with the European Commission,” he said.

“We are working on ways, in a relatively short time, to modernize this infrastructure and subsequently increase our energy supply in Europe in terms of natural gas.”

Central Asia currently supplies 10 billion cubic meters of natural gas to southern Europe and 6 billion cubic meters to Turkey via the Southern Gas Corridor – a network of gas pipelines crossing Turkey and other countries.

The United States, as well as Norway, also deliver gas to Europe.

Norway is Europe’s second largest energy supplier after Russia, accounting for 23% of the continent’s gas.

The United States is also boosting exports to Europe and other parts of the world. In the first half of 2022, the country had already become the world’s largest LNG exporter, with a total export volume of around 42 million tonnes, up 17% compared to the same period in 2021.

“With Russian gas supply uncertainty and resistance from some EU members to gas consumption cuts, more U.S. LNG exports are expected to flow to Europe, although a decline is expected. expected during the hurricane season in the United States,” said Karolina Siemieniuk, analyst at Rystad Energy.

The EU is also considering additional supplies, with help from Nigeria, Egypt, Israel and Cyprus, according to Rystad.

Germany, Europe’s largest economy, also plans to boost the use of coal for power generation, “prioritizing short-term energy security over longer-term environmental goals” , said Rystad.

The country had a total of 46.7 gigawatts of coal-fired power generation capacity installed in 2020, all of which was to be phased out by 2038 to meet greenhouse gas emissions targets. Capacity is expected to drop to 36.1 gigawatts already this year with the closure of at least 24 units.

“Those plans have now been canceled and the government is trying to extend the life of 10 gigawatts of mothballed coal capacity until March 2024,” Rystad said.

Apart from that, 4 gigawatts of solar and wind capacity that should start before the end of the year could add another 2 terawatt hours of electricity production.

“The additional coal, solar and wind generation could together replace 5 billion cubic meters of gas-fired power generation, equivalent to a quarter of the gas normally consumed by the German power sector,” Rystad said.

Earlier this year, the International Energy Agency also offered a ten-point plan to reduce the EU’s dependence on Russian natural gas as the military conflict between Moscow and Ukraine continues.

Proposals include halting new gas contracts with Russia, replacing Russian supplies with alternative sources and accelerating the introduction of renewables as well as increasing electricity generation from bioenergy and nuclear power plants, among others.

“The news that the pipeline will not be back in service as planned will rekindle market apprehensions about the continent’s ability to fully manage gas storage through the winter,” said Ehsan Khoman, director of gas research. emerging markets for Europe, the Middle East and Africa at MUFG. Bank, said.

“We are confident that in the absence of a return to Nord Stream 1 run rates of 20% (or more) before the end of the weekend, the full shutdown will cause gas prices to rise significantly. European Natural Monday opened, potentially mirroring last month’s records.”

Updated: 03 September 2022, 12:19


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