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How A Ukraine Conflict Could Reshape Europe’s Reliance On Russia

by NewsReporter
February 15, 2022
in Business
Reading Time: 17 mins read
how-a-ukraine-conflict-could-reshape-europe’s-reliance-on-russia
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map Artboard 1

Finland

Which E.U. countries import the most Russian gas

Share of country’s natural gas

imports from Russia, 2020

Sweden

None

20%

40%

60%

80%

Estonia

Russia

Latvia

Denmark

Gas exports

Lithuania

Ireland

Netherlands

U.K.

Poland

Germany

Belgium

Arrow width proportional

to country’s share of gas

exports from Russia.

Czech Rep.

Lux.

Slovakia

France

Hungary

Romania

Slovenia

Croatia

Italy

Bulgaria

Spain

Portugal

Greece

Cyprus

map Artboard 2

Which E.U. countries import the most Russian gas

Share of country’s natural gas

imports from Russia, 2020

Finland

Sweden

None

20%

40%

60%

80%

Estonia

Russia

Latvia

Denmark

Lithuania

Gas exports

Poland

Ireland

Netherlands

U.K.

Germany

Arrow width proportional to

country’s share of gas exports

from Russia.

France

Hungary

Romania

Slovenia

Italy

Bulgaria

Spain

Greece

Cyprus

map Artboard 3

Which countries import the most Russian gas

Finland

Sweden

Latvia

U.K.

Poland

Germany

France

Hungary

Bulgaria

Italy

Spain

Greece

Share of country’s natural gas imports from Russia, 2020

None

20%

40%

60%

80%

Arrow width proportional to country’s

share of gas exports from Russia

Source: EuroStat and the British Department for Business, Energy & Industrial Strategy Note: Austria did not report the source of its natural gas imports in 2020. Data includes both piped and liquefied natural gas.

Europe relies on Russia’s natural gas to help heat millions of homes, generate electricity and power factories. With Russian troops massed along Ukraine’s border, Europe’s heavy dependence on Russia is limiting its diplomatic options and threatening to throw its energy supplies into turmoil.

If the flow of gas is interrupted, either as collateral damage from warfare or as a negotiating tactic by President Vladimir V. Putin of Russia, experts worry that already high prices in a constantly shifting global market could skyrocket. Businesses may be forced to temporarily close, and if cutoffs persist, households already facing higher utility bills this winter could feel even more pain.

It is a pivotal time for many European nations that have joined others worldwide in turning to natural gas to help them bridge their transitions from polluting fossil fuels to wind, solar and other cleaner sources.

Analysts and industry executives are skeptical that Mr. Putin would cut off gas, in part because of how important gas exports are to his country’s economy.

Diplomatic proposals to counter Russia’s build-up center on sanctions that could limit energy trade. That could throw billions in investments and oil and gas contracts into jeopardy, especially for countries, including Germany and Italy, that rely on Russian gas more than others.

How each country’s dependency on Russian gas has changed

Share of total natural gas imports from Russia

Germany

From elsewhereFrom Russia0%25%50%75%100%1990200020102020

Lithuania

0%25%50%75%100%1990200020102020

Poland

0%25%50%75%100%1990200020102020

France

0%25%50%75%100%1990200020102020

Netherlands

0%25%50%75%100%1990200020102020

Italy

0%25%50%75%100%1990200020102020

Source: EuroStat

In 2021, 38 percent of the natural gas used by the European Union came from Russia, according to Bruegel, a research organization. Some countries, like Poland and Lithuania, have been gradually reducing their reliance on Russian gas. For others, the dependency has been steadily growing.

Germany, which is at the center of the diplomatic stand-off, is Moscow’s most important customer. The bulk of the gas to Germany flows directly from Russia through a large pipeline in the Baltic Sea known as Nord Stream. A second pipeline, Nord Stream 2, was recently completed at a cost of $11 billion.

Fuel has yet to flow through Nord Stream 2. American lawmakers in recent months have called for blocking its opening, as critics warn that the new pipeline could allow Moscow to wield greater influence over the continent and starve Ukraine of transit fees through its existing pipeline network that are crucial to Kyiv’s economy.

President Biden has said Nord Stream 2 will not go forward if Russia invades Ukraine. But in an indication of how the politics and business of energy are intertwined, the pipeline’s operating company is chaired by a former German chancellor, Gerhard Schröder.

Several large pipelines bring Russian gas into Europe, where it flows through a vast interconnected network. The amount of gas crossing Ukraine has declined sharply over the last decade, though it remains an important route. Other conduits are the Yamal pipeline through Poland and TurkStream, which feeds Turkey but also brings gas into Southern Europe.

If gas does stop flowing, importing countries would need to find other sources. Some of the difference would most likely be made up by bringing in more liquefied natural gas from sources around the globe.

pipelines 335

Natural gas pipelines and L.N.G. terminals in Europe

Liquefied natural

gas (LNG) terminal

Natural gas pipeline

L.N.G. terminal proposed

or under construction

Major pipeline for

gas from Russia

Germany is among countries considering

building up L.N.G. infrastructure to reduce

dependency on piped natural gas.

Finland

Sweden

NORD STREAM 2

Esto.

Latv.

Den.

Lith.

Russia

Ireland

U.K.

Neth.

Poland

Germany

Belg.

Ukraine

Czech R.

Slov.

France

Austria

Hun.

Romania

Croatia

Italy

Bulgaria

Spain

Portugal

Greece

Cyprus

While flows of natural gas vary and have recently fallen, about one-third of Russia’s gas exports to Europe usually go through Ukraine.

pipelines 600

Natural gas pipelines

and L.N.G. terminals

in Europe

Natural gas pipeline

Major pipeline for gas from Russia

Liquefied natural gas (L.N.G.) terminal

L.N.G. terminal proposed or under construction

Finland

Germany is among

countries considering

building up L.N.G.

infrastructure

to reduce dependency

on piped natural gas.

Estonia

Sweden

Latvia

Russia

Den.

Lithuania

Rus.

Ireland

Netherlands

Poland

Germany

Belgium

Ukraine

Lux.

Czech Rep.

Slovakia

Austria

France

While flows of natural gas vary and

have recently fallen, about one-third

of Russia’s gas exports to Europe

usually go through Ukraine.

Slovenia

Croatia

Italy

Bulgaria

Spain

Portugal

Greece

Cyprus

pipelines 1200

Natural gas pipelines and L.N.G. terminals in Europe

Natural gas pipeline

Major pipeline for gas from Russia

Liquefied natural gas (L.N.G.) terminal

L.N.G. terminal proposed or under construction

Finland

Estonia

Germany is among

countries considering

building up L.N.G.

infrastructure

to reduce dependency

on piped natural gas.

Sweden

Latvia

Russia

Denmark

Lithuania

Russia

Ireland

While flows of natural gas vary and

have recently fallen, about one-third

of Russia’s gas exports to Europe

usually go through Ukraine.

Neth.

Poland

Germany

Belg.

Ukraine

Czech Rep.

Lux.

SOYUZ

Slovakia

Austria

France

Hungary

Slovenia

Romania

Croatia

TURKSTREAM

Italy

Bulgaria

Spain

Portugal

Greece

Cyprus

Sources: SciGRID; European Network of Transmission System Operators for Gas (ENTSOG)

Liquefied natural gas is made by chilling gas to around minus 260 degrees Fahrenheit so that it can be converted into liquid form and loaded more easily onto ships. The great advantage is that it can be transported stably from great distances, including from Australia and the United States — offering viable alternatives for local or regional sources.

In recent months, Europe has been witnessing a kind of dress rehearsal for a cutback in Russian gas as Moscow curtails shipments to Europe in what some analysts and politicians say is an effort to keep prices high. According to the International Energy Agency, Russia cut its gas exports by pipeline to Europe by 23 percent in the last quarter of 2021 compared with the same period a year earlier. At the same time, imports of liquefied gas have been on the rise.

Natural gas imports to Europe by origin

5-day moving averages

imports 335

500

million cubic meters a day

L.N.G.

400

Norway

300

Russia

200

100

Algeria

Azerbaijan

Libya

J

F

M

A

M

J

J

A

S

O

N

D

J

’21

’22

imports 600

500

million cubic meters a day

L.N.G.

400

Norway

300

Russia

200

100

Algeria

Azerbaijan

Libya

Jan.

Feb.

March

April

May

June

July

Aug.

Sept.

Oct.

Nov.

Dec.

Jan.

2021

2022

imports 945

500

million cubic meters a day

L.N.G.

400

Norway

300

Russia

200

100

Algeria

Azerbaijan

Libya

Jan.

Feb.

March

April

May

June

July

Aug.

Sept.

Oct.

Nov.

Dec.

Jan.

2021

2022

Source: Wood Mackenzie

In reality, gas markets are far from static, with volumes and direction of flows largely dictated by price. And while the crisis has not yet led to any military action, the threat of conflict has been weighing on markets. Prices in Europe were already high to end the year as limited storage levels raised concerns that there would be enough fuel to last the winter.

While they have since eased from the records hit in December, they are still roughly four times what they were a year ago.

Natural gas price in Europe

Dutch TTF commodity futures contracts

gas price 335

150

euros per megawatt-hour

100

Monday:

80 euros

50

15 euros

’18

’19

’20

’21

’22

gas price 600

150

euros per megawatt-hour

100

Monday:

80 euros

50

15 euros

2018

2019

2020

2021

2022

gas price 945

150

euros per megawatt-hour

100

Monday:

80 euros

50

2018-20 avg:

15 euros

2018

2019

2020

2021

2022

Source: Refinitiv

Read More Here

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