Maxim Semetov Reuters The European Union’s best chance of replacing Russian gas imports this year is likely to lose ground, analysts predict, putting further pressure on the region’s economy. The EU plans to replace two-thirds of Russian gas imports by the end of the year, as Russia’s war in Ukraine continues. The move away from the country’s gas supplies has become even more urgent as the country’s state-owned Gazprom reduced flows to Europe by 60%, citing delays in repairs to the Nord Stream 1 pipeline to Germany under the Baltic Sea. European Energy Commissioner Kadri Simpson will meet with EU energy ministers on Monday to discuss possible co-ordinated measures, including demand cuts and contingency plans in the event of a further deterioration. However, the current EU plan to replace Russian gas appears to be failing. In 2021, the EU imported about 155 cubic meters (bcm) of gas from Russia. Proposed gas replacements from the block by the end of 2022 – including LNG (liquefied natural gas) diversification, renewable energy, heating efficiency, pipeline diversification, biomethane, solar roofs and heat pumps – amount to approximately 102 bcm according to with data from the EU Commission REPowerEU, compiled in a recent report by financial advisory firm TS Lombard. Christopher Granville, chief executive of EMEA and global policy research at TS Lombard, said in the report that the European Commission’s targets for replacing Gazprom gas this year appear “extremely optimistic”. “Apart from the timing of the launch of German LNG terminals, Russia is also a major LNG supplier, underscoring the challenge for Europe to supply adequate LNG supplies,” Granville said. The share of Russian gas imports to the EU has already fallen from 45% in April 2021 to 31% in April 2022, with the share of pipeline gas alone falling from 40% last year to 26% this year. However, total LNG imports have reached record levels, with 12.6 bcm imported in April alone, representing a 36% year-on-year increase despite a declining share from Russia. This would show that Europe’s efforts to diversify are beginning to bear fruit.
‘Blackmail’
A spokesman for the European Commission on energy told CNBC on Thursday that Gazprom and Moscow were using energy supplies as an “instrument of blackmail”. “Following Gazprom’s previous unilateral decision to cut off gas supplies to many Member States and companies and below the average level of gas storage facilities in Europe last year, the latest moves remind us once again of its unreliability. “Russia as an energy supplier,” said the spokesman. “They also strengthen our resolve to meet our REPowerEU targets for the phasing out of Russian fossil fuels. Sanctions on Russian coal and oil will take effect this year and with the REPowerEU plan we will accelerate the growth of domestic energy. use energy and turn to alternative suppliers that are more reliable than Russia. “ Efforts by the European Commission and Member States to diversify away from Russian fossil fuels led them last week to sign a Memorandum of Understanding with Egypt and Israel on LNG exports from the eastern Mediterranean. “We have agreed on a joint statement with Norway to strengthen our cooperation for a deeper long-term energy partnership and we will work to secure additional short-term and long-term gas supplies, tackle high energy prices and work on clean energy technologies.” a commission spokesman told CNBC. “We are also working with other alternative energy suppliers, such as the United States, Qatar and Azerbaijan, to give just a few examples.” However, TS Lombard’s Granville predicted that there could be significant cost implications for Europe, as it looks elsewhere for gas supplies. “[The EU] will pay more on average for this [non-Russian] oil and gas in relation to its counterparts. “Asian countries will buy more Russian oil at reduced prices,” Granville predicted. “LNG imported from Europe from the US will cost more than the price paid by American consumers due to transportation and liquefaction / regasification costs.”
Energy activation
This could hit Europe’s economy hard, at a time when it is already struggling, with so-called “repeated sanctions” on Russia as the war escalates. Another potential obstacle to the region’s economy is the possibility of a full embargo on Russian gas supplies. This is something that already worries Europe’s policymakers. In a research note Tuesday, Takahide Kiuchi, an economist at the Nomura Research Institute, said: “If the situation escalates in the future … then it is very likely that the EU will go so far as to ban the import of Russian gas.” “With the G-7 now deciding to ban Russian oil imports, it is possible that Russia will expand the scope of gas cuts to other EU nations in retaliation,” Kiuchi said. “In this case, one might assume that the EU will try to make the first move and stay ahead of Russia by declaring a ban on Russian gas imports.” By introducing gas into the EU sanctions sphere, the eurozone economy could see a sharp slowdown, with Germany’s growth rate becoming negative, Kiuchi suggested. More generally, the International Monetary Fund has suggested that escalating sanctions against Russia by major industrial nations – especially if they impose severe restrictions on Russian energy exports – could lead to even sharper increases in energy prices, household and financial market disruption. The IMF predicted that such a series of events could reduce its forecasts for global growth by up to 2%.
