FRANKFURT, Germany — Europe is scrambling to reduce its reliance on Russia for energy and braces for potential disruption to critical natural gas supplies as Russia’s war in Ukraine spikes prices to new heights.
Natural gas prices hit a record high on Thursday for the second day in a row, with restrictions on oil and gas increasingly seen as a possibility on the eighth day of war, whether through Western sanctions or Russian reprisals. It could mean even more pain for people’s wallets: Energy prices have been high for months due to low supplies, driving up the cost of everything from utility bills to groceries , as companies pass on their costs to customers.
Traders “were factoring in the growing likelihood of gas sanctions with each day the offensive continues,” said Kaushal Ramesh, principal analyst at Rystad Energy.
The price of gas is 10 times higher than it was at the start of 2021. But it continues to flow through major gas pipelines from Russia to Europe, including those passing through Ukraine, according to the companies. pipelines.
To prepare for any cuts as the war escalates and to reduce reliance on Russia, countries are assembling new supplies of liquefied natural gas – LNG – by ship. They are also accelerating projects for gas import terminals and pipelines that do not depend on Russia and talk of allowing coal-fired power plants to continue emitting climate-altering emissions for longer if it means energy independence. .
Yet many of the steps will take months or, in the case of new pipelines and terminals, years. The long-term answer is to rapidly develop renewable sources such as wind and solar. But for now, Europe depends on gas to heat homes, generate electricity and supply industries like fertilizer producers.
Europe, which gets nearly 40% of its gas from Russia, is in a different situation than the United States, which produces its own natural gas. Still, EU Energy Commissioner Kadri Simson said Europe “has the tools” to handle any Russian retaliation this winter, while conceding a full shutdown “would of course always be a challenge”.
Germany is spending 1.5 billion euros ($1.66 billion) to buy more LNG. Chancellor Olaf Scholz proposed on Sunday to build two LNG import terminals, days after blocking the already completed Nord Stream 2 gas pipeline between Russia and Europe.
European Union countries are working to establish a strategic gas reserve and establish storage requirements. Officials are urging countries to sign agreements to share gas in emergencies.
The EU’s executive commission is expected to unveil next week what steps governments can take. The Paris-based International Energy Agency said on Thursday Russian gas imports could be cut by a third this year thanks to measures such as the expiration of existing gas contracts with Russia, research new supplies from partners such as Norway and Azerbaijan, imposing minimum storage requirements, maximizing the use of remaining nuclear plants and offering cash support to vulnerable electricity customers.
Denmark has given the go-ahead to build a pipeline to bring Norwegian gas – another major source for Europe – to Poland after permission was suspended last year.
“We are really busy making up for lost months,” said Søren Juul Larsen, project manager at Energinet. “We have agreed with our subcontractors that they will deploy more machines and people to the task, so that we can set the pace and finish as soon as possible.”
Energinet expects the Baltic Pipe to be partially launched on October 1 and fully operational on January 1 with a capacity of up to 10 billion cubic meters of gas per year.
According to analysts at the Bruegel research institute in Brussels, completely weaning Europe off Russian gas by next winter’s heating season – if it becomes necessary – would be possible but painful, involving additional costs and possibly forced retention. With record LNG shipments already coming from places like the US, a total loss of Russian gas would leave Europe 10-15% short and face potentially painful measures to reduce gas consumption. , which would affect businesses first.
“If the EU is obliged or willing to bear the cost, it should be possible to replace Russian gas as early as next winter without devastating economic activity, freezing people or the supply of gas. electricity is interrupted,” they said.
Far-reaching Western sanctions have so far spared gas and oil even as they have targeted Russian banks and their ability to interact with Western financial systems. Specific exemptions have been provided for energy transactions. Officials say they are trying to avoid harming their own economies and consumers by inflicting pain on Russia.
But the sanctions indirectly hit the oil of Russia, the world’s third largest oil producer which sells 25% of Europe’s supply. Some oil buyers in recent days have avoided Russian crude, fearing that if sanctions were applied to Russian energy, their purchased oil could become unusable.
“Cargoes have already been rejected by European refiners in the market, because people are afraid that sanctions are coming, and so they don’t want to be caught with a cargo that they cannot resell,” said Amy Myers. Jaffe, research professor and managing director of the Climate Policy Lab at Tufts University.
A Russian-mandated power cut has long been considered unlikely — especially with gas — because it would cost Russia its biggest customers in Europe and some $300 million in revenue a day.
Russian officials have stressed that they have no intention of cutting off oil and gas and underscored their role as reliable suppliers. Yet the enigma remains: as Western countries cut Russian banks, Europe continues to support the Russian government – and military – through energy purchases.
The United States is “very open” to sanctioning Russia’s energy and gas industry, but weighs that against the potential costs to Americans, the White House press secretary said. Jen Psaki.
“We’re considering it. It’s totally on the table, but we have to weigh what all the impacts will be,” she said on MSNBC on Wednesday. “We are not trying to hurt ourselves. We are trying to hurt President Putin and the Russian economy.”
While Europe is vulnerable in the short term before it can develop renewable energy, it is Russia that would lose in the long term from an embargo or a blackout.
A gas embargo would lead to a 2.9% drop in Russian economic output over several years and a 0.1% gain for Germany, said trade expert Hendrik Mahlkow of the Kiel Institute for ‘Mondial economy. Any Russian threat to stop supplies “wouldn’t be very credible,” Mahlkow said.
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Associated Press reporters Jan M. Olsen in Copenhagen, Denmark; Cathy Bussewitz in New York; and Darlene Superville in Washington contributed.
