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April 27, 2022

Determining the front lines of Europe’s potential energy conflict with Russia is no mean feat. Because should Russian President Vladimir Putin’s government decide to use what analysts often call Moscow’s “gas weapon”, the fallout would impact some European Union nations far more than others.

The variations in potential impacts stem from how different national energy markets are organised and legislated. 
Around 35 percent of the EU’s natural gas comes from Russia. And as political tensions have mounted around the build-up of Russian troops on the Ukrainian border, there has been much discussion of whether Russia, the world’s biggest exporter of natural gas, might weaponise that dependency to get its way.

For example, although Germany bought the most Russian gas in 2020 and natural gas adds up to around a third of its total energy consumption, Germany also gets gas from other sources. In 2020, the Norwegians supplied around 31 percent and the Dutch, around another 13 percent.

In neighbouring Austria, natural gas makes up about 20 percent of total energy consumption. But all of it comes from Russia. 
Slovakia and Hungary have a similar problem. Around a third of their power comes from natural gas and a high percentage of that – about 70 and 90 percent, respectively – is from Russia. So in many central and eastern European nations, the real question is what other options they would have if Russian gas stops coming.

In its February 2022 review, released this week, the Oxford Institute for Energy Studies came up with several scenarios for a Russian gas shutdown. These included everything from a stop to Russian gas flowing through Ukraine, which hosts one of the main pipelines running into Europe, in case of a Russian invasion, to a complete shutdown of gas supplies from Russia, as a possible reaction to international sanctions.

To counter that, the Oxford Institute’s solutions included importing more liquefied natural gas, or LNG, or withdrawing more natural gas from EU storage facilities, or encouraging the Russians to send more gas through other non-Ukrainian pipelines.



Energy Crisis Planning
Some of that is already happening. This month, Europe imported three times the amount of LNG it did last January, business data company Independent Commodity Intelligence Services (ICIS) concluded. Most came from the United States, but Qatar is also considering diverting some LNG shipments from Asia to Europe.

As for pulling more gas out of European storage, this is possible but, in the worst-case scenario, could mean that facilities were empty by the end of winter, with negative consequences for the following winter.

The EU does have an emergency plan should there be a critical reduction in gas supplies. Any such emergency would happen slowly, over weeks, the managers of the German version of the plan explain. This is why there are three levels to the plan. The first two levels push the market to iron out its own kinks and involve things like alternative supplies, such as LNG, or access to stored gas. The last level – a true emergency, with potential blackouts – sees EU governments taking over to secure power supply.

In such a case, “the responsibility to maintain the secure supply of gas, especially to household customers, is regulated by European and national laws,” a spokesperson from Germany’s Federal Association of the Energy and Water Industries, or BDEW, told Al Jazeera. “The supply to household customers receives special legal protection.”

Before power was ever reduced in private homes or places like hospitals, certain, non-essential industrial customers have agreed to cut back their use of gas voluntarily, the BDEW said. Crisis planning also specifies EU solidarity, where members with more gas support those with less.

Experts say that since 2014, when the Crimea crisis sparked similar concerns about Russian gas, there’s been some progress in this area. For example, there have been improvements to continental transport networks for gas and the ability to bring gas from west to east.


The Sanguine View
Most analysts are somewhat sanguine and don’t believe it will come to a worst-case scenario. The gas market itself has not reacted hugely to these fears, confirms Tom Marzec-Manser, head of gas analytics at ICIS.

“If Russia proactively cuts off the gas, it would be very difficult for a German utility to say, ‘we want to sign another 10-year contract with a Russian counterparty’,” Marzec-Manser said. “That is precisely why Russia cutting off gas is extremely unlikely. It damages their own business and reputation in the medium and long term.”

“We have to prepare for almost any scenario but we don’t want to speculate,” a spokesperson from Uniper, a German power company, said. Uniper is among Europe’s largest electricity suppliers and one of five companies backing the controversial Nord Stream 2 pipeline from Russia into Europe. “What we can say with certainty: Russia has been a reliable partner since the 1970s and there have been no supply interruptions, not even during the Cold War.”

In fact, this week gas flows from Russia briefly picked up, before dropping again. 
All of this is why, for now, the front line in this fight over energy imports remains financial. Somewhat surprisingly, Spanish consumers could be among those who feel the impact most, suggests Georg Zachmann, a senior fellow at the Brussels-based think-tank Bruegel.

“We are now seeing [energy] price increases being passed on to final consumers and that is happening at very different speeds, in different member states,” Zachmann said.

“[Spanish domestic] regulation essentially leads to consumer prices there being very strongly linked to wholesale prices,” he explained. “In contrast, French consumers are largely shielded from wholesale prices by regulatory means.”

This is despite the fact that Spain doesn’t actually import any gas from Russia. But Spain is Europe’s leading LNG importer and there, LNG import prices determine the overall gas price, Zachmann notes. Because of rising demand for LNG and fears of a Russian gas cut-off, those prices have increased.

Over the last few months, Spanish power prices had already been regularly hitting record highs, due to wild surges in global energy costs. The result of recent power price rises means that almost 11 percent of Spaniards are unable to adequately heat their homes, the EU’s statistics office, Eurostat, reported.

In the long run, it’s clear that higher energy prices and ongoing energy insecurity in the EU will cause manufacturing and other costs to rise and, in turn, inflation. This must eventually impact consumer sentiment, then voters’ political choices and whether the EU can be united over this issue.

A January poll of public opinion in Germany, conducted by the Allensbach Institute, found that 70 percent of Germans found inflation most worrying – more than military conflict in Ukraine or the COVID-19 pandemic.

This, then, is where the real front line is to be found in this conflict over energy imports: In the average European’s mailbox, right next to this month’s power bill.





























SOURCE: ALJAZEERA

IMAGE CREDIT: PIXABAY