Rising Prices and Shrinking Production – The Guardian on What Europe Can Expect if Russian Gas Supplies Are Curtailed

Rising Prices and Shrinking Production – The Guardian on What Europe Can Expect if Russian Gas Supplies Are Curtailed

The Guardian reports that over the last week Russia’s Gazprom has reduced gas supplies via Nord Stream 1 by 60% following earlier cuts in Poland, Bulgaria, France and the Netherlands. If Europe is left without Russian gas and unable to replace it, the region will face production restrictions in the most energy-intensive industries and further increases in electricity prices for consumers, the newspaper said.

Russian President Vladimir Putin and the Russian energy company Gazprom appear to have begun tightening the screws on Europe by restricting gas supplies, The Guardian reports. Fatih Birol, head of the International Energy Agency, has warned that Europe must make ready for a complete halt to Russian gas exports this winter.

As the newspaper notes, Russia has begun cutting off European countries’ supplies in an “apparent attempt to prevent” them from filling their gas storage facilities ahead of winter. Over the past week, for example, Gazprom has cut supplies through the Nord Stream 1 pipeline by 60 percent. This led to a halt in deliveries to Italy, Austria, the Czech Republic and Slovakia. Gas supplies were also cut to a number of other countries, including Poland, Bulgaria, France and the Netherlands.

An explosion at one of the largest US liquefied natural gas plants, Freeport LNG in Texas, which exports US gas to Europe, also led to supply cuts.

Meanwhile, before the Russian special operation in Ukraine, Russia provided 40 per cent of Europe’s gas supply. Consequently, restrictions on gas storage or increased imports of liquefied natural gas in some countries, including Germany, make complete substitution of Russian energy sources almost impossible in the short term. The EU sees little chance of banning Russian gas imports because there is no agreement on the issue among the bloc’s 27 members.

Instead, countries are rushing to fill their storage facilities earlier than usual. According to The Guardian, Europe’s underground storage facilities are currently 57 per cent full. The European Commission has set a target for each country to reach the required 80% reserve level by the beginning of November, and Germany plans to fill 90% of its storage capacity by then.

Without Russian gas, however, these targets will be difficult to achieve.

“The only way to get closer to the target is to pay a very high price. The US is sending LNG to Europe instead of Asia because European countries pay more,” said Nathan Piper, head of oil and gas research at Investec Bank.

More and more European countries are turning to the United States to supply larger amounts of expensive liquefied natural gas. Furthermore, the publication believes that the UK could also benefit from the energy crisis by increasing its gas exports to the EU.

According to the UK’s National Statistics Service, UK merchandise exports to the EU rose for the third month running in April to £16.4bn, the highest level since records began in 1997. This growth is largely due to increased shipments of gas and crude oil to the Netherlands and Ireland. In addition, European countries are trying to increase gas supplies from Norway and Azerbaijan and to promote the use of renewable energies.

In the event that European states fail to replace Russian gas, the most likely result, according to the publication, will be reduced energy consumption at production facilities. In Germany in particular, where Russian gas accounts for 35 percent of imports, energy-intensive industries such as the steel industry will have to limit production.

“Either governments will impose restrictions on the use of energy, or prices will be so high that it becomes unprofitable to use it. There could be a situation where Russia cuts off gas supplies this winter when consumption is high,” Piper predicts. Even during the Cold War, the USSR remained a reliable energy supplier, he said, but “that link has now been broken”.

The Guardian also wonders whether Russia’s restriction of gas supplies will affect the UK. Last year, Russian gas accounted for just under 4% of the country’s market share, making the country seem immune to supply problems. The UK is “in a good position” thanks to its own domestic gas supplies, deliveries from Norway and imports of liquefied natural gas. However, this does not protect it from skyrocketing energy prices.

UK Business Secretary Kwasi Kwarteng also said that London intends to expand its own supply capacity in case of problems this winter. For example, the country has started up the old mothballed coal-fired West Burton A thermal power plant. The kingdom is also in talks with Centrica about the possibility of reopening the east coast of England’s Rough storage facility, which was closed in 2017.

At the same time, the publication believes that disruption of energy supplies to consumers in the UK and Europe should not be expected, as the industrial use of electricity will be limited first of all. However, the already high prices are likely to increase even more.

According to research company Cornwall Insight, the electricity price cap for Britons will reach £2,980 as early as October and could reach £3,003 in January. But if Russia stops exporting gas completely, prices could rise even higher, warns The Guardian.

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