Page 8 - FSUOGM Week 11 2022

FSUOGM PERFORMANCE FSUOGM

What happens if Moscow cuts

off gas supply to Europe?

EUROPE RUSSIA earlier this week suggested it might cut could source is limited. One also has to consider
gas supplies to Europe via the Nord Stream 1 the role that gas plays in national energy mixes.
Demand destruction pipeline as part of its response to Western sanc- In Germany, it comes to around a third of total
would be assured. tions, and the government is shortly expected to energy consumption, whereas in countries like
present a plan to block the export of certain com- Poland it is much lower, as most power is gener-
modities to certain countries. If Russia were to ated by burning coal.
disrupt gas supplies to Europe, whether partially A disruption would, in any case, lead Euro-
or completely, it is worth considering how badly pean gas prices to soar even higher than they
the continent would be affected. are now, and this would result in unprecedented
Russian gas supplies cover around 35% to demand destruction, including at Europe’s fertil-
40% of gas demand in Europe, but the extent that iser plants which rely on gas as feedstock. Many
individual countries depend on these shipments have already closed because of high prices, and a
varies greatly. While countries like the UK and further increase in gas costs would cause short-
Spain import hardly any Russian gas, others like ages of fertiliser, which coupled with disruptions
Germany, Italy and the Netherlands purchase in agriculture in Ukraine, would potentially lead
significant amounts. Those three countries to a food crisis. Yara’s announcement on March
bought 56.3bn cubic metres, 19.7 bcm and 11.2 9 that it would be curtailing production at its fer-
bcm of Russian gas respectively in 2020. tiliser plants in Italy and France because of high
However, it is also important to consider how prices is a likely signal of what will come.
great a share Russian gas commands in a given This said, Russia has good reasons not to cut
gas market, as well as the extent that alternatives supply. Gazprom would be deprived of revenues
are available. Germany covers nearly half of its that it uses for investment projects and to sub-
demand with Russian gas, for instance, whereas sidise gas prices on the domestic market. Fur-
Italy relies on it for 46%. But while Italy has a thermore, the company would have to pay out
fairly diversified gas import mix, being able to billions of dollars in legal expenses if it violated
obtain piped gas from Africa and Azerbaijan, any contracts, and its reputation as a reliable gas
in addition to LNG, Germany is in a less secure supplier would be in tatters, undermining its
position, as how much extra North Sea gas it business in Europe for many years to come. ™

P8 www. NEWSBASE .com Week 11 16•March•2022