Page 6 - FSUOGM Week 06 2022

FSUOGM COMMENTARY FSUOGM

Europe unlikely to find real alternatives

to Russian gas, at least in short term

EUROPE EU and US officials have reached out to gas
suppliers and buyers across the world during
WHAT: recent weeks, in the hope of finding alternatives
The EU and US have to Russian gas shipments to Europe in the event
reached out to gas that transit via Ukraine is disrupted. However,
suppliers and buyers the reality is that there is little Europe can do to
to find alternatives to replace Russian supply, at least in the short term.
Russian gas to Europe. Many of the countries that depend the most on
Russian gas cannot easily displace these volumes
WHY: with alternatives because of infrastructure con-
A potential Ukrainian straints. And in any case, gas is in short supply
conflict poses a threat to globally, and expectations are that the market
European gas supply. will remain tight for most of this year. to think that this would result in any new project
European Energy Commissioner Kadi Sim- launches for a few years.
WHAT NEXT: son joined other EU officials for energy talks in Even if the US and the EU pull all political
There is not much Europe Baku last week. levers possible, Europe would not be able to
can do to replace Russian “Very good in-depth discussion on energy find enough alternative supply to replace Rus-
gas in the short term, co-operation” was had with Azerbaijan’s gov- sian shipments, which totalled 168 bcm in
besides tapping extra ernment, she said. “We agreed to step up our 2021, meeting around a third of the continent’s
LNG supply. partnership, both in the gas sector, but also in demand.
the field of renewables.” Even in the event of conflict in Ukraine, it is
Azerbaijan’s Shah Deniz field has been unlikely that Russian gas supply to Europe would
delivering gas to Europe since the start of last be affected greatly. It is simply in all parties’ inter-
year via the Trans-Adriatic Pipeline (TAP), est to ensure that this does not happen. Europe
which represents the final leg of the Southern would be plunged into its worst economic
Gas Corridor (SGC) system. TAP supplies depression in living memory, and Russia would
amounted to 8.1bn cubic metres per year last have done irreversible damage to its image as
year, with volumes received by Italy, Greece a reliable supplier, while also uniting Europe
and Bulgaria. The pipeline can handle up to 10 against it.
bcm per year of gas, but it is unclear how long “Were all gas flows to stop today, existing gas
it could take BP and its partners at Shah Deniz storage would run out in six weeks,” analysts at
to expand supplies to full capacity in response Wood Mackenzie said in a research note on Feb-
to EU pressure. ruary 7. “Demand destruction would be massive
In any case, such a small volume would not and if the disruption was prolonged, gas inven-
have much of an impact if Russian deliveries via tory couldn’t be rebuilt through the summer.
Ukraine were disrupted. There are initial plans to We’d be facing a catastrophic situation of close to
expand TAP’s capacity to up to 20 bcm per year, zero gas in storage for next winter.”
but a market test for this extra gas failed to attract If a disruption did occur, it would be acci-
any interest from buyers last summer. Market dental, for example as a result of indiscriminate
conditions have since changed drastically, but it shelling, and given the high stakes, all parties
would take two or three years for new projects to would likely prioritise getting that supply back
be delivered in Azerbaijan to provide the neces- online, even if it meant calling a ceasefire to
sary supply. achieve this.
The US has reportedly also reached out to More significant is the fact that the crisis in
Qatar for extra gas for Europe, but the kingdom Ukraine and the crisis in energy markets have
is already producing at full capacity and would led to Russia facing a lot more criticism for using
therefore have to divert supplies from its buyers gas supply as a weapon. Whether or not there is
in Asia. This would be possible in theory, but any truth in this narrative, it has undeniably gained a
substantial diversion would provoke an energy lot of traction in Europe, and is likely to encour-
crisis in Asia. China and other top LNG import- age governments to double efforts to diversify
ers such as Japan would lobby against Qatar tak- their supply. Though this is bad news for Rus-
ing such a step. sia, the country is taking its own steps to reduce
The current energy crunch is set to spur more reliance on the European market. Just last week
US LNG exporters to take final investment deci- Gazprom signed a deal to supply an extra 10 bcm
sions (FIDs) on new capacity, but it is unrealistic per year of gas to China. ™

P6 www. NEWSBASE .com Week 06 09•February•2022