Page 6 - FSUOGM Week 05 2022

FSUOGM COMMENTARY FSUOGM

Can Russia cut off gas

supplies to Europe?

With the US threatening Russia with “massive consequences” if it invades Ukraine,

Russia has threatened to take “military and technical” action in response. Is

cutting Europe off from gas deliveries one of the Kremlin’s options?

EUROPE WITH the US threatening Russia with “mas- massive shortage of heating (gas is directly used
sive consequences” if it invades Ukraine, Russia for heating in many European homes and busi-
WHAT: has threatened to take “military and technical” ness and can’t easily be replaced by other fuels).
Russia may be action in response. Is cutting Europe off from European consumers would literally be freezing
considering a cut in gas gas deliveries one of the Kremlin’s options? in the dark before being hit with power bills very
supply in response to Some analysts say that would be like detonating few could afford to pay,” warns Roland Smith, the
sanctions from the West. a nuclear bomb, with the same mutually assured senior oil and gas analyst with BCS GM. “The
destruction for both sides. truth is, Europe has no substitute for Russian
WHY: Russia’s use of gas as a political weapon has gas.”
Such a move would make become a common trope following Gazprom’s And thanks to the Ukrainian gas clash
an already very tight decision to cut off Ukraine’s gas supplies in the Europe has already made a great deal of pro-
market even tighter. winter of 2009 and there have been at least two gress in diversifying away from its dependence
less significant episodes since then. on Russian gas. When deliveries started in the
WHAT NEXT: However, the Kremlin has protested that in 1970s Russian gas made up some 70% to 80% of
LNG would be unable to the “gas war” with Ukraine in 2009 it was sim- supplies; however, the share has fallen steadily
make up fully for a cut in ply shutting down supplies because Ukraine was since then and Russian gas currently accounts
Russian supply. stealing gas from the pipelines and unable to pay for just under 35% to the total, but even that is
the bill. vital to keeping the lights on.
“It was a force majeure situation,” Igor Shu- “The “gas weapon,” to the extent it exists, can
valov, the first deputy Prime Minister, told bne be viewed like nuclear weapons: “Too powerful
IntelliNews in an interview at the time. “They to ever be used” or, for that matter, to even be
couldn't pay their bill, so we cut the supplies. It's mentioned directly in negotiations over this or
a perfectly normal practice.” that disagreement between countries,” argues
Whatever the truth of the matter, the deci- Smith. “Rather, such weapons are best left in the
sion to plunge not only Ukraine into darkness, background, with everyone fully understanding
but many EU countries that depend on transit that they exist and that by existing, they limit the
gas for power and heating, did tremendous rep- scope of escalation of disagreements in interna-
utational damage and almost certainly acceler- tional relations.”
ated European efforts to diversify gas supplies, While shutting off the gas spigot would have
which has since morphed into a drive to switch enormous and immediate effect in Europe, the
to renewables. long-term consequences for Russia’s gas busi-
But Europe is still heavily dependent on ness make it an extremely unappealing option
Russian gas, which makes up between 30% and for Moscow. The problem is that gas deals usu-
40% of the energy mix in any given year. Gas in ally run for decades and so the reputational risks
European storage tanks just fell below 40% this are key to the business. And Russia has over a
week, its lowest level in the last five years. As bne hundred years worth of gas reserves under the
IntelliNews reported, Europe is on course to ground in the Yamal complex in the Arctic.
end the heating season at the end of March with Part of what has been driving this year’s gas
the tanks only 10% full – just enough to scrape crisis has been Russian President Vladimir
through this year, but even if Russian supplies Putin's insistence that Russia won’t ramp up gas
were cut off then Europe would be unable to refill deliveries beyond its contractual obligations
them and would face a major energy crisis next unless Europe signs off on new long-term con-
year that would make this year’s gas crisis, caused tracts. Russia has been investing heavily into
by a V-shaped market, look like child’s play. developing both the fields and also the infra-
“Such a crisis… would almost certainly structure – the controversial Nord Stream 2 gas
include rolling electricity blackouts as well a pipeline specifically connects the Yamal fields

P6 www. NEWSBASE .com Week 05 02•February•2022