Page 24 - Russia OUTLOOK 2023

• Energy Crisis

It looks increasingly likely that Europe will make it through the winter of
2022 with sufficient gas supply, but the International Energy Agency
(IEA) warned of a 27bn cubic metre supply-demand gap in 2030 that will
be almost impossible to fill.

EU storage continued to grow until mid-November, reaching nearly 96%
full. Gas started to be withdrawn from the tanks on November 14 as the cold
weather arrived. The storage level peak in 2022 was well above the five-year
average of almost 88% for mid-November. Given the bloated storage,
day-ahead TTF prices tumbled in November as much as 93% from the peak in
August as the gas shortage turned into a gas glut. LNG tankers arriving in
European waters stacked up at anchor as the available storage space in the
EU’s tanks fell to close to zero. Europe was in a better-than-expected position
for this winter temporarily alleviating fears of a crisis.

Europe will struggle to get through next winter so easily. Russian pipeline gas
flows have fallen significantly this year and half the capacity to move gas was
destroyed by explosions in the two main Nord Stream gas pipelines on
September 26 that can’t be repaired.

End of year data show that pipeline flows from Russia to Europe have fallen by
around 50% y/y to roughly 58 bcm. And, obviously, these flows have declined
progressively as we moved through the year with reduced flows via Ukraine
and Nord Stream.

In November daily Russian gas flows to the EU were down around 80% y/y as
only the Ukrainian and TurkStream pipelines were working. Assuming that
Russian gas flows remain at current levels throughout 2023 (via Ukraine and
TurkStream only), annual Russian pipeline gas to the EU could contract by a
further 60% y/y to around 23 bcm in 2023. And analysts say there is a very real
risk that the remaining flows via Ukraine and TurkStream will be halted as well
in 2023.

In the current environment it is difficult to see a recovery in Russian pipeline
flows to Europe. The one option for increasing the flows is to reopen the 33
bcm Yamal-Europe pipeline that runs between Russia and Germany via
Poland. Flows through Ukraine could also in theory be increased. But Poland
is an implacable foe of Russia and the war in Ukraine shows no sign of
abating.

24 Russia OUTLOOK 2022 www.intellinews.com