Page 37 - bne magazine February 2022_20220208

bne February 2022 Cover story I 37
If the West imposes "massive sanctions" on Russia, could it retaliate by cutting off gas deliveries to Europe? Analysts say that would be like dropping a nuclear bomb.
Can Russia cut off gas supplies to Europe?
as well a massive shortage of heating (gas is directly used for heating in many European homes and business and can’t easily be replaced by other fuels). European consumers would literally be freezing in the dark before being hit with power bills very few could afford to pay,” warns Roland Smith, the senior oil and gas analyst with BCS GM. “The truth is, Europe has no substitute for Russian gas.”
And thanks to the Ukrainian gas clash Europe has already made a great
deal of progress in diversifying away from its dependence on Russian gas. When deliveries started in the 1970s Russian gas made up some 70% to 80% of supplies; however, the share has fallen steadily since then and Russian gas currently accounts for just under 35% to the total, but even that is vital to keeping the lights on.
“The “gas weapon,” to the extent it exists, can be viewed like nuclear weapons: “Too powerful to ever be used” or, for that matter, to even be mentioned directly in negotiations over this or
that disagreement between countries,” argues Smith. “Rather, such weapons are best left in the background, with everyone fully understanding that they exist and that by existing, they limit the scope of escalation of disagreements
in international relations.”
While shutting off the gas spigot would have enormous and immediate effect in Europe, the long-term consequences for Russia’s gas business make it an extremely unappealing option for Moscow. The problem
is that gas deals usually run for decades and so the reputational risks are key to the business. And Russia has over a hundred years worth of
gas reserves under the ground in
the Yamal complex in the Arctic.
Part of what has been driving this year’s gas crisis has been Russian President Vladimir Putin's insistence that Russia won’t ramp up gas deliveries beyond its contractual obligations unless Europe signs off on new long-term contracts. Russia has been investing heavily into developing both the fields and also
Ben Aris in Berlin
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? Some analysts say that would be like detonating a nuclear bomb, with the same mutually assured destruction for both sides.
Russia’s use of gas as a political weapon has become a common trope following Gazprom’s decision to cut off Ukraine’s gas supplies in the winter of 2009
and there have been at least two less significant episodes since then.
However, the Kremlin has protested that in the “gas war” with Ukraine in 2009
it was simply shutting down supplies because Ukraine was stealing gas from the pipelines and unable to pay the bill.
“It was a force majeure situation,” Igor Shuvalov, the first deputy Prime Minister, told bne IntelliNews in an interview at the time. “They couldn't pay their bill, so we cut the supplies. It's a perfectly normal practice.”
Whatever the truth of the matter, the decision to plunge not only Ukraine into darkness, but many EU countries that depend on transit gas for power and heating, did tremendous reputational damage and almost certainly accelerated European efforts to diversify gas supplies, which has since morphed
into a drive to switch to renewables.
But Europe is still heavily dependent on Russian gas, which makes up between 30% and 40% of the energy mix in any given year. Gas in European storage tanks just fell below 40% this week, its lowest level in the last five years. As bne IntelliNews reported, Europe is on course to end the heating season at the end of March with the tanks only 10% full – just enough to scrape through this year, but even if Russian supplies were cut off then Europe would be unable to refill
them and would face a major energy crisis next year that would make this year’s gas crisis, caused by a V-shaped market, look like child’s play.
“Such a crisis... would almost certainly include rolling electricity blackouts
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