Page 32 - TURKRptJun22

32 I Cover story bne June 2022
pipeline. That makes it harder for Russia to switch delivery to new markets, but
it also makes it harder to sanction: gas pipelines are the geopolitical equivalent of marriage and especially when a couple has children (industries and power stations based on gas deliveries), getting divorced is a very messy process.
Russia delivered 155bn cubic metres of gas to Europe in 2021, but the volumes fell noticeably after EU countries began to wean themselves off Russian gas, with Russia cutting off Poland, Finland and the Baltics soon after the war started.
The EU was already in the process of reducing its dependence on Russian gas, since it used to import 80% of its gas from Russia during the Cold War and the share had fallen to some 35% in recent years, although it increased again to around 40% in the first quarter of 2022 due to an exceptionally cold winter and the need to replenish stored gas following the gas crisis in 2021.
Europe had paid Russia just under $100bn by April for gas, but despite pledges to stop the imports it proved
For Russia’s part, switching the pipeline infrastructure, which all runs west, to
the east was an even more formidable task. In the last five years several new projects have been launched, including the Power of Siberia 2, a 3,000-km pipeline that connects Russia’s Yamal gas fields in the Far North to northern China. But negotiations with China over the price of the gas have been tortuous and raising the finance to pay for the $20bn pipeline extremely difficult.
Cost overruns and technical problems caused by the ongoing melting of the permafrost have caused significant delays and dramatically raised Gazprom’s maintenance bill, as all its pipelines need upgrading to cope with the melting ground. The Power of Siberia’s completion date of 2030 looks likely to be pushed back again for the third time in four years.
Even when the pipeline is completed,
the Chinese offtake volumes are unlikely to be anything like able to replace the European demand. The Power of Siberia 1 delivered 10 bcm of gas to China but that is less than 10% of the EU deliveries and the new pipeline will also likely build up in stages. Adding to the problems is
in 2005, but signed a new long-term contract with Gazprom in 2022, increasing the volumes back to 15 bcm a year, part of which is quietly exported to its neighbours.
Turkey also imports some 30 bcm a
year since TurkStream came online in January 2021 and with TurkStream II due to come online this year, that should double to 60 bcm, delivered to Turkey and the Balkan states, as well as further to countries like Italy as “EU gas.”
Other EU states continue to import significant amounts of gas, although half the volumes from the 2022 levels of: Germany (142 bcm), Italy (76 bcm), Slovakia (5.3 bcm), Czechia (8.8 bcm), Serbia (2.5 bcm) and Bulgaria (3 bcm) as the main markets.
While the war was still raging Serbian President Aleksander Vucic signed
off on a new three-year gas deal with Russia on May 29 “on very good terms.” That came on top of a similar deal
with Hungary that also renewed and expanded its long-term commitment
to buy Russian gas in the first months of the war. Moreover, both countries have signed up to take more gas via
the new TurkStream southern route that is not subject to sanctions than they need, and have been selling it to their neighbours in what is a significant leakage of the gas sanctions regime.
Altogether Russian exports of gas have fallen considerably since 2022 as the EU heavy investment into renewables eats into gas demand, five years on and Turkey, the Balkans, Hungary, Bulgaria and Czechia still account for 80 bcm per year.
Germany and Italy import reduced amounts of gas but still take some
30 bcm a year for their own use and distribute it across the European pipeline network, serving the base load needs of countries still in the midst
of their switch to 100% reliance on renewables as part of the EU’s Green Deal. Like oil, the argument is that importing some gas from Russia keeps the prices down and actually detracts more from the Russian budget than cutting off gas completely would.
“The end of Russian gas imports was always going to take several years to achieve and even boosted imports of LNG, especially from the US, were never going to be able to replace the Russian gas in the short term”
impossible to do so, as there was no other fuel source available to replace the Russian gas. Moreover, the storage tanks needed to be replenished before the next winter or Europe would have faced another gas crisis even more extreme than that of 2021 – something the EU managed to do thanks to record levels of LNG imports in the first half of that year.
The end of Russian gas imports was always going to take several years to achieve and even boosted imports of LNG, especially from the US, were never going to be able to replace
the Russian gas in the short term.
www.bne.eu
that China does not have a developed domestic gas pipeline network, and
this will also have to be built once the supply pipeline is completed. China will eventually replace Europe’s demand.
In September Gazprom CEO Alexei Miller predicted that eventually China’s demand for gas will hit 250 bcm –
100 bcm per year more than the EU – but that is not anticipated until 2050.
In the meantime, while deliveries
of gas to the EU have fallen by 25%, Europe continues to import significant amounts of gas. Hungary consumed 10 bcm in 2020, down from 14 bcm