Russian play with gas supplies

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Last Updated30/04/2022

Russian energy company Gazprom has stopped gas supplies to Bulgaria and Poland citing their failure to pay in roubles.
Recently, it also announced that it has “completely suspended gas supplies” to Poland’s PGNiG and Bulgaria’s Bulgargaz.

Russian gas deliveries to both Poland and Bulgaria were anyway expected to end later this year.
Poland (40% of its natural gas from Russia) has been working on alternatives for many years.
- With current developments, it will lose out on the five billion cubic metres of gas it was set to get from Gazprom.

It will likely make up for it with supplies from Germany.

Bulgaria (77% natural gas from Russia), has a bigger problem.
- It needs to urgently look for alternatives, with additional supplies via pipelines from Greece being a distinct possibility.

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Poland - major gateway for supply of military hardware to Ukraine.
- It also confirmed earlier this week that it will be sending tanks to Ukraine.
Bulgaria has cut many of its old ties to Moscow after liberal government came to power.
- Supported the West’s sanctions against Russia.
- Also hosted Western fighter jets at a new NATO outpost on its Black Sea coast.

It is alleged that there won’t be any further cuts in supplies at least until the second half of May, which is when the next tranche of payments are due.
According to reports, four European buyers have already started making gas payments in roubles, while 10 European companies have opened accounts with Gazprombank to make rouble payments.

The 27-member European Union has described Russia’s decision as “blackmail” and accused Moscow of trying to divide the West over its support for Ukraine.
“It comes as no surprise that the Kremlin uses fossil fuels to try to blackmail us,” said EU Commission President Ursula von der Leyen, adding, “Today, the Kremlin failed once again in his attempt to sow division amongst member states.

Europe’s natural gas comes from only three sources: Russia, Norway and Algeria.
- Russia - almost 40% of Europe’s gas imports (before the war).
Dependence on Russian gas varies from country to country — ranging from 94% for Finland to 11% for the Netherlands.
Disruption in supplies would fuel inflation and damage economic activity, with strong possibilities of energy rationing and even a major recession in the continent’s industrial powerhouse, Germany.

Europe’s energy mix - oil (43%), natural gas (24%), nuclear energy (14%), and hydroelectric (4%), + renewables ( wind and solar) making up the rest.
As climate change is a major political issue in Europe, coal (of which there are abundant reserves on the continent) is off the table.
Public is hostile to nuclear energy, so EU is left with natural gas as the cleanest source of energy.

LNG requires massive facilities and container ships that require huge capital investments.
And yet, over the past decade, the EU has beefed up its LNG infrastructure, building several large terminals.
LNG transported from the U.S. by container ships would be much more expensive than Russian gas received via pipeline.
Achieving strategic autonomy by replacing Russian gas with American LNG would mean higher prices for the average European consumer - the primary beneficiary of cheap Russian gas.

Russia has taken a gamble by cutting off supplies to Poland and Bulgaria.
The Russian economy is heavily dependent on gas exports (40% of its revenue coming from it).
If more EU countries to pay for gas in roubles, it will help shore up its currency and offer some relief for its sanction-hit economy.
It may also backfire and may end up accelerating the decoupling of the energy ‘partnership’ between Europe and Russia.
It is difficult to reroute piped natural gas to different markets.
Russia (having no elaborate storage infrastructure) may find itself desperate for buyers as well as hard currency, let alone buyers ready to pay in roubles.

Prelims Takeaway

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