Tapped Out

Russia Squeezes European Gas Supplies Amid Sanctions

Pipeline Ukraine
If Russia turns off the gas this winter, Europe may freeze.
  • Why it matters

    Why it matters

    Reduced Russian gas supplies to Europe could mark a further escalation of the Russian-Ukraine conflict and potentially endanger Europe’s economy.

  • Facts

    Facts

    • Polish gas trading firm PGNiG said it has seen Russian gas supplies reduced by as much as 45 percent.
    • Austrian gas distributor E-Control reported a 15 percent cut in supply, while German utility E.On reported “limited” supply cuts.
    • Most European countries can last at least three months without Russian gas, a study showed.
  • Audio

    Audio

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Even before a new round of European Union sanctions against Russia came into force Friday, Russia began reducing gas supplies to some European countries, opening a new front in the escalating crisis with the West.

Poland, Slovakia, Germany and Austria reported reductions in gas deliveries from Russia this week. Russia’s majority state-owned energy giant Gazprom has denied it is cutting supplies.

For analysts and regulators, the biggest question is what is motivating Russia to make the reductions. The shortages could merely be the result of technical problems or Gazprom could once again be using Europe’s dependence on natural gas as a lever in its dispute with Ukraine.

The Russian government has not commented on the reductions, leaving the denials to Gazprom.

The reduction in deliveries has sparked alarm in Poland, which has a great dependence on Russian gas and on Thursday halted its own gas exports to Ukraine. For other European countries like Germany and Austria, where if anything there is an over-abundance of gas reserves on the market, regulators and companies said the short-term cuts would have no real impact on their ability to supply consumers.

“The underlying thing that has continued during the crisis has been this gas dispute,” said Trevor Sikorski, head of research of gas, coal and carbon fuels at Energy Aspects, a research consultancy in London.

 

Russian President Vladimir Putin listens to Alexei Miller, chief executive of Gazprom. Source: AP Photo/RIA Novosti, Alexei Nikolsky, Presidential Press Service
Russian President Vladimir Putin listens to Alexei Miller, chief executive of Gazprom. Source: AP Photo/RIA Novosti, Alexei Nikolsky, Presidential Press Service

 

Slowing supplies to countries including Poland and Slovakia could be caused by maintenance of Gazprom’s pipelines but it could also be a signal to Ukraine, which stopped using gas directly imported from Russia in June but has been importing Russian gas via other countries instead, Mr. Sikorski said.

“It could be a message in general to Ukraine, saying: ‘We’re ready to stop gas deliveries from third parties,” Mr. Sikorski said.

Polish gas trading firm PGNiG saw gas supplies from Russian state-controlled gas firm Gazprom being reduced on Monday by 20 percent, running up to 45 percent on Wednesday, PGNiG said in statements on its website.

A Gazprom spokeswoman declined to comment and referred to earlier statements made by spokesman Sergey Kupriyanov. Gazprom has not decreased its supplies to Poland, the spokesman was quoted as saying by Russian news agency Itar-Tass on Thursday.

“It could be a message in general to Ukraine, saying: ‘We’re ready to stop gas deliveries from third parties.'”

Trevor Sikorski, Head of Research, Energy Aspects

Germany and Austria also said they are facing some reduced deliveries. Austria has seen about a 15 percent reduction in deliveries from Russia since Wednesday, according to Austria’s energy regulator E-Control. A spokesman for German utility giant E.ON also reported “minor delivery limitations” but wouldn’t specify the amount, and stressed it was having no impact on supply to consumers.

Walter Boltz, head of Austria’s E-Control, in a phone interview said the short-term changes in supply are not unusual and often the result of technical problems. With Austria’s storage tanks essentially full, they also have no effect on Austria’s ability to supply consumers. But he added: “What is unusual is that the Russians have not explained this at all.”

The new European sanctions include a ban on trading shares of Russian oil and gas firms Gazprom, Rosneft and Transneft, of stocks of Russian defence firms, and a travel ban that now applies to more Russian politicians and pro-Russian separatists in Ukraine.

While the tit-for-tat with Russia is having an impact on the Ukraine and Poland, experts say most western European countries are well-placed to manage a short-term reduction in natural gas deliveries.

Germany, which depends on Russia for nearly 40 percent of its natural gas needs, has among the best storage capacities in all of Europe. These are currently filled to 91 percent, according to the German Association of Energy and Water Industries, BDEW.

“The natural gas supply is very well set up in Germany. Germany draws natural gas from different supply countries, from different supply routes and has the highest reserve capacities in the European Union,” the association said in a statement to the Handelsblatt Global Edition.

A study by the University of Cologne released this week found that nearly all countries could manage a cut in Russian oil for at least 3 months, though Poland, Turkey and Finland are among those that could face more immediate shortages if Russia turned off the spigot.

Gas_durch_die_Ukraine_02

But other countries including Germany and Eastern Europe could have trouble meeting demand if an embargo lasts for six months or more, especially if the winter is unusually cold. A cold snap in February would lead to “supply shortages in almost the entirety of Europe,” the University of Cologne said in its study.

There is precedent for this. In the winter of 2006, Western Europe, including Germany and the Netherlands, were affected by reduced gas supplies from Russia to Ukraine, which highlighted the dependence of Europe on Russian gas. At the time, Russia and Ukraine had a dispute about the price of gas deliveries, which is currently also at the heart of the gas dispute between the two countries.

Mr. Sikorski did not believe the reduced gas supplies were in direct retaliation to the new European sanctions.

“If we look at what Russia has done in retaliation, it is not that Russia stopped selling things to us but stopped us from selling things to Russia, [such as] sanctioning agricultural products,” Mr. Sikorski said.

“If you’re sitting in Moscow, the big fear over sanctions would be the European Union saying ‘We’re going to sanction the purchase of hybrocarbon products’ because then the Russian economy would really unravel,” Mr. Sikorski said.

The authors are editors at Handelsblatt Global Edition in Berlin. Contact: kreijger@handelsblatt.com, cermak@handelsblatt.com

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