Why Russian gas is still a problem for Europe


13 June 2024 - 17:00

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Russian gas is a resource and a threat to Europe, as highlighted by the story of the transit of fuel from Russia to our continent via Ukraine. What’s about to happen?

Why Russian gas is still a problem for Europe

Europe has not completely eliminated Russian gas from its supplies and now an expiring agreement between Kyiv and Moscow for the passage of the raw material is alarming the old continent.

Russia still ships about 15 billion cubic meters of gas to Europe through Ukraine, mostly to Slovakia and Austria, where the Putin-led nation is a dominant supplier. In Austria, Russian gas covered more than 80% of consumption for five consecutive months.

The thorny issue on the table is that Ukraine will probably not extend the five-year agreement with Russia’s Gazprom on the transit of Russian gas to Europe when it expires at the end of the year, prompting recipient countries to seek alternatives.

After the war in Ukraine, Norway overtook Russia to become Europe’s largest gas pipeline supplier, and the EU increased imports of liquefied natural gas (LNG) from the United States and other countries.

The European Commission believes that the bloc can therefore tolerate the end of Russian transit through Ukraine without major security risks. It plans to rely on alternative suppliers and pursue its ambitious climate strategy, which includes more renewable energy and energy savings.

However, some Member States are less optimistic and fear a repeat of the energy crisis. For this reason, Russian gas risks remaining a problem for Europeans for a long time.

Gas, Europe is shaking. Why can the crisis erupt at the end of the year?

The Ukrainian gas transit route, agreed by Moscow and Kiev in 2019, allows Russia to export gas to Europe via Ukraine.

Ukraine has not imported gas directly from Russia since 2015 but uses the transit system to supply homes and businesses. The system maintains pressure levels for both European and national supplies.

Most EU countries reduced their dependence on Russian gas with the February 2022 war. Former main recipients of gas through Ukraine include Austria, Slovakia, Italy, Hungary, Croatia, Slovenia and Moldova. Austria still receives most of its gas through Ukraine, while others have diversified their sources and taken measures to reduce demand.

Now, faced with the likelihood that Russia and Ukraine will not renew the agreement that expires at the end of 2024 that allows the transit of gas, European government and business officials are discussing with their Ukrainian counterparts how to keep gas flowing through 2025. Avoiding an abrupt stop in supplies from this route is the main objective to avoid a supply crisis.

According to some, one option being discussed is for European companies to purchase and inject gas from Azerbaijan into Russian pipelines to Europe (which pass through Ukrainian territory). Such a deal would allow Europe to avoid the embarrassment of buying Russian gas at a time when it is trying to squeeze Moscow’s revenues.

The idea is gaining momentum as it could also benefit Ukraine, which would not give up transit earnings. Transit revenue totaled approximately $1 billion in 2021, providing crucial funding for the war-ravaged economy. There are also concerns that disused pipelines could become military targets, or fall into disrepair, with restoration being costly.

The plan to use Azeri gas could in theory benefit Russia if it were set up as a trade that would allow Moscow to send its gas elsewhere. The Russian nation has struggled to find enough new fuel customers as its infrastructure is set up to supply Europe.

Talks are still in their early stages and people familiar with the matter expect decisions only towards the end of this year when the deadline – and the onset of the European winter – will add pressure.

The gas puzzle for Europe

The issue of transit of Russian gas to Ukraine draws attention to one of Europe’s biggest problems: energy vulnerability.

Any alternative solution involves risks with the probability that the price will rise again if influenced by supply problems.

Azerbaijan, for example, currently has no reserve gas production and is already using its gas pipeline system to Europe at full capacity. The Caspian nation seeks to increase exports to Europe, but another big boost would require infrastructure upgrades and new long-term contracts.

Alternative sources of supply exist, said European Energy Commissioner Kadri Simson. Austria can import from Italy and Germany. Hungary relies on the TurkStream pipeline, while Slovenia gets its gas from Algeria and other sources.

Slovak gas supplier SPP said a consortium of European gas buyers could take over gas on the Russia-Ukraine border when the transit contract expires.

Another option is for Gazprom to supply some of the gas via another route, for example via TurkStream, Bulgaria, Serbia, or Hungary. However, capacity on these routes is limited.

Is a gas offer alarm sounding in Europe? Next winter could be complicated again.

Original article published on Money.it Italy 2024-06-11 12:49:34. Original title: Perché il gas russo è ancora un problema per l’Europa

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