Filenews 8 February 2022
By Ken Silverstein
US President Joe Biden and German Chancellor Olaf Scholz made it clear during their meeting yesterday at the White House that the Russian Nord Stream 2 gas pipeline will not be approved if Russia invades Ukraine. But what will be the cost in such a case for Russia and where will Europe get the gas from?
Russia relies on hydrocarbons for 60% of its national budget, while oil and gas make up almost a third of its GDP. Moscow already provides 39% of Europe's natural gas. Russia has built Nord Stream 2 to bypass Ukraine, an €11 billion project. dollars that reaches as far as Germany. However, the pipeline cannot start deliveries of natural gas unless it receives approval from German regulators. Is Europe more dependent on Russian gas, or is Russia more dependent on Europe's money?
If Russia invades Ukraine, the Nord Stream 2 pipeline will not go ahead, Biden stressed during a news conference. "I promise you that we are able to do so," he noted.
Ola Scholz, for his part, on the same wavelength, stated that "if there is a military attack against Ukraine, it will have serious consequences, which we have jointly agreed (with the US)".
Nord Stream 2 is an accompanying Nord stream 1 pipeline and would allow the Russian Gazprom to double its gas transport to Europe. It should be noted that Russia has exported 168 billion cubic metres of natural gas to Europe in 2020, with Germany buying 56 billion cubic meters a year. Italy and the Netherlands followed with purchases of €20 billion and 11 billion cubic metres respectively.
Biden stressed that he is working with countries that export liquefied natural gas (LNG) to supply Europe in case Russia invades Ukraine. The main references concerned Qatar, and Australia was also included in the debate. The U.S. provides less than 5% of Europe's natural gas, but the country's share is growing. Norway is Europe's second largest supplier of gas, although its pipeline is already operating at full capacity, while Turkey can supply gas to southern Europe.
The U.S. has become an LNG exporter since 2017, and to that end, the country's Federal Energy Regulatory Commission has approved twelve LNG export plants, in addition to the five already in operation. The US now has markets in the UK, Spain and France, where it is increasing its exports. Cheniere Energy, Royal Dutch Shell and Total are the world's largest exporters of LNG.
"Europe is already experiencing limited Russian gas flows," says Michael Stoppard, a senior analyst at IHS Markit. "The result is that the picture of European gas imports differs sharply compared to a year ago. An image where LNG imports have increased to fill the gap."
Ukraine is still the country that has the most to lose. IHS Markit published a study that says Russian gas flows through Ukraine fell to historic lows in January, to 50 million cubic meters a day, to less than half of the levels in place a year ago. In February, however, flows increased, but remain in half of what they were between 2015-2020. Ukraine depends on the relevant transit taxes for the functioning of its economy.
LNG exporters and the U.S. have the most to gain. European LNG imports rose in January to 34% of the total. In contrast, Europe imported much less than Russia, at just 17% during the month.
The IHS warns, however, that if all Russian exports were stopped, a "supply deficit" would be created that no amount of increased LNG imports could fill the "gap". To this end, Russia has been accused of raising the price of its gas to put pressure on Germany to allow Nord Stream 2 to operate. Indeed, gas prices in Europe have risen by five times in recent months. Similarly, Gazprom earned at least $55 billion dollars last year.
Meanwhile, energy ties between Russia and China are strengthening. It is noted that Russia supplied 5% of China's oil in 2005. This cooperation will now be increased to €270 billion. over a period of 25 years. But like Europe, China aims to move to more sustainable energy sources. China may need Russia's fossil fuels now, but it needs the U.S. for technology. In the long run, Russia's energy sovereignty will recede, as both continents will become independent of oil and gas.
"So far, this is more of a price crisis than a crisis of physical supply," notes Shankari Srinivasan, a senior executive at IHS Markit. "While the supply of gas is enough to meet most of the needs of the market by the end of the winter season, high prices are already leading to the closure of some industries and the layoffs of workers in Europe," he added.
Russia may believe that it can withstand economic sanctions and that keeping Ukraine in the Russian circle of influence is what matters most. However, this desire runs counter to the will of the Ukrainian people.
Source: Forbes
