HomeMediaLatest NewsA gas trap for Europe slammed shut

A gas trap for Europe slammed shut

05 August 2022

Kondratiev Sergey V. Principal Director on Economic Studies, Head of the Economic Department

Sergey Kondratiev commented to Vzglyad on the dynamics of natural gas consumption in the EU.

Even maintaining gas supplies to the EU at the level of 110-120 million cubic meters per day, as it is now, is already a challenge for the European energy and economy. Sergey Kondratiev, deputy head of the economic department at the Institute for Energy and Finance, doubts that all the European countries will be able to cope with managing their energy system in such a situation.

Another important factor: will the European countries be ready to help each other in a difficult energy situation in winter? “If the situation gets worse, national governments will start to take on more responsibility. We see it already now. Poland does not want to share its gas reserves in UGS facilities with Germany. This trend towards isolation will only grow,” Sergey Kondratiev believes.

Another factor on which the fate of Europeans depends this winter: will the European countries be able to implement the planned projects to obtain alternative gas. For example, the expert points out, will the Netherlands be able to launch floating LNG terminals in time and arrange gas transportation to other countries, primarily to Germany? “If the term for launching terminals is shifted by at least a few weeks, this could become an additional test for the market,” Kondratiev explains.

An important question is what will happen to LNG supplies from the US and the Middle East in winter? There are no opportunities for increasing the volume of LNG on the market.

“Now LNG supplies to Europe are still more profitable, because spot prices are $500-600 higher than in the Asian market. But this difference can shrink very quickly. Some Asian consumers, such as Japan and South Korea, may refuse to resell their LNG to Europeans, as is happening now, as gas will be needed in the domestic market, the source said.

“Another factor: it is not yet completely clear whether Europe can partially replace gas in boiler houses and gas-fired power plants with reserve fuel, for example, fuel oil or diesel. How big can such a replacement be?” - the expert adds.

The consequences for Europe will be sad. “Some countries will be forced to limit gas supplies to industrial consumers, including consumers in the power industry, in order to try to maintain gas supplies to the population,” Kondratiev says.

“I think that the restrictions will affect the majority of the population. There will be verbal restrictions when the population is urged to save. De facto, already now, in calm times, we are seeing restrictions for people - this is the refusal to supply hot water and the closure of social infrastructure, for example, swimming pools. This trend will only intensify by the beginning of the heating season. That is, comfort for people will be forcibly reduced,” the interlocutor expects.

Finally, he expects European countries to start shifting gas costs to ordinary citizens, who now still often do not pay the market price.

Problems may arise in the Western European countries, which are heavily dependent on LNG supplies. This is primarily Spain and the UK. In winter, there is a risk that LNG will start to go to Asia, the expert notes.

In Eastern Europe, in his opinion, Slovakia and Hungary may face certain difficulties during the heating season. Because Hungary has low UGS occupancy, and Slovakia is highly dependent on gas supplies through the Ukrainian corridor, there are risks of stopping transit.

Kondratiev Sergey V. Principal Director on Economic Studies, Head of the Economic Department
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