A gas rupture with Europe: why they do not freeze and we count losses

Alexey Belogoryev, Deputy Principal Director on Energy Studies of the Institute for Energy and Finance, gave an interview to Novye Izvestiya about current and future relations between Russia and Europe in the gas sector.

One of the main intrigues of 2022 - will Europe be able to live without Russian gas - has finally been resolved and not in favor of Russia?

- Both we and the Europeans have been convincing ourselves and each other for many years that our gas ties are indestructible, and the partnership dependence is so high that it is simply impossible to break it faster than in 15-20 years. But 2022 clearly showed that everything is possible if you really want to.

If we are talking about physical deliveries, about gas volumes, then Europe has already replaced the bulk of Russian pipeline imports.

However, this was achieved at the expense of extremely high prices. And if we talk about the price factor, then in this sense it has not been possible to replace Russian gas and will not succeed in the coming years. To make it clearer what we are talking about: in August 2022, when Russian gas was still supplied to Germany via Nord Stream, its average monthly price, according to German statistics (Destatis), was $577 per thousand cubic meters in Germany. Norwegian gas cost at the same time 1585 dollars, and spot deliveries tied to the TTF hub index - 1785 dollars. As a result, the price of Russian gas was more than two times lower than the average price of gas imports to Germany. That is, Russia formed the lower part of the gas price offer and did it for decades.

And the loss of the main relatively cheap source of gas is a problem for the European economy for years, if not decades. This is the price that Europe has to pay for cutting off energy ties with Russia.

At the end of the year, the missing volume was replaced by LNG. And in 2023, with zero supplies through Nord Stream, what should Europe do?

- Yes, the missing volume was covered mainly by LNG. Its imports to the EU countries increased in January-October 2022 by 44.5 billion cubic meters to the level of the previous year, i.е. up to 107 billion cubic meters. This is a colossal increase, given that the global LNG market itself is teetering on the brink of shortage. Plus, deliveries of Norwegian gas have noticeably increased (according to the results of the year, an increase of about 9 billion cubic meters is expected), and to a lesser extent, Azeri gas. An additional source of gas flows from the UK: in some months they reach 2.5 billion cubic meters. m, although earlier they rarely exceeded 0.3-0.4 billion.

Russia in the last two months, as I said, supplies, on average, 62-72 million cubic meters of gas per day through the Turkish Stream and Ukrainian transit. On an annualized basis, this is about 25-30 billion cubic meters of gas per year. Let me remind you that in 2021 Europe received 141 billion cubic meters of pipeline gas from Russia. If nothing changes next year, then the volume of our gas supplies will drop by 5-6 times compared to 2021.

However, not everything is so rosy for Europe either. The main risk is related to the sustainability of the LNG supply. LNG suppliers did not expect such a surge in demand from Europe. This was a complete surprise, which, accordingly, was not taken into account in investment plans. As a result, a significant part of the substitution occurs due to a decrease in demand in other regions, primarily in Asia.