At the beginning of May, Gazprom finally appeared in the sanctions war by outlawing its subsidiaries in Germany (the Gazprom Germania group), which had previously been placed under external administration by the German government. Since 11 May, these companies – distributors, pipeline operators and gas storage facilities – have not been receiving Russian resources. In doing so, the monopoly has zeroed in on the value of the assets actually confiscated from it.
The situation with Russian gas transit to the EU is even more interesting. The two main routes for pumping gas – via the Yamal-Europe pipeline and the Ukrainian gas transportation system – have failed. Back in March, Warsaw announced its refusal to buy Russian gas from 2023, expecting to compensate for the loss with US LNG from the Swinoujscie terminal and reverse gas supplies through the same Yamal-Europe pipeline from Germany and France. Supplies to Poland, however, stopped as early as the end of April due to the refusal to pay for gas in roubles.
And from 11 May gas transit through Poland also stopped because of Russian sanctions against EuRoPol GAZ, which owns the Polish section of the Yamal-Europe pipeline. This decision was also taken ahead of schedule: gas transit through the Polish section of the Yamal-Europe pipeline was to cease as of the third quarter of this year – Gazprom did not reserve capacity in the Polish section of the pipeline after the second quarter.
Even before the events in Ukraine, Poland had actively opposed the Nord Stream-2 project, hoping to become a major hub for gas distribution in Europe with a gas pipeline passing through it and a major LNG receiving terminal at sea. Now Poland has been deprived not only of transit but also of Russian gas for its own needs. In the short term, Warsaw is benefiting from its own gas storage capacity, which is larger than the European average. However, this trump card will only come into play if the current gas supply to the country stays at the same levels, which is unlikely, given that the spectre of gas shortages looms in Europe.
Since 12 May there have also been difficulties in the Ukrainian gas transit segment, which so far has not been visibly affected by military action. The operator of the Ukrainian GTS, citing the fact that one of the two gas metering stations (GIS Sokhranovka in the Luhansk region) is under the control of the Russian armed forces, has stopped passing gas through it. “Gazprom refused to divert the fall-out, threatening to cut gas transit through Ukraine by 30 per cent. Gazprom’s surprisingly calm reaction to the Ukrainian initiative suggests that the situation is perceived as win-win by both sides. Ukraine refuses to pay for transit under the pretext of force majeure, while Russia is justified in reducing its gas transit to the EU.
Against the background of blocking the Yamal-Europe pipeline and the threat of a significant drop in transit volumes through the Ukrainian GTS, the news from Switzerland look interesting. To be more precise, from the Swiss canton of Zug, where Nord Stream 2 AG, which operates the Nord Stream 2 gas pipeline, is registered. So, on 10 May it became known that the court suspended the bankruptcy proceedings against the company until 10 September and gave it full protection from the creditors’ claims. The buried gas pipeline project under the Baltic Sea may suddenly be revived at the initiative of the European Union in the event that transit through the existing pipelines is killed.
There is also confusion on the oil front. The sixth package of EU sanctions against Russia, expected back in late April, has stalled. The reason is disagreement among member states on the key issue – imposing an embargo on Russian oil. The toughest opponent of the embargo, Hungary, attributes its decision to the EU’s lack of a compensation plan for Budapest’s losses resulting from the supply cuts. Largely dependent on Russian oil, Slovakia and the Czech Republic are also opposed to the embargo, but from a softer stance, demanding a delay in the decision’s entry into force. However, it is increasingly clear that an incomplete embargo would simply create a competitive advantage for re-exporting Russian oil by those countries that can avoid the bans.
The Financial Times recently reported, citing the EU’s energy transition project, that ensuring the EU’s energy independence from Russia would require an additional €195bn over the next five years. And this is only the direct cost of supply disruption, which does not include the many times higher costs to build new LNG terminals, invest in green hydrogen and other projects to diversify energy sources. Given the rapidly deteriorating economic situation in the EU, simultaneously waging a sanctions war with Russia and implementing a costly energy transition may not be feasible.
As for Russia, the decline in oil and gas supplies to the EU has so far been more than offset by rising prices. Thus, according to Bloomberg with reference to the report of the International Energy Agency, since the beginning of 2022 Russia increased revenues from oil sales one and a half times. In case if for some reasons it is not possible to sell excessive resources on Asian markets, the matter may concern reduction of production which, as we know, cannot be restored quickly. Such a scenario is fraught with global shortage of energy resources already in the long term, and it is a kind of nuclear weapon in economic warfare.
Gleb Prostakov, VZGLYAD
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