After the undermining of Nord Stream, the scenario of zeroing out Russian gas supplies to the European Union has become real
This is something few expected even a week ago. Europe itself admitted that it would take at least a few years to completely give up on Russian gas. But the situation is changing at lightning speed. Who and how will cut off the remaining channels of Russian gas to Europe? And how will this affect ordinary Europeans?
The EU may face this winter without any gas from Russia. Exports have already been significantly reduced, but there are still two channels for Russian gas to the EU – Ukrainian transit and Turkish Stream.
Together, European consumers receive 80-90 million cubic metres per day through them. In annual terms, this is approximately 32 billion cubic metres. Half of the volume (16 bcma) goes to the EU through the second line of “Turkish Stream” (the first pipe line supplies only Turkey), another 16 bcma go through Ukraine.
The Ukrainian route could be blocked by Russia by imposing counter-sanctions against Naftogaz. Gazprom has recently officially warned about this. Russia is not happy that Naftogaz is trying to extort money from Gazprom through a European court for the volumes of gas that have not been delivered since May this year. Russia considers these accusations unfounded because it was Ukraine itself which refused to pump gas through the Sohranovka GIS, leaving only the Suja GIS. Secondly, Gazprom does not intend to sue Ukraine under Swedish law in Switzerland as it is stipulated in the contract because it does not expect any objectivity from unfriendly countries.
But the blow to Turkish Stream could come from the EU itself. In the middle of the week it became known that the Netherlands revoked the export licence of the operator of the South Stream Transport offshore section of the pipeline ahead of schedule because of the sanctions that EU imposed on 18 September. Gazprom explained that the sanctions do not apply to the transportation of gas through the pipeline. The point is that the Europeans are now banned from maintaining and repairing the equipment of the offshore section of Turkish Stream, similar to the restrictions for Nord Stream 1.
“So far this is a purely hypothetical scenario because the maintenance restriction does not mean the stoppage of gas flow through Turkish Stream. It is a younger pipeline in contrast to Nord Stream 1, which was launched more than a decade ago. “Turkish Stream does not need any maintenance from the Europeans. Moreover, Turkish Stream has Russian equipment, not German Siemens, and it can be serviced by Russian operators,” said Alexei Gromov, energy director at the Institute of Energy and Finance.
However, a Turkish Stream stoppage scenario in such a situation is possible, he adds. “For example, Russia could make a political decision in response to official accusations by the West of undermining its own gas pipelines in the Baltic Sea. For such misrepresentation and unfriendly attitude, Russia may cut off both Ukrainian transit and the second string of Turkish Stream, which supplies Russian gas to Southern Europe. Turkey is a friendly country, so our gas deliveries to the Turkish market via the first line will remain in full volume”, Gromov argues. Alternatively Russia could continue supplying gas to countries with which we have special relationships, like Hungary and Serbia, which receive supplies via Turkish Stream, he added.
Another possibility is that Europe itself could shut off the Turkish Stream through pressure on Bulgaria, which already does not buy Russian gas. However, Russian gas transits through Bulgarian territory to Serbia and Hungary.
Sofia could easily stop the transit by coming up with an excuse. “For example, if Gazprom cannot pay Bulgaria for gas transit because of new sanctions. Then it will have to do it only through the gas buyers – the same Hungary and Serbia – but Bulgaria can use this breach of the rules of the game as an excuse to stop transit. This is quite a realistic scenario”, Sergey Kondratyev, deputy head of the Economics Department of the Institute of Energy and Finance, said.
One cannot exclude the possibility of subversion by analogy with “Nord Stream”. However, experts do not believe in this version, because there is Turkey, which controls the passages in the Black Sea and which is not interested in undermining the Turkish Stream. And on the other hand, there is Russia, which also keeps a close eye on what happens in the Black Sea.
The experts agree that there is a real danger that the EU could be deprived of all Russian gas this winter. And the consequences for the Europeans will be dire.
“Turkey is facing very high inflation and a trade deficit, and buying expensive LNG on the spot market to replace cheap Russian gas will be difficult for it. Therefore, I think it will turn to Azerbaijan to redirect the gas going to Bulgaria, Italy and Greece to the Turkish market,” Kondratyev believes.
Azerbaijan will not be able to refuse the Turks, because Ankara with one move can simply cut off Azeri gas deliveries to European countries, as it is a transit country. The EU will eventually lose not only Russian but also Azerbaijani gas. Therefore, the West is more likely to be careful with Turkish Stream from the start.
Finally, what awaits Russia and Gazprom in the case of zero gas supplies to Europe already this winter?
“It will not be easy for Gazprom, production will decrease, but in general the company has a good operational performance, it manages its fields and gas transportation system well and controls costs. The challenge is to further increase the tax burden. Next year Gazprom will pay an extra RUB 50bn in MET every month. But it will be supported by the decision to index domestic tariffs.
Perhaps Gazprom’s figures won’t be as high as this year, but I think the company will remain profitable and will be able to fund its capital investments, including by increasing its borrowings,” Kondratyev said. Gazprom will focus on the eastward turnaround, the Power of Siberia-2 project, as well as on developing LNG technology and increasing its presence in the LNG market. Therefore, workers freed from production could be reallocated to new projects, the expert believes. “Gazprom will manage to get through this turbulent time quite well and return to increasing production and exports in the future. Their many years of experience in developing unique fields will help them do that,” he concludes.
Olga Samofalova, VZGLYAD