Shutdown of Russian gas to Europe ‘is not inconceivable’

The G7 nations need to brace for a complete shutdown of Russian gas pipelines in the near future, and analysts warn that it could have severe consequences for Europe’s economy.

“The G7 have to prepare for a shutdown of gas [supply]. [They] can deal with a cutback on oil. There are other supplies that could be gotten around the world, but the gas could be shut off and that would have consequences,” said Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics, told CNBC on Monday.

“Russia already has cut back substantially on gas flowing to Germany and through Ukraine, so shutting down the pipelines is not inconceivable. Russia also sells some LNG to Europe but not that much,” he said in an email after the interview.

“The total cut-off of Russian supplies would prompt gas rationing at least for the short term,” he said. “Russian supplies would be partially offset by increased LNG imports, increased supplies from Norway and Algeria, fuel-switching to coal, and conservation measures.”

Gazprom, Russia’s state-backed energy supplier, has reduced its gas flows to Europe by about 60% over the past few weeks. The move prompted Germany, Italy, Austria and the Netherlands to all indicate they could turn back to coal once again.

His comments came as the leaders of the G7 wealthiest nations met in Munich, Germany, for their latest summit.

As global pressure continues to pile on Russia over its assault on Ukraine, Europe is facing “a very tight situation,” Schott told CNBC.

“They’re playing for time. The more there is hostility against Russia, the more Putin threatens and perhaps acts to cut off more gas to Europe. I see that coming sooner rather than later,” he added.

Growing concerns in Europe

European leaders have been growing increasingly concerned about the possibility of a total shutdown of gas supplies from Russia.

Germany declared recently it is moving to the so-called “alert level” of its emergency gas plan, as reduced Russian flows exacerbate fears of a winter supply shortage.

On Thursday, Economy Minister Robert Habeck announced that Germany would move to stage two of its three-stage plan — an indication that Europe’s largest economy now sees a high risk of long-term gas supply shortages.

The EU receives roughly 40% of its gas via Russian pipelines and is trying to rapidly reduce its reliance on Russian hydrocarbons in response to the Kremlin’s months-long onslaught in Ukraine.

Germany, which is highly dependent on Russian gas, had previously sought to maintain robust energy ties with Moscow.

“The threat is that there would be a cut-off of gas before the European gas reserves are filled and that would be a threat to European growth and would cause rationing. So Putin is putting his cards on the table and whether he follows through with the threat, it remains to be seen,” Schott said.

Source: CNBC

Find out more

For more information, visit Northern Gas and Power‘s Daily Market Report here.

Below, our Head of Flexible Purchasing and Energy Strategy, Latif Faiyaz, breaks down the key drivers affecting market behaviour this year.

Latif provides analysis of UK, European and global factors and provides a forecast for the remainder of the year.

Here’s the video 👇

 

More News

EU temporarily shift to coal to replace low Russian supplies

Several European Union (EU) members say they will use coal for power generation as an alternative to Russian gas. The...

Russian gas flow to Europe drops to record low

Russian gas flows to the European Union (EU) have today dropped below 100 mcm/day (million cubic meters a day, or...

Energy spend to surge 8% to £1.9tn in 2022: IEA

Global energy investment is set to increase by 8% in 2022 to reach a record £1.9 trillion, with the anticipated...