“Europeans will have to forget about a comfortable life”

– European sanctions have led to the fact that gas supplies from Russia to the EU have been sharply reduced. Can this be considered the main reason for the current rise in prices for blue fuel?

Artem Deev: Of course, the reduction in natural gas supplies from Russia to Europe leads to an increase in prices for raw materials on international trading floors, since our country occupies a significant share in the market of the Old World – at least 30%.

Of course, when there is a risk of a reduction in supplies or a shortage of raw materials, then exchange prices react with a biased increase. It is high prices, as a result of the instability of gas supplies from Russia, that damage the European economy: producers’ costs are rising, and regional farmers are talking about the prospects of bankruptcy and a reduction in agricultural production.

Natalya Milchakova: In this case, agriculture and the occupancy of EU gas storage facilities depend on weather and climatic factors. The EU countries are pumping gas into UGS facilities as fast as they can, so that by November 1, that is, by the beginning of the heating season, storage occupancy in Europe has reached 80%.

The EU countries are theoretically capable of meeting this deadline. But other things being equal, that is, provided that weather anomalies do not intervene. But the climate is already setting the tone: record heat and drought are negatively affecting the agricultural sector of the continent. This means that more electricity is needed to water the plants, and more gas is needed to increase electricity production. Moreover, with such heat, the European wind energy industry, which is not capable of producing kilowatts in complete calm, is idle.

Accordingly, Europe needs to increase gas imports or start using more reserves from underground storage facilities. But in this case, by November, the EU countries will not have time to accumulate the necessary volumes to pass the winter season without problems. Gas imports from Russia have declined, and Europe has not yet found an adequate replacement for our pipeline fuel. The situation in the EU economy will remain difficult. The reduction in gas supplies spins up stock prices, which fuels inflation, including the cost of food.

– Can the Europeans use the fuel already reserved for the heating season in underground storage facilities for current needs? Will it allow them to bring down prices for energy resources and products?

Milchakova: Most likely, in a number of EU countries this is exactly what they will do if they do not find an alternative to importing Russian pipeline gas. There are few suitable alternatives, and all of them are not capable of fully replacing Russian gas.

The European Commission, in an ambitious plan called “RePower EU”, invites the EU countries to consider switching to LNG imports from Norway, Azerbaijan, Egypt, Algeria and Qatar as an alternative to Russian gas. These are not the best options, given that none of these countries can supply large volumes: gas fields in Norway are depleted, and in Azerbaijan, almost all of the gas supplied for export is contracted by its closest neighbors – Georgia and Turkey. So many importers now have only one option to avoid the energy crisis – to use gas from underground storage facilities.

But such a radical move will not allow reducing prices on the spot (exchange, short-term) market. In winter, Europeans will have to reduce the consumption of “blue fuel”, so the European Commission is already putting pressure on the EU countries, demanding to reduce gas consumption by 15% by the end of the year, which is fraught with a decrease in temperatures in homes and offices in winter, and, possibly, interruptions in hot water supply, skyrocketing prices for electricity and utilities, and skyrocketing. In general, it looks like they will have to forget about the comfortable life that Europeans have been accustomed to for decades this winter.

Deev: Gas in underground storage facilities cannot simply be accumulated and started to be spent. This kind of inventory needs to be replenished all the time. After all, gas is needed not only as an energy resource – for generating energy, but also as a raw material for various industries. The operation of UGS facilities is continuous – raw materials are being pumped and withdrawn all the time. The fact that now in the EU storage facilities are 70-80% full is a purely technical indicator that guarantees that there are enough stocks at the moment. But only preliminary and precisely at the current moment! As soon as the supply of raw materials is interrupted, as soon as the weather changes sharply (in the direction of cooling), the consumption of reserved gas will increase sharply, which means that much more fuel will have to be pumped in from now on. The current figure of 70-80% is not a guarantee of a cloudless future!

– What will allow Europe to avoid an energy crisis?

Deev: The main thing is constant supplies in the right volumes, but this is precisely the problem. Even if UGS facilities are filled to 100%, Europe may not have enough gas at the same time to heat residential buildings and cover the needs of industry. Storage facilities need to be constantly replenished, meanwhile, pumping volumes have dropped sharply due to difficulties with Nord Stream 1 and other routes. Do not forget that gas is not only a political commodity, but also an exchange commodity: its cost is determined by many factors, including traders’ fears that there will be a shortage of raw materials.

– Can other types of raw materials such as oil, coal, “green” energy help Europe in the conditions of gas shortage?

Milchakova: It was necessary to solve the issues of replacing gas with “green” sources earlier, having thought through the consequences. That is, it was necessary either to develop hydrogen energy, or to build more solar power plants (although this does not always work everywhere), or, ultimately, not to rush to close coal-fired power plants and nuclear power plants. Now the EU will have one way out – save electricity in winter or hope for a very warm winter. There is another alternative – to buy gas from those EU countries that have already fulfilled the plan to fill UGS facilities, for example, from Poland and Hungary. However, the prices of such transactions will most likely be twice the market quotations of raw materials.

Deev: In Europe, the energy balance is broken: the share of coal, oil, gas and renewable energy in each country is different. It is extremely difficult to predict whether each country on the continent will survive the winter individually. Last year, the share of “green” energy in the structure of generation in the European Union exceeded the share of gas. But this was due to favorable weather conditions: stable winds in the seas. This year, similar climatic conditions are not expected yet. There is no way to accumulate the energy produced with the help of wind and solar stations – it is consumed immediately or used as a balancer in the energy consumption structure.

In turn, the drought in Europe is a consequence of climate change on the planet. An increase in natural gas supplies from Russia is unlikely to improve the situation as a whole. We see a whole chain of interconnected economic factors: raw materials are used to produce energy, and energy is used to irrigate fertile land, and so on. No gas – no irrigation – no harvest. Such a relationship. Europeans can only sympathize. Such a situation can lead not only to a drop in the harvest, but also to the massive bankruptcy of enterprises in the agricultural sector, and subsequently to a food shortage.”