How Europe can replace Russian gas in winter: experts named alternatives

— How have the shares of gas suppliers in the European market changed over the past year? What part of the market has Russia lost and by how much have other energy producers increased their export volumes?

Mark Goykhman, Chief Analyst at TeleTrade:

— According to the International Energy Agency, in 2021 Europe imported about 140 billion cubic meters from Russia through pipelines. Another 15 billion cubic meters our country supplied in the form of liquefied natural gas (LNG). Until recently, Russia’s share in European imports of “blue fuel” was 45%: 40% was supplied through gas pipelines, and another 5% was exported in a liquefied state – through LNG tankers.

It is still difficult to assess the change in Russia’s share of gas supplies to Europe that has taken place. Many EU countries have significantly reduced their dependence on Gazprom. Italy, for example, prefers to buy “blue fuel” in Algeria, Azerbaijan and Qatar. In general, Rome has reduced the share of gas imports from Russia by about half – to 21% of the total needs of the state. And Spain and Portugal, which previously did not have a high degree of dependence on gas from Russia, have now decided to act as exporters of “blue fuel” to other EU countries. This is due to the fact that all the main terminals for the acceptance and processing of LNG are located on the Iberian Peninsula. France has recently put into operation three terminals for the regasification of liquefied fuels. Paris receives most of its natural gas from Norway via a pipeline across the English Channel to the coastal port of Dunkirk. Denmark and Sweden are largely self-sufficient in their energy needs. Turkey reduced gas imports from Russia in July by 37% and at the same time increased hydrocarbon supplies from Iran and Azerbaijan.

Igor Galaktionov, stock market expert at BCS World of Investments:

— In 2022, the share of Russia in the total import of EU “blue fuel” has significantly decreased. According to Gazprom, the supply of raw materials to non-CIS countries, most of which falls on European consumers, has decreased by almost 60 billion cubic meters over 9 months. This is more than a third of the exports that left our country to European consumers last year. Liquefied natural fuel (LNG), mainly of American origin, has become the main replacement for Russian gas in the EU countries.

— How does the absence of Russian gas affect European consumers?

Dmitry Aleksandrov, Head of Analytical Research Department, IC IVA Partners:

– Since the end of last year, European consumers have already had to turn on the economy mode due to the fall in the physical volumes of fuel supplies from Russia. Both ordinary households and industrial enterprises in many EU countries have received warnings from their authorities that they will either have to pay extra to maintain energy consumption at the same level, or limit energy consumption. Most EU members have chosen the second option: a campaign to reduce fuel consumption has begun. Ever since the beginning of summer, the citizens of the continent have been repeatedly warned about the upcoming winter frosts, which may be accompanied by a loss of pressure in private pipelines and a decrease in temperature in heating systems.

– Can we say that the EU countries have already found something to replace Russian gas?

Dmitry Alexandrov:

“Today, the falling volumes of Russian gas supplies to Europe are partly saved, partly replaced by coal-fired generation capacities, LNG and other pipeline supplies. The replacement of Russian gas by Europe is completely theoretically possible – but not this winter, but for at least a few years. And even then only under a favorable scenario: an increase in production in other regions (the United States and Australia), the lifting of sanctions against Iran, and also in the event of a sharp decrease in consumption by the main Russian energy partners, the list of which Germany has been leading for several decades.

Igor Galaktionov:

– On the horizon of the next two or three years, this looks like an impossible task. At the moment, gas prices in the European Union are at least 6-8 times higher than the normative levels for winter. Such quotes are quite understandable. The industrial countries of the continent have long been planning to reduce the share of Russian hydrocarbons in their own energy balance. The first attempt has already been made: in the middle of the year, Europe reduced the consumption of Russian fuel, but gas prices in the same second turned out to be an order of magnitude higher than normal seasonal levels. But such are the consequences of Europe’s refusal of only part of Russian gas. With a complete cessation of supplies from our country, the Europeans may not have enough hydrocarbon reserves accumulated for the winter, so the exchange price of gas may exceed $4,000 per thousand cubic meters. While European consumers have not taken to the streets en masse in protest, but in winter this may well happen. And then the authorities of the EU countries will have to compensate for the costs of their citizens, which have grown due to the cost of energy resources, from European budgets of various sizes. This is a serious burden on the economies of the EU countries, which could potentially affect the political future of those leaders who are now in power there.

– Taking into account the gas prices that prevailed in Europe in the summer and in the first half of autumn, is it possible to estimate how much more the EU countries have to pay for fuel compared to the times of full-scale Russian supplies?

Dmitry Alexandrov:

– Now, taking into account the decrease in consumption and fluctuations in the exchange quotations of hydrocarbons, EU members spend hundreds of billions of euros more on gas than in previous years. It is still difficult to estimate the exact amount of overpayment for the accelerated refusal of Russian gas, but the order of numbers is exactly this: hundreds of billions of euros more!

Let’s get back to possible alternatives to Russian gas. Where will the Europeans find a replacement for him?

Mark Goykhman:

– It’s not clear yet. Pipeline deliveries from Norway, Algeria and Azerbaijan are limited by the capacity of gas pipelines laid from these countries and cannot grow significantly. At the moment, the number of regasification facilities, including those located on the maritime territory in the EU, is quite enough to compensate for the losses of Russian gas that have already occurred, but difficulties will arise with a further decrease in our supplies. Network regasification capacities operated by distribution companies are installed unevenly, and the transport infrastructure within the EU does not yet allow efficient distribution of “blue fuel” between countries. At the same time, the volume of free LNG on the market is very limited, and the states of the Old World have to compete with Asia for it. In summer, demand from China fell due to the lockdown, but in winter it may recover and LPG prices may rise.

Yes, intra-European local gas pipelines are being built to redistribute fuel between different countries. For example, the Baltic Pipe gas pipeline with pumping from Norwegian offshore fields to Poland and Denmark is launched in October at full capacity. An interconnector is being launched in Bulgaria – a pipeline for gas supplies from Greece to Bulgaria, and further to Serbia, North Macedonia, Romania, and Hungary. But these, I repeat, are local solutions that do not remove the problem as a whole.

Igor Yushkov, expert of the Financial University under the Government of the Russian Federation:

— The Americans are now especially active in the European gas market. The growth of export deliveries of American liquefied natural gas producers increased by more than 70% in September, with almost all additional deliveries coming from European countries. However, the production of LNG in the United States, namely with this fuel, Washington promises to “warm up” Europe, is still far from its maximum values. A June fire at the Texas Freeport plant caused a long-term shutdown of a major terminal that provides 20% of US LPG output. Neither its owners nor the American authorities can provide specific forecasts about the beginning of the operation of the enterprise. Therefore, whether overseas producers of liquefied gas will be able to find the necessary resources to “fill up” their European partners with them is not yet clear.

– Can you name European countries that will surely go through the winter without problems with heating?

Mark Goykhman:

– Yes. For example, Hungary can no longer worry: at the end of August, Budapest signed a contract with Gazprom for the supply of an additional 5.8 million cubic meters of gas per day from September. In early October, it became known that the Hungarian company MVM agreed with the Russian monopoly to defer payment for gas in order to optimize financing in the winter.

– Which of the participants in the global gas market will ultimately benefit from the absence of Russian gas in Europe: we, the Europeans, the Chinese, the Americans, or someone else?

Sergey Suverov, investment strategist at Arikapital Management Company:

— The head of the International Energy Agency (IEA), Fatih Birol, warned that next year the situation with gas in the world will be even more difficult. First of all, because China is going to lift restrictions caused by new outbreaks of the coronavirus pandemic. After that, Beijing will soon join the hunt for “blue fuel” and further increase the already high competition in the gas market. In this case, the question arises: who is primarily interested in the aggravation of the situation on this very market: Russia, which has to put up with the damage from a decrease in hydrocarbon supplies, Europe, which is forced to overpay for energy resources supplied through third countries, or Washington, for which the energy problems of European allies are just an excuse to get more profit? The answer is obvious: Russia will lose serious sums from restricting gas exports, Europe will have to pay extra for complicated fuel supply routes, and the cream will be collected overseas: America gets a huge new market for its LNG, plus their stock speculators will make profits on the abnormal growth of fuel prices.

Operating export pipelines to Europe

(capacity per year, bcm)

Nord Stream-1 55

Maghreb—Europe 35

Yamal—Europe 33

Urengoy—Pomary—Uzhgorod (Ukrainian GTS) 28

Baku-Tbilisi-Erzurum 25

Blue Stream 16

Turkish Stream 16

Trans-Anatolian (TANAP) 16

Trans Adriatic (TAP) 10

Medgaz 10

Pipelines in progress and planned to Europe

(capacity per year, bcm)

Nord Stream-2 55

Barcelona-Livorno 30

Trans-Saharan 30

Baltic Pipe (Norway—Poland) 10

Midcat (Algeria—Spain) 7.5