Normally, around 40 billion cubic meters of gas per year flow through Ukraine, that is 10% of European demand. In the last month, however, the volume has dropped a lot
Diplomacy today tries to do its job, Russian and Ukrainian delegations meet in Paris, together with senior German and French officials: the goal is to avert the war escalation. And to this are added the threats from the United States and the United Kingdom, even heavier economic sanctions, some aimed directly at Vladimir Putin. The Russian president, for his part, denies that the Kremlin really intends to attack Ukraine and rather blames NATO for undermining security in the region. But the doubts are more than legitimate: what are more than 100,000 Russian soldiers amassed at the border doing anyway? What is certain, however, is that the risk of war is exacerbating parallel tensions, which have accumulated in the world energy markets in recent months.
It’s not hard to see why: Natural gas flowing through a pipeline network from Russia warms homes and powers factories across much of Europe. Russia is also one of the main sources of oil on the continent. And the standstill in Ukraine comes at a particularly inopportune time. Energy prices are already very high because supplies of hydrocarbons (oil and gas) have not kept pace with the faster-than-expected rebound of the world economy. And this is especially true in Europe, where there has been a flare-up in the costs of natural gas and electricity. The first cause is the storage levels that have fallen well below normal. With the result that today natural gas is trading at about five times the price of a year ago. And Russia, while respecting the contracts (it supplies about a third of European natural gas), has not helped to calm the waters.
First, because it decided not to export larger quantities of gas – which would have calmed the tension on the markets. This sort of stress test could also be a kind of blackmail engineered by Putin: the attempt to force the final approval of Nord Stream 2, the submarine gas pipeline that connects Russia to Germany. In the last month, however, there has been a rebalancing of the market. Europe is finding alternative solutions. And the prices, while remaining very high, have fallen. How come? It is happening thanks to an army of giant ships, from the United States but also from Qatar, which transport huge quantities of liquefied natural gas. “Asia needs it less, because storage levels are higher and winter temperatures have so far been milder,” explains Massimo Di Odoardo, vice president of the gas sector at Wood Mackenzie, a market research company . Exports headed to Europe attracted by higher prices. The warm Asian winter, therefore, has given us a big hand. «Yes, there is less risk of running out of gas», Di Odoardo continues «the worries about blackouts are becoming less and less».
But perhaps it is appropriate to prepare, or at least consider, even more unfavorable scenarios. A lot, of course, depends on what Putin decides. Will it end up attacking Ukraine? And if it did, would it respond to Western sanctions by cutting off supplies? To understand the impact of a possible war, the first fact to keep in mind is the quantity of gas that passes from Ukraine to Europe. Would an interruption in the flow really put us in crisis? “A cut in supplies from Ukraine would have a fairly limited impact, because the volumes passing through there have dropped over time”, explains Massimo Di Odoardo of Wood Mackenzie. “Sure, it would exacerbate the problem. The price of gas would rise again ». Normally through Ukraine, Di Odoardo explains, about 40 billion cubic meters of gas flow a year, that is 10% of European demand. In the last month, however, the volume has dropped a lot, to the equivalent of 18 billion cubic meters a year, replaced by ships loaded with liquefied natural gas. Okay, but what if Russia really attacks? “For now, the consensus among analysts is that supplies will continue: Russia has a strategic advantage in showing itself to be a reliable supplier, which it also did during the invasion of Crimea”. However, if the war really breaks out, damage to the energy structures must be taken into account, and would still cause a cut in supplies. Yet, even in this case – according to Di Odoardo – an alternative exists. “Russia could move the gas to another pipeline that crosses Belarus and Poland.”
But, in theory, we must also consider the possibility of the catastrophic scenario, the doomsday one. And that is, that Putin completely cut off energy supplies to Europe as a revenge for Western sanctions. There would be a surge in prices, with dramatic consequences for the bills, but even in this case, according to various analysts, Europe would not be without energy. Nuclear and coal-fired plants should be restarted (or used more), and the existing gas deposits should be exhausted. In essence, a tremendous crisis in prices, but not in the physical supply of energy.
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