European Cooperation Necessary to Overcome Disruption to Ukrainian Transit Gas Flows
Cooperation between European countries has never been more important. In this sense, the tranquillity of the spring and the warm weather of the summer have to witness stable progress; they have to cement mutual support in order to minimize the effects on European energy security of the standoff over Ukraine. These are the messages of a report published by Pöyry, which also warns of the pivotal role played by storage stocks.
‘If storage stocks are reasonably high, there is cooperation between European states and other Russian supply routes are unaffected then Europe should be able to cope with a 90 day disruption to Ukrainian transit gas flows,’ reads the report “The Ukraine Crisis - could gas supply disruptions affect Europe?”.
The consulting and engineering company argued that governments have to carefully follow the situation, acting now to avoid early consumption of stored gas before the beginning of the winter.
‘If storage were to be withheld from the market in order to protect national security of supply interests then it may not be possible to meet demand in all countries during the supply curtailment,’ wrote the consulting company with offices in Finland and the United Kingdom.
Reminding that Russia supplies around 25% of annual European gas demand and that around 40% of this is supplied through Ukraine, the report argues that Ukrainian transit gas can be replaced under three conditions. Firstly, tensions between Europe and Russia should not escalate resulting in significant retaliations from Russia. Secondly, storage facilities should be 80% full by the start of the winter. This implies that an eventual supply curtailment would have not start before mid-December. Thirdly, Russia should curtail supplies for not more than 3 months.
In other words, Europe can handle Moscow’s decision to curtail supplies to Ukraine from mid-December to mid-March, resulting in a loss of supply in excess of 12.5bcm.
‘From this we can see that there is sufficient storage capacity and deliverability throughout the period of the supply curtailment. Stocks of strategic storage, although low at an overall EU level, should not be needed during the supply curtailment. However, it should be noted that an earlier supply curtailment that resulted in lower storage stocks at the start of the winter or a longer duration may result in storage being exhausted,’ Pöyry explains in the analysis released in the first days of May.
According to the consulting firm, this reduction in supplies could be the logical consequence of Russian intention to insist that Ukraine ‘pre-pays’ for its gas.
THREAT FOR ENERGY SECURITY: UKRAINE AND EUROPE
On the other hand, Ukraine’s position remains quite alarming. Kiev’s reliance on Russian gas could indeed lead to interruptions despite European intervention.
‘In order to provide some support for Ukrainian gas demand, we have assumed some reverse flow through interconnections with Slovakia, Poland and Hungary. However this would not be nearly sufficient to meet Ukrainian gas demand and some interruption should be expected.’
Despite the optimism, Europe could end up in a similar situation in case of adverse events, with the main threat being a deterioration of ties between Russia and Europe.
‘If relations between Europe and Russia were to deteriorate further resulting in the curtailment of other gas supplies then the ability of storage to ensure security of supply may be uncertain,’ reads the press release.
In other words, Russian gas would remain central for European energy security. And it is clear that, in case of Ukrainian supply disruptions, other Russian supply routes would turn out to be even more important.
‘Other potential risks include disruptions due to unexpected supply outages or infrastructure failure at interconnection points, storage or LNG terminals. Combinations of additional supply shocks, depending on severity and duration, could inhibit that ability of supplies to meet demand for short periods.’
Sergio Matalucci