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What next after Russia cuts gas to Europe?

It’s not a summer heatwave that’s making European leaders and businesses sweat. That is to be feared Russia’s manipulation of natural gas supplies will lead to an economic and political crisis next winter. Or even earlier in the worst case.

Here are the most important things to know about the energy pressure game war in Ukraine:

WHAT HAPPENED?

Russia last week reduced gas supplies to five European Union countriesincluding Germany, the largest economy in the 27-nation bloc, which depends heavily on Moscow’s gas for power generation and energy.

Russian state-owned energy giant Gazprom has cut supplies by 60% through the Nord Stream 1 pipeline, which runs under the Baltic Sea from Russia to Germany – Europe’s largest natural gas pipeline. Italy sees its offer halved. Declines are also recorded in Austria, the Czech Republic and Slovakia.

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That comes on top Gas shutoffs to Poland, Bulgaria, Denmark, Finland, France and the Netherlands in recent weeks. These shutdowns were initially seen as less of a problem because Poland, for example, phased out Russian gas by the end of the year while others had alternative supplies.

However, the recent cuts are hitting countries that are large economies and consume a lot of Russian natural gas. Germany relies on Russia for 35% of its gas imports; Italy for 40%. At the moment the gas reserves are sufficient for the current demand.

WHY ARE THE REDUCTIONS A CONCERN?

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Europe is striving to fill up its underground gas storage facilities before winter. Gas suppliers operate on a regular cadence, replenishing reserves in the summer – when they can hopefully buy gas cheaper – and then withdrawing it in the winter when heating demand increases. The reductions make refilling the memory more expensive and more difficult to accomplish.

The move has also brought closer the specter of a full Russian gas shutdown that would make it impossible for Europe to get all the fuel it needs for the winter. Natural gas is used by several energy-intensive industriessuch as glassmakers and steelmakers who are already facing higher costs and cutting consumption, which is helping to slow down the European economy.

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For power generation, gas is the “swing” energy source that kicks in when renewables like wind and solar produce less power due to unpredictable weather conditions, and when power consumption falls during cold or hot weather, such as winter breaks Heatwave last weekend that spurred record highs in Europe.

Europe’s underground storage caverns are currently 57% full. The latest proposal from the European Commission is for each country should reach 80% by November 1st, while Germany has set targets of 80% by October 1st and 90% by November 1st.

Analysts at the Bruegel think tank in Brussels warn: “Bulgaria, Hungary and Romania will not reach the EU’s 80 percent target if they continue as before,” while “Germany, Austria and Slovakia will find it very difficult to expand their storage facilities.” to be filled when the gas flows from Russia are stopped.”

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WHAT IS DONE?

The EU, which got around 40% of its gas from Russia before the war, has outlined plans to cut imports by two-thirds by the end of the year and phase out Russian gas completely by 2027. The block has already announced this Blocking of Russian coal from August and most Russian oil in six months.

The goal is to reduce the $850 million a day Russia makes from oil and gas sales to Europe to prevent funding for its war in Ukraine.

European governments and utilities have been buying expensive liquefied natural gas (LNG) from the United States, which is delivered by ship, as opposed to gas that comes by pipeline from Russia and is usually cheaper. But the war has pushed up energy prices Fueling record inflation in Europe and help keep revenue high for Russia.

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There are efforts to get more pipeline gas from Norway and Azerbaijan, while accelerating renewable energy adoption and environmental protection are likely to play a lesser role. Germany, which has no LNG import terminals, is bringing with it four floating terminals, two of which are expected to be operational later this year.

Despite a focus on renewable energy, the Crisis pushes countries back to fossil fuels. Germany hastens through legislation Bringing coal plants back online as a temporary patch despite plans to phase out coal entirely by 2030.

Vice-Chancellor Robert Habeck said it was “bitter” to switch to coal, but “in this situation it’s a pure necessity”. The government is planning measures to encourage industry and utilities to use less natural gas. Habeck also urged the Germans to save energy.

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“Gas consumption must be further reduced so that more gas can be stored, otherwise it will be tight in winter,” he said.

The Dutch government says it will allow it Coal-fired power plants are to be fully utilized again to save natural gas that would otherwise be burned to generate electricity.

Despite all these measures, Europe’s gas security is fragile. LNG export terminals in energy-producing countries like the US and Qatar are running at full steam, meaning Europe is bidding against Asia for limited supplies.

Also a Explosion and fire at an export terminal in Freeport, Texas, took a fifth of US export capacity off the grid for months and sent another shiver through the gas market. Most of the terminal’s exports went to Europe, Rystad Energy said.

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“The situation in the European natural gas market continues to escalate,” said commodities analyst Carsten Fritsch of Commerzbank Research, referring to the explosion and a planned Nord Stream 1 maintenance shutdown that will result in no gas flowing through the pipeline from July 11-21 will flow. “The urgently needed build-up of gas supplies for the winter months could therefore falter” and prices are likely to rise further.

WHAT IS RUSSIA’S GAME?

Gazprom says it had to cut supplies to Europe through Nord Stream 1 because Western sanctions stuck a key piece of equipment in Canada, where it had been taken for maintenance. European governments are not buying it, calling the gas cuts political.

Gazprom’s moves have boosted natural gas prices sharply after falling in the wake of the winter heating season. This increases revenues for Russia at a time when it is under pressure from Western economic sanctions and adds to the stress Europe, as it supports Ukraine politically and militarily.

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Gazprom’s moves can also be seen as resistance to Western sanctions and a deterrent to imposing further penalties. And larger gas consumers have been advised that, like smaller ones, they are not exempt from a potential shutdown.

Germany and Italy saw their supplies cut off around the time their leaders met with French President Emmanuel Macron in Kyiv to meet with President Volodymyr Zelenskyy EU candidate status returned to Ukraine.

WILL EUROPEANS WILL SEE THE LIGHTS DOWN OR FREEZE THIS WINTER?

That’s unlikely because EU law requires governments to ration gas supplies to industry to spare homes, schools and hospitals. Countries running out of gas can also turn to others who may be in better shape for help, although this depends on adequate pipeline connections.

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The downside of rationing would be industrial cutbacks and shutdowns that could cost jobs and growth in an economy already being squeezed by high inflation and high inflation Fear of a global slowdown when central banks raise interest rates.

Meanwhile, a full shutdown could push gas prices towards their March 7 record high of €206 per megawatt-hour and fuel inflation further. In early 2021, before Russia massed troops on the border with Ukraine, spot gas cost around 19 euros per megawatt hour.

Copyright 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, transcribed or redistributed without permission.

https://www.local10.com/news/politics/2022/06/21/explainer-whats-next-after-russia-reduced-gas-to-europe/ What next after Russia cuts gas to Europe?

Sarah Y. Kim

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