Russian Gas – Energy Companies and EU Members Are Preparing to Do Without Sooner Than Expected.

This is something essential to cut off funding for Vladimir Putin's war in Ukraine.

Since June 15, 2022, several European countries have noted that Russian gas no longer arrives on their distribution network. This concerns in particular the two biggest European economies: Germany and France. This concerns for the moment only supplies by pipeline, as deliveries by ship continue.

On June 14, the Russian giant Gazprom had indicated, for its part, to reduce by 40% its deliveries to Germany via the Nord Stream 1 pipeline, citing a technical problem on a compressor station. Volumes to Italy were also reduced, while Russia had already closed its taps in May 2022 for Bulgaria, Poland, Finland, and then the Netherlands.

While these announcements resulted in a rebound in natural gas prices in Amsterdam, they also led to a one-off fall in energy stocks on the European stock exchanges. Impacted by this drop in the stock market, the French energy company Engie has been working since then to reassure: “this situation has no impact on the supply of our customers”, says the group, which, since the invasion of Ukraine by Russia, diversifies its supplies, with Norway and Algeria in particular, by extending or signing new contracts.

Earlier filling of stocks in Europe

“Our diversification strategy is effective, our storage facilities are filling up well,” said Cecile Prévieu, Engie's deputy CEO, at a press conference on energy services on Tuesday. The group, however, does not wish to detail this diversification of its supplies, nor its cost, indicating however to pass on the price increase to its professional customers (they are frozen until December 2022 for individuals in France).

In any case, French storage facilities are more than 56% full, GRTgaz said in its June 17 press release, “compared to the usual 50% at the same date”, because the campaign to replenish stocks for the coming winter “started earlier than in previous years”.

The average rate in Europe is around 52%. The objective that should be assigned by Brussels is a filling rate of storage sites of 80% at least by 1 November 2022. Russian gas imports had already fallen sharply before mid-June 2022, GRTgaz said, “by more than 60% over the first five months of the year” for deliveries through Germany, compared to 2021. The LNG terminals are therefore in great demand. Also at the end of May, LNG entries in France were up by 66%, “or 51 terawatt-hours (TWh)”, according to GRTgaz.

LNG terminals become crucial

LNG terminals are facilities that receive ships carrying liquefied natural gas for transport. It then has to be repackaged. France has four of them, three of which are owned by Elengy, an indirect subsidiary of Engie (via GRTgaz): two on the Mediterranean near Marseille, at Fos Tonkin and Fos Cavaou, and one for the Atlantic at Montoir-de-Bretagne, near Saint-Nazaire.

A fourth entered service in 2017 at Dunkirk, originally operated by EDF, which sold its stake to various investors (including Axa). The French government confirmed Thursday that a unit will be installed in Le Havre, operated by TotalEnergies, by September 2023.

Engie's 2021 annual report mentions investments to increase capacity at Montoir and Fos Cavaou (the latter to increase from 11 TWh in 2022 to 30 TWh in 2024), completes the GRTgaz press release, which also mentions an expansion of the Dunkirk terminal.

France can therefore count on four of these facilities, while Germany has none. And this is where we see the strategic stake of these facilities to be able to do without Russian gas quickly.

France, because of its nuclear industry (78% of the energy mix in 2021), was also less dependent, even before the war, on Russian gas imports. At that time they represented 17% of supplies. This is much more for other countries (according to figures that may differ from one source to another): more than 40% for Italy, around 50% for Germany, and more than 90% for Finland, Hungary, or Austria.

Overall, the European Union publications state, that the old continent consumed 400 billion cubic meters of gas in 2021. This natural gas represented nearly a quarter of its energy mix, compared to 34.5% for oil products, about 17% for renewable energies, and just under 13% for nuclear power.

Of these cubic meters consumed by the EU, 90% were imported: 45% from Russia, 23% from Norway, where the North Sea deposits are tending to be depleted, 12% from Algeria, and 6% from the United States. The latter ones are much more in demand today.

If it has hardly caused panic in France, the total interruption is feared in a country like Germany, where the BDI, its main industrial federation, warned Tuesday 21 June 2022 against the risk of recession if Gazprom blocked all its deliveries.

The situation, which pleads for Europe's energy independence through the large-scale development of local and renewable resources, is on the other hand a great opportunity to accelerate investments in the construction of green electricity and gas production capacities or the equipment necessary for these new sectors (fuel cell and electrolyzer gigafactories, for example).

The European Commission has quickly presented a support plan for these sectors, called REPowerEU. As for the players in the energy transition, they have become almost the only ones to brave the heavy weather on the markets by maintaining their IPO projects, like OKwind and Charwood Energy last week.

We can finally see these Russian threats to cut the gas tap as evil for a good. It will be hard for the Europeans to take, but it will also accelerate a potential Russian gas embargo in Europe. This would put a strong stop to Vladimir Putin who would then have to find other sources of income to finance his odious war in Ukraine.