Russia’s energy influence on Europe ‘almost over’

Germany is currently ahead of schedule in its race to fill underground gas storage before winter.

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Europe’s reliance on Russian gas appears to be coming to an end, energy and policy analysts say, potentially mitigating the risk of further supply disruptions at a time when many fear Russia may cut off completely deliveries during the winter.

Europe has suffered in recent months from a sharp drop in gas exports from Russia, traditionally its largest energy supplier.

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It has aggravated a bitter dispute between Brussels and Moscow and heightened the risk of recession and gas shortages in winter.

Russia cited faulty or delayed equipment as the reason for reduced deliveries. European policymakers, however, view the supply cut as a political maneuver meant to sow uncertainty in the 27-nation bloc and drive up energy prices amid the Kremlin’s assault on the EU. ‘Ukraine.

Russia’s energy weapon will become irrelevant.

Agathe Demarais

Director of Global Forecasting at The Economist Intelligence Unit

Agathe Demarais, global forecasting director at The Economist Intelligence Unit, a research and advisory firm, told CNBC the Kremlin appeared to be weaponizing energy supplies and “burning bridges” with Europe while it still could. .

When asked if Russia’s energy influence over Europe is coming to an end, Demarais replied: “Yes. In fact, absolutely.”

“Europe is heading into a very difficult winter, probably two years of very difficult adjustment with a lot of economic difficulties. But then Europe will basically become more independent with a more diverse mix,” Demarais said.

“And what that means is that Russia’s energy weapon will become irrelevant,” she added. “Our view is that Russia knows this and that’s why they are already killing gas supply or creating uncertainty because they know that if they want to harm Europe they have to do it now. . It’s a question of now or never.”

Race to fill gas storage

Germany, until recently, bought more than half of its gas from Russia. Yet Europe’s biggest economy is currently ahead of schedule in its race to fill underground storage facilities with gas to have enough fuel to keep homes warm in the colder months.

Analysts told CNBC that Germany has been able to rapidly fill its gas inventories in recent weeks due to several factors. These include strong supply from Norway, the Netherlands and other countries, falling demand amid soaring energy prices, companies switching from gas to other types of fuels and the government providing more than 15 billion euros ($15.06 billion) in lines of credit to replenish storage facilities. .

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The latest estimates from the electricity industry association BDEW show that German consumption of gas from Russia fell to 9.5% in August. That’s down from a whopping 60% during the same period last year.

Norway has become Germany’s largest gas supplier, according to BDEW data, supplying almost 38% of German consumption last month. The Netherlands, Germany’s second largest supplier, is estimated to have delivered around 24% of German gas in August.

Ian Bremmer, chairman of political risk consultancy Eurasia Group, said via Twitter last week that it “looks increasingly like Germany can get through the winter without severe rationing”, even in the worst-case scenario. where Russia completely shuts off the taps.

This is “very good news,” Bremmer said. “Russia’s energy influence on Europe is almost over.”

“Winter has not yet arrived”

While the EU is on track to exceed targets for filling gas storage facilities, analysts warn that this alone will not be enough.

Demand reductions are expected to be necessary to ensure stored fuel lasts long enough to adequately support households and businesses through the winter.

Jacob Mandel, senior commodities partner at British consultancy Aurora Energy Research, said if the EU completely filled its gas storage facilities before winter, the best-case scenario would see those reserves last around three months.

“The threat of shortages remains,” Mandel said. “An unexpected cold spell could quickly deplete stocks if imports do not keep pace.”

While the EU is on track to exceed targets for filling gas storage facilities, analysts warn that this alone will not be enough.

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The latest data compiled by industry group Gas Infrastructure Europe shows that overall EU storage levels are on average more than 80% full, while German underground storage is 84% ​​full before winter.

Andreas Schroeder, head of energy analysis at ICIS, a commodities intelligence service, told CNBC by phone that Russia’s influence over European energy “is not over yet, but it is ‘fading away – slowly but surely’.

However, “we are still in a record price environment, so clearly the reduced flows are influencing European markets to the extent that we have super high prices,” Schroeder said.

“It’s still not over even though Germany is slightly ahead of its storage target and the whole European Union is also filling its storage [levels]. And after reducing reliance on Russian feeds, this has led to very high prices.”

“Winter hasn’t arrived yet,” Schroeder said. “If the winter is mild, less consumption cuts are needed, but if the winter is harsh, more is needed. It all depends on [the] time now.”

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