Europe needs to prepare for a total shutdown of gas pipelines flowing from Russia and the Group of 7 nations needs to weigh in, according to an analyst.
“Russia already has cut back substantially on gas flowing to Germany and through Ukraine, so shutting down the pipelines is not inconceivable,” said Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics, in a CNBC interview.
Gazprom, Russia’s state-owned gas producer, reduced its gas deliveries to 40% to Germany through the Nord Stream 1 pipeline–from which Berlin sources its gas exports to the rest of Europe. This led to exports dropping to 52 GW from last month’s 86 GW.
Germany’s federal regulatory body has been running scenarios to project its gas shortage situation. Only with a proposed reduction in gas exports and keeping the Nord Stream 1 pipeline open at its reduced capacity can the country possibly achieve its gas level targets.
“The total cut-off of Russian supplies would prompt gas rationing at least for the short term,” Schott added. “Russian supplies would be partially offset by increased LNG imports, increased supplies from Norway and Algeria, fuel-switching to coal, and conservation measures.”
The European Union has set the course for this move on Monday, adopting a gas storage regulation that mandates member states to store up to 90% of their respective gas storage by winter.
“The G-7 have to prepare for a shutdown of gas. The G-7 can deal with a cutback on oil. There are other supplies that could be gotten around the world, but the gas could be shut off and that would have consequences,” Schott warned.
The reduced flow from the Nord Stream 1 pipeline has pushed Germany, Italy, Austria, and the Netherlands to consider activating their coal-powered plants once again.
The United Kingdom, fresh from its European Union exit, also warned of shutting off its gas exports to the continent should the supply crisis intensifies.
London’s emergency gas plan includes closing the pipelines once the National Grid triggers the action should supply fall short. The country is set to hold the annual stress test for its emergency plan in September, but this time, it would “reflect the circumstances” of Russia cutting gas supply to Europe.
Europe, in response, asks UK to reconsider the plan.
“Our UK partners know pretty well what the advantages in the field of energy co-operation were,” said European Commisison vice-president Maroš Šefčovič. “[Sometimes] you are in a position to sell the energy but very often you need to buy the energy from your partners.”
Bart Jan Hoevers, president of the European Network of Transmission System Operators for Gas, also echoed the sentiment, highlighting that the interconnections “is also beneficial for the UK in the winter.”
German Foreign Minister Annalena Baerbock said on Tuesday that the country is on a “hybrid war” following Russia’s invasion of Ukraine and the economic repercussions that followed.
Baerbock said that Russian President Vladimir Putin’s recent moves that launched mounting crises might be the distraction for the West he needs to continue with the war.
“This is the big challenge and this is also one of the strategies Putin is following,” she added. “We are forgetting about other crises like the food war he’s also launching, like the hybrid war on fake news, but also that we are forgetting about the climate crisis.”
The country is facing possible gas shortages, as it heavily depends on the supply coming from Russia through the Nord Stream 1 pipeline.
“We are faced now in Germany with the question now that if there’s no gas coming through Nord Stream 1 … we have to decide which institution may be cut off the grid,” she warned.
Information for this briefing was found via CNBC and Financial Times. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
