Russia Stops Gas Flows To 2 European States
Russia has fired the first shot back at the West with a gas embargo on Poland and Bulgaria, Rystad Energy analysts Kaushal Ramesh and Nikoline Bromander noted in a statement sent to Rigzone on Wednesday.
“After a few weeks of relative calm as we entered the shoulder season, Russia has wielded its energy weapon for the first time by blocking gas to Poland and Bulgaria,” the analysts said in the statement.
“This has rattled the cages of gas markets, resulting in an 18 per cent price swing. However, the gas market had already priced in a potential escalation and the swing is far less than at the start of the war in Ukraine,” the analysts added.
“The European gas grid is highly integrated, Gazprom has indicated that if Bulgaria or Poland take any transit gas from third countries then volumes will be reduced by a corresponding amount,” the analysts continued.
Ramesh and Bromander highlighted that Gazprom has stopped flows to Poland (PGNIG) as they have been unequivocal about not paying for gas in Rubles.
“Poland’s contract with Gazprom is expiring by the end of the year (10 billion cubic meters per annum) and Poland has said that they will not renew it,” the analysts said.
“In effect, the contract will simply be expiring eight months early … The Polish energy system will likely feel some pressure from the loss in flexibility, but this may be short-lived as they ramp up supplies from other sources,” the analysts added.
“Poland is planning to replace Russian gas with Norwegian gas that will start to flow through the Baltic pipeline that is set to start on 1st October 2022. A bidirectional pipeline connecting with Lithuania is starting up on 1st May 2022 … Poland will also ramp up LNG imports from across Europe,” the analysts continued.
Looking at Bulgaria, the analysts noted that the country has historically relied on Russian gas, with it making up to 100 per cent of its piped gas imports.
“Similarly to Poland, they have sought to end Russian gas imports by the end of this year when their contract expires,” the analysts said.
“The Bulgarian government has made recent strategic efforts to diversify its energy imports to avoid relying solely on Russian imports, including a deal to purchase gas from Azerbaijan. One feasible and relatively immediate option available to the Bulgarian government would be to increase their imports of Azeri gas,” the analysts added.
“The bottleneck will be with capacity constraints on the Greece-Bulgaria interconnector but that is expected to be resolved later this year,” they continued.
In the note, Ramesh and Bromander highlighted that Poland and Bulgaria together losing access to Russian gas has not had a big impact on the total European market but added that a more severe consequence is likely if other large countries or individual buyers are cut off, such as Germany and Italy.
“Indeed, this action by Russia should be viewed with the caution of a precedent,” the analysts said.
“It remains the case that a scenario of an all-out halt inflows may again send the TTF to over $100/Mmbtu,” the analysts added.
Gazprom, European Commission, IEA Statements
In a statement posted on its official Twitter account, Gazprom said, “Gazprom fully halts gas supplies to Bulgaria’s Bulgargaz and Poland’s PGNiG due to their failure to pay in Rubles”. The statement links to a release on Gazprom’s website, although Rigzone has not been able to access this site for some time.
Gazprom fully halts gas supplies to Bulgaria’s Bulgargaz and Poland’s PGNiG due to their failure to pay in rubleshttps://t.co/TriIMjWpyB
— Gazprom (@GazpromEN) April 27, 2022
European Commission President Ursula von der Leyen described Gazprom’s actions as “unjustified and unacceptable”.
“We are prepared for this scenario. We are in close contact with all member states. We have been working to ensure alternative deliveries and the best possible storage levels across the EU,” Leyen said in a European Commission statement.
“Member states have put in place contingency plans for just such a scenario and we worked with them in coordination and solidarity,” Leyen added in the statement.
Following news of Gazprom’s actions, Fatih Birol, the executive director of the International Energy Agency, took to Twitter to say, “Gazprom unilaterally cutting gas supplies to Bulgaria and Poland today makes it clearer than ever that Europe needs to move quickly to reduce its reliance on Russian energy”.
“IEA strongly supports Poland and Bulgaria as they respond to this latest weaponization of energy supplies,” he added in the statement.
Gazprom unilaterally cutting gas supplies to Bulgaria & Poland today makes it clearer than ever that Europe needs to move quickly to reduce its reliance on Russian energy@IEA strongly supports Poland & Bulgaria as they respond to this latest weaponization of energy supplies
•By Andreas Exarheas|Rigzone Staff
To contact the author, email andreas.exarheas@rigzone.com
