New Gas Security: Ukraine's EU Supplying Potential
Since early 2021, Europe has been facing an underreported large-scale Russian gas assault. Against the backdrop of Europe’s post Covid-19 recovery, Russia used and weaponized, the fast-growing gas demand and pursued a “market dry-up strategy”. The latter means less gas for higher price, resulting in growing expenses for customers and the same or even more revenues for the supplier.
Russia effectively used dropdown in gas production and trading in other major exporting countries – Norway (long-term maintenance works on the gas infrastructure) the USA, Qatar (underinvestment during COVID19 pandemic period) for enhancing European gas dependency as represented when comparing figures from 39% in 2017 to 44% in 2021.
Increasing gas prices were expected to bring more gas on the market. But Russia kept export volumes reduced while other suppliers also failed to increase their supplies because of several large-scale accidents (Norway Equinor in 2020, US Freeport LNG in 2022, smaller African suppliers), while Qatar was bound by long-term contracts with Asian customers and not able to ramp up exports to Europe. Furthermore Russian Gazprom also rejected to fill in gas storages in Germany for the 2021-2022 heating season, consequently dramatically raising prices on one of the biggest markets.
Given this miscreant behaviour, as well as a trouble track recording since 2014, Russia’s policy intentions should be recognized already in 2021 as the full-scale conquest against the entire Europe, using gas dependency. Moscow was using energy weapons in the EU and military preparations on the borders with Ukraine in the early of 2021 and later on by deploying numerous troops in Belarus and Crimea.
However, Germany continued under Chancellor Scholz to insist on further concessions and compromises until the full-scale invasion on 24 February 2022 against Ukraine. Only after a violent military assault European and American politicians made the actual turning point in their attitude to the Nord Stream II. However, the pipeline is still considered as an instrument for pressure on Russia for stopping aggression against Ukraine and not as a part of Russian warfare against the entire Europe. To withstand and overcome Russia’s actions, Europe should deny Nord Stream 2 for ever, dismantle the pipeline as proposed by Polish President and mobilize all alternative resources, capacities and efforts, as well as expand gas solidarity principles on Ukraine and Moldova, recently granted with the status of the EU candidates.
In 2020 Ukraine established favourable conditions for European shippers to store natural gas in underground storages, using shorthaul and custom warehouse conditions. 6.1 billion cubic meters of gas in the shorthaul mode were transported to Ukrainian storages before the start of the heating period. This gas was used later by European shippers to cover demand in 2021 and played a big role in balancing central and eastern European markets.
Ukrainian gas transit route plays significant role for keeping pressure and traditional east-west operational mode of gas infrastructure in many European countries. During the winter period, coordinated transit flow, supported by withdrawals from underground storages across the route, could be a current solution to keep the entire system working, homes warm and industries running.
Russia depends in deployment of its aggressive arsenal on such conditions as direct access to borders of a target country or critical infrastructure. In comparison, full-scale hostilities do not hinder further gas transit from Ukraine to the EU marketplace, which Russia keeps in part for certain reasons. Almost six months into the war Germany is now under intensive gas attack due to reduced supply through Baltic Sea pipelines, declared at the initial stage of their construction by both countries as safest routes, bypassing “unreliable” transit countries.
This Russian “Baltic gas operation” was conducted in two stages, with the first, formally linked to absent gas turbine, which allowed Gazprom to reduce flows to 40% of Nord Stream I capacities and the second one, related to regular annual pipeline maintenance (see the Fig.1). Renewal of limited gas flows does not mean that a threat of complete shutdown is over.
Gazprom has deployed “Baltic gas operation” against Germany despite Bundesregierung approval for domestic companies to open rubble accounts for payments. After the second stage, Germany started to withdraw gas from storages because of Nord Stream I stoppage, causing concerns over its possibilities to ensure obligatory gas reserves until November 2022 and putting at risk own security and of neighbouring countries, linked with gas infrastructure. It must be recognized that Nord Stream I has created very dangerous direct dependency for German citizens and business on Russian gas.
To mitigate Russian gas assault against the EU, respective regulation was adopted on 27 June 2022 by EU members, “aiming to ensure that gas storage capacities in the EU are filled before the winter season and can be shared between member states in a spirit of solidarity, despite the disruptions in the gas market” as well as certification of gas storage operators. The above regulation is already considered by the European Energy Community for adoption on the next Ministerial Council meeting in autumn 2022 in order to expand obligations and solidarity umbrella on its Treaty signatories.
As Ukraine begins its journey to join the EU, the country is going to comply with the new EU storage obligations and certification of underground storage operator. Given previous positive experience and importance of Ukraine’s transit route, gas transmission infrastructure and underground storage capacities, it is timely to expand solidarity principle with Ukraine and encourage European gas traders to use capacities was as their done in 2020 and 2021. Doing so will help to ensure stability of gas flows through the traditional east-west route and sustainability of market functioning during the next heating season. Russia, forced to use Ukrainian gas transit route, will be less motivated to destroy the infrastructure in the middle of the heating period in Ukraine as well as fully deploy gas weaponry against European countries.